Third Party Ownership – The invisible hand behind some of football’s biggest transfers

Third Party Ownership

by Andreas Vou

The recent transfer of Radamel Falcao from Atletico Madrid to AS Monaco caused quite a stir; many were shocked to see one of the top strikers in world football move to a newly-promoted French side when the likes of Real Madrid and Manchester United held strong interests.

What was not addressed so clearly was how much of an impact the third-party owners, who hold a large stake in the Colombian’s rights, had in the move. Falcao came in for plenty of criticism and was accused of moving solely for the money but it may surprise to many to know he had little to no say in the decision due to the nature of third-party ownerships (TPOs).

Such deals are extremely common in Latin America and are now gathering pace throughout many European leagues. There are various types of TPO agreements, some of which are straightforward and others which are rather more complex. Over the next few posts I will be sharing my insight regarding third-party ownerships and their impact on the global transfer market, so I will quickly explain the most common types first.

Third-Party Ownership – The basics explained

Investing in a promising young player

There are countless talented young footballers looking to make it big in a major league, so many in fact that it has become as important to be well-connected as it is to be well-gifted.

As is often the case in South America and Africa, third-party companies approach a young player and offer him the full works required to start making genuine career progress: registration with a professional club, sponsorship deals, enhanced salary and anything else he may need. All on the premise that the company will have the overriding say in future career moves and, of course, a healthy slice of profits along the way.

As was the case with Falcao, the striker himself did not have much part in the decision to move to Monaco, or his previous clubs for that matter. People tend to ask, “Why did he get himself involved in this type of deal in the first place?” Just think of how many other Falcaos there were in South America who slipped through the net due to not having the necessary contacts to get a decent opportunity in the game. For many, it is the only way of making it as a professional.

Outright purchase of a player at a club

Another scenario is whereby a TPO approaches a club and offers to buy out a player’s contract and transfer rights, then places him in a more established environment to get more exposure and attract a big offer in the future.

Let’s say a TPO goes to a small club in Brazil and pays €75,000 for 100% of that player’s rights. They then go to a contact of theirs at a top Brazilian club which has close ties with European sides in return for 50% of a future sale.

After an impressive season at a better team with higher-level coaches and more sophisticated tactics, the player has started to gain attention from European clubs. A Portuguese club offers to pay either €4million for the 50% share owned by the club or €8million for 100% of the player’s rights. In these cases, agencies tend to prefer to keep their stake than make a quick return as the potential gains from the next sale are often much more.

It must also be noted that transfers of ownership rights can be made throughout the contract. E.g. the Portuguese club, after a certain period of time, can offer to buy out a percentage of the agency’s stake, and vice-versa.

This has happened on countless occasions in recent years, particularly with transfers from South America to Portugal, from where they are then sold on for astronomical sums to Europe’s elite. Super-agent Jorge Mendes and his company Gestifute played a pivotal role in bringing the likes of Falcao, Anderson and Angel Di Maria from across the Atlantic, then arranging massive transfers to other top European clubs.

See also: Top 10 Strikers in world football – Statistical Analysis

The fact that the TPOs often keep a sizeable percentage of players’ rights leads to confusion and misinterpretation with transfer fees stated on record.

For example, if a Benfica player moves to Barcelona at an agreed value of €30m with the agreement that the TPOs keep a 50% stake of the player’s rights, Barcelona will pay €15m while the TPOs merely transfer their 50% stake from Benfica to Barcelona. Yet all news outlets will say Benfica sold that player for €30m.

‘Loan’ method

Not too dissimilar to the one above is the ‘loan’ method – namely in South America again, it is common practice for a TPO to completely buy a player outright from the club he belongs to, making him a free transfer. In this case, the player is offered out to a club on the basis that he remains predominantly under the TPO’s control in a deal which is rather like a loan as opposed to a transfer.

The TPO loans him out with the agreement that the transfer rights remain theirs. Subject to negotiation, the third-party owner may offer up to 25% of that back to the club and take the other 75%. This is perhaps the most secure way for a TPO to guarantee that they have full legal rights of the player in their hands.

This was the case in the infamous Tevez/Mascherano saga when the Argentine stars joined West Ham on this kind of loan from Media Sports Investment. This type of transfer is quite common in Brazil and Argentina but the trend is also now spreading to parts of Europe too; Yaya Toure’s agent Dmitry Selyuk took several of his clients to Metalurh Donetsk while he was vice-president of the club until 2007.

He now uses Cyprus, a largely unregulated league, as one of his main hubs where he offers smaller sides various clients of his for absolutely free, wages too, for his players to gain exposure. This ploy has worked well in its first season as Gaetano Monachello (Olympiakos Nicosia) moved to Monaco and Leonardo (Enosis), presumably due to Selyuk’s past connection with the club, switched to Metalurh respectively despite trials at Barcelona B.

How do the governing bodies feel about all this?

FIFA touches on the issue of third-parties in Article 18bis but refers more to third-party influence as opposed to ownerships:

“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.”

As a result of FIFA’s vagueness, there are giant gaps in the law which are being exploited.

UEFA however have taken a strong stance against TPOs, calling for FIFA to ban all types of third-party deals completely. Europe’s governing body cited three main reasons for an outright ban of TPOs:

* Ethical/moral questions: is it not fair for an agency or company to own economic rights to another human being.

* The integrity of sporting competition: Conflicts of interest may arise when a company holds the ownership rights over different players in different teams which could lead to match-fixing.

* Risk of instability for football clubs: As teams become more dependent on TPOs the clubs lose out on potential revenues from player sales and begin to lose stability.

Three national leagues and federations in the EU have adopted specific provisions to ban TPOs: England, France and Poland. What remains to be seen is whether restrictions or bans on third party ownership would or would not infringe EU rules on the free movement of capital.

So how worrying is the future of football with such heavy influence from TPOs? Do they actually help smaller clubs attract better players for less money? Or do they indebt themselves to powers with alternative interests? And as UEFA mentioned, will TPOs with clients in various teams hold conflicts of interests which will increase the frequency of fixed matches?

All will be discussed as we explore third-party ownerships further in coming articles.

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Andreas Vou is a correspondent for Mundo Deportivo and an academy scout at AEK Larnaca. Follow him on Twitter @andreasvou89

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One Response to “Third Party Ownership – The invisible hand behind some of football’s biggest transfers”

  1. Joe Grogan
    September 20, 2013 at 2:54 pm #

    Are English clubs still able to secure ‘lease’ deals with players under third-party ownership? Like the two year lease deal Man Utd agreed with MSI for Tevez. Also, how well informed are the fans regarding the proportion of the player the club owns? Did Porto fans know the club owned 85% of Hulk’s economic rights?