By Jonathan Himpe, International Sports Lawyer, Belgium
FIFA’s Disciplinary Committee, on 29 March, 2016, has imposed a CHF 60,000 fine on Belgian D1 club K. Sint-Truidense VV for entering into contracts that enabled a third party to influence the club’s independence in employment and transfer-related matters, as well as for entering into an agreement that assigns rights to a third party in relation to the future transfer of a player.
In essence, the sanction relates to an unprecedented crowd-funding campaign through which the Belgian club raised funds by its fans to finance the contract of Paganiotis Kynigopoulos (a.k.a. “Kyn
”), a promising Greek youngster.
According to the FIFA Disciplinary Committee, such a crowd-funding campaign – of which the specifics are discussed below – is contrary to FIFA’s prohibitions on third-party influence and third-party ownership as contained in the FIFA Regulations on the Status and Transfer of Players (RSTP):
- the practice of third-party influence has been banned by FIFA since 2008, meaning that clubs are prohibited from entering into contracts which enable any other party to acquire the ability to influence the club’s independence in employment and transfer related matters (Art. 18bis of the RSTP);
- FIFA’s ban on third-party ownership (TPO) only came into force on 1 May 2015 and entails – even in the total absence of any ability to exert an influence on the club – that clubs and players are prohibited from entering into agreements whereby a third party is entitled to participate in compensation payable in relation to the future transfer of a player, or is assigned any rights in relation to a future transfer or transfer compensation (Art. 18ter of the RSTP).
From a club perspective, the usefulness of TPO lies mainly in the fact that it enables clubs to increase their liquidity in the short term just by selling a percentage of a player’s economic rights to a third-party investor (so-called “financing TPO”
); or to attract players they could otherwise not afford just by bearing the investment (e.g. transfer fee, salary, etc.) together with a third-party investor in exchange for a percentage of the player’s economic rights (so-called “investment TPO”
Opponents of TPO, on the other hand, argue that it affects the dignity of football; causes illogical high transfer fees; and cements a system in which players must be sold before their contracts are served. An outright TPO ban ensures that payments to be made by one club to another remain within the club circuit instead of moving on to external investors.
In the case of K. Sint-Truidense VV, a crowd-funding campaign was set up allowing fans to invest – by means of subordinated profit-participating loans – in the promising Greek youngster Paganiotis Kynigopoulos (a.k.a. “Kyn
”). The campaign was meant as a pilot project and was organised by KICKRS.NET in cooperation with the Belgian D1 club, which would use the money raised to finance the player.
Generally, fans who invested in the campaign are entitled to repayment of their initial loan amount and to a profit share paid in the form of interest, if the player has been transferred to another club during the term of his employment contract.
In such event, K. Sint-Truidense VV would be required to pay to a special purpose vehicle (SPV) the equivalent of the “market value” of the player, which shall be determined by a three-member panel of experts, who are appointed by the club and the SPV. After deduction of a profit participation of 30% in favour of the SPV, the net profits are then to be distributed among the crowd-investors in accordance with their participation rate.
When determining the market value of the player, the panel of experts must, among other things, take into account (i) the offers received by K. Sint-Truidense VV from other clubs for the player; (ii) the salary of the player; (iii) the number of appearances; (iv) the general performance of the player; and (v) any publicly available information which may directly or indirectly have an impact on or reflect the market value of the player.
The above-mentioned method of profit determination makes clear that the rights assigned to the crowd-investors are not exclusively
related to the future transfer fee, which the club will receive for the player (which would certainly qualify as TPO), but instead depend on the rather subjective appreciation of the panel of experts, whereby the transfer fee paid may be one of the many
criteria to be taken into account for determining the market value of the player.
In view of the above, one could wonder whether the assignment of rights to a third party in relation to the future market value of a player – as determined by a panel of experts on the basis of several objective criteria – is also covered by FIFA’s prohibition on TPO?
From the recent decision of the FIFA Disciplinary Committee, it appears that such a particular investment scheme is indeed against FIFA’s prohibition on TPO. However, for now, it is still unclear whether FIFA objects against all crowd-funding campaigns as such, or only against some of the specific terms and conditions that applied to this particular campaign (e.g. method of profit determination, composition of the panel of experts, participation of the SPV in the profits, etc.). Accordingly, before ruling out all future crowd-funding campaigns in relation to the financing of football contracts, we should await the detailed grounds of the FIFA Disciplinary Committee Decision, which has been requested by K. Sint-Truidense VV.
Besides K. Sint-Truidense VV, also Santos Futebol Clube of Brazil (CHF 75,000), Sevilla FC of Spain (CHF 55,000) and FC Twente of the Netherlands (CHF 185,000) were also fined by FIFA, on 29 March, 2016, for breaches relating to third-party influence and/or third-party ownership of players’ economic rights (see FIFA Media Release of 29 March, 2016 on FIFA.com
For further reading about FIFA’s ban on TPO, see J. HIMPE & S.J. VINCK, “FIFA introduces ban on third-party ownership (TPO): a move too far?
GSLTR 2015/1, 27-30.
Jonathan Himpe, Attorney-at-Law, Hasselt, Belgium
4 April, 2016
1CHF = 0.92EURO