Third Party Ownership (TPO)
On February 19, 2019, the FIFA Disciplinary Committee fined Portuguese top club Fc Porto CHF 50,000. The reason for this was a violation of Article 18ter of the FIFA Regulations on the Status and Transfer of Players (hereinafter: RSTP). This article contains the ban on Third Party Ownership (hereinafter: TPO). This practice was banned by FIFA in 2015 due to the risks it entailed, both for players and clubs.
In this contribution, the TPO technique with its associated advantages and disadvantages is first discussed. The TPO ban is then discussed. Finally, the manner in which this ban is circumvented is briefly explained.
TPO technology
TPO or Third Party Ownership is a practice that originated in South America in the early 1990s and spread to Europe around the turn of the century. The essential feature of TPO is that (part of) a player’s economic rights are transferred to a third party. A player’s economic rights mainly include his (future) transfer fee. The third party to whom the economic rights are transferred can be either a natural or a legal person. This often concerns investment funds or player agents. Any entity outside the two clubs between whom a transfer takes place is considered a third party.
There are various reasons for setting up a TPO construction. As a rule, TPO acts as a financing mechanism for the transfer of a player. In this case, a club with insufficient resources receives financial assistance from a third party for the acquisition of a player. The player is registered with the acquiring club, but (part of) the economic rights belong to the third party that financed the transfer.
A well-known example of the above construction is the transfer of Carlos Tevez from Corinthians to West Ham United. To finance the transfer, West Ham United had borrowed money from an investment fund that in return acquired Tevez’s economic rights. The investment fund had, among other things, the right to decide whether Tevez was transferred and at what transfer fee this should be done.
Advantages and disadvantages of TPO
The most common argument against TPO / Third Party Ownership is that it is a modern form of slavery. As illustrated in the Tevez case, the investment fund often decides on the player’s transfer without the will of the player and the club. This may hinder the player’s free movement. In addition, players do not always know that their economic rights have been transferred by the club to a third party.
A second point of criticism concerns the risk of conflicts of interest. Two clubs may have registered players whose economic rights have been transferred to the same investment fund. The investment fund could use its power to influence the outcome of the match between the clubs involved.
Thirdly, TPO results in money flowing out of the football industry into investment funds. After all, they have negotiated the right to collect the transfer fee from a player.
The proponents of TPO argue that it is a technique to make smaller clubs more competitive. After all, TPO allows them to acquire players who would otherwise be financially unfeasible. The financial risk of a transfer is also shared between the club and the investment fund. If a player does not break through, the club will not have to pay the full transfer fee.
Finally, proponents also argue that the TPO ban violates the free movement of capital in the EU and the rules on free competition.
Ban on TPO
On January 1, 2008, FIFA introduced Article 18bis RSTP, which included a ban on Third Party Influence (TPI). Under this article, a club cannot enter into an agreement in which the opposing party or a third party is given the opportunity to influence the club’s employment and transfer policy.
Because this article could not fully remedy the adverse consequences of TPO, FIFA decided to insert an Article 18ter that came into effect on May 1, 2015. Article 18ter RSTP contains a complete ban on TPO. Any agreement whereby a third party obtains any right regarding the future transfer of a player is contrary to this article.
Circumvention of the ban
A commonly used technique to circumvent the TPO ban is the so-called bridge transfer. This is a transfer where a player does not transfer directly from the original club to the new club, but indirectly via a third club where the player is registered for no apparent sporting reason. The bridge club replaces the investment fund in a TPO construction. The player’s transfer to the bridge club takes place for purely economic reasons, in particular to be able to sell or rent out the player. This construction has the advantage that a bridge club can rely on Article 17 RSTP in the event of breach of contract by the player, which an investment fund in a TPO construction could not.
Although the RSTP does not contain an explicit ban on bridge transfers, the CAS has already declared such constructions invalid due to the lack of a sporting reason. However, the current case law of the CAS is diverse, as evidenced by the following rulings:
CAS 2009/A/1757 MTK Budapest v. FC Internazionale Milano S.p.A.