The Business of Football Turned On Its Head

By: chris | January 31st, 2008

On January 31, 2008 – a date which will go down in history for the economics of global football – The Court of Arbitration of Sport in Switzerland allowed Andy Webster to sign for Wigan Athletic for the remaining amount Hearts owed him over the life of his contract.

As a result of the decision for Webster, any player under 28 years old can buy out their contract after 3 years for the remaining salary they are owed, while anyone over 28 can do it after 2 years of their current contract. FIFA can decide to multiply the value owed by a factor of 1.5, but no more. Just as Jean-Marc Bosman’s historic ruling in 1995 allowed for the Bosman transfer, we now have a Webster transfer. The balance of power shifts once more to the players.

Quick example: If player X signed a 5 year contract when he was 22 for a sum of €20m at €4m per annum, he will be eligible to buy out that contract for €8m when he is 25 or €4m when he is 26.

A player older than 28 can do so one year earlier under the same circumstances. In the case of an extension, the 2 or 3 year period begins when the extension begins.

If, say, this player X’s name happens to be Lionel Messi…that’s where this becomes a major issue. What should be a record breaking transfer becomes a relatively small drop in the bucket for one of the greatest talents to grace the planet. Imagine if Zinedine Zidane had been allowed to join Real Madrid for €6m instead of €76m. Or if Gianluigi Buffon had joined Juventus for €3m instead of €52m. Madness, yeah? Well, here’s the madness.

The ruling is truly massive. Not Bosman massive, but massive nonetheless. Everything you thought you knew about contracts, transfer fees, wage packets, etc from the last dozen years can be thrown out the window. We will be ushering in a new era of player economics in football, an era potentially characterized by shorter term contracts, contract buyouts, higher salaries, lower transfer fees and increased squad turnover. So much so that one lawyer involved fears that we have seen the last contract of more than three years.

The winners here are the players and especially the agents, who still have to do nothing to justify the contracts but will see hefty pay raises anyway. The negotiating positioning has increased exponentially for players, as will many salaries eventually. The “rights” to contracts will no longer be as important as the contracts themselves.

Sepp Blatter has already decried the verdict as “damaging” and, while we’ve been known to criticize Sepp a time or two before, he may very well be correct. Thus Article 17, the original ruling, will now have to be amended to reflect these changes and specific details regarding the economic compensation, year limits and effect on players under the age of 28.

“The decision which CAS took is very damaging for football and is a pyrrhic victory for those players and their agents, who toy with the idea of rescinding contracts before they have been fulfilled.

“CAS did not properly take into consideration the specificity of sport as required by Article 17, paragraph 1, of the regulations on the status and transfer of players.

“Because of this unfortunate decision, the principle of contractual stability, as agreed in 2001 with the European Commission as part of the new transfer regulations and which restored order to the transfer system, has been deemed less important than the short-term interests of the player.”

* – FIFA has launched an appeal, of course.

The true effects of this will take some time to play out. How the balance of power shifts when it comes to player contracts may not be as consequential as what this means for the balance of power on pitches throughout the world. The rich will get richer as salaries sky rocket and the little teams which rely on diamond-in-the-rough scouting, modest-at-best wages and a little bit of prayer will surely be hit the hardest by the decision as squad turnover hits an all-time high. Little clubs which rely on the occasional jackpot transfer fee for sustainability will suffer greatly. A new era may be dawning as we prepare to romanticize the underdog as never before.

There will also be many other factors which may now come into play, and the first that pops to the forefront of my mind is taxes. How will tax rates effect the contracts in various leagues? Such as Italy – and don’t quote me, this is coming from basic research over the summer – which has a tax rate that is 15-20% higher than Spain. It may not greatly impact the likes of Internazionale, Juventus, Barcelona and Real Madrid, but what about the mid-table clubs? Or lower?

I also wonder whether this means that we’ve decided to pick up the pace and transition from a Sunday stroll to a full out sprint towards the eventual formation of a European SuperLeague where the football is glorious and the wage packets are bountiful. One would gather the idea is at least floating around the minds of a few suits at The Artist Formerly known As G14.

A transition period is ahead and we probably won’t know the full extent of the impact for many years. Whatever the duration, the business of football – and perhaps association football – as we know it will change.

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Category: World Football

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Gambia Football Supermarket

It's an interesting development
Traian

How about Beckham first?? :)
chris

Brian, thank you. I was also shocked at how far down the main pages of major websites I was scrolling before I came across this story. I'm not even sure The Times posted the actual decision, just Sepp's reaction. And I am also shocked to see an increasing line of intelligent, well-reasoned people forming behind Sepp on an issue. Which leads me to believe he may have contrived this whole situation just to gain a shred of credibility. Clearly there needs to be some sort of widespread investigation.

I wonder who the first high profile player to opt out will be? I'll drop a 20 on Sheva.

Jan, you obviously need to do a 10,000 word post on why money in footballing is so backassward.
Johnny on the Spot

Couple of things that come to mind and they are just thoughts with no cohesive thread but should be considered

1) 4+ year contracts will no longer be offered.

2) Clubs could back-load contracts. So that a player will get 15K a week and a balloon payment at the end to make this more difficult.

3) This is a new rule, so I doubt it could affect Cesc and Berbatov and Ronaldo. There has to a grace period.

4) If they try to enforce it immediately, could clubs sue the EU for loss of revenue?

5) Clubs can offer higher salaries as transfer costs will drop drastically.
Bet Blogger

Surprising that this story hasn't got the coverage it deserves elsewhere, but, as you say, it's probably because the player/clubs involved are not that high profile. It seems to me that this has been coming for some time now though as the vast majority of players these days do not have an ounce of loyalty to the club they play for and will leave at the drop of a hat if a better offer comes along.
Brian

Chris, this is a smart and detailed take on a story that, for one reason or another, hasn't gotten nearly the attention it deserves. Thanks for posting it.

When I wrote about this yesterday my first thought was that with transfer fees now so strongly tied to salaries, higher wages would now become a kind of insurance policy for clubs worried about losing their stars to rival teams. If Arsenal are desperate to sign Fabregas to a four- or five-year contract, paying him some enormously inflated wage is the only way to ensure that he'll either stay out the contract or that they'll at least receive a hefty fee if they lose him.

Other than that scenario, I can't see why any team would want to offer any player a long-term contract. I share the worry about the effect this will have on smaller clubs, who won't be able to afford to pay their prospects enough to ensure a decent fee for them. And I worry about it even more for the sake of player-fan relations and the identities of teams. If turnover increases as much as some people fear it will mean fans have less time to identify with players, teams will struggle to take on recognizable personalities, and especially if players salaries do dramatically increase, all of this will contribute to more alienation between players and supporters.

I don't say this all that often, but I'm hoping Sepp can somehow pull this one out.
Matthew

This is a disaster.

The contract system is already a joke - how many players actually complete their contract at a club? - and this ruling will blow the bottom out of smaller clubs financially.

Let's look at a hypothetical. A talented young striker rises up through the youth academy at, say, Fulham. He signs professional terms, makes a few appearances, and is clearly one of the best players of his generation. There's little chance of him staying at a club like Fulham today, but he can be sold for a hefty fee to a top club, which benefits Fulham in the long run - they can gradually improve the team through sales of home-grown players - and benefits football in general, because it provides an incentive to develop youth players.

The situation now is radically different. If Manchester United came to that young striker, there is no chance in hell that he would say no to joining them. Now, though, Manchester don't have to pay Fulham a large amount of money - and Fulham not only lose a great player, but get no compensation for having brought him up through their youth system. At the extreme, this ruling turns every club in the world that isn't one of the very top teams into a glorified training academy for the Manchester Uniteds and Real Madrids of the world.

Here's hoping FIFA win the appeal.
Jan

"Imagine if Zinedine Zidane had been allowed to join Real Madrid for €6m instead of €76m. Or if Gianluigi Buffon had joined Juventus for €3m instead of €52m. Madness, yeah?"

Well €76m was madness and €6m would be madness. Nothing new.:-)

"It may not greatly impact the likes of Internazionale, Juventus, Barcelona and Real Madrid, but what about the mid-table clubs? Or lower?"

Exactly. What about clubs like Hamburg or Tottenham who have plans to become big clubs. Dimitar Berbatov was just recently given a Premier League record transfer fee tag, but could now leave Tottenham for something like €2m in the summer. Hamburg planned to cash in on Rafael van der Vaart to finance his replacement(s), but he will be worth much less now. But then again, Hamburg could try and get a cheap replacement in the same way Juve or whoever will now get a very cheap vdV.

Maybe it will all play out in a way that the balance between the clubs remains the same, just that contracts get renegotiated every two years all the time to reset the protected time period or some other new contract/transfer habits emerge. We'll see.