Football Culture

Transfers and Agents regulations: FIFA reform’s proposal explained

04 Jan, 2019

21 Min Read

By Stefano Malvestio

Attorney-at-Law at Bichara & Motta Advogados @malvestefano

Introduction

The present article examines more in-depth the arguments discussed at the roundtable on “The FIFA reform proposals on transfer and agents regulations: latest developments and discussion” held at the 2018 Wyscout Forum at the Johann Cruyff Arena, Amsterdam, moderated by the author of this article, with the participation of Roberto Branco Martins (General Counsel | EFAA), Daan De Jong (Head of Sports Legal | ECA) and Alexandra Gómez Bruinewoud (Senior Legal Counsel | FIFPro).

In essence, FIFA perceived that the regulations currently in force – namely the FIFA Regulations on the Status and Transfer of Players, Edition June 2018 (“FIFA RSTP”) and the FIFA Regulations on Working with Intermediaries (“FIFA RWI”) – are no longer suited to the needs of the modern football transfer market and is thus implementing a major reform of the transfer and intermediary system.

The reform process forms part of a wider agreement between FIFA and FIFPro which led the latter to withdraw the complaint against FIFA it had lodged with the European Commission since September 2015. All amendments are discussed at length between FIFA, FIFPro, the European Club Association and the World Leagues Forum under the umbrella of FIFA’s Football Stakeholders Committee, which includes confederations, member associations, and professional football stakeholders.

This article is divided into three parts. The first briefly analyse the amendments regarding the so-called “narrow issues” (essentially overdue payables and abuse of players) – already introduced into the FIFA RSTP – which were approved by the FIFA Council at its meeting in Bogota, Colombia, on 16 March 2018.

The second deals with the “broad issues”, meaning the broader study and review of the transfer system. This is based on the following fundamental principles, endorsed by the Football Stakeholders Committee on 25 September 2018 and approved by the FIFA Council on 26 October 2018:

Creation of a “clearing house” to process solidarity mechanism, training compensation, agents’ commissions and, potentially, transfer fees.
Mandatory introduction of an electronic transfer system at a national level and a domestic electronic registration system.
Limits to the number of loans per season and between each club;
Prohibition of bridge transfers and sub-loans;
Solidarity contributions to apply to domestic transfers involving an international player.

Finally, the third part of this article focuses on the on-going discussions regarding the replacement of the current FIFA Regulations on Working with Intermediaries with new FIFA Agents Regulations, with the return of the system of the license, the inclusion of agents into the Transfer Matching System (“TMS”), a potential fee cap and limits on dual representation.

2018 amendments on the “Narrow issues”

On 23 May 2018 FIFA published a new version of the RSTP, introducing changes in respect to the so-called “narrow issues”. The revised regulations came into force on 1 June 2018.

In the first place, art. 14 of the RSTP was amended to include a new paragraph concerning the existence of just cause to terminate a contract, in the presence of abusive situations where the stance of a party (either a player or a club) is intended to force the counterparty to terminate or change the terms of the contract.

The amendment is valid for both players and clubs. However, it undoubtedly intends to protect mostly the players, particularly in situations of undue pressure exercised by clubs, such as for instance when the player is excluded by the squad, or forced to train alone.

Secondly, art. 14-bis was introduced in the Regulations, whereby FIFA affirmed the existence of just cause when a club fails to pay a player at least two monthly salaries. In such cases, just cause for the player exists when the club’s failure is unlawful (i.e. unjustified) and he has put the debtor club in default in writing granting a deadline of at least 15 days to comply.

Interestingly, collective bargaining agreements validly negotiated at a national level may deviate from such principle, whereas alternative provisions in existing contracts are reserved.

As far as salaries which are not due on a monthly basis (such as, for instance, an advance of payments) are concerned, par. 2 of art. 14-bis affirms that such payments shall be considered pro-rata and that delayed payment of an amount which is equal to at least two months shall also be deemed a just cause for the player to terminate his contract.

Thirdly, an important change was included in the “famous” art. 17 of the Regulations with regard to the calculation of compensation due to a player for breach of contract without just cause by the club (only).

The article now makes a distinction between compensation due to players having remained unemployed following the breach of the contract without just cause and those having found new employment.

In the first one (no doubt less common), the player shall be entitled to receive the residual value of the contract that was prematurely terminated; in the second, the value of the new contract for the period corresponding to the time remaining on the prematurely terminated contract shall be deducted from such residual value. In addition, when the termination is due to overdue payables, the player shall be also entitled to an additional compensation varying from three to six monthly salaries. In any event, the overall compensation may never exceed the remaining value of the prematurely terminated contract.

Also, in this case, collective bargaining agreements validly may deviate (and prevail) from such principles.

Furthermore, par. 6 was included into art. 18 of the Regulations (which deals with special provisions relating to contracts between professionals and clubs), which now prohibits the so-called contractual “grace periods” for the payment of due payables towards players, unless explicitly allowed under a collective bargaining agreement, or established in contracts which were concluded prior to 1 June 2018.

Finally, FIFA introduced the new art. 24-bis of the Regulations, with a sanctioning system aiming at ensuring that monetary decisions issued by the FIFA deciding bodies are respected.

“Broad issues” of the transfer system

The second part of this article is dedicated to the major reform that FIFA is implementing to the rules regarding the transfer of players, related to the so-called “broad issues” of the transfer system.

The main concern of FIFA is that the transfer rules were not originally established to create a market but rather to protect the legitimate interests of players, clubs and other football stakeholders. However, financial aspects have become prevailing in the last two decades, with significant speculation and a lack of solidarity and redistribution of the revenue generated by the system.

The reform of the “broad issue” of the transfer system aims at tackling these issues, with enhanced emphasis on competitive balance, the integrity of competitions and protection of minors.

The reform, which is being discussed by a specific FIFA TaskForce, will be the main one since the inception of the original framework in 2001, which had revolutionized the transfer system previously in place in the aftermath of the famous Bosman decision.

Procedural Changes

FIFA already announced the implementation of the first transfer reform package, which concerns procedural changes, through Circular no. 1654, issued on 26 November 2018.

The circular letter concerned the mandatory implementation by all member associations of an electronic domestic transfer system (“DTMS”) and of an electronic player registration system at a national level.

The DTMS will follow the principles of the model implemented at an international level through the transfer matching system (i.e. the ITMS) and be used for the online management of national transfers, allowing the creation of a complete electronic player passport.

Such measures are intended to improve the enforcement of the training reward mechanisms available for training clubs. Research conducted by FIFA through the data provided by the FIFA TMS has, in fact, revealed that only a relatively small percentage of the training compensation and solidarity mechanism amounts to which training clubs are entitled are effectively received. As such, for instance, only USD $64 million of solidarity contribution was paid to training clubs in 2017, out of a total expected amount of USD $318M.

FIFA understands that this is mainly due to the inconsistent approach to the way in which players are registered and transferred at a national level, which has made the tracking of players’ history complicated: since player passports and records are not electronic, they often happen to result incomplete and/or contradictory, with the same national associations at times providing several version of the same player’s passport (which also gives rise to potential corruption/alteration issues).

As such, strengthening the ‘Player Passport’ through the implementation of the electronic national registration will ensure that the beneficiaries of training rewards will receive their payments, tracking all clubs a player has signed for starting at the age of twelve.

FIFA is also willing to introduce stronger sanctions for clubs failing to duly pay solidarity contribution, which, under the proposal currently under discussion, shall result in the prohibition to register new players during the following registration periods.

Creation of a clearing house for international transfers

A further revolutionary step announced by FIFA will be the introduction of a Clearing House, which will collect from and distribute funds to clubs, including training compensation, solidarity mechanism, agent fees and, potentially, transfer fees.

With this, FIFA aims to further protecting integrity in football, seeking in particular to prevent fraudulent conduct and money laundering. Also, the clearing house would increase transparency and ensure that training rewards, such as solidarity contribution and training compensation, are duly paid to training clubs.

In fact, under the new system, the exact amount of training rewards will be automatically calculated by FIFA based on the enhanced “player passport”, through the information collected thanks to the registration and transfer data provided via ITMS and DTMS.

FIFA’s clearing house will be operated in collaboration with a third party provider, which will interact with a commercial bank to receive and distribute payments. FIFA will ensure compliance and maintain responsibility for sanctioning non-compliant clubs.

The implementation of an administrative fee will help to sustain the costs associated with the clearing house, which is meant to be functioning within about two years.

Solidarity Contribution Changes

Solidarity contribution is payable to any club that has trained a player between the ages of 12 and 23 on all international transfers involving the payment of a transfer fee. It is calculated as 5% of the agreed transfer compensation and distributed proportionally to all training clubs.

Currently, only international transfers (i.e. transfers between two different national associations) trigger the payment of solidarity contribution. As such, for instance, when Gonzalo Higuaín transferred last summer from Juventus to AC Milan, training clubs were not rewarded. However, had he moved to a non-Italian club, solidarity contribution would have been payable.

This distinction, besides being hardly justifiable and penalizing for the training clubs, also results in an indirect influence in the transfer of players, since a selling club may tend to prefer a domestic transfer over an international one, the latter suffering a 5% reduction over the agreed transfer fee amount.

FIFA will thus amend the solidarity contribution rules, so as to also apply to domestic transfers with an international dimension, meaning transfers between clubs pertaining to the same national association involving a foreign player. This should ensure that the solidarity contribution in international transfers does not act as a deterrent to conduct international transfers for those that wish to avoid paying solidarity.

Training Compensation

Training Compensation is payable upon signing of a player’s first professional contract (with a club affiliated to a different association than the training club) and upon each subsequent international transfer until the end of the season of a player’s 23rd birthday. It is due to clubs that have trained the player between the ages of 12 and 21 and calculated by reference to ‘training costs’, on a confederation basis, with a precise determination made by national associations, which divide their clubs into a maximum of four categories.

Unlike the solidarity contribution, training compensation is not linked to transfer fees. As such, while transfer fees (and correspondingly solidarity contribution) increase, training compensation does not. For instance, according to data collected through the FIFA TMS, in 2017 the aggregate amount of training compensation was USD $20.3 million compared to the expected aggregate solidarity contribution of USD $318 million, which equates to approximately 15 times more.

Also, training compensation is not easy and immediate to calculate, resulting in incorrect calculations and loss of potential rewards for the training clubs.

In this respect, two different set of proposals have been brought forward within the TaskForce to tackle the above-mentioned issues and make the training compensation system more predictable, effective and consistent.

According to the first, the percentage of solidarity contribution deducted and paid by the buying club would be increased from 5% to 6% of the agreed transfer fee. Out of such percentage, 5% would be paid, via the newly established clearing house, as the solidarity contribution to the training clubs (like under the current rules). The additional 1% would be destined to a “centralized fund”, which would be used for the payment of training compensation according to the criteria currently in place.

This would mean that training compensation would no longer be payable by the new club, but by FIFA from such centralized fund (funded by international transfers against payment of a transfer fee), thereby removing the so-called “hindrance effect” (obstacle to the transfer of a player due to the fact of the new club having to pay training compensation).

The second option would be amending the current framework, without however altering core principles and mechanisms. Within this context, training compensation categories would be revised, and amounts increased if a player is moving from a lower to a higher category club and decreased if he is moving from a higher to a lower category club.

Therefore, the aim would be to increase the amounts destined to reward to training clubs, while, on the other side, not imposing excessive burdens to the transfer of young players, especially when moving to clubs of small economic capacity. Training compensation would, in any case, be paid by the new club itself, such as under the current rules.

Transfer of Minors

One of the main concerns of football regulators is the protection of minors. The competition for the pursuit of the best talents and the increasing costs related to their acquisition has pushed clubs and agents to constantly lower the age at which players are recruited. How this protection should be granted is, however, debated among the stakeholders.

FIFA’s approach during last years has been rather restrictive, prohibiting the international transfer of minors, with a few selected exceptions subject to the approval of a specific sub-committee created within the FIFA Players’ Status Committee. However, FIFA is also aware that such strict enforcement of the current rules can be counterproductive to certain young players by limiting their football development opportunities.

Among the mentioned exceptions, the most relevant one – allowing international transfers between the ages of 16 and 18 in the EU/EEA subject to certain mandatory conditions – is only available to European clubs. In this respect, CAS jurisprudence determined that such exception also applies to transfers of players with an EU passport from clubs based in no-EU/EEA countries to clubs based in EU/EEA countries. This, considering the high number of South-American and African citizens holding double citizenships, effectively resulted in an imbalanced system, which creates more opportunities for minors in Europe compared to other regions.

With this in mind, FIFA is considering to extend the current EU/EEA exception at a global level, while also amending the text of the FIFA Regulations to reflect the mentioned CAS jurisprudence.

Loans

Loans are currently regulated by art. 10 of the Regulations, which only contains some basic provisions and, in particular, that loans are subject to the same rules as apply to the transfer of players, including the provisions on training compensation and the solidarity mechanism.

Loans being thus essentially unregulated, FIFA is considering to introduce stricter rules. Essentially, the motivation is that loans have become a tool for financial speculation, and not, as FIFA wishes, for the purpose of training and development of a player.

The general idea is thus to introduce restrictions on the loaning of professional players. The number of loans per season will be limited, probably in a number between six and eight loans in and six and eight loans out per club; similarly, the same clubs could realize a maximum of three loans in and three loans out between each other.

The restrictions will not apply on the loaning of players which qualify as U21 or as ‘Home Grown Players’.

Finally, FIFA intends to prohibit (i) sub-loans, since it considers that they erode the stability of contract and the duty of care owed by a club to a player; and (ii) the so-called “Bridge Transfers”, considered as those situations where a player is transferred to a club and then immediately transferred (whether permanently or on loan) to another club without ever having appeared for the so-called “bridge club”.

Squad size limits & home-grown players rule

Currently, the FIFA Regulations do not include any rule related to squad size limits and home-grown players, which, on the contrary, have been introduced by certain national associations (such as the FA) and by Confederations (such as UEFA in respect of competitions under its umbrella).

The proposed framework would be a squad size limit of between twenty-five to thirty players for each club; players loaned out would be excluded from counting, whereas loans-in would be included. Out of such players, a certain number (for instance eight out of twenty-five) of players should be home-grown, whereas U21 players would be excluded from counting. Rules would be introduced progressively so as to give clubs enough time to adapt.

However, FIFA is considering different models to implement the proposed changes. Under the first one (“principle-based approach”), FIFA would merely introduce non-binding recommendations setting out minimum requirements to be implemented at national level, which would allow national associations or league operators to precisely determine its implementation. The second one (“prescriptive approach”) would introduce detailed provisions defined by FIFA and mandatory at a domestic level (in top-tier national leagues only).

Transfer Windows

FIFA is also considering a reform of the transfer windows system since those are not harmonized between different countries. It is perceived that this jeopardizes competition integrity at a global level.

For instance, in Brazil, the season starts in January and the mid-season transfer window is around July. However, the main European pre-season transfer window ends in August, which means that Brazilian clubs often lose players after the closure of the mid-season transfer window with no possibility to replace them.

Also, in a number of leagues, the pre-season transfer window is still open after the season starts. Last year, this was changed for the first time in competitions such as the English Premier League and the Italian Serie A, where players could only be registered before the start of the first match.

For many different reasons, however, harmonization of different domestic league calendars, even if desirable, is complicated. The proposal is thus that of either prohibiting or limiting (for example to four players) the transfers after the domestic season has started. Restrictions might also be introduced to the number of transfers that may be realized during the mid-season window.

FIFA Reform of the intermediary system

The regulation of the agency/intermediary services is one of the most delicate topics and probably the one that suffered the most significant (and debated) changes during the last decade.

The most recent one was in 2015 with the switch from the “agents” system to the “intermediary” one. The FIFA Players’ Agents Regulations, issued in 2008, regulated access to the activity to exercise the profession, requiring a license obtained through an exam. Dual representation was forbidden and the FIFA Players’ Status Committee had jurisdiction in international disputes.

In 2015, FIFA dramatically changed the regulations, issuing the FIFA Regulations on Working with Intermediaries, which introduced a much softer system of regulation, with only a few minimum standard requirements. FIFA no longer required a license to exercise the profession, intermediaries were allowed to represent multiple parties in the same transaction (subject to proper disclosure) and FIFA renounced to its competence on intermediaries disputes. Also, if a minor is involved, a commission cannot be paid. However, FIFA has widely delegated the implementation of these Regulations to national associations. This has created serious inconsistencies between countries and even the basic points mentioned above are now regulated differently in each jurisdiction.

There’s a common perception that the FIFA Regulations on Working with Intermediaries have failed to reach the objectives pursued. Consultation for a reform process has, therefore, being on-going since April 2018.

The result so far is that the new FIFA Regulations on Agents will re-introduce a licensing system, administered centrally by FIFA through a web-based examination. It is likely that the agents licensed under the 2008 FIFA PAR will be exempt from taking the exam.

Agents will be required to have and maintain professional liability insurance and to attend professional courses on an annual basis to maintain their license, which will be granted to natural persons only.

Interestingly, agents will be included in the FIFA TMS, with a dedicated account, which they will need to update for every transaction, with the disclosure of the main related information. 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.

Even though the final model has still to be defined, it is likely that restrictions will be introduced in dual representation in the same transfer, and, while the same agent will most likely be able to represent the engaging club and player in the same transaction, he will not be entitled to simultaneously represent the player and releasing club or the releasing club and engaging club.

On the other side, agents will be able to benefit from the dispute resolution system offered by FIFA/CAS and the establishment of the Clearing House will no doubt make it easier to cash commissions. Also, a sanctioning system on non-compliant clubs, players and agents will be implemented. This is a key point that will need to be properly determined by FIFA, since regulations, no matter how detailed, remain void if not properly executed (the 2008 FIFA Players’ Agent Regulations being a valid example).

Finally, a potential cap on agents’ fees is being discussed, with details still to be determined – also in light of potential EU law issues – as well as a possible limit to the aggregated commission payable in relation to an individual transfer (meaning a cap of the total agents’ commission paid by all intervening parties).

Also, FIFA is considering to introduce a rule whereby the commission of the agent acting for a player shall be mandatorily paid by the player himself, and not by the club (as customary), since FIFA understands that the player, in this way, might be inclined to make wiser choices in relation to his representation, as well as feel more directly the costs of agency services he’s being provided with.

All in all, FIFA is seeking to introduce stricter regulations and limits in respect of agency activity. The main reason is that, whether correctly or not, agents are widely perceived as a “cost” that drives money out of the so-called football family.

Conclusion

The essence of the amendments described in this article has already been defined and announced by FIFA. The TaskForce is fine-tuning details and the new regulations are likely to be announced within the first semester of 2019, even though the implementation of certain amendments might demand a longer time.

As said, it will be the most significant reform of the FIFA Regulations since 2001. FIFA, which is also being closely scrutinized in its role of world governing body for football by the EU institutions and the Council of Europe, has made it clear that it is not satisfied with the speculative and somehow unethical direction in which the football transfer market has taken in the last decades. It intends to introduce rules which fairly balance the interests of stakeholders and those who follow “the beautiful game” with a passion.

Within this context, however, any proposed regulations shall take into account the fact that football is an economic activity that is subject to the application of EU law within the European territory. Thus, reforms shall ensure that any restriction on freedom of action or competition is justified. For this reason, the proposed rules shall be necessary and proportionate to achieving the legitimate objectives pursued by the RSTP.

As such, even though FIFA faces the demanding task to find a balance that is not easy to strike, the author perceives that most of the proposed amendments point towards the correct direction, even though fundamental issues, such as a potential cap of agent fees and limits on dual representation, have still to be determined, and might remain subject, even if and when implemented, to potential legal challenges.

The exact manner in which FIFA will finally govern such aspects will be key to the overall functioning of the proposed reform. A too “soft” approach may leave the doors open to the very same speculative actions which FIFA is mainly targeting, whereas excessively strict regulations, besides being open to challenges in court, might be too far from reality and thus likely to be circumvented. Also, FIFA will need to set up and guarantee a proper system of enforcement, since, as said, rules might remain “blank” without proper execution.

The reform will have direct and significant consequences on the daily activities of the readers of this blog, who are thus suggested to closely follow the process.

Stefano Malvestio
Attorney-at-Law at Bichara & Motta Advogados
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