Wednesday 11 March 2015

Third-Party Ownership for Dummies – So What Is the Problem, Really?

UEFA recently started creating a big fuss about Third-Party Ownership (TPO), depicting it as a major potential threat to professional football. I will explain briefly what TPO is about and summarize three main reasons why it can indeed be considered hazardous to the integrity of the game.

What is TPO?

Typically, when a player is transferred from one team (“team A”) to another (“team B”), the acquiring team (B) pays a transfer fee to the selling team (A), entitling the acquiring team (B) to the “ownership rights” of the player. Concretely, this means that if team B was to sell the player again later on, team B, in turn, would be netting a transfer fee for the player – ideally, one larger than what was previously paid to team A, so as to make a net profit.

In case of TPO, it is no longer a transaction involving only - or even mainly - the clubs; rather, an athlete’s “ownership rights” are in the hands of a third-party owner, which has invested in the athlete under the assumption a substantial amount of future transfer fees can be generated out of him/her. So in case a player, whose “ownership rights” are in the hands of a third-party owner (“C”), is being transferred to a team B, the transfer fee team B is paying will be cashed in by C, with team A being left empty-handed (assuming, for simplicity, the player is 100% third-party owned).

The threats of TPO to the integrity of the game

At first sight, it may seem as if TPO merely implies a player can cash in earlier on his/her future potential, handing on the risk to a third party. At closer inspection, however, the game of football risks to suffer greatly from TPO, mainly for the following reasons:
1.       Third-party owner C will receive a return upon its investment if and only if the player is being transferred. Each time the player moves teams, C will be passing by the cash register, implying C's goal will be to have the player move teams as often as possible.
2.       An even more serious problem concerns “conflict of interests” as TPO threatens to fundamentally alter the relationship between an athlete and his/her agent, substantially increasing the power of agents. Let me illustrate this by means of an example. In a system without TPO, the power, even of a “superagent” such as Jorge Mendes, largely resides in his/her network and is thus informal. Ultimately, the agent is hired by the athlete, to take care of those aspects the athlete would like to entrust the agent with. José Mourinho, for instance, employs Jorge Mendes to take care of Mourinho’s business for him. 

Source: 101greatgoals.com

A potential – but not yet material – conflict of interest arises when Mendes is also representing some players belonging to Mourinho’s team – in this case Chelsea – but not others. After all, the agent has an interest only in those athletes in his/her “portfolio”. Mendes, thus, may encourage Mourinho to pay particular attention to those players when it comes to giving them playing time.

The reason why this potential conflict of interest does not need to materialize is because the agent is in a subordinate position to the athlete.The athlete can easily hire and fire his/her agent. So Mourinho's interests will be Mendes's; Mendes's interests won't necessarily be Mourinho's.

This dynamic between athlete and agent stands to change fundamentally as a result of TPO. In the case of Mourinho, his “ownership rights” are in the hands of a third-party investor, in which superagent Mendes happens to have a major stake. So no longer is Mendes merely “hired” by Mourinho, Mendes now actually “owns” Mourinho, let it be indirectly. Such a structure may make any request by the agent potentially much more persuasive: Mendes's interests will now also be Mourinho's. In economic terms, TPO thus risks reversing the "principal-agent" relationship: whereas without TPO, Mendes would be Mourinho's agent, with TPO, Mourinho stands to become a pawn in the portfolio owned by Mendes.
Mourinho-Mendes relationship in a world without (left) and with (right) TPO

The fact that we currently are still living in a world with TPO may not be alien to why, e.g. the Belgian football press prophesied an even brighter future for Chelsea's Charly Musonda Jr. as he recently dumped his former agent for…Jorge Mendes.

Source: voetbalspot.be

3.       Another real threat posed by TPO again relates to clubs and coaches losing out control to agents and parties who are in it for the money. Third-party owners may offer their players to teams, which normally would not be able to afford the transfer fee, in return for certain conditions, e.g. that they will always be fielded. In the short term, this essentially implies the manager having to cede team decision-making to business interests. In the longer term, it also exposes the club to the danger of being substantially weakened as it is to receive no compensation, i.e. transfer fee, when the “star player” moves on and, thus, without means to find a suitable replacement.

While not directly related to TPO, the case of (former) Chelsea loanee Thorgan Hazard to Belgian Zulte-Waregem serves to illustrate both mentioned aspects. First, Hazard's entourage negotiated that their poulain would have to be awarded the captain's band, confronting coach Dury with a foregone conclusion and upsetting the dressing room. Second, while, under impulse of Hazard, Zulte-Waregem peaked to become vice-champion, after the golden boot had left - without receiving any compensation - the club quickly found itself fighting relegation (admittedly, other key players had left the club as well). Whereas fans may prefer such peaks and troughs, Zulte-Waregem's stability and balance, arguably, did not seem to have fared well by the Hazard saga.

Rather than claiming that, say, Mourinho, will necessarily give in to any demands by his agent, with or without TPO, I have sought to illustrate how TPO stands to change relative power and the incentive structure involved. While UEFA may have its own rationale for strongly opposing TPO, my intention has been to summarize the main reasons why, from a long-term perspective of the good of the game, it's recommendable putting up a fight.