smarterthinking

Is player ownership of economic rights the next big thing?

By Dan Altman, creator of smarterscout.com

It's been 14 years since a couple of heavily hyped Argentines named Carlos Tevez and Javier Mascherano found themselves leaving Corinthians to sign for West Ham... and very soon afterward for Manchester United, Manchester City, and Liverpool. Their arrival in England had been made possible by third-party ownership, whereby an independent investor purchased part of their economic rights – essentially their transfer papers – and thus allowed a smaller club to afford two big stars. Outraged, the Premier League tried to ban third-party ownership, then UEFA followed suit, and FIFA finally acted in 2015. But what if the third party is actually the first party, i.e. the player?

In December 2019, FIFA made a little-noticed change to its rules on third-party ownership. Where before the ownership of economic rights had been restricted to clubs, the new language specified that players could take possession of their own economic rights. In other words, players could buy into their future valuations by paying part of their own transfer fees or, in the future, being the beneficiaries of their own sell-on clauses. This change opened up an enormous range of possiiblities for contracts and incentives. Here are some of the factors I think we should look out for:

Reducing risk for clubs. One of the original motivations for third-party ownership was to decrease financial exposure for clubs. A third-party investor in a player would assume some of the risk by sharing in any profits and losses incurred by the player's purchase and sale. So if a player sold for €10m, an investor might pay €3m of it. Then the investor would receive 30% of the proceeds from the player's next transfer. The club had to pay less up front – €7m instead of €10m – and the eventual effect on its bottom line would be smaller and less volatile, too. These same effects occur when the investor is a player.

Increasing risks for players. A player who has been ceded a share of his or her economic rights has usually received them in place of higher wages or some other form of compensation. So anything that could reduce the value of those rights – a fallout with a coach, injuries, even another change in FIFA's rules – represents a risk for the player. As a result, a player considering economic rights as part of a transfer or contract may want to take special care to ensure that the coaching staff truly desire the signing and expect the player to figure prominently in their squad.

Strengthening incentives for players. This is a related point. A player who owns some of his or her economic rights has essentially bought shares in himself or herself. The return on those shares will mainly depend, as with any asset, on performance. So the player has an extra incentive to play well, since doing so may lead to a bigger transfer fee in the future. Of course, even a player who doesn't hold economic rights has many incentives to play well, so a share of any fee just adds to the motivation. But it could also lower the likelihood that a player who's superfluous to a coach's plans would be content to sit around and collect paychecks. (On the flip side, the possibility of a big payoff in the event of a move might reduce a player's loyalty to a club.)

Revealing information to clubs. Because economic rights entail risk for players, clubs can use the offer of economic rights to derive information from potential signings. For example, a player who refuses to assume a share of his or her own economic rights may have private information about injuries or desire to excel on the pitch. By contrast, a player who gladly accepts economic rights may be demonstrating more confidence about performances in the future.

Creative clubs and agents will find myriad ways to combine economic rights with other clauses to tailor contracts. One way to offset the risk implied by economic rights is to offer them along with a buyout clause, so the player knows that the club can't stand in the way of a future move. Economic rights can also help cash-strapped clubs to push the payment of incentives into the future. For instance, a club might offer a forward 1% of his or her economic rights for every goal or assist registered during the season; the bonus need not be paid until a transfer occurs and new revenue is already coming into the club. Indeed, a club on a tight budget may even offer economic rights in place of wages.

And these are only a few of the wrinkles that may lie ahead. If player ownership of economic rights becomes commonplace, a mini-industry could arise to assume their newfound risks – and this will generate more questions for FIFA. Say a financial firm offers to insure a player in case no transfer occurs while he or she is under contract. The player would pay a fixed premium and then receive a payoff if the contract ran out. Essentially, the insurer has taken on the same risk that was supposed to strengthen incentives for the player. Would FIFA consider this a form of third-party ownership? Would they even find out about it?

With clubs around the world under ever increasing pressure as a result of the pandemic, we expect to see plenty of questions like these. Clubs are facing unprecedented financial risks, and they will undoubtedly seek to transfer some of those risks to their highest-paid employees. Indeed, it's worth asking whether players will be asked to take shares in the clubs themselves as part of their pay packets. Stranger things have happened, and probably will.

[Photo: Tsutomu Takasu]

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