By Niovie Constantinou, Associate, Ioannides Demetriou, Lawyers, Nicosia, Cyprus
Third-Party Ownership (TPO) is a mechanism whereby a football club assigns all or part of the economic rights of a player, including transfer/contract negotiation fees, to third parties.
Through TPO, investment funds often co-finance the acquisition of players in return for owning a percentage of the players’ subsequent transfer fees.
This practice was widely used in South America and Europe and has been heavily criticized, due to the lack of players’ freedom of choice, in that they would be pressured to transfer as instructed by the third-party investors and lose control of their sporting careers.
In early 2015, FIFA, considering that TPO threatened the integrity of sporting competitions, amended Article 18 of the Regulations on the Status and Transfer of Players (RSTP), to prohibit clubs and players from entering into economic rights agreements with third parties, with the ban taking effect on 1 May 2015. The RSTP excluded from the definition of ‘third parties’:
- the two clubs that were parties to the transfer agreement; and
- the player’s previous clubs.
This means that all other parties, including the player, were considered ‘third parties’ for the purposes of the prohibition, making it practically impossible for a player to financially exploit his/ her economic value as an employee, unlike many other professionals in the world.
For this reason, the legality of the prohibition was questioned before the Court of Arbitration for Sport (CAS), particularly, as to whether the relevant RSTP provisions:
- restricted the free movement of persons, services and capital; and
- had as their object the prevention, restriction or distortion of competition.
The CAS, on 9 March 2017, rejected the above arguments, stating that the purpose of the restrictions imposed by the RSTP was to safeguard players’ independence and to preserve the regularity of sporting competitions. See CAS 2016/A/4490.
A subsequent decision of the Swiss Federal Supreme Court, on 20 February 2018, upheld the CAS findings, confirming the validity of Article 18 of the RSTP under the EU law provisions regarding the freedom of movement of capital, workers and the provision of services under Article 101 of the EU Treaty. See 4A_260/2017.
The legal debate post the TPO prohibition has prompted FIFA to consider a more flexible approach, resulting in the amendment of the RSTP, effective as of 1 June 2019, to exclude players from the definition of ‘third party’; therefore, permitting players themselves to enter into an agreement with a club, whereby they are entitled to participate in full or in part, in compensation payable in relation to their future transfer from one club to another. This means that players now legally own their economic rights and may negotiate a percentage of their transfer fees for themselves.
Supporters of the recent amendments have commented that the RSTP are more in line with the players’ interests; while critics have described the recent amendment as the ‘return of TPO in another form’, fearing that it creates loopholes subject to exploitation.
Of course, the effects of the recently amended RSTP still remain to be seen, in the hope that FIFA has managed to strike a balance between, on the one hand, protecting the football sector from distortion and, on the other hand, granting players their economic independence!