The End of "Third Party Ownership"?

Third Party Ownership is a term used to describe the way football player transfers are financed. In simple terms, it involves a third party, whether physical or legal (third party), other than the acquiring sports club, deciding to finance part of the player's transfer to the club, in exchange for which the club undertakes to provide the financing entity with a certain percentage of profit from the player's future transfer.

Typically, the share of profit from the future transfer is expressed as a percentage corresponding to the financial contribution of the entity to the transfer to the club. For example, if a third party finances 70% of the player's move to the club, then upon his transfer to the next club, the entitled entity is entitled to 70% of the transfer fee.

The financing system described above is very popular in South America. It also exists in Europe. It has gained the greatest popularity in the countries of the Iberian Peninsula (Spain, Portugal), where standout players from Latin America often end up.

Only three national football associations explicitly prohibit Third Party Ownership (hereinafter "TPO"), namely England, Italy, and Poland. ¹⁾in § 33(4) of resolution III/39 of July 14, 2006, concerning the status of players appearing in Polish football clubs and the rules of changes of club membership, it is stated that football clubs cannot commit themselves to any third parties or enter into agreements with them regarding definitive or temporary transfers However, this situation will change. Active recently in changing FIFA regulations (Here is an article about changes regarding football agents) has decided to completely prohibit the aforementioned practice.

So far, in the FIFA internal law act regulating, among other things, player transfers RSTP ²⁾Regulations on the Status and Transfer of Players, there was article 18 bis, which stated that it was prohibited to enter into agreements that allowed third parties to interfere in the hiring of players, transfer matters, or club management:

No club shall enter into a contract which enables any other party to that contract or any third party to acquire the ability to influence in employment and transfer-related matters its independence, its policies or the performance of its teams.

The financing of a player's transfer by third parties was not prohibited, however, interference in the club's policy was excluded. For example, contractual provisions allowing a third party to decide on the player's future transfer and the transfer fee were unacceptable. This, of course, could not please investors taking financial risks and wanting to maximize profits while minimizing risks. However, FIFA went a step further and adopted new, more stringent regulations that will come into force on May 1, 2015. What has changed?

Firstly, it was decided to introduce the definition of a third party. The amended regulations provide that a third party is any person/entity other than the clubs transferring the player or any other club where the player was registered. Why isn't the player's previous club considered a third party under this definition? Because it is a common and accepted practice to include clauses in transfer agreements that grant the selling club a share of the profit from the player's next transfer. Even FIFA regulations, in certain situations, explicitly require the payment of a specified sum to a player's previous clubs (as discussed here and here).

Any party other than the two clubs transferring a player from one to another, or any previous club, with which the player has been registered

FIFA decided to modify Article 18 bis and gave it the following wording:

1. No club shall enter into a contract which enables the counter club/counter clubs, and vice versa, or any other party to acquire the ability to influence in employment and transfer-related matters its independence, its policies or the performance of its teams.

2. The FIFA Disciplinary Committee may impose disciplinary measures on clubs that do not observe the obligations set out in this article.

Therefore, it will be prohibited to conclude agreements between clubs, under which the opposing club or a third party obtains the ability to influence the employment of players, matters related to transfers, and club management. This prohibition is subject to disciplinary penalties for clubs that do not comply with the requirements of the regulations. The disciplinary measures will be imposed by the FIFA Disciplinary Committee.

The biggest change, however, is the introduction of Article 18 ter

No club or player shall enter into an agreement with a third party whereby a third party is being entitled to participate, either in full or in part, in compensation payable in relation to the future transfer of a player from one club to another, or is being assigned any rights in relation to a future transfer or transfer compensation

As of May 1, 2015, it will be prohibited to enter into agreements whereby a third party is entitled to all or part of the transfer fee received in connection with a future transfer of a player, or agreements whereby any rights related to a future transfer or transfer fee are granted to a third party. I would like to emphasize once again that, due to the wording of the definition of a third party, which does not include the player's previous club, such a club can effectively reserve a share of the profit from the next transfer.

FIFA has introduced transitional provisions that apply to TPO agreements concluded before the date of entry into force of the discussed regulations. Agreements concluded before January 1, 2015 remain valid, although the possibility of their extension has been excluded. During the period between January 1 and May 1, 2015, TPO agreements may be concluded, but for a period not exceeding one year. All TPO agreements, without exception, regardless of the time of their conclusion, must be submitted by the end of April 2015 in the TMS (Transfer Matching System) system. This means that clubs that have concluded TPO-type agreements are required to submit to FIFA copies of the agreements along with any attachments and annexes. Failure to comply with any of the above-mentioned requirements will result in disciplinary action against the club and the players themselves.

Since the regulations prohibiting Third Party Ownership have been enacted, why the question mark in the title? Well, there is no doubt that clubs and managers will "bend over backwards" to effectively circumvent FIFA's regulations. 90% of players in the top football league in Brazil are in some way linked to external investors through TPO arrangements. There have been voices previously suggesting that TPO bans introduced within national associations are incompatible with EU law.

And what about in our national football landscape, where the ban on TPO-type agreements has been in force for some time?

Doubts about compliance with PZPN regulations could have arisen regarding the transfer of Tomasz Jodłowiec from Śląsk Wrocław to Legia Warsaw.

The player's former club was not particularly keen on the player moving to the capital. This was due to the fact that a significant portion of the transfer profit was supposed to go not to the club, but directly to Józef Wojciechowski, the former owner of Polonia Warsaw, from which Jodłowiec transferred to the club from Lower Silesia.

However, this was not a standard clause where the previous club of the player would receive a percentage of the next player's transfer, because Wojciechowski had sold Polonia, yet the transfer fee was to go directly into his account, not Polonia's. Media reports indicated that during Jodłowiec's transfer from Polonia to Śląsk, the Wrocław club granted Józef Wojciechowski the power of attorney to conduct the next player transfer.

Therefore, officially, Józef Wojciechowski acted as the representative of Śląsk Wrocław, not as a third party. However, it was an open secret that the club was not the main beneficiary of the transfer fee received in connection with the player's change of clubs.

It is also worth mentioning the recent initiative of financing transfers using an investment fund. Skarbiec TFI has established the Football FIZAN investment fund dedicated to Legia Warsaw. According to statements from company representatives, the gathered funds will be used to co-finance the club's transfer policy. The fund and investors do not have an influence on the club's transfer policy; however, the club undertakes to provide investors with a share of the profits from player transfers.

Although the adopted structure does not raise any concerns in terms of compliance with the currently applicable regulations, the question arises whether such an organized financing system will not violate the regulations coming into effect in May, which exclude any financial participation of third parties in the profits from a player's transfer. Paradoxically, the fact that the potential profit is not dependent on a single transfer but rather on the club's financial result, which is a derivative of the entire transfer policy, may argue in favor of the interpretation that this solution is consistent with the new regulations.

In light of the introduced transitional provisions, under which TPO agreements concluded before May 1, 2015, will still be valid, the effects of the new regulations will have to be awaited. Undoubtedly, the effectiveness of the regulations will largely depend on how strictly FIFA will penalize clubs and players who violate the prohibitions.

Foto: Norio.NAKAYAMA / Foter / CC BY-SA

In § 33 para. 4 of Resolution III/39 of July 14, 2006, regarding the status of players appearing in Polish football clubs and the principles of club membership changes, it is stated that football clubs cannot commit to any third parties or enter into agreements with them regarding permanent or temporary transfers.
Regulations on the Status and Transfer of Players