Undoubtedly the biggest story of the present transfer window (or perhaps any transfer window ever) is the proposed transfer of Neymar from FC Barcelona to Paris Saint-Germain for a reported €222 million.

To date, the largest transfer fee ever paid for a player was the €105 million Manchester United paid Juventus for Paul Pogba in the summer of 2016. The fee that Paris Saint-Germain intend to pay to FC Barcelona to secure the services of the Brazilian captain is more than twice that amount. As part of the deal, Neymar will reportedly be paid €30 million a year after tax – equivalent to around £520,000 a week.

Barcelona had previously stated that the player was not for sale. Yet the player’s employment contract contained a buy-out fee of €222 million, which Paris Saint-Germain has agreed to pay on the player’s behalf. A statement on the FC Barcelona website confirmed the position:

“Neymar Junior, accompanied by his father and agent, has this morning informed FC Barcelona of his decision to leave the club during a meeting held in the club’s offices. Given this position, the club referred them to the buyout clause stipulated in his contract, which since 1 July stands at €222m and must be paid in its entirety.

The plot thickened this morning (3 August 2017), with reports that the Spanish league (La Liga) has refused to accept a cheque for €222 million, which was presented to it by a lawyer acting on behalf of Paris Saint-Germain. La Liga is reported to have concerns that the mooted deal would infringe UEFA’s Financial Fair Play rules and has argued that its regulations only provide Spanish clubs with the guaranteed right to buy out a contract.

While the proposed transfer is intriguing for a number of reasons, it is the application of the buy-out clause that has received the most attention. This two-part blog entry explains the background to these clauses and how they are used in Spain, a country in which they are particularly prevalent.

What are buy-out clauses?

Buy-out clauses are a form of penalty clause. They are, in principle, permissible both under Spanish law and under the FIFA Regulations on the Status and Transfer of Players (the “FIFA Regulations”). The Commentary on the FIFA Regulations explains that:

“The parties may, however, stipulate in the contract the amount that the player shall pay to the club as compensation in order to unilaterally terminate the contract (a so-called buyout clause). The advantage of this clause is that the parties mutually agree on the amount at the very beginning and fix this in the contract. By paying this amount to the club, the player is entitled to unilaterally terminate the employment contract. With this buyout clause, the parties agree to give the player the opportunity to cancel the contract at any moment and without a valid reason, i.e. also during the protected period, and as such, no sporting sanctions may be imposed on the player as a result of the premature termination.”

In Al Gharafa S.C. & M. Bresciano v Al Nasr S.C. & FIFA (CAS 2013/A/3411), the Court of Arbitration for Sport stated that:

“As made clear by [the definition of buy-out clauses set out in the Commentary], which corresponds to standard practice in international football, the parties, when entering into a contract, may agree that at a certain (or at any) moment, one of the parties (normally, the player) may terminate the contract, by simple notice and by paying a stipulated amount. In other words, one of the parties (ordinarily, the club) accepts in advance that the contract may be terminated: as a result, when the contract is effectively terminated, such termination can be deemed to be based on the parties’ (prior) consent. Therefore, no breach occurs, and the party terminating the contract is not liable for any sporting sanction. It is only bound to pay the stipulated amount – which represents the “consideration” (or “price”) for the termination.”

The validity of such clauses in Spain is entrenched in Article 1,152 et seq. of the Spanish Civil Code. In essence, the Code (together with case law) confirms the legitimacy of such clauses and states that the only situation in which a judge can reduce the amount payable in a penalty clause is where (a) only part of the main contract obligation has been performed or (b) if the contract has been performed irregularly or (c) where the sum in question is abusive. In addition, Spanish case law has repeatedly confirmed that penalty clauses must be interpreted restrictively. Under Real Decreto 1006/1985 of 26 June (For the Regulation of the Employment of Professional Sportspeople), the inclusion of buy-out clauses in contracts between Spanish football clubs and their players is mandatory.

Putting aside La Liga’s reported complaint regarding financial fair play, its refusal to accept the money proffered by Paris Saint-Germain on the basis of it being a buy-out fee seems odd. It may well be the case that a foreign club is not guaranteed the right to trigger a buy-out clause, as claimed reportedly asserted by La Liga, but the reality of the position is that such money could be paid by Paris Saint-Germain to Neymar, who in turn would pay it to Barcelona. In such circumstances, Barcelona would not be able to reject the money. Wealthy though Neymar might be, he is unlikely to have €222 million at his personal disposal. Realistically, if the buy-out money was ever to be paid, it would always be likely to be paid by another club on the player’s behalf.

The Neymar case shows that buy-out clauses can cut both ways. On the one hand, they afford a club with the in principle ability to ensure that players are tied to long contracts and, in turn, they protect against the risk of other clubs swooping in to sign their prized assets. On the other hand, if a buying club with the resources such as Paris Saint-Germain is able to meet the figure set out in the buy-out clause, a club cannot force the player to stay: once the buy-out clause has been met, the contract will be terminated and the player will be free to transfer to a new club.

Clearly the circumstances in which a club can afford to pay the astronomical figures set out in the top players’ contracts will be few and far between, with only a select bunch of clubs having such resources at their disposal and the fact that such clubs must comply with the relevant financial fair play provisions, which in theory constrain wanton spending. Yet, given that buy-out clauses are inserted into all player contracts in Spain, the buy-out fees included in the less renowned players’ contracts will often fall within the realms of the affordable for many of the bigger clubs. FC Barcelona may wish in hindsight that the buy-out clause contained in Neymar’s contract of employment was not significantly higher.

In part 2, consideration will be given to the use of penalty clauses in contracts entered into by Spanish clubs and minors.