Football Regulations: Ruining the (Third) Party

Following the debacle of ‘quite-who-owned-Carlos­Tévez’s-rights-at-West-Ham-gate’ (or more concisely put ‘Tévez-gate’), the Premier League (PL) and the Football Association (FA) have recently codified new rules relating to third party ownership. In a nutshell, it’s a no-no. The rules essentially stipulate that only clubs may own a player’s economic rights. But why have the authorities decided as such and why is it so important that third parties do not own players’ economic rights?

For those who are not aware of the facts of ‘Tévez­gate’, a criminally brief summary will be provided. On August 31, 2006, both Carlos Tévez and Javier Mascherano shocked the football world, despite interest from larger clubs within the PL, by moving from Corinthians (a Brazilian team) to West Ham United. The economic rights of Tevez were retained by Media Sports Investment Ltd (MSI), and Just Sports Inc. By virtue of a private agreement, the two companies had the ability to oblige West Ham to accept bids of a certain amount for Tévez. West Ham were also not allowed to enter into contractual negotiations with the player without the third party’s consent. West Ham submitted the player contract for Tévez, but not the private third party agreement to the PL. Suspicious as to how West Ham acquired such high profile players, the PL contacted the club. West Ham assured the PL that they “owned all the player rights” of both Tévez and Mascherano. Accordingly, both players were registered with West Ham. Only later in the season (January 24, 2007) did West Ham disclose the private agreements to the PL. The PL then decided to refer the alleged breaches of their rules to a Disciplinary Commission.

The Commission convened on April 26, 2007; two days before West Ham played Wigan in their third­to-last game of the season. The Commission decided to fine West Ham £5.5m, and demanded that in order for Tévez to remain a West Ham player for the remainder of the season, West Ham would have to terminate the third party arrangement.

On the basis of factors such as West Ham’s guilty plea, the proximity to the end of the season and the voluntary disclosure of the private agreements, the Commission decided against a points deduction which they stated would “normally follow from such a breach” of the PL rules. West Ham subsequently contacted Kia Joorabchian (a director of MSI) and unilaterally terminated their agreement, although later evidence showed that the club still intended to honour the third party arrangements.

This all became increasingly relevant and controversial, as Tévez played a significant role in keeping West Ham from being relegated in his last three games for the club. This miraculous feat (culminating in the 1-0 victory against Manchester United on the final day of the season in which Tévez scored the only goal) was at the expense of Sheffield United, who were understandably not best pleased with Tévez’s role. Sheffield United appealed the Commission’s decision. Although the Appeal’s panel had sympathy for Sheffield United plight, even going as far to say that, had they been on the original panel, they would have probably docked West Ham points, they did not reverse the original decision.

Sheffield United then, after prolonged legal wrangling involving an independent arbitration decision in their favour, finally settled with West Ham. West Ham were reported to have agreed to pay Sheffield United £20m over five years. West Ham retained their Premier League status, and Sheffield United stayed in the second tier, albeit a bit richer.

Thus in order to prevent any such thing from happening again, the FA and the PL, over the last year, have both decided to fine-tune their rules and regulations. We now have the FA’s Third Party Ownership Regulations and sections L34 and L35 of the amended PL rules which came into effect in July 2009 and August 2008 respectively. The crux of the new FA rules is that the FA must be satisfied that a player’s registration and economic rights are not retained by any third party when a player is transferred and registered with the relevant association. A club must be the sole owner of these rights.

So what is the problem with third parties owning rights of players? Why have the FA and the PL adopted such a forbidding stance? The FA, FL and PL have argued that the transfer system primarily exists as a solidarity mechanism for football. Clubs are compensated for training and developing young players for the top leagues. Anything that undermines that process is therefore effectively diverting transfer market funds away from the grass roots suppliers (i.e. the lower league clubs). By keeping transfer funds within the game and not siphoned off by third party owners, the authorities claim this type of protectionism is necessary.

Another reason for third party rights being prohibited is because of conflict issues. Allowing third parties to be, well, third parties, would not only muddy the water concerning who-owns-whom, but also raises conflict of interest issues regarding voting rights in PL meetings. If a third party has such an influence over a club’s transfer policies that the club’s autonomy is affected, then that third party may try to influence clubs in how they vote on a wide variety of matters in Premier League meetings. The interests of clubs may not therefore be adequately protected. Also by not allowing third party ownership, the PL may have dodged potential calls for reform by ambitious third parties who might (given time) have gathered more and more influence over the clubs whose players they have under their control.

Despite the decisions of the PL and the FA, there are arguments in favour of third party ownership. Such arrangements could supply world class players worth upwards of £30m (the amount that Tévez was insured for during his time at West Ham) to teams that could not otherwise afford them. Imagine, if you will, a Burnley team fresh into the Premier League with Kaka and Wesley Sneijder manning their midfield! Or Altrincham working their way up the Football Leagues with Xavi Hernandez leading the way. Whilst these examples may not be altogether realistic, it would be the case that traditionally disadvantaged ‘small teams’ could be galvanised with players who would not look out of place playing for Liverpool, Manchester United or Barcelona.

Furthermore, given the probably immense wage demands that world class players would bring to these small clubs, third parties could lend a hand in paying them. So long as these parties are not influencing a club’s rights regarding transfers or ownership of economic rights, some may question the problem with third party ownership. The above goes some way to answering that question, but ultimately it is (for now, anyway) academic. Perhaps in the future the authorities will decide differently, but in the meantime third party ownership of players who are registered with PL, FL and non-league clubs is prohibited.

For further information, please contact Daniel Geey.