Notes on Third-Party Influence: Trying to Insure the Sell-on Fee

This article is part of a series on FIFA’s enforcement of Article 18bis in its Rules on the Status and Transfer of Players.  This rule forbids a club from entering into any transaction that may allow the counter-club or a third party to influence “in employment and transfer-related matters [the club’s] independence, [their] policies or the performance of [their] teams.”  My previous articles on FIFA’s third-party influence rules have addressed consent clauses, “rivals” clauses, and the distinction between penalty and bonus clauses.  This article will analyze what I will call “insurance clauses” – penalties that compensate the selling club if later circumstances eliminate their sell-on fee.  It will assume a general familiarity with FIFA’s rules and decisions on third-party influence. 

BACKGROUND

In and of themselves, sell-on fees are not only acceptable, but relatively common.  Problems develop when agreements do not present one, fixed sell-on fee, but multiple options, the choice determined by how the buying club eventually disposes of the player.  In these instances, the optional sell-on (and by extension, the selling club) might play a role in the buying club’s decisions regarding the player.

FUNCTION OF THE INSURANCE CLAUSE

A sell-on fee only activates if the buying club later transfers the player for money.  A future sale, however, is not guaranteed – and thus, neither is the sell-on fee.  Indeed, there are multiple actions that could eliminate the fee: The player could leave on a free transfer when his contract expires, he and the club could end his contract by mutual consent, or the club may transfer him in a straight player swap, with no fee exchanged. 

So understandably, clubs will try to protect themselves in the event this occurs.  And that is where the insurance clause becomes alluring.

An insurance clause will force the buying club to compensate the selling club if the player leaves through a mechanism that would eliminate the fee.  For example, a clause could fine the buying club a large sum if the player leaves through any of the three mechanisms noted above – a free transfer, mutual termination, or fee-less player swap.  Here, the selling club’s benefit is substantial: They get paid regardless of whether the sell-on materializes.  In this sense, the club’s sell-on is insured against these elimination scenarios.

INSURANCE CLAUSES CAN CREATE THIRD-PARTY INFLUENCE

While insurance clauses can offer protection, they also carry a poison.  Most notably, these clauses can allow the selling club to restrict the buying club’s options for dealing with their own player.  So, frequently, they do not survive FIFA’s third-party influence rules.

One example would be Nolito’s 2013 transfer from Benfica to Celta Vigo.  In the deal, Benfica retained 30% of Nolito’s economic rights – in effect, a 30% sell-on.[1]  The transfer agreement also included a penalty provision: Celta would owe Benfica €5M in either of two scenarios: (1) Celta terminated Nolito’s contract by mutual consent, and without Benfica’s approval; or (2) Celta allowed him to terminate his contract with just cause.[2]  If not for the penalty, both circumstances would eliminate Benfica’s potential sell-on.

The FIFA Disciplinary Committee, and later, the Appeal Committee, held that the clause limited Celta’s freedom to determine their employment relationship with their player.  As such, it violated 18bis.[3]  As the Appeal Committee observed, the club (Celta) and the player (Nolito) are the only parties allowed to decide the terms of his employment.[4]  Here, in contrast, at least certain options were subject to approval of a third party (Benfica), or that third party’s influence, through the penalty clause. 

With insurance clauses, the FDC seems most concerned about the following scenario:  Using the previous case as an example, Celta makes a sporting decision that their best option is to release Nolito – either by mutual consent or a just cause termination.  This would activate the €5M penalty.  So to avoid the penalty, Celta betrays their interests and keeps Nolito.  In other words, Benfica left a contractual requirement that trapped Celta into acting against their best sporting judgment.

As the FDC expressed in a similar case, a truly independent club must be “at liberty to make a unilateral decision” regarding any of their players and should not have to pay another club simply because they want to “terminate an employment contract with one of [their] players before the term of the contract is concluded.”[5]


[1] Celta de Vigo, FIFA Case No. APC-180161, at ¶2 (February 18, 2019)

[2] Id.

[3] Id. at ¶34

[4] Id. at ¶32; See FIFA Manual on TPI and TPO in Football Agreements, p. 52

[5] FIFA Manual on TPI and TPO in Football Agreements, p. 49

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