With the January transfer window firmly shut the Brabners Sports Sector Team takes a timely look at FIFA’s landmark reforms to the transfer system.
On 24 September 2018 the FIFA Football Stakeholders Committee which features representatives of clubs, leagues, players and national associations backed a groundbreaking set of measures to introduce a reform package of football’s multibillion-pound transfer system. On 26 October 2018 the members of the FIFA Council endorsed this reform package.
FIFA’s transfer rules aim to protect players and clubs; not to regulate what is, in effect, a speculative market. The evolution and commercialisation of the transfer market has developed exponentially alongside the sophistication of the business side of the sport making player transfers big business. Consequently, the transfer market has become vitally important for many clubs because in most leagues, especially in Europe, only a handful of teams have any prospects of actually winning a competition and being awarded the associated prize money. It has become increasingly common to see some clubs’ actual existence become reliant on the money they make from player transfers. Whilst there is nothing wrong with clubs existing in that capacity, what is concerning is the fact that historically there is such little regulation.
The tide is turning however, with FIFA validating the set of recommendations which seek to increase the transparency of the system, protect its integrity and reinforce training compensation and solidarity mechanisms for training clubs. The proposals are widely supported by the body’s president Gianni Infantino, who is seeking ways to protect players and clubs from controversial practices in the global transfer system. These changes represent the biggest overhaul to the transfer system since the Bosman ruling in 1996 (a European Court ruling that required clubs to allow players over the age of 25 to move freely between clubs once their contracts have expired).
The key points of the reforms are:
- Creation of a “clearing house” to process transfers with the aim of protecting the integrity of football and avoiding fraudulent conduct. This will ensure the good functioning of the system by centralising and simplifying the payments associated with transfers such as solidarity, training compensation, agents’ commissions and, potentially, transfer fees.
- Solidarity contributions to apply to domestic transfers with an “international dimension”.
- Mandatory introduction of an electronic transfer system at national level following the model in place at FIFA for international transfers as well as of a domestic electronic registration system.
- New and stronger regulations for agents to be established with agreement on the principle of introducing compensation and representation restrictions, payment of agents’ commissions through the clearing house and licensing and registration of agents through the FIFA Transfer Matching System “TMS”). The development of these proposals also followed a lengthy consultation process with a representative group of agents.
- Development of the regulation of loans of players for the purpose of youth development as opposed to commercial exploitation. The number of loans per season and between each club shall be limited and bridge transfers and sub-loans shall be prohibited.
Following the ratification of the above proposals in October, FIFA has identified further transfer reforms which include:
- FIFA’s limit on the loan players for the 2020-21 season is likely to be between 6-8 players with a maximum of two deals per season between any two clubs.
- Re-introduction of an agent licensing system under FIFA Regulations on Working with Intermediaries. The system is to be administered centrally by FIFA through a web-based examination. Agents will be required to maintain professional liability insurance and to attend professional courses annually basis to retain their license. Agents will be included in the FIFA TMS, with a dedicated account, which they will need to update for every transaction. Particular attention will be dedicated to the issue of conflict of interest, with a new set of rules that will ensure clear distinctions between the interests of clubs, players and agents.
- Re-introduction of restrictions on dual representation in the same transfer.
- Agents to benefit from the dispute resolution system offered by FIFA/CAS and the establishment of the Clearing House will make it easier to cash commissions.
- Sanctioning system on non-compliant clubs, players and agents will be implemented.
- Potential cap on agents’ fees and limit on the aggregated commission payable in relation to an individual transfer.
- FIFA is also considering to introduce a rule whereby an agent’s commission shall be paid by the player himself, and not by the club (as customary). FIFA maintains that the player as a result of this personal expenditure might be inclined to make wiser choices in relation to his representation.
Focusing on the “new and stronger regulations” for agents, we discuss below some of the implications they will have upon the transfer market going forwards.
New and stronger regulations for agents:
Under FIFA’s reforms, agents will be subject to a number of changes including; the introduction of capped fees and an end to “dual representation” whereby agents will no longer be able to represent both the player and clubs in transfer deals. Agents will also be required to adhere to a new registration system, with player representatives expected to pass an exam in order to gain a licence. Currently, there are no professional qualifications required to become an agent. Incidentally, this is how the system used to work with FIFA issuing agent licences until 2015 when the whole system was deregulated.
FIFA is proposing that control should be developed on a worldwide level rather than a national level and that FIFA will be able to hand down sanctions for breaches of the rules. FIFA proposes to do this by sanctioning the individual clubs and players who breach the rules on agents rather than FIFA handing down sanctions on the agents themselves. For example if a player is to breach the rules about using an unlicensed agent then the player rather than the agent will be punished by FIFA. The agent will still be punished by the national association in the fact that he will be known as an unlicensed agent and will not be able to apply to become a licensed agent.
The rationale behind FIFA’s proposals is that the sanctions will be so heavy on the player or the club that it will serve as a deterrent for a player or a club to do this. ‘Why have FIFA changed their minds?’ is a question that maybe asked; simply different people are now at FIFA’s helm. At the time a stakeholder committee did not exist and FIFA had prophesied that regulation was pointless since local jurisdictions allowed for different exemptions in different cases. FIFA therefore, concluded that they would allow anybody to be an agent but would monitor each deal.
As a result, for an agent to represent a player playing in a specific league, they are currently required to have obtained a licence from the national governing body in that country. The problems with the current regime are that many players still use the services of un-licensed agents. It is estimated that only a small percentage of players actually use licensed agents which is a huge problem for the footballing authorities; especially as the licenses under the current regime are issued by the national governing bodies. It is difficult to sanction, for example, as The FA has no power against agents based overseas and registered with another national governing body. Further, it is unclear for intermediaries as to how cross jurisdictional work will be regulated and how commercial rights will be protected and enforced. A common question we are asked is: If I am a Registered Intermediary with The FA, and I have an English based player who is about to sign for a foreign club, does my representation contract cover the foreign transaction from a regulatory perspective, and more importantly from a legal and commercial perspective?
Ostensibly the current regime has not been a successful ploy, especially when considering transfers where agents or intermediaries get paid by all parties involved; the player, the selling club and the buying club. This monopolisation reportedly occurred in 166 different international transfers between January 2013 and November 2017, during this period £1.6 billion was paid to agents in commission. If a figure for domestic transfers of this nature was to be calculated the reality of the issue would be more prevalent.
Given the sheer volume of transfers taking place and the figures involved it is understandable that FIFA want to obtain a clear understanding of where this money is going. FIFA therefore, wish to restrict how an agent can act for a deal; in most cases the agent will have to choose the party they represent as opposed to representing all sides (although question what practical difference this will make to the fees, as one can envisage the fees, which were previously spread across the transaction, simply being ‘grossed up’ – after all, the market is the market. There is even a school of thought that this will increase wages (and inevitably fees) as agents will demand that the player’s increased tax liability on the agent fee (as a result of the agent acting solely for the player) should be absorbed in an increased wage.
If the system proposed by FIFA is to work then more regulations will have to be created in order to provide full details of how the system will work.
As with all systems, there are disadvantages to the new proposals. If FIFA is talking about sanctioning the player for use of an un-licensed agent/intermediary then, in a scenario where a young footballer has been ‘taken advantage of’ (by a smart sales pitch (or one that completely misrepresents the truth)) by an un-licensed agent/ intermediary (possibly even parting with money to pay the un-licensed agent/intermediary) then the proposed FIFA regulations would seek to punish the player with a regulatory sanction (on top of the player’s unfortunate and possibly costly experience) . This is something which will need to be looked at if and when the new proposals come into force.
Conclusion:
From creating a consistent transfer window globally for all leagues and capping agent fees, to introducing a clearing house for cross-border transfers and limiting squad sizes and loans, FIFA have made it clear that everything is on the table. Indeed, this is the biggest effort yet to regulate what has become a business worth nearly £6.5 billion a year, roughly twice what it was in 2011.
For more information on the topic, please contact Catherine Forshaw.
