Neymar: economics and legal regulations of professional football

Hardly has any event in the past quarter of a century, and perhaps even more, shaken the world of football like the recent transfer of the superstar Brazilian born footballer Neymar Jr. (full name Neymar da Silva Santos Jr.) from the Spanish club Barcelona to the French club Paris Saint Germaine (PSG) for the incredible sum of 222 million euros (about 220 million GBP). For those well informed in the dynamics and intricacies of professional football, the curiosity is not so much the capacity and willingness of the unbelievably cash-rich Qatari owners of PSG to pay such an outrageous amount but that they were allowed, or found a way, to do so given the provisions of the UEFA Financial Fair Play Rules (“FFPR”) which are meant for avoidance of such great shocks to the football ecosystem.

My thesis in the LL.M sports law and practice course at the De Montfort University, Leicester, England some six years ago was on the subject of the Critical Evaluation of Legal Issues involved in the UEFA Financial Fair Play Rules and the Concept of Competitive Balance in Professional Football. One of my classmates who is working in the sports industry (for an industry it is, everywhere else but Nigeria) was mystified and had called from the Netherlands for my supposedly expert opinion on the propriety or legality of the Neymar transaction. A considerable digression may be apposite given that to achieve a rounded understanding of the subject would require that we have at the onset at least a sketch of some issues and considerations- historical, economic and legal-which form the background against which the transaction was consummated.

The foundational consideration in the present vein is the concept of competitive balance which in the sporting context connotes the balance between sporting capabilities of teams in competition with one another or/and amongst themselves; the more equal or balanced the capabilities of the teams are, the greater the competitive balance. A necessary ingredient and consequence of competitive balance properly so called is the uncertainty of outcome of sporting contests. It is axiomatic that the basis of the excitement in or over a competitive football match is majorly the uncertainty of its outcome. The foregoing point is demonstrably driven home by the fact that the football fans who leave the stadium or the front of their television sets at a point where one of the teams is winning by a very wide, ordinarily unbridgeable, margin undoubtedly feel that the essential outcome is no more uncertain, and therefore no longer deserving of their interest. Achieving a high degree of competitive balance is therefore a timeless article of faith for football leagues or governing bodies, as with other sports.

A relatively recent major obstacle to achieving this strategic objective has arisen from the influx of billions of dollars and euros into the Eurocentric epicenter of global professional football in the past three decades. The money has not been evenly spread at all, and resulting in very wide and widening gap in the financial strength of a few clubs against the rest.  This financial disparities have inevitably translated to on-field or sporting imbalance especially with the virtually unrestricted transfer of footballers across European borders with the epochal decision of the European Court of Justice (ECJ) in the Bosman case [1996] 1CMLR 645(Case C-415/93). The football clubs with the financial muscle have gone ahead to sherry pick the best footballing talents from all over the world. This money-driven shifting landscape has resulted in erstwhile aristocrats like Benfica of Lisbon, Portugal, (the team of the great Eusebio) and Ajax of Amsterdam relegated to the status of poor cousins and glorified feeder-clubs for the present day super elite football clubs.

In this milieu, the rise to prominence of the nouveau riche clubs like Chelsea and PSG became inevitable. When the Russian billionaire Roman Abrahmovich bought Chelsea in 2003 and started a hitherto unprecedented spending spree in acquiring top football talents from all over Europe, Arsene Wenger the Arsenal manager complained that the development was ‘financial doping.’ Not only was competitive balance hugely compromised, a major casualty of this scenario was financial stability of clubs many of which in a bid to remain competitive spent hugely beyond their means and courting bankruptcy in the process. The case of Leeds United is a most spectacular example; going bankrupt and falling down to the third tier of English football ladder within six years of making the semi-finals of the UEFA Champions League competition in 2001.

FIFA and UEFA mooted diverse remedial measures, including salary caps and the ‘6+5 rule (i.e. mandatory inclusion of at least 5 players from a club’s home country in its starting XI)’. However, given the mammoth sums of money involved in football it was deemed an ‘economic activity’ and therefore subject to European Competition law as decided by the European Court of Justice in the case of Dona v. Montero, Case 13/76 [1976] ECR 1333; such measures  being mainly deemed ‘anti-competition’ devices and therefore unlawful. This was despite the recognition of the ‘specificity of sport’ by the European Commission and its acknowledgment of the consequential “need to ensure uncertainty concerning outcomes and to preserve a competitive balance between clubs taking part in the same competitions.”

The conception and implementation of the FFPR as a means of curbing some of the negative effects of money on the football industry therefore necessarily took into account that the jurisprudence of the ECJ treats professional football, as indeed all other professional sporting activities, essentially as any other industry and all of which are subject to the European Competition rules and regulations. The decidedly tentative and, as some have posited, convoluted nature of the FFP rules which were introduced by UEFA some seven years ago are therefore to be understood in the foregoing light. So what are the FFPR about, we could ask at this juncture?

The present article is hardly the platform for any detailed consideration of the heavily calibrated FFPR. Suffice it to say that its essence or principle lies in stopping football clubs which are participating in European competitions from spending more than what they earn. Beyond an allowance of a relatively very small debit presently fixed at 5 million euros over three years, a club’s expenditure must be within its income. Income here refers to earnings from its sporting/business activities, including match days revenue, merchandising, sponsorship etc. UEFA has 11 core values the eight of which is about financial fair play and therein prescribing

“…that clubs operate transparently and responsibly, to protect both sporting competition and the clubs themselves…clubs not getting into a spiral of debt to compete with their rivals but rather competing within their own means, i.e. the resources they generate.”

A major criticism of the FFPR from the onset was that it interferes with the fundamental concept of ‘free market’ and that it would tend, and tended, to ossify the status quo; unduly restricting the extent to which the smaller or poorer clubs could be enabled by huge ‘outside’ money (quite likely from new investors or owners) to push their way into the elite circles. The concerns about undue preservation of the status quo were supposedly addressed with a revision of the rules in 2015. Consequentially, exemptions have now been made for expenditures on infrastructure and youth development. Club owners have also now been allowed to spend their own money over a rolling three-year period subject to a maximum of 30 million euros. An owner could even spend more than this ceiling provided he avails UEFA with a satisfactory business plan.

A mix of sanctions are provided for breach of FFPR including a ban from European club competitions for a length of time. An example is the case of the English club Manchester City which was found to have contravened the rules in 2014 and suffered serious sanctions in the form of a fine of 60 million euros and a restriction of its squad to only 21 players, instead of the usual 25, for the UEFA Champions League for the following season and not less than 8 of which must be ‘homegrown’ players. PSG itself is no stranger to sanctions for FFPR violations having being found culpable of, and punished for, inflating the value of a sponsorship transaction with a related party, Qatar’s tourist body.

In the present groundbreaking Neymar’s case, the truth is that the jury is out on it. The exact details of the payment mode and structure have not been made public. What are presently out in the public domain are mainly speculations. There are nonetheless factors which are beyond speculation or which could be taken for granted. These include the awareness of the PSG owners of the strictures of FFPR in the circumstances. They would have certainly engaged the most highly reputed sports and commercial lawyers and accountants to sneak their way through the regulatory minefield, with a view to maximizing any leeway or loopholes in the FFPR. For example, it is legal for transfer fees to be payable over the length of a player’s contract. 

With Neymar’s five years contract, the record transfer fee could and would be broken down into five installments for accounting purposes. The books could be balanced in a number of ways during this period. PSG could conceivably over the period sell for substantial fees some top quality players who it deems surplus to requirements in the wake of Neymar’s arrival. For example the highly rated German international Julian Draxler would likely have his playing time for PSG reduced and is up for sale, if the speculations in the European sporting press are to be believed. Crucially as well, the 2018 World Cup, hosted by Qatar, is round the corner with enormous amounts of money available to be made from the abundant commercial opportunities. The club’s owners-in many respects inseparable from the Qatari government-are peculiarly well positioned to benefit from such opportunities; at least they are in a position to deploy financial sleights of hand which could help the Neymar transaction pass the FFPR test.

As a matter of fact, it was reported in the Spanish press that Neymar had agreed to become an ambassador for the World Cup tournament for a fee in the region of the transfer fee PSG paid to Barcelona. So, it is possible that Neymar may have been the person who bought out his release clause. And if such is indeed the case, the club could well argue that it was not directly involved. It is worth reiterating that the jury is still out and any possible sanction would be upon conclusion of a potentially lengthy investigation process, and which can only be initiated by a complaint from Barcelona or UEFA acting suo motu if it thinks that FFPR has been contravened.

Nonetheless, the paradigm shift which the Neymar transaction represents has also cast in very bold terms certain peculiarities in the law and economics of professional football. Apart from huge, some would argue unsustainable, cash injections by oligarchs from the old Soviet Block and oil-rich Middle Eastern sheiks, professional football in Europe has been awash with exponentially increasing amounts of money majorly from television, merchandising and other commercial devices. One direct result of this development is the steep rise in transfer fees and salaries. However, the amount of the Neymar transfer fee is phenomenal even for the presently highly inflated market. It has consequently created a ‘new normal’ in the market for professional footballers, with prices reaching stratospheric levels for even some unexceptional talents.

It is safe to say that the Neymar transaction came about only because of a peculiarity of the footballer’s contract of employment in the form of a release clause. Basically, the football player and his club are expected to be bound by the terms of the contract, including the term or the duration it is to subsist. The movement of the player to another club within the term of the contract must be consensual. The exception is if the contract has a release clause stipulating a sum of money which once offered for the player’s services the owner-club is bound to sell as long as the player is willing to leave. It is instructive that despite the unprecedented amount of money it got for the transfer, Barcelona appeared most reluctant to allow Neymar to leave. But the matter got out of the club’s hands with the tendering of the amount of the release clause sum of 222 million euros.

Clubs and their legal advisers must now be rethinking the efficacy of release clauses. The release amount is customarily set so high as to constitute a deterrence mechanism; an unwanted interested club usually waved off by reference to the unreasonably high release figure. With the Qataris redefining the boundaries of reasonableness, football clubs must be rethinking the thresholds of release sums in contracts with their players or even jettisoning the practice altogether. Barcelona, once again, is involved in a very public case which underscores the foregoing point. It identified Philip Coutinho of Liverpool football club as the ideal replacement for Neymar. With Liverpool not inclined to sell, Barcelona made repeated and increasing bids with the last one supposedly in the region of a total of 138 million GBP, inclusive of performance/achievement based payments referred to in the football lexicon as “add-ons.”

Regardless that the sum offered is universally agreed to be highly inflated (at least in terms of pre-Neymar PSG transfer), Liverpool has rebuffed a frustrated Barcelona and disregarded Mr. Coutinho’s desperation to join the latter that he issued and publicized his written transfer request. Liverpool is however in a seemingly impregnable legal position in the light of the fact that Coutinho is barely six months into a five year contract with no release clause. Any transaction which subsequently takes place would be completely on Liverpool’s terms.

It has been noted in this article how transfer fees now seem to be spiraling uncontrollably. Indeed it would appear that with the Neymar’s transfer the big European clubs-and the increasingly globally assertive Chinese clubs-are poised to enter into a very unpredictable era of financial ‘nuclear arms race.’ Whilst players and their agents would make even more money, the envisaged scenario does not look sustainable in the long run. The rest of the European elite clubs are not likely to fold their arms and watch the likes of PSG and Manchester City, in addition to the ever present ‘old money clubs’ like Manchester United, Real Madrid and Bayern Munich, take all the prizes without a fight. But there is only so much money that could be generated from footballing and related activities, and there is the danger that many of the other top clubs would probably get into ruinous debts in seeking on-field competitiveness.

It is not inconceivable that the elite clubs may recognize and propagate their enlightened self-interest in adopting a regime of financial self regulation without prejudice to the provisions of FFPR. It is noteworthy in the foregoing vein that professional sport, which is epitomized by football, is a peculiar industry in which each entity even in seeking for dominance is necessarily interested in the wellbeing of its competitors, at least to some extent. They must combine, by playing against themselves, to create the ‘product’ on offer to their consumers. And when a number of the competitors, actual and/or potential, are suffering considerable financial disabilities then the standard of ‘the product’ inevitably falls, if not going out of production altogether. David Conn makes the point in his book The Football Business that

“The (U.S.) National Football League knows that competition is undermined if money is allowed to rule. The league operates a franchise system, and a draft system of players, together with a cap on the amount of a club’s money which can be spent on players. This is done to ensure some equality between clubs, to make sure the little club always has a chance.”

For us in Nigeria the most important, and saddening consideration, is that we are off the radar as regards getting a reasonable share of the billions of dollars generated annually in professional football. The state of our football is in such a sorry state occasioned largely by abysmally low levels of investment in the sector. This is, in turn, majorly due to the hostile environment characterized by corruption and government’s over bearing, growth-stunting, control over the sector. With the undoubtedly promising potentials in the country there is no doubt that an appropriately regulated enabling environment, envisioning the maximization of the potential for enormous forex inflows into our economy would be a catalyst for the development of our local football leagues to tap properly into the global football economy. But that is a discussion for another day and forum.

*Chijioke Okoli, a Senior Advocate of Nigeria is a specialist sports lawyer and Chairman, Board of Governors of Cowbell Football Academy.    

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