The 4 biggest events hitting the soccer business in 2015

In the spirit of the new year here is a look forward at four events that are sure to produce the biggest waves for the business of soccer in 2015.

THE Third Party Ownership FALLOUT

Last September, FIFA released a statement announcing its decision to ban third-party ownership, a practice in which entities other than clubs are able to control the registration of players. At the time it was just a warning with no time frame, but in December FIFA dropped a mini-bomb by setting a deadline of May 2015 for the practice. This came as a shock to . While all existing TPO agreements will be honored until expiration and new contracts formed between now and May are capped at a one year duration.

FIFA’s decision (a correct one in my opinion) has created a horizon whereby investors will be forced to sell in order to realize the value of their agreements before expiry. Previously the only timeframe was the end of a player’s career due to age or injury, as it was extremely unlikely a player would not renew the relationship with the investor.

The exit of investor money should have a significant impact on transfer prices, particularly for players from markets like South America and Portugal where TPO is more common. Whether that shock is seen as early as this summer’s window remains to be seen but there could be some interesting action in the windows ahead.

A NEW FUTURE FOR FIFA?

Sepp Blatter is coming up for re-election this year in what would be his fifth term as the President of FIFA. Blatter was re-elected in 2011 after his only opponent, Mohamed Bin Hammam, then President of the Asian Football Federation, withdrew due to bribery allegations.

The past four years have seen FIFA rocked by allegations of corruption in the World Cup bid process, vote buying in internal elections and the general misconduct of federation chiefs, including bribery and intimidation, in governing their respective territories. All have contributed to a growing public awareness of an institution holding unprecedented control over a multi-billion dollar sport and business with little accompanying accountability or transparency.

John Oliver summed it up best this past summer:


Clearly there are big questions over Blatter’s ability (or willingness) to bring change to FIFA. This doubt was most recently piqued by the resignation of independent ethics investigator Michael Garcia after an alleged attempt to misrepresent the results of his inquiry.

January 29th is the deadline for FIFA members to declare their candidacy; currently the only rumored challenger is Prince Ali bin al-Hussein of Jordan. May 29th is the election date, it’s worth marking down to see what direction FIFA chooses to head in.

FULL FORCE Financial Fair Play

UEFA’s Financial Fair Play regulations will have been in force for 3 years at the end of the 2014-15 season. Although 2011-12 was the first year of FFP regulations, 2014-15 marks the first three year period in which the rules have been fully in effect without exception and at the lowest level of permitted deficit.

Image courtesy of  FinancialFairPlay.co.uk http://www.financialfairplay.co.uk/financial-fair-play-explained.php

Image courtesy of FinancialFairPlay.co.uk

The 2014-15 season then becomes an extremely important gauge for FFP as it should reflect an overall lower level of spending as clubs acclimate to the new regulations.

The coming year will also be a test of FFP’s enforcement mechanisms and whether they represent credible threats to the clubs. Last year UEFA handed out sanctions for failing the break-even rule, most notably to Manchester City and Paris St-Germain. The punishments came in the form of caps on wage increases, transfer spending and squad limits for European competition but fell short of the stringent competition bans desired by some.

Whether these penalties are a true deterrent or merely a luxury tax on clubs with luxury to spare remains to be seen.

HELLO, IT’S INTERNET.

Our final issue takes a step away from governance, regulation and transfer issues and squarely into the business of soccer, specifically the broadcast world. ESPN has just announced a streaming service available for a monthly fee and independent of any cable relationship. Although long anticipated, the launch marks the beginning of streaming as a widespread viable stand-alone alternative to traditional broadcast and cable distribution.

Up till now soccer streaming services have been unimpressive suffering from either limited content (“Oh boy, the Polish Ekstraklasa…”), poor technical performance, little freedom from traditional contracts or just be plainly illegal. The supporter with a computer or mobile had few options to choose from.

While this doesn’t spell the end of traditional distribution channels it is the beginning of a shift for established soccer markets and a drastically new way to reach fans in developing ones.

Do you agree? Did I miss something important? Did I get things totally right? Totally wrong? Tweet at @thesoccerceo

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The 4 biggest events hitting the soccer business in 2015

What is a Bridge Transfer?

For those looking to understand “Bridge Transfers” there is a great post over at the Soccerex blog that lays out the advantages which are leading more clubs to use this mechanism. A bridge transfer is essentially the use of an intermediary club to gain or retain economic benefits from a player while maintaining the legal rights of a FIFA registered club. These benefits include continuing control over player registration, commercial payments, tax avoidance, and reduction of ancillary payments related to national FA rules.

bridge transfer diagramHow does this work in practice? For a desired transfer from Club A (player’s original club) to Club B (new club), the club or Third Party Owner will transfer the player registration to Club C and from there the player will be loaned out to the Club B. The transfer fee and location of Club C will depend on the particular benefit the clubs are looking to realize.

It is likely that demand for bridge transfers, and other similar transactions, will be driven by the growing sophistication of clubs and third-party owners and the increasingly global transactions occurring in the soccer market. Bridge transfers are not negative by definition, like many other legal and tax workarounds they exist because the framework allows them to. However large questions remain, specifically whether the use of bridge transfers is an unfair economic advantage which skews competitive balance and the existence of bridge clubs, particularly those which are simple shells for sheltering player registrations.

What is a Bridge Transfer?

The Case Against Third-Party Ownership

Recently Soccerex published a post  by Marcos Motta, notably a board member of the European Football Agents Association and Neymar’s attorney, in which he defended the practice of Third Party Ownership (TPO) as not only legal but  instrumental to the survival of Brazilian soccer. While it is unsurprising that someone in the TPO industry would express support it is important to touch on each point.

Motta begins by casting TPO opponents as primarily engaged in an emotional argument conflating ‘ownership’ for ‘slavery’. He suggests that the false association has fueled much of the “populist intent” that has brought TPO into the limelight, whereas in Brazil ‘economic rights’ of a player is an understood and accepted concept. This is a straw man. Although there are inevitably individuals and fringe media outlets who delight in using inflammatory language to garner attention, most people understand that a soccer player’s economic rights are separate from their freedoms as a human and a club or entity may hold ownership over the former without the latter.

He then describes  at length the provisions which form the basis for TPO under Brazilian and Portuguese law. As with the supposed ‘slavery’ misunderstanding, the legality argument is misdirection. Certainly, there must be plenty in the law to support TPO activities, it would be surprisingly obtuse of Motta and other TPO beneficiaries to practice without legal backing. But what is legal is not necessarily beneficial to a market as a whole. Laws are formed through a constant battle between market participants and imbalances are not only possible but likely. We only need to look at the debate over High Frequency Trading to see a practice which is wholly legal but has profound and possibly severely negative effects on the whole markets.

The health of Brazilian soccer is offered up as the final leg of the TPO case. Motta points to the economic interest that Brazilian clubs have in seeing players command high interest and eventually find their way to the lucrative European markets. This is perhaps the only valid argument in the whole post. If TPO entities do in fact play a vital role in increasing the value of players (and subsequently the value that clubs receive in transfers) then it can be argued that they play a beneficial role in the transfer market. Whether that value comes in the form of marketing, player development, international relationships or some combination is largely irrelevant as long as the overall pie is expanded.

However, if investors are merely capital adding friction to transfers that would have happened anyway how is that beneficial to soccer? Are TPOs better at moving players internationally? Do selling clubs get substantially higher transfer fees? What is the distinction with agent services? Motta does not provide answers to these questions which are at the very heart of the ownership debate. 

Proponents must demonstrate the value added to the transfer market in order to make a positive case for TPO and differentiate themselves from mere middlemen. If the claim is that TPO benefits selling clubs does that not simply come at the cost of larger clubs with additional value taken out by investors? If TPO is for players how does it differ from traditional agency relationships? These questions and larger questions about the incentives and motivations of actors in the ownership industry are the real issue that should be driving the debate about TPO legality.

The Case Against Third-Party Ownership

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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. Continue reading “Carlos, Kia, and Third-Party Ownership”

Carlos, Kia, and Third-Party Ownership

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