Hero's or Villains? Third party ownership in the Premier League

While many economic markets are crashing and burning, many outside observers are somewhat surprised to see top level football still splashing the cash. It is a market where Kaka is valued at over £95 million which is more than some top flight football clubs may now be worth!

Introduction

Investors have, for some time, been looking at alternative products within the football industry to make money. New investment vehicles providing guidance and monetary assistance for up and coming foreign footballers are growing in number and sophistication. They quite legitimately claim to give many young footballers the chance to live the dream in the popular and lucrative European leagues.

Take the Hero Global Football Fund for example. Dubai's national bank has reportedly invested £27 million in the fund, alongside other companies and individuals. It has strong links with Alan Hansen, former Premier League referee David Elleray and David Davies, the former executive director of the F.A. Its aim is to invest in young players and make profits for the Fund by selling the economic ownership in the player to European clubs willing to pay transfer fees to recruit top talent. If the Fund owned 50% of the rights in a player transferred for £20 million, it would pocket £10 million.

Tevezgate and the New Rules

This is a past arrangement which has caused many a sleepless night for West Ham and Premier League administrators alike. Taking the often cited story of Carlos Tevez whose economic rights are not owned by West Ham but by a third party investment vehicle, the third party company inserted a clause in the contract that stated West Ham had no veto over the sale of the player or for how much. It meant that an outside party had material influence over the decision making of a Premier League club.

That of course does not mean that every third party arrangement has the same clauses. If no such clause existed in the Tevez issue, there may not have been a problem. A common misconception was that any third party agreement would have been in breach of the Premier League rules. In fact it was the clause giving the owners of Tevez influence over West Ham's transfer policy (plus the non disclosure of the agreement itself) which incurred the Premier League's wrath. It was for this reason that West Ham were judged to have breached the old Premier League rule Rule U18 and fined £5.5 million by the Premier League.

In reaction to 'Tevezgate' the Premier League drafted new rules L34 and L35 in order to outlaw any type of third party agreement from the beginning of the 2008-9 season. At its AGM in June 2008, the new rules were brought in to protect the integrity of the Premier League competition, which many felt was damaged by the Tevez affair.  As Tevez is still partly owned by investment vehicle MSI, the rule change appears not to be applicable to Tevez as the third party agreement was in operation before the rule change.

It seems that FIFA, football's international governing body, is also aiming to restrict this practice, at least as far as a third party's influence is concerned. Article 18 of FIFA's Rules on the Status and Transfer of Players states that:

"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"

It would appear that this FIFA rule does not prevent a team from signing a player whose registration is owned by a third party. The principle of the FIFA rules is to outlaw outside influence, whereas the Premier League rules actually ban any agreement regardless of whether there is a material influence clause or not. The new Premier League rules go much further than the FIFA rules governing third party ownership. The Premier League argue that their rules are necessary to retain public confidence in the Premier League.

Last Action Hero

There has also been bad news for the Hero Fund. On 21 January 2009 the Premier League announced that:

'The Hero Fund's proposed business model, in our opinion, falls within the prohibition of Third Party Investment contained within our rules. We have written to our member clubs and the Fund to advise them of this."

The Hero Fund now faces a conundrum. It may argue that a blanket restriction over a company's ability to own the economic rights of a player playing in the Premier League is a disproportionate restriction and is illegal under English or European law. Alternatively they could decide to take the players whose economic rights they own to other lucrative European league destinations. The third avenue is to fall in line with the Premier League rules, which may be as simple as relinquishing all economic rights in return for a larger transfer fee when transferring one of its players to a Premier League club.

Supporters of the Fund argue that such an arrangement allows clubs to field players it would otherwise not have been able to afford. It is highly doubtful that West Ham could have bought Mascherano and Tevez for £40 million. It also shields the club from the risk of poor player investment which is shouldered by the investors and not the club. It means underperforming players can be moved in or out without significant capital outlay or loss for the club.

However, other commentators are more sceptical. Of particular concern is the impact third party ownership would have on smaller clubs. Despite all the training and coaching a club may give a player, an increase in the value of the player would not be enjoyed or realised by the training club if the player was not their asset. The delicate existence of many clubs from the Championship down to the Ryman Premier League relies on them being able to develop players from the grassroots level and then sell the brightest prospects to bigger, richer teams. Without the right to receive financial reward for this, many clubs would go out of business.

Wishing to avoid another Tevez style escapade, the Premier League's position on the issue of third party ownership of footballers seems resolute. In the short to medium term at least, this stance is extremely unlikely to change. It will be of interest to see which other European domestic associations go as far as the Premier League has gone to outlaw this new alternative way of funding and profiting from the global transfer system.

For further information, please contact Daniel Geey and Tim Coles.