By Andrew McGregor, senior associate in the Sport Sector team at independent legal practice Brabners.
The hyperinflation of the transfer market means that clubs have to think carefully about how to spend their transfer budgets. Recruitment is much more science than art and the risks of getting things wrong – legally, commercially or in terms of talent identification – are huge.
Increasing revenues at Premier League clubs come alongside transfer market inflation within the English Football League (EFL). Some Championship clubs have had their transfer kitties bolstered by Premier League parachute payments and other EFL clubs have reaped the rewards of selling proven players to bigger clubs for millions. Consequently, EFL clubs are increasingly targeting Europe’s other elite leagues to scout ‘game-ready’ players at bargain rates.
For some clubs in the EFL, the international transfer of players is a relatively new concept in their recruitment strategies. As such, EFL clubs ought to be aware of the legal and commercial aspects of an international transfer.
The international transfer agreement
Payment Terms: Transfer fees are generally reported by way of a headline fee. However, the breakdown of that sum is much more complicated.
Fees are often paid in instalments and it is common that payment of the initial tranche is conditional upon certain events (e.g. receipt by the relevant national association of an International Transfer Certificate, the transfer being matched and authorised by the FIFA Transfer Matching System and the player being registered with, and granted eligibility to play for, the buying club). These provisions ensure that the buying club is satisfied that the player is ‘ready to go’ before any money changes hands.
However, a selling club will want to limit the conditions attached to payments being made, so negotiations around these terms can often lead to delays and adjustments in the fee and payment terms.
More complex issues like the currency and conversion rate of fees to be paid, taxes and levies are also important considerations. Increasingly, clubs want to manage cash flow through third-party factoring of future payments and the selling club wants to pass on the cost of this facility to the buyer.
It is also essential that any economic rights in the player, held by third parties (other than the selling club) are addressed carefully as part of the transfer agreement.
FIFA Training Compensation and Solidarity: FIFA Training Compensation and Solidarity Mechanism payments are mandatory obligations imposed on clubs as part of the FIFA regulatory framework (applicable to international transfers).
Training Compensation is due to a player’s training club(s) upon that player signing their first professional contract and each time they are transferred (internationally) until the end of their 23rd birthday.
Clubs will often agree a transfer fee for a player but not factor in whether the fee to be paid or received is inclusive of entitlement to training compensation or net of solidarity deductions.
Currently, five per cent of any transfer compensation paid to the player’s former club is distributed by the buyer to all the previous clubs involved in the player’s training between the seasons of their 12th and 23rd birthdays.
Unlike solidarity payments, training compensation is also due when a player makes an international transfer after contract expiry. This is an extremely topical issue at the moment as foreign clubs are now increasingly targeting young domestically-trained talent — often with a view to taking them overseas after expiry of their contract at a reduced cost (as the FIFA training compensation framework reflects actual training costs, not market value), with a view to selling those players back to English clubs at a premium.
Representations and Warranties: Representations and warranties clauses are fundamental in all transfers, but even more important for a buying club. The player may have been researched by a club’s recruitment department, but extensive due diligence on an overseas player can still prove an onerous and costly task for some EFL clubs.
A buying club will want disclosure obligations and warranties from the seller concerning player registration status, third-party interests, player working status, training compensation claims, eligibility status, fitness and medical history.
The transfer of minors
Normally a transfer is only permitted to take place if the player is over the age of 18 but FIFA regulations provide several exceptions to this rule.
One exception allows for the transfer of a minor if it takes place in the territory of the EU and the player is aged 16 to 18 (although, strict requirements concerning the player’s football and academic education, accommodation and care must be met).
High-profile disciplinary cases involving Barcelona, Real Madrid, Chelsea and Manchester City show that FIFA takes a hard line with clubs contravening transfer rules relating to minors.
How immigration in football will be dealt with after Brexit is a key concern for clubs, with free movement of people being an essential aspect of European football. Leaving the EU will mean that English clubs will find it increasingly challenging to recruit European players under the age of 18.
After Brexit, it is also possible that players from EU countries may be treated in the same manner that non-EU players are — with strict visa qualification requirements — mainly linked to establishing a proven international playing record.
The legal and commercial issues that come with any transfer agreement are complex and, as the stakes in the transfer market get higher, clubs cannot afford to get things wrong (particularly those who are new to the international market).
Regardless of the pace of the transfer market, clubs should take care with their transfer agreements and make sure that pre-contract negotiations are clear and as comprehensive as possible.