The European Commission has decided not to initiate formal proceedings against the FIFA regulation that prohibits investment funds from financing football clubs by means of TPO (“Third-party ownership”) contracts. Through these agreements, investment funds used to co-finance the acquisition of football players in return for owning a percentage of the players’ eventual transfer fees.
On 22 November 2014, FIFA issued Circular no. 1464 which regulated the prohibition of ownership of football players’ economic rights by third parties from 1 May 2015. Such regulation implied a ban on TPO contracts.
These agreements, which were becoming increasingly favoured in some football leagues –in Spain, for instance, the acquisition of Radamel Falcao by Atlético de Madrid had been cofinanced by Doyen Sports Investments (“DSI”)–, allowed football clubs to finance the acquisition of players jointly with investment funds. In return, these funds were guaranteed a percentage of the player’s eventual transfer fee. Continuing with the same example, DSI was entitled to a share of the gains generated by Falcao’s subsequent transfer to AS Monaco.
These contracts were frequently used either by clubs which could not resort to other funding sources or by clubs belonging to less economically powerful leagues. Nevertheless, FIFA understood that these arrangements generated conflicts of interests since decisions on the transfers of football players were to be made on the basis of the economic interests pursued by third parties instead of the strictly sporting interests that should guide the practice of football clubs. Ultimately, this would jeopardise the integrity of the game.
Consequently, FIFA prohibited this type of contract by modifying article 18 of the FIFA Regulations on the Status and Transfer of Players (RSTP). This prohibition was applied in Spain by the Real Federación española de Fútbol (RFEF), an organisation affiliated to FIFA (article 102 bis of the RFEF Regulations).
Given that the prohibition of TPOs implied restrictions on the freedom of enterprise, DSI and some European leagues (such as the Spanish and Portuguese leagues) filed a complaint with the Directorate General for Competition of the European Commission against the modification of the RSTP early in 2015. According to the applicants, the prohibition of TPOs would contravene EU Competition Law as well as the fundamental freedom of establishment, the freedom to provide services, the free movement of workers and the free movement of capital.
Prior to the prohibition by FIFA, the legality of this type of contracts had been upheld by the Court of Arbitration for Sport (CAS) in the form of an award which resolved a conflict between DSI and Sporting Clube de Portugal. In particular, in 2014, the Portuguese club had unilaterally terminated the TPO contract which bound both parties in order not to pay the amount resulting from the transfer of the player Marcos Rojo. Sporting Clube de Portugal had argued before the CAS that the contract was unconscionable and that it constrained its sporting policy as the club could be forced to transfer the player where receiving an offer higher than a previously agreed sum of money. Nevertheless, the CAS rejected these “moral” arguments and prioritised the contractual freedom of the parties.
The European Commission’s decision not to initiate formal proceedings against FIFA tacitly upholds the prohibition of this type of contract when circumscribed to one specific player. According to the Commission, there are grounds that justify the proportionality of this measure. Following this reasoning, competition is not undermined as a result of the prohibition. In any case, it seems that the door is left open for those cases in which the contract applies to several players and is not circumscribed to a specific player.
The European Commission’s view clashes with the Spanish National Markets and Competition Commission (CNMC in Spanish) which, operating under its consultative role and on the grounds of freedom of enterprise, underwrote this type of agreement in a July 2015 report (INF/CNMC/0002/15). The Spanish Authority did not delve into assessing the legality or illegality of this sort of contract, but considered TPOs to be pro-competitive and positive for the quality of the sector.
It is not unreasonable to argue that, in the view of the CNMC, such a measure would not be proportionate to the means pursued, which would contradict the argument put forward by the European Commission in order to close the file.
In conclusion, consistent to what had been stated here when analysing other norms applicable to football such as “Financial Fair Play Regulations”, it must be argued that football is an economic activity characterised by a relaxation of Competition rules. Unlike more traditional economic sectors, where a relaxation of the Competition standards would not be easily justifiable, some restrictions on the freedom of enterprise are admitted in the football industry.