Carlos, Kia, and Third-Party Ownership

It has been a cold winter for Carlos Tevez. The fiery Manchester City striker has dug himself into a situation that has hurt his career, reputation, and bank account.  The trouble began last with rumors of disagreements between Tevez and manager Roberto Mancini, things were left on a low simmer and promptly boiled over during City’s Champions League match with Bayern Munich where the striker refused to enter the game as a substitute. Tevez’s refusal arguably cost the club advancement to the knockout stages of the competition with a furious Mancini publicly lambasting and dropping him from the first team. Relations between player and club predictably plummeted to a new low with Tevez leaving the club to winter in Argentina. City subsequently docked him wages and actively sought to sell him to other clubs in response.

The Tevez situation has been cast as a personal spat by much of the soccer world; it is a regrettable product of the Argentinian’s temper, the Italian’s pride, and the modern reality of the game, but ‘Così è la vita!’ with eyes directed at the heavens. But some suspect that there is more to the situation than a simple clash of personalities. Many believe it is Kia Joorabchian, Tevez’s agent, who is encouraging the Argentinian to agitate for a big money transfer. Why? Because it is Joorabchian who has the most to benefit from Carlos Tevez on the move.

Kia Who?

Kia Joorabchian is the most publicly known proponent (and investor) in third-party ownership deals. He got his start trading in the British and American financial markets before stepping into the world of soccer with his purchase of the Brazilian club Corinthians. In 2004 Joorabchian, through his company Media Sports Investments (MSI), bought a 51% stake in Corinthians. This would have been an unremarkable sale except for what happened afterwards. Playing talent was brought in by the new owners, but in most cases MSI was not just acting as agent but also as the entity that owned the players themselves. The most notable among this crop of new players the owners were loaning themselves were the Argentinians Carlos Tevez, and Javier Mascherano.

Six years, two clubs, and tens of millions of pounds later Tevez is playing for Manchester City with Kia Joorabchian’s still hovering in the background. Relations between club and player have warmed recently but the thaw has less to do with forgiveness than a lack of suitors willing to meet the Argentinian’s sale price. It seems likely that Joorabchian will be agitating to move his asset again before too long.

So how does this ‘Third-Party Ownership’ work?

Third-party ownership (3PO) is a structured transfer in which the economic rights of a player are not wholly owned by the club fielding the player. In some cases the rights may not be owned by the club at all. Imagine that you only pay for part of a house, say 60%, but you are able to live in and use the entire thing. You are responsible for maintenance costs, taxes etc. but it is still a pretty good deal. The only catch is that if the house is sold you only get 60% of the price and 40% goes to the other owner who invested money alongside you. Substitute ‘Player’ for ‘House’ and that is the basics of third-party ownership.

There is a distinction between the role of third-party owners and institutions like banks which provide club financing. Banks directly increase the leverage (debt) in the soccer economy by providing loans to clubs, third-party owners indirectly increase leverage by inflating player (asset) prices.

So what’s all the fuss?

There are positives to co-ownership. The main advantage is that it allows clubs to share the risk on buying players. The most cited scenario of this is a talented youngster who commands a large fee but does not turn out to be a superstar; rather than losing the entire transfer fee the club has lost only a portion of it. This is a significant advantage given the outsize pricetags on wunderkinds these days but it is the only clearly beneficial scenario.

The main negative aspect of 3PO is that it will inevitably cause player prices to go up as an influx of new money chases after the same number of players. This creates a vicious cycle in which inflated player prices cause clubs to seek more leverage (more third party ownership deals), which in turn causes even higher prices. If there is anything you could get clubs to agree on it is that player fees are too high.

This inflation also directly subverts the intention of the Financial Fair Play Regulations (FFPR) being enacted by UEFA. The FFPR platform stands on three initiatives: stadium construction, youth development, and lowering club spending to a sustainable level. Third party ownership undermines the sustainable spending initiative as increasing asset prices will suck up any benefit realized from the FFP regulations.

Finally, investor groups have incentives that potentially conflict with and destabilize clubs. Clubs target success on the pitch whereas 3PO investors aim to make return on investment. Return is generated when a player is bought or sold this introduces a perverse incentives for 3PO groups to try and move players as often as possible. While this volatility is beneficial to investors, it is detrimental to clubs and players who need stability to create teams. There is also the possible scenario of entities owning multiple players in a league and what kind of incentives that creates.

So now what?

There is nothing illegal about 3PO, the practice is allowed by FIFA and the vast majority of Football Associations and Leagues allow it with the notable exception of the Premier League and Ligue 1. But legal and beneficial are not always one and the same. There are always appropriate situations to use structured finances: mortgages allow responsible people home ownership, student loans help students to invest in their futures, and 3PO provides ambitious clubs with otherwise unaffordable playing talent.

However, the problem is not on the individual level but when there is systemic use; if all players in Europe were owned by outside groups would that be seen as a positive? No, it would be an overwhelming negative and clearly draining money from clubs and supporters. Club finances are already stretched to the limit and allowing outside money to control the biggest assets in the game will undermine any hope that soccer has of financial stability.

Carlos, Kia, and Third-Party Ownership

3 thoughts on “Carlos, Kia, and Third-Party Ownership

  1. Lee says:

    I do follow your point of view. It seems not only the sport integrity is at stake, but also the financial stability (or what’s left of it ) of football. However, do you consider a general ban on TPPO as possible/desireable? It’s clear that football clubs are in desperate need of alternative financing tools, but are there other possible solutions? Isn’t the increased power of players and agents the reason why clubs are spending more than they own? Then I do agree that FFP regulations and the new agent regulations should insert clear regulations on TPPO and further transparancy of ownership.
    However I do not know if such a ban (on investement) would be legal?
    Related to the latter question I wondered if you have an Idea how to qualify such agreements and economic rights on players according to ‘common’ law (as in ‘non sporting law’)?

    1. Increased player/agent power is a product of competing stacks of money in the football economy, not the other way around. E.g. superstars (like Tevez) are able to command unsustainable wages because of clubs needing to competitively bid on their services. The more money/parties available to provide those bids, the greater the player power.

      I don’t think banning investment in players would be legal or, if it were legally sound, implementable given the number of countries involved. Also, while I am very negative on TPPO in its current form there are benefits to be had if it is regulated properly and making it illegal would snuff out those possibilities quite harshly.

      As it is UEFA and the FAs are well within their rights to prohibit licensed clubs from engaging in dealings with TPPOs. I would like to see them exercise this right and ban TPPO deals; when it can be assured that the industry is committed to increasing the depth and quality of the talent pool and not just prospering from inflating the value of existing talent it should be allowed.

    2. BTW I am leaning towards adopting your acronym ‘TPPO’ as opposed to my ’3PO’ as it avoids the problem of conjuring up the image of spacedroids in my head everytime I say it.

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