Play on: CAS clarifies the permissibility of variable sell-on clauses in football transfers

Football’s January transfer window is upon us. Against the buzzing of mobile phones, dealmakers and lawyers will be tirelessly drawing up transfer terms. When it comes to deciding whether to cash in on players who could go on to achieve big things, savvy clubs may include sell-on clauses as a means of generating revenue further down the line.

Observant lawyers will have boosted their negotiation armoury after the successful appeal by Premier League club Arsenal FC (Arsenal) last summer before the Court of Arbitration for Sport (CAS) in relation to the compliance of variable sell-on clauses in player contracts with FIFA regulations which prohibit third party influence.

This article, which builds on our previous post on the same subject, briefly recaps FIFA’s rules and how variable sell-on clauses work, before considering what the CAS’ recent decisions mean for the drafting of transfer agreements going forward.

Rules on third-party influence

The relevant FIFA rule on third-party influence is set out in paragraph 1 of Article 18bis of the Regulations on the Status and Transfer of Players:

“No club shall enter into a contract which enables the counter club/counter clubs, and vice versa, or any third party to acquire the ability to influence in employment and transfer-related matters its independence, its policies or the performance of its teams.”

Variable sell-on clauses

A sell-on clause provides that a club selling a player (Club A) is entitled to compensation if and when the purchasing club (Club B) later sells that same player on to a third club (Club C). Such clauses are often used where the player’s market value might (significantly) appreciate in the future.

‘Variable’ sell-on clauses typically provide that the compensation payable in the event of an onward sale increases depending on the identity of Club C. Whilst there may be sensible commercial and sporting reasons for these clauses, FIFA has been wary of provisions which might allow Club A to influence the follow-on sale, for example by disincentivising the onward sale of players to rival clubs (known as ‘anti-rival clauses’).

Case history – FIFA’s Disciplinary Committee guns for Arsenal’s variable sell-on clauses

Arsenal included variable sell-on clauses in the agreements for the sale of players Chuba Akpom to PAOK Thessaloniki (PAOK) and Joel Campbell to Frosinone Calcio. The clauses provided for an increase in the amount payable in the event of an onward sale of either player to a ‘football club in the UK’ versus a sale to a non-UK club (by 10% and 5% respectively).

FIFA’s Disciplinary Committee found that these clauses infringed Article 18bis, on the basis that their effect was to prevent the clubs subject to them from enjoying full independence in transfer-related matters. FIFA issued a fine of CHF 40,000 (approximately GBP 33,000) to Arsenal, with the threat of harsher sanctions for repeat violations.

Having unsuccessfully challenged this decision before FIFA’s Appeals Committee, Arsenal lodged an appeal with the CAS.

In summary, Arsenal’s key arguments were that: (i) in order for there to be a breach, the “influence” referenced in Article 18bis must be sufficiently material and the ‘influencer’ must have acquired the ability to exert ‘undue influence’; and (ii) the club should not be sanctioned because it acted in good faith and had legitimate expectations that the clauses were permissible, since such clauses had not historically been the subject of enforcement action from FIFA.

Returning fire - the CAS Appeal

The CAS emphasised that resolving the questions before it required a balance to be struck between the principle of contractual freedom under the applicable Swiss law and the ability of governing bodies to prohibit the conclusion of agreements that may jeopardise the integrity of competitions or the independence of clubs. Rules which limit contractual freedoms of parties are interpreted restrictively as a matter of Swiss law.

The key point to be resolved was what was meant by ‘influence’ in the context of establishing a breach of Article 18bis, noting that it was not disputed that such influence could be direct or indirect and did not need to have materialised. In this regard, the CAS held that the potential influence has to be ‘material’, which must be assessed on a case-by-case basis. A provision that to some extent restricts the financial freedom of another club does not of itself constitute an influence of the sort prohibited, as long as that influence is below a certain threshold.

The CAS concluded that the threshold was not met, and these clauses did not breach Article 18bis because:

• the clauses referred to clubs in the “UK” and not, for example, to the English Premier League or English leagues. FIFA had therefore failed to substantiate its submission that such a provision should be considered as an “anti-rival clause”;
• the additional percentage to be paid to Arsenal in either case was modest and of a “very limited preventative strength, not least taking into consideration that especially Premier League clubs in general are willing to pay higher transfer fees…”; and
• in light of the relatively small percentage differential, the say of the player in the transfer bargain “should not be underestimated”.

The CAS also noted that Akpom had subsequently transferred from PAOK to Middlesbrough FC, demonstrating that the clause had not in practice influenced the Greek side’s independence when deciding whether to sell to a UK club.

Clubs will be buoyed that the Gunners’ success was not an isolated legal victory either. In February 2021, Spanish giants Real Madrid also successfully overturned FIFA’s finding that a clause included in the agreement for the transfer of a player to the Spanish club breached Article 18bis. This clause provided for a 25% uptick in the variable-sell on fee in the event of an onward sale of the player to any club in a specific geographical region in England. Whilst the CAS found that this clause had the effect of disincentivising a sale of the player to one specific rival club (which may have been the intention of the clause), no breach of Article 18bis was established because, in particular: (i) the clause was the result of negotiations between parties exercising their freedom of contract; (ii) the clause did not put the integrity of the competition at risk, taking into account that Real Madrid has one of the largest incomes of any club in the world; and (iii) Real Madrid might have agreed to the inclusion of the variable sell-on clause as a compromise for a lower transfer fee.

Comment

Whilst the direction of these authorities will come as a disappointment to FIFA, football’s world governing body may look to conduct a review of its own rulebook. Article 18bis is broadly drafted and does not specifically relate only to sell-on clauses, so to the extent that FIFA is able to prescribe more tailored and specific rules this could yet be a gamechanger.

In the meantime, for those clubs that already included provisions of this kind in agreements, it will no doubt be cause for lawyers and club officials to breathe a sigh of relief (although it should not be forgotten that the wording of each agreement will remain essential). More broadly, clubs could be emboldened by these decisions to include provisions in transfer agreements that they might historically have shied away from. It is not just variable sell-on clauses that have historically fallen foul of Article 18bis – for example, clauses that seek to ensure a player is fielded regularly have also infringed this rule. We may see creative clauses increase in popularity as clubs test the boundaries of the rule and flex their reinforced contractual freedom to maximise their commercial and sporting position.

However, clubs should think twice before throwing caution to the wind. Enforcement activity may decrease but it is unlikely that it will disappear altogether. Whilst they are hard to define in the wake of the CAS’ decisions, clauses which give rise to ‘material’ influence impacting the integrity of the competition remain offside. The more specific and targeted the arrangements, the more likely they are to be subject to investigation and enforcement. Whilst fines for offences of this kind are initially low, FIFA’s manuals stress that fines can be greater for more egregious breaches and, under the application of the principle of recidivism, repeat and mass scale offences could face harsher sanctions, including transfer bans. Agreements should therefore be drafted carefully and with specialist advice. Variable sell-on clauses are on a good run, but you are only as good as your last game.

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