The Telegraph has today reported that Sam Allardyce, the manager of the England football team, has explained to purported businessmen how they could circumvent the Football Association’s rules that prohibit third party ownership of players.

While some of the other revelations in The Telegraph’s report may be more personally embarrassing for Allardyce, it is his comments on third party ownership that may be of most concern to the Football Association.  Allardyce’s understanding of the rules and regulations governing this area appears to be rather shaky.  He states at one point in the video released by The Telegraph that:

“Third party ownership is only banned in this country…”

At this stage, Allardyce’s agent intervenes, stating:

“And France – and France.”

Third party ownership is in fact prohibited in all countries, not just England and France.

Given the central role the prohibition on third party ownership is likely to play in this controversy, the fundamental elements of the prohibition are explained below.

What is third party ownership?

In short, third party ownership is the practice of private investors owning all or part of a player’s economic rights.  This means that the private investor has a say over the player’s transfer from one club to another and will benefit from transfer fees each time the player is sold.

The practice is controversial.  It has been described by Gordon Taylor, chief executive of the Professional Footballers’ Association, as “like trading in human beings”, by then FIFA Secretary General Jérôme Valcke as “modern day slavery” and by the Premier League Executive Chairman Richard Scudamore as “indentured slavery”.

The fundamental concern regarding the practice is that it affects the integrity of the game: third parties control the transfer system while players are denied the ability to decide where they want to play.  This in turn has a deleterious effect on transparency.

The FIFA position

Given these concerns, the practice of third party ownership is prohibited by FIFA.  Article 18ter of the FIFA Regulations on the Status and Transfer of Players (the “FIFA Regulations”) states as follows:

“No club or player shall enter into an agreement with a third party whereby a third party is being entitled to participate, either in full or in part, in compensation payable in relation to the future transfer of a player from one club to another, or is being assigned any rights in relation to a future transfer or transfer compensation.”

A “third party” is defined as “a party other than the two clubs transferring a player from one to the other, or any previous club, with which the player has been registered.”

This prohibition was introduced by FIFA with effect from 1 May 2015.  From that date, any arrangement whereby a third party acquired an interest in a player’s economic rights was prohibited, save unless the agreement fell under one of the applicable transitional provisions that provide as follows:

  • Agreements entered into which predate 1 May 2015 may continue in force until their contractual expiry (though their duration cannot be extended).
  • Any agreement entered into between 1 January 2015 and 30 April 2015 may not have a contractual duration of more than one year beyond the effective date.

Prior to FIFA’s blanket prohibition on third party ownership, the practice was prohibited in England, France, Poland and, as a result of tax legislation introduced in early 2013, in Argentina.  However, Article 18ter now prohibits third party ownership in all countries (subject to the application of the transitional provisions).  Article 1(3)(a) of the FIFA Regulations provides that Article 18ter is binding at national level and must be included without modification in the regulations of all national football associations.

In circumstances where a player or club is found not to have observed the obligations set out in Article 18ter, the FIFA Disciplinary Committee may use its discretion to impose disciplinary measures on them.

The Football Association position

Third party ownership was banned by the Football Association and the Premier League following the controversy surrounding West Ham’s employment of Carlos Tevez and Javier Mascherano in the 2006/2007 season.  Those players were signed by West Ham while their economic rights were owned by third party investment companies.  This led to the Premier League imposing a £5.5 million fine on West Ham, after it was found that the club had acted improperly and had withheld important documentation regarding the players’ respective owners.

Thus the prohibition on third party ownership came into effect in England well in advance of the introduction of Article 18ter of the FIFA Regulations in May 2015.  The position is presently set out in the Football Association’s Third Party Interest in Players Regulations 2016-2017 (the “FA Regulations”).  Regulation A of the FA Regulations states as follows:

“1.        No Club may enter into an Agreement which enables any party, other than the Club itself, to influence materially the Club’s policies or the performance of its teams or Players in Matches and/or Competitions.

2.        No Club may enter into an Agreement with a party whereby that Club:

  • makes or receives a payment, whether directly or indirectly, or
  • assigns, novates, sells, grants, acquires or otherwise transacts in any rights or obligations whatsoever, or
  • incurs any liability

to, or from that party as a result of, in connection with, or in relation to

  • the proposed or actual registration (whether permanent or temporary), or
  • the transfer of registration, or
  • the employment or continued employment

by the Club of a player…”

Those provisions are reflected in Regulation A.3 of the FA Regulations in respect of players, on whom the prohibition also bites.

The FA Regulations also set out a series of agreements that are permitted, in order to clarify what is and what is not allowed.  Save where an arrangement is expressly permitted under Regulations B or C, a club or player may only enter into an agreement otherwise prohibited by the FA Regulations where it has obtained the formal written approval of the Football Association to do so.  In this respect, it is worth noting Allardyce’s reference to West Ham’s acquisition of Enner Valencia in 2014, stating that the player had been under a third party ownership agreement but that West Ham had subsequently acquired the player “whole”.  This is in practice perfectly permissible.  Regulation D.5 states that a club may register a player who is subject to third party ownership, provided it buys out any existing interest in a player before the transfer goes through.  This process effectively ‘cures’ any issue arising out of any pre-existing third party ownership and, for this reason, requires the prior written approval of the Football Association.

The Premier League position

The prohibition on third party ownership set out in the FA Regulations is also reflected in Rule U.38 of the Premier League Rules.  This sets out the circumstances in which a Club may make or receive a payment or incur any liability as a result of or in connection with the proposed or actual registration, transfer of registration or employment by it of a player.

Rule U.39 reflects Regulation D.5 of the FA Regulations and sets out the mechanism by which a club can buy out an interest in a third party:

“In respect of a player whom it applies to register as a Contract Player, a Club is permitted to make a payment to buy out the interest of a Person who, not being a Club or club, nevertheless has an agreement either with the club with which the player is registered, or with the player, granting it the right to receive money from a new Club or club for which that player becomes registered. Any such payment which is not dependent on the happening of a contingent event may be made either in one lump sum or in instalments provided that all such instalments are paid on or before the expiry date of the initial contract between the Club and the player. Any such payment which is payable upon the happening of a contingent event shall be payable within seven days of the happening of that event.”

Conclusion

The position is therefore clear. Subject to the application of the transitional provisions set out in the FIFA Regulations, third party ownership is prohibited at FIFA level and is also prohibited by the FA Regulations and the Premier League Rules.  Whether third parties seek to circumvent such prohibition through structures of the type outlined by Allardyce is another question.