TPO - An Announced End

One of the most recent and controversial issues under sports law concerns to the banning of financial operations trough “Third Party Ownership” (TPO), resulting in the amendment to the FIFA Regulations on the Status and Transfer of Players (RSTP), following the approval of the Circular n.º 1464.

In fact, on last December 22, and through the Circular mentioned above, the FIFA Executive Committee approved the introduction of some provisions that modified the RSTP, with the purpose of banning the possibility of a third party being entitled to detain or participate, either in full or in part, in the compensation payable in relation to the future transfer of a player from one club to another, as well as prohibiting said third party of being assigned any rights in relation to a future transfer or transfer compensation, or of partaking any exertion of influence on clubs or sports clubs.

In view of such profound changes, it should be useful to recall some notions, namely, what is understood by “economic rights” and “third party” for the purposes of the RSTP.

First of all, it is essential to define what constitutes the federative rights – also known as sports rights – as the economic rights are directly associated and cannot stand without them.

Said federative right is the right of a sports entity signing a player in an official competition, for him to participate in its behalf.

These rights are indivisible and cannot be held or traded by legal persons or entities other than clubs or sports associations, duly registered in the corresponding organizations and recognized as such by FIFA.
It is now widely accepted that the federative rights take an economic value, as evidenced by the values spent in the transfer of a player from one club to another, which are commonly conveyed in the media.

We may then define the economic rights as the prerogative of being the creditor of a percentage in the forthcoming transfer of a player’s federative rights.

The economic rights, unlike federative rights, could, up until now, be owned both by sports entities and by other legal subjects. Thus, their ownership could be allocated between multiple unrelated parties.

However, the third party – for the purposes of the RSTP – is any subject beyond the clubs (or sports associations) involved in the transfer of a player, i.e. the club where the player was registered and the club that acquires the right to enroll such player, according to paragraph 14 of the section of “definitions” of the Regulation concerned.

This is a widely narrow definition, as it accounts as a “third party” any entity (be it a sports entity or not) alien to the transfer of a player, including any club in which the player has been registered in the past, and therefore holds a percentage of the economic rights related to the player in question, the player himself, any agents of intermediaries and, all the more so, the investment funds.

In addition to the definition of "third party", dealt with earlier, one other modification that stands out is the change to the existing article 18ºbis (influence of third parties on clubs) and the inclusion of article 18ºter (ownership of a player’s economic rights by third parties).

Regarding the amendment made to article 18ºbis, its scope is, basically, to strengthen the existing measures against the influence of third parties over clubs or sports associations, establishing that no club will be permitted to enter any agreement or contract that allows a third party to assume a position of influence, whether in matters related to labor law, or to the transfer of players, in issues related to the independence, policy or action of the respective teams. It should also be noted that the violation of this rule will result in the application of sanctioning measures by the Disciplinary Committee of FIFA.

On the other hand, the introduction of the article 18ºter establishes an objective prohibition on the financing transactions and the ownership of rights by third parties, being expressly excluded any agreement as defined, regardless the possibility of said third party exert or not an unwanted influence.

Thus, it is forbidden to enter into any agreement/contract under which is granted to a third party the right to participate, partially or totally, on the transfer amount of a player from one club to another, or being assigned any rights in relation to a future transfer.

These rules have entered into force on the last January 1st, with the exception of the article 18ºter, which is only effective from May 1st.

It should be noted that the agreements concluded before 1 January 2015 shall remain in force until their contractual expiration and may not be extended, in contrast with the agreements concluded between 1 January 2015 and 30 April 2015, which may not have a contractual duration of more than one year beyond the effective date.

Also, all existing agreements on the date of entry into force of the article 18ºter need to be recorded within the Transfer Matching System (TMS).

In view of such changes, it is reasonable to defend that the prohibition set out in the new article 18ºter will imply a negative impact to some stakeholders (not all) of the football industry on the economic and financial levels, which could spark some controversy in legal terms, despite the usual disagreement that arise when we talk about football (in addition to the multiple legal interpretations).

Therefore, it is not surprising that some legal experts, with which I agree, after analyzing the amendments introduced by the Circular, defend that an incompatibility exists between the norms of this document and the Community legal order, as the imposition to its member associations – UEFA and Portuguese Football Association included - to adopt the new version of the RSTP could constitute an agreement in restriction of competition which would imply a clear limitation to investment and free movement of capital within the European Union.

From an economic and financial point of view, it would be possible to find a number of measures that would enable the maintenance of funding from TPO’s in football, opting by a regulation of this type of activity, rather than the prohibition of third-party interventions in this market, especially considering the relevance that the investment from these entities has taken in the latter times, mainly in what relates to football clubs with limited financial resources.

An alternative would be, for instance, preventing the investment by entities whose capital origin is unknown, or even limit the possibility of investment to entities that have their tax situation regularized according to the Portuguese and the Community legal system, which would lead to the exclusion of the "concealed" entities in tax haven jurisdictions of the football industry, making the capital movement more transparent in this market.

We look forward for the development of this matter, which can only be properly analyzed after the entry into force – 1 May 2015 – of the norm that raises the most questions: the article 18ºter.

Guilherme Belfo Pereira