Financing football in Fifas post third party ownership world

United Kingdom

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

The current debate surrounding the proposed ban of third-party ownership (TPO) worldwide is an interesting and controversial one. Whilst TPO has merits, regrettably, it can lead to the potential for undue influence in the running of clubs and thus the public policy position announced by Fifa is the correct one for them to take.

There is concern about how parts of the football industry will be able to finance their day-to-day operations once the TPO ban proposed by Fifa commences. Not so much in the UK where the ban is already in place, but in large parts of the football community around the world that rely upon financing structures that give lenders a return based upon the economic rights attached to inpidual players.

If Fifa is to rid the game of TPO structures, it comes with it, we would argue, an obligation to fill its place with a credible alternative which would encourage credible lenders into the global game as presently, traditional corporate lenders have lost a lot of money in the football space and many still consider the industry too risky.

We suggest that Fifa’s rules should be rewritten to explicitly permit and encourage clubs to refinance or, when refinancing, be able to specifically secure the playing squad, thus giving lenders a Fifa sanctioned right to require a club to sell a player to meet debt obligations in circumstances where neither the club or the lender will risk breaching the TPO ban.

The beauty of the proposal is that it merely accords with what happens in normal trade and commerce. Everyday trading companies liquidate assets on a regular basis in order to raise cash to meet debt obligations. This may mean a company sells off a non-core business, sells some real estate or liquidates stock.

We argue that there should be no difference in the football industry, and that by imposing a TPO ban, there is a risk that mainstream lenders will be driven away from financing the game worldwide. This is because, already, the regulatory environment surrounding football has the capacity to deter commercial lenders due to uncertainty that comes with lenders not being permitted to have control over the playing squad for fear of being seen to be exercising undue influence.

In a post-TPO ban world, if lenders were able to have a conditional right to direct a club to sell players in order to generate cash, it would mean that lending to a football club became much more like lending to any other business, with more mainstream and credible lenders willing to lend to clubs. In turn, this would make the industry more competitive and deliver more attractive interest rates to clubs as the lenders of last resort would cease to be able to drive the non-commercial interest rates and returns they are currently charging.

At this time when Fifa is considering outlawing TPO and with it adversely affecting the clubs that can only fund their operations via TPO type structures, it would therefore make sense for Fifa to consider some incidental policy changes.

Rather than the proposed TPO ban becoming a catalyst for clubs to fail, it would become a catalyst for clubs to refinance on more commercially favourable terms with a better quality of more mainstream lenders who will be able to have the sort of security that they would expect in every other circumstance when they lend into non-football industries.

The following is a list of issues Fifa should address as part of the wider TPO ban:

  • Define what powers a lender would have to require a club to sell a player asset. Lenders must be able to enforce this right in order to make their investments viable.
  • Lenders will be concerned that by exercising a right to require a club to sell a player, they will not be seen to be managing the day-to-day affairs of the club and thus, somehow, be seen to be acting as an owner or operator of a club. FIFA ought to clarify that lenders would not specifically be treated as owners in such circumstancesand state that their exercising such a right is not akin to owning a club.
  • It would be helpful if, by exercising a right to require a club to sell a player, such would not be treated to be an “insolvency event” and trigger the various consequences of that process.
  • FIFA should clarify whether a lender would be able to require a club to sell a player outside the transfer window or not. Again, if a club does need to generate cash quickly, it may be unworkable to insist the lender waits until the next transfer window before being able to exercise its right to require a sale.
  • It is imperative that lenders have certainty and guidance from FIFA to ensure they are following proper processes. This will avoid any potential litigation tangles.

FIFA should seize the opportunity to put in place policies and rule changes that are designed to provide clear guidance for commercial lenders. This would send a positive signal to the lending community globally and could transform the way that football is financed, for the better.

David Roberts is a partner at Olswang

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