UEFA's plans to tackle third-party ownership more than just a case of regulation

The face of third-party ownership? ‘Superagent’ Jorge Mendes (L) sits with his client, Radamel Falcao

The recent investigation by The Guardian into third-party ownership has further opened the can of worms that was stirred in the close season transfer window following the tug-of-war between Manchester United and Sporting Lisbon over the Argentine Marcos Rojo, with offshore fund Doyen Sports doing their bit by pressurising the Portuguese club to sell the defender.

To be fair, the third-party ownership can had never really disappeared after West Ham United paid more than £20 million in fines and compensation for fielding Carlos Tevez and Javier Mascherano during their battle with relegation in 2006-07 that saw Sheffield United dropping down.

However, The Guardian’s investigation into the convulated web that comprises of the ‘superagent’ Jorge Mendes, former Manchester United FC and Chelsea FC executive Peter Kenyon, Chelsea FC, and several ‘investment funds’ is showing signs of evoking a policy response from UEFA.

While the exact contours and applicability of the guidelines that UEFA would finally impose to counter and eradicate third-party ownership are still being determined, the broad outlines can be guessed. The Guardian has already said that a body could be set up to arrive at the exact ownership of players. Should clubs be unable to prove that their contracted players are wholly-owned, they could face a transfer ban or the player(s) in question could be excluded from the squads for UEFA competitions.

In a chat, David Conn – the journalist responsible for uncovering the murky third-party links between Mendes, Chelsea and Kenyon – said that UEFA would give clubs time “to adjust and presumably sell their interests”, given that third-party ownership has become the norm rather than exception in some parts of Europe.

While UEFA’s norm changes may be well-intended, countries where third-party ownership is rife could see their clubs spiraling downwards economically.

Any deadline, or other sanctions, for clubs to ensure that all their players are wholly-owned would only be announced from the next three-year competition cycle starting 2015-16. Let us assume, purely hypothetically, that UEFA sets Jan 31, 2017 as the date after which all players have to be wholly-owned. Therefore, by the said date, clubs would have to sell their stake in players’ of other clubs – something which Chelsea may be engaging in – and buy out the interests owned by third parties in their own players.

According to a 2013 KPMG study on third-party ownership, the total market value of players in countries where third-party ownership is legal is approximately €14.3 billion, amounting to roughly three-fourth of the market value of all European leagues. However, the more startling revelation was the finding that the potential market value of players under third-party ownership in Europe, after making some assumptions, was around €725 million - €1.1 billion.

Given the €14.3 billion market value of all players in countries where third-party ownership is legal, the growth potential for such contractual relationships is mind boggling. It is no wonder that The Guardian’s investigation showed that the fund Quality Sports V Investments LP – to which Mendes’s agency Gestifute and Peter Kenyon’s company Opto are advisers – was targeting a phenomenal profit of 32%. Per annum.

Eliaquim Mangala’s transfer from FC Porto to Manchester City saw huge payments to third parties

Third party ownership and Player sales

The above numbers give the extent to which third-party ownership has proliferated the modern footballing world, as well as expenses clubs would have to incur to ensure that all their players are wholly owned by them. However, the sheer impossibility of the task is revealed when the clubs’ revenues are examined.

Studying the spread of third-party ownership is essential to comprehending the difficulties which European clubs may face when UEFA’s yet-to-be formulated norms are imposed in the coming years.

Third-party ownership is not allowed in the UK, France and Poland. According to the aformentioned KPMG study – and backed by The Guardian’s investigation – it is a “common practice” in Portugal, with the value of players operating under the third-party ownership model being around 27% – 36% of the market value of players in the Portuguese league.

The market share of third-party players rises to near 40% in Eastern European countries such as Croatia, Serbia, and Romania. The share is much smaller in Spain, standing at around 5% – 8%, while other major European nations such as Italy, Germany, and The Netherlands are not dominated by the practice. However, the study said that the interest in such contracts was increasing.

“Taking into account the above considerations, the market share (in terms of market value) of the players under TPO (third-party ownership) in the European leagues is estimated to be between 5.1% and 7.8% (3.7% and 5.7% if considering those countries in which TPO is not allowed) – the value of third party investments would be between 10% and 50% of the market value of the players under TPO,” the study said.

Returning to the revenues of the clubs entrenched in the third-party system: in 2012-13, FC Porto recorded a profit of €20.36 million, with the proceedings from player sales instrumental to the positive net figure. The Portuguese giants had posted a loss of €35.76 million in 2011-12, although the preceding five years had all been profitable.

Porto’s rivals Benfica recorded revenues of €109.2 million in 2012-13 according to Deloitte’s Football Money League 2014 report. Although no exact figure for Benfica’s profits could be found, the club is known to be sound financially. However, player sales have again been essential to their survival. One only has to look at the sale of Ramires, Fábio Coentrão, Ángel Di María, Javi García, Axel Witsel and Nemanja Matic to know that transfer receipts would have been key to keeping the accounts in the black.

The transfer sale numbers for Porto would be even more impressive keeping in mind the players that have been sold since José Mourinho left for Chelsea. A report by The Guardian earlier this year said that since 2004, Porto had made a profit of around €400 million from player sales.

It can be argued that player sales being the dominant revenue stream for these clubs is irrelevant. However, it was third-party ownership that facilitated the part-purchase of some of these players, with their eventual sale boosting the clubs’ coffers. But if these clubs have to completely own all their players by our previously-set hypothetical date of Jan 1, 2017, where would the finances come from?

Despite Porto and Benfica’s – chosen as examples purely because of their reliance on player sales and third-party ownership – continued financial ‘success’, they are not laden with massive cash reserves like Arsenal. In fact, Porto had a ‘net financial debt’ of €26.59 million in 2012-13, as per their annual report.

UEFA’s challenge in countering third party ownership

The challenge for UEFA, thus, is manifold. Not only does it have to combat third-party ownership, it must also ensure that clubs are given adequate time to comply with the new norms. Additionally, the financial health of clubs must not deteriorate further than it already has. Given the struggling euro zone economy and massive levels of debt Spanish clubs, and to a lesser extent, their Portuguese counterparts, currently are under, the 100% purchase of players’ economic rights could turn into a nightmare.

If UEFA is not careful, the period leading up to our hypothetical deadline could see third-party owners asking for sky-high amounts for their shares in players, and should clubs refuse to pay them, they would then face the UEFA sanctions. Conversely, clubs may be forced to sell players in which they have some stake at throw-away prices simply because they may not be able to afford the purchase of the entire economic rights.

Marcos Rojo: Now plays for Manchester United, previously Sporting Lisbon and Doyen Sports

There is no doubting the dangers of third-party ownership, highlighted by Sporting Lisbon President Bruno de Carvalho’s claim that it was “a monster that is living in almost all the clubs”. But the eradication of the monster that is third-party ownership is a path that is laden with dangers itself. Considering the sheer ridiculous manner in which football’s governing bodies work, one can rest assured that the journey to single-party ownership is going to be a bumpy one.