The Realities of Third Party Ownership

The most famous case of Third Party ownership and its perils remains with Carlos Tevez and West Ham United.  Third party ownership refers to a person or group other than the principal player or the club he is signed for, owning a portion or whole of the economic rights of the player.  This translates into said person/s receiving that percentage of the overall transfer fee paid for the player when he is hypothetically sold.  It seems very simple and straight forward and that it could simply give clubs a way to quick cash.  Almost like cashing an annuity payment for a lump some: You could make more in the long run but many times its more beneficial to get a smaller lump sum.

The dangers of these types of deals are of course in the details.  The Carlos Tevez affair is a prime example.  Kia Joorabchian is an Iranian businessman who founded Media Sports Investment (MSI) and is connected to at least 4 other Investment groups.  Many times the rights of players that these companies negotiate with clubs are proportions, sometimes as low as 5%.  In the case of Carlos Tevez it was significantly more, MSI owned 100% of Tevez’s rights.  Consequently even though Tevez transferred from Corinthians to West Ham, no money was due to Corinthians.  Beyond that it is questioned whether any money even exchanged hands in the deal because even though the player was registered to play for West Ham, MSI still controlled 100% of his economic rights and had put in a stipulation in his contract that they maintained the right to transfer Tevez in any transfer window to any club they saw fit.

This is where they had broken the rules.  Third party ownership, for as back alley and black market as it seems, is extremely prevalent in South American, Spanish and Portuguese leagues and a widely accepted practice.  Where these agreements fall afoul in the Barclay’s Premier League is in the stipulation that the agreements have no influence on the clubs player selection or transfer policies.  Tevez’s deal was clearly a direct contradiction to this rule as it completely took the club out of transfer decisions regarding the player and West Ham became embroiled in a lot of controversy.  As a result the  Premier League would eventually completely ban third party ownership, fine West Ham, and also force the to pay reparations to a club directly influenced by their technically illegal signing.

This ban however has not been adopted by any other leagues and one of the most high profile examples is Colombian Radamel ‘El Tigre’ Falcao.  Falcao moved from Porto to Atletico Madrid for a tune of €40 million.  Though this is an extremely high transfer fee, it could be argued that it’s not nearly the largest transfer fee paid for a player and Radamel Falcao arguably is a goal coring machine worth the investment.  Value for money may yet prove true, however the €40 million was in fact a record high for a club reported to be €514 million in debt with their revenue believed to only cover 17% of the principal owed and €133 million of the €514 simply back taxes owed with a 4.5% interest.

With those numbers in mind how did Atletico afford the €40 million transfer fee?  The truth can be found, of course, in a third party ownership group called Doyen Sports.  The group is reported to have an 8% interest on the undisclosed amount of money put up OR a percentage of returns on any hypothetical transfer.  Doyen Sport is based in Malta with headquarters in London and describes itself in a press release as an “alternative source of financing for football clubs”.

Doyen currently has 22 players on their books plying their trade across the globe: 15 in Spain, 5 in Portugal, 1 in Brazil, and 1 in Italy.  The most interesting detail about these players is that some are very team specific.  The 5 in Portugal are spread among 3 clubs.  Of the 15 in Spain though, 14 are spread among 3 clubs as well, specifically Sevilla, Getafe and Sporting Gijon.

The significance of clustering can be found in the short term benefits of the clubs selling rights and getting immediate money or simply paying less to sign a player.  The danger lies in the contribution that the savings/earnings of the deal really have on the finances of the club.  Similar to cell phone companies where the profits come from the contracts and not from the physical sale of the phone, Football clubs are many times soaring into heavy debt because of their wage bills, not their transfer fees.  Despite this, in leu of other structural changes that take time to implement, clubs rely on profits from player sales to settle debt.  With third party ownership of players, this can easily hamstring any effort to pay down debt since realistically the clubs who are most likely to need or want third party investments are clubs already in financial problems.

22 players may not seem like alot, not to mention it’s not 100% of all 22 players.  Take into account though, that Doyen many times becomes shirt sponsors of clubs they sign players to, normally another major source of club revenue, for unknown endorsement amounts, and that Doyen is one of a large number of deeply connected investment groups and its impact increases.  Clubs across Europe may seem immune to the financial worries that are hitting every day citizens and companies but in reality, they are dealing with debt, tax and sometimes bankruptcy issues regularly.

Doyen may only have 2 players in Portuguese club Sporting, and 3 at Getafe but how many other players are part or whole owned by other groups?  And what happens when the solvency of these clubs depends on the sale of some of these players and they can only collect on 25-50% of the fee?  Argument for it being an accepted practice and business model are shallow attempts from men exploiting the financial vulnerability of clubs and players.  The Premier League made a smart decision banning this type of ownership and other leagues, UEFA and FIFA should resist pressure and do the same.

Reporting on the business side of the world's game.