Variable sell-on clauses – Arsenal wins against FIFA in extra time

Background

Following a decision against Arsenal by the FIFA Disciplinary Committee (DC)[2], the FIFA Appeal Committee (AC)[3] upheld the DC’s ruling that Arsenal’s inclusion of variable sell-on clauses in the contracts for the transfer of Chuba Akpom and Joel Campbell from Arsenal breached Article 18bis (Third-party influence on clubs) of FIFA’s Regulations on the Status and Transfer of Players (RSTP).[4]  Additionally, article 4 paragraph 3 of Annexe 3 of the RSTP requires clubs to declare third-party payments and influence, and Arsenal were also found to have breached that obligation.

Arsenal appealed to the Court of Arbitration for Sport (CAS),[5] which ruled in Arsenal’s favour.

Sell-on clauses

A football club that is selling a player (club 1) often insists on including sell-on clauses in transfer contracts with the buying club (club 2) in relation to the player who is being sold.  Such sell-on clauses typically operate so that if/when club 2 sells the relevant player, a percentage of the fee received from a new buying club (club 3) is paid to club 1.

In Arsenal’s case, the transfer contracts for Chuba Akpom and Joel Campbell contained sell-on clauses whereby, in broad terms, if the buying clubs (Frosinone Calcio and FC PAOK Thessaloniki respectively) sold the players to clubs in the UK, the percentage of the fee that the buying club would pass through to Arsenal would be greater than if they had sold the players to clubs outside the UK.  

It has been reported that, if PAOK sold Akpom, Arsenal would receive 30% of the fee, but that would increase to 40% if he were sold to a British club.  Reportedly, Campbell had a similar clause providing for 25% of the fee to go to Arsenal, increasing to 30% if he were sold to a British club.

In 2020 Akpom was sold to Middlesbrough for £2.25 million, while Campbell plays in Mexico for Monterrey on loan from Leon.

Issues

The primary issue was whether FIFA’s prohibition on third-party influence was violated by variable sell-on clauses such as the ones found in Arsenal’s transfer contracts.  The concern is that the inclusion of those clauses impairs the buying club’s ability to act independently of influence from the selling club, such that any future transfer of the player concerned would be directly affected by the financial/commercial mechanism of the clause, contrary to Article 18bis of the RSTP, which states that: “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.”

A secondary issue was that Arsenal failed to declare the third-party influence, in breach of article 4 paragraph 3 of Annexe 3 of the RSTP, but this article will focus on the primary issue.

Arsenal raised various points in response to the allegation that their variable sell-on clauses breach Article 18bis, including that:

1. Arsenal, and many other clubs, have used similar provisions in the past without any issues raised by FIFA.
2. Arsenal was unaware of any FIFA instructions or guidance that would indicate that clauses of this nature would breach Article 18bis, and so it would be unlawful (on the grounds of legal certainty) to rule now that such clauses breach Article 18bis.
3. If there were “indirect/immaterial" influence, as opposed to “direct/material” influence, no breach should be deemed to have occurred.
4. While Frosinone and PAOK would have to pass through a higher percentage of any fee if they sold the players to a club in the UK, nothing in the transfer contract provided Arsenal with any right to influence such transfers.  Accordingly, each of Frosinone and PAOK retained sole discretion as to the club to which it ultimately sells the player.
5. Within the football world, it is generally understood that Article 18bis was introduced to prevent influence over clubs from third parties that are not affiliated to FIFA.  So, as far as Article 18bis could be viewed as having some bearing on a provision of a transfer contract, Article 18bis should instead be construed narrowly, to avoid extending beyond its intended remit.

Decision of the DC

While the DC’s ruling did not address each of Arsenal’s points (e.g. it failed to address Arsenal’s assertion that Arsenal and other clubs have used similar provisions in the past without any issues raised by FIFA), the DC made the following points:

• Article 18bis applies to both third parties and also clubs.
• The relevant clauses in the transfer contracts restricted Frosinone’s and PAOK’s freedom. Should the clubs receive similar offers for the respective players from clubs both in and outside of the UK, the effect of the clause would be to steer Frosinone and PAOK towards selling to the club outside of the UK (i.e. to avoid the greater sell-on fee that would result in selling to a club in the UK).
• Further, the DC disagreed with Arsenal’s claim that Frosinone and PAOK retained sole discretion despite the inclusion of the respective clauses, on the basis that “in order for clubs to be considered fully independent, they shall not be subject to any kind of conditions when deciding, amongst others, where, how and when to transfer their players”.
• As to the argument that if influence is indirect or immaterial no breach should arise, the DC stated that Article 18bis “covers any kind of situations, clauses and/or agreements in which a club is granted the ability to influence another club”.

Accordingly, the DC ruled against Arsenal, finding that the clauses violated Article 18bis.

Decision of the AC

Arsenal then appealed to the AC, reasserting (in broad terms) the points it had made to the DC, together with arguments concerning procedure and the sanctions imposed by the DC. Upholding the DC’s ruling, the AC framed its response as a series of questions, making the following points in response.

What is the prohibition foreseen in Article 18bis?

Considering Arsenal’s argument that the DC’s interpretation of Article 18bis extended beyond the purpose for which it was implemented, the AC affirmed that Article 18bis applies to both “the influencing club and the influenced club”, i.e. not just to third parties not affiliated to FIFA.

Turning to the meaning of “influence”, the AC referred to rulings from CAS to determine that influence, in the context of Article 18bis, means “the real ability to effect on, determine or impact the behaviour or conduct of the concerned club in relation to employment and transfer-related matters in such a way as to restrict the club’s independence or autonomy in such matters.”

On that basis the AC was satisfied that, by virtue of the relevant clauses, Arsenal had a real ability to affect, determine or impact the behaviour or conduct of Frosinone and PAOK.

Do the clauses constitute a breach of Article 18bis?

AC affirmed that the relevant clauses influenced each club’s freedom to decide to which club to transfer the respective players, because the effect of the clause is that neither club is fully independent.  The AC added in this respect that:

(a) Whether or not influence has actually been exercised is irrelevant when establishing a breach of Article 18bis.  Any real possibility that a club’s decision making could be influenced is sufficient to breach Article 18bis.

(b) A limitation in relation to certain clubs or a specific geographical area is also not relevant to whether or not there has been a breach of Article 18bis, even if such measures lessen the scope of influence.

Appeal to the CAS

Arsenal then appealed to the CAS. The CAS hearing was listed for 16 March 2021, and the outcome has recently been reported.  In reaching its decision that the sell-on clauses in each contract did not violate the prohibition set out in Article 18bis, the CAS commented that:

• Based on “the circumstances of these particular transfers”, the panel was not convinced, on a balance of probabilities, that Arsenal, when entering into either contract, acquired any ability to have a material influence over “the other clubs in employment and transfer-related matters, their policies or the performance of their teams”.
• Even if such influence was to be considered acquired on signing the contracts, such influence “did not reach the required threshold” to limit the independence of the clubs unduly.
• The fact that one of the players[1] was in fact transferred to a club in the English Championship only supported the view of the panel that no material limiting influence was ever acquired by Arsenal.

As such, the CAS ruled that the appealed decision should, therefore, be set aside and the sanctions imposed on Arsenal should be lifted as a result.

Comment

Even though Arsenal won on appeal to the CAS, the rulings in this case have still touched on a number of points in the context of player transfers.

Similar clauses

First, a point not specifically dealt with by either the DC or AC (or the CAS) is that Arsenal and other clubs have used sell-on clauses previously without concerns raised by FIFA. For instance:

• Liverpool is purported to have agreed a clause in its transfer contract with Barcelona for the sale of Philippe Coutinho requiring Barcelona to pay a substantial additional amount (€100 million) if Barcelona purchased any further players from Liverpool before a certain date.
• Inter Milan is reported to have included an anti-Juventus clause in their transfer contract with PSG for the sale of Mauro Icardi whereby PSG would be required to pay Inter Milan an additional €15 million if PSG transfers Icardi to Juventus.
• Real Madrid is reputed to have inserted anti-Barcelona clauses into a number of transfer contracts of players that they have sold to other clubs (such as the sales of Angel Di Maria and Mesut Ozil to Manchester United and Arsenal respectively), to prevent (or at least financially to deter) those clubs from selling those players to Barcelona.

By contrast, there are also instances where FIFA has sanctioned other clubs for including clauses deemed to have breached Article 18bis:

• For the transfer contract for the sale of Brahim Diaz to Real Madrid, Manchester City was sanctioned for including a clause that would have caused Real Madrid to pass through a greater percentage of any sell-on fee if Diaz were sold to a third-party club in the “region of Greater Manchester”.
• Similarly, for the sale of Mehdi Benatia to Al-Duhail, Juventus was sanctioned for including a clause preventing Al-Duhail from transferring Benatia to a “top Italian Clubs playing in Serie A (i.e. SSC Napoli, AC Milan, FC Internazionale, AS Roma, SS Lazio) and with the French club PSG”.

The position above is anything but clear.  There appear to be conflicting approaches from within FIFA on the same subject matter, and the CAS was careful to make a ruling on the particular facts of the case.  To avoid future issues of this nature, it would be helpful to have clear guidance from FIFA on what is (and what is not) permissible.

Commercial terms

There may also be a concern that FIFA’s stance might permeate commercial terms of transfer contracts more generally.

While some transfer contracts may be structured extremely simply, e.g. whereby a lump-sum is paid (in full) by one club to another for the transfer of a player and that is the end of it, often the structure of the transfer is considerably more complex, and it may include various provisions addressing conditional payments, e.g. an amount to be paid to the selling club for each game in which the relevant player plays for the buying club, an amount to be paid to the selling club when the relevant player has played a certain number of games overall for the buying club, and so on.

Such clauses might pose a risk to the selling club of holding influence over the buying club.  If a club knows that if the player plays one more game it must pay a substantial amount to the selling club, that might affect whether or not the buying club wishes to continue playing the player – and it might feel pressured instead to sell the player before that payment obligation is triggered.

As provisions of this nature are relatively commonplace, it would be helpful to have guidance from FIFA on this point too. Failing that, sell-on clauses may keep coming back to the DC, AC or CAS for determination on their own particular facts.

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Article written for Entertainment Law Review.