The Shadow of Third-Party Ownership Looms over the 2014 World Cup

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The Shadow of Third-Party Ownership Looms over the 2014 World Cup
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In 1978, the last time a World Cup was held in South America, when the squads were announced, just 22 of the 352 participating footballers played for clubs outside the nation they were representing. (Scotland's 22-man lineup contained 15 players plying their trade in England, but as they did not have to use their passport to do so that scarcely counts.)

Of those 22, most were barely more adventurous than those 15 Scots—almost all of them crossing only a border or two to earn their living. The Netherlands and Sweden, for example, both had a joint-high six foreign-based players in their respective squads for the tournament in Argentina, all of whom were playing in other European countries.

Barring Mokhtar Hasni, the Tunisia winger who had emigrated to Belgium in 1976 (and did not actually appear in any World Cup matches in 1978), arguably the only player whose club career had taken him a significant distance from his homeland was Argentina's star striker, Mario Kempes.

The 23-year-old had previously gone to the 1974 World Cup, to little effect, yet such was the Argentine public's continuing unfamiliarity with the Valencia striker that the national team coach, Cesar Luis Menotti, felt it necessary to give an outline of Kempes' attributes when announcing his tournament squad.

"He's strong, he's got skill, he creates spaces and he shoots hard,” Menotti would say of a player who now arguably sits behind only Diego Maradona on the list of Albiceleste World Cup heroes. “He's a player who can make a difference, and he can play in a centre-forward position."

Associated Press

The 1970s were different times, in which few football matches were televised, money did not distort the market, and the idea of moving abroad to play football was one only for pioneers or for players whose backgrounds or circumstances facilitated such opportunities. Once Kempes moved to Spain, he became a distant memory in his homeland and eventually something of an unknown quantity.

As a result, the idea of scouting players at a World Cup tournament had always been somewhat novel. The foreign players were not going to move to Germany, for example, and German clubs already knew all about Die Mannschaft's representatives, so what exactly was to be gained from such an expensive, time-consuming expedition?

That was beginning to change by 1978, however, as cultural and economic developments slowly made the world a smaller, more connected place. Suddenly, it was not outlandish to consider signing a player from a far-off land, as Valencia had shown with the popular Kempes. If the deal (i.e. the money) was right, new possibilities were opening up.

After the '78 World Cup, even clubs in England started joining the fun: Tottenham signing Argentina's World Cup-winning pair of Osvaldo Ardiles and Ricky Villa in a £750,000 deal that was to be an arbiter of things to come.

“For us it was an adventure,” Ardiles later told Spurs TV. “Of course now it's a lot, lot easier, but at the time it was a big decision to make.”

 

 

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The Scramble for Foreign Talent

With Ardiles and Villa going on to be such successes at White Hart Lane—the pair would help the club win the FA Cup in 1981, an achievement that only increased their burgeoning popularity with fans—they became an example to aspire.

Almost every club wanted their own Ardiles or a foreign player who would improve their team.

As a result, over the next 20 years, international tournaments would become a veritable shop window for previously unknown or unheralded players, with clubs racing to snap up those who stood out in front of a worldwide audience.

“I believe the influx [of foreign players to England, and other leagues throughout Europe] would have happened anyway, but our accomplishments accelerated that process,” Ardiles noted.

Yet by the mid-90s the international market had been saturated, and the returns were starting to diminish. With so many sides scouting so much further and wider, finding an undiscovered gem on the biggest stage of all was becoming less and less likely.

After the 2002 World Cup in South Korea and Japan, Liverpool manager Gerard Houllier spent heavily on two players, Salif Diao and El-Hadji Diouf, who had starred for one of the tournament's surprise packages, Senegal.

Unfortunately, neither made anywhere near the impact at Anfield that had been hoped for, eventually being sold off at a significant loss to the club.

The only surprise was that Diao and Diouf's “failings” were not really that much of a surprise. Six years earlier, perhaps the greatest manager of the modern era, Manchester United's Sir Alex Ferguson, had been caught out in similar fashion—one that signaled a sea change in his, and subsequently many other managers', approach to the transfer market.

“I was always wary of buying players on the back of good tournament performances,” Ferguson wrote in his 2014 autobiography, reflecting on his post Euro '96 signings of Karel Poborsky and Jordi Cruyff.

“Both had excellent runs in the tournament, but I did not receive the kind of value their countries did that summer.”

Ferguson's explanation for Poborsky—whose lob against Portugal lit up the tournament as the Czechs reached the final—and Cruyff's limited returns was that both men had been additionally motivated by representing their country in the summer of 1996 and could not subsequently summon that hunger and drive at club level.

Barely 20 years on from the first widespread scouting of foreign players, the circle had been completed. The prevalence of television coverage and the relative ease of travelling to different nations to watch a player meant surprises were no longer a good sign; the sight of an unlikely player starring at an international tournament was not necessarily evidence of a gap in a club's scouting but quite possibly just an outlier performance from a player who had already been observed and deemed not quite good enough.

Twelve years on from Diao and Diouf, the approach of Liverpool's current boss illustrates just how much things have changed for the biggest clubs. Brendan Rodgers has been trying to get as much of his transfer business done before the World Cup as possible, to avoid inflated fees and other complications.

Gary M. Prior/Getty Images

Rickie Lambert and Emre Can have already been signed for reasonable fees, while any future deals are unlikely to have been influenced by events in Brazil.

"Ideally you would want to get things done before [the World Cup],” Rodgers told reporters in May. "The World Cup does make it difficult, but the club and ourselves have been preparing for quite a few months now.”

Rodgers is not alone in that regard: Chelsea have already sewn up a £32 million deal for Diego Costa, while back in 2010, Arsenal manager Arsene Wenger insisted he would not buy on the basis of performances in South Africa.

"The World Cup will not affect our recruitment," Wenger said. "It is dangerous…the prices are artificial and you have to bear in mind that anyone can have three weeks of glory.”

Any players hoping to use the World Cup as a springboard to a lucrative transfer in 2014—and there remain many, especially among the “smaller” nations—are likely to find themselves disappointed.

If a big club is interested in them, they are likely to know it by now—all the World Cup can do is affect the price they command.

 

 

Buda Mendes/Getty Images

Investment for Profit, Not Improvement 

Managers at big clubs might no longer be watching the tournament assiduously for potential recruits, but that does not mean nobody will. Seats that were once the preserve of scouts might just be occupied by potential investors instead.

Managers, after all, are no longer the only men who can speculate on the talent of footballers in the modern market.

Just as 1978 saw a new dawn in the maturity of football's transfer market, 2014 sees a World Cup arrive while the trade in players is diversifying into new and more ambitious applications.

Where once football clubs bought and sold players and that was that, now the rise and rise of the sums of money involved in the game has attracted other parties, like moths to a flame. Savvy businessmen are the moths and football's market inefficiencies are the flame, and just like in any other industry, they exploit such “weaknesses” to return serious profits.

Investment groups have begun becoming more and more prominent in recent years, spotting the possibility for remarkable returns that the transfer market can facilitate.

By buying the economic or registration rights to talented players from clubs who need a cash injection but do not necessarily want to lose their star players immediately, investment firms confident in their assessment of players' talent can reap huge profits when the commodity is finally sold.

Perhaps fittingly, the practice first became widespread in Brazil (indeed, some believe Ronaldinho was the first player invested in, in such a way, back in the 1990s). It is a perfect environment for such a setup to take root and thrive: Brazilian football has exported over 500 players to the more wealthy European leagues, per a CIES report, yet many domestic clubs struggle to pay their monthly bills, often searching desperately for cash injections that will tie them over.

In 2010, for example, Santos sold five per cent of their star prospect Neymar's future transfer fee to an investment group for a lump sum of around €1.5 million. That came 12 months after the teenager's family sold 40 per cent of the player's economic rights—that they had previously acquired as part of Neymar joining and staying at the club—to an investment company, DIS, for an undisclosed sum.

Yet, when Neymar was sold to Barcelona last summer, controversy over additional money paid to the Brazilian player's father eventually led to the resignation of the club's president, Sandro Rosell, amid accusations of tax evasion.

David Ramos/Getty Images

The final details may never be known, but Santos ultimately ended up getting £14.5 million from Barcelona for a deal that has now been calculated to have cost the Catalan club in the region of £74 million. Neymar's father, through holding companies, was reported to have received as much as £34 million, with the remainder going to the third-party investors who had speculated on the winger's prodigious talent years earlier.

Neymar's case was high-profile, both making it more complex and ensuring some of the details came to light. Most deals are more straightforward and more private, though: Young player's registration rights are acquired, player is moved to Europe, where investors either take their returns or retain their stake in the individual—banking that another sale down the line will reap even bigger rewards.

With the practice so profitable in Brazil (it is estimated 90 per cent of players have third-party involvements of some sort), it was almost inevitable that it would soon spread toward Europe. Portuguese, Spanish and Dutch clubs were pinpointed by a KPMG investigation last year as being involved with the practice to some extent, while Eastern European clubs are the newest hotbed for investment practices, with KPMG estimating 40 per cent of the market value of all players in that region is now held by investors.

There are three, perhaps related, reasons for this.

Firstly, it has typically been easier to move South American players to some of these leagues, due in part to historical ties and less stringent immigration laws. The purchase of South American players built ties between European clubs and investment groups, ties that likely proved the first step toward the two parties making—or continuing—arrangements of their own.

Secondly, these are leagues in which money is not plentiful, in which some clubs experience similar financial issues to those in Brazil. Buying players via the aid of third-party investment—even for big sides like Benfica and Porto—spreads risk and increases choice.

Thirdly, and perhaps most importantly, they remain popular footballing markets that wealthy leagues—in England, Italy and Germany, for example—that either have legislative or moral objections to third-party involvement like to peruse for new talent. It is to clubs in these leagues that pay the biggest fees and thus offer the biggest returns if they target a player with third-party ties.

Gonzalo Arroyo Moreno/Getty Images

That is how Radamel Falcao went from Argentina's River Plate to Porto, for example, before moving on to a heavily in-debt Atletico Madrid for €40 million in 2011.

The sports arm of the Doyen Group, a fund set up by two former agents to David Beckham, bought 55 per cent of Falcao's economic rights to bring him to Porto, before financing the same portion of the player's registration rights—€22 million, their biggest foray into the market—as he went on to Atletico.

That meant Atletico stumped up just €18 million to acquire one of the most talented forwards in European football (although they subsequently struggled to pay even that), as Doyen anticipated Falcao's future achievements would return them a healthy profit.

Few might have expected anyone to pay more than €40 million in a subsequent deal, but when the Colombian—despite widespread reports of interest from England—joined Russian billionaire-owned Monaco for €60 million last summer, Doyen and Atletico both picked up healthy returns.

“It was the most expensive player so far but it worked,” Nelio Lucas, chief executive of Doyen Sports, told Bloomberg recently. “The club is happy, we're happy, the player is happy—everybody's happy.”

 

Daniel Ochoa de Olza/Associated Press

Lack of Regulation, Lack of Transparency

It is hard to know exactly which players are owned—in part or whole—by third parties, as it has not become customary anywhere outside Brazil for such information to be discussed publicly. But Doyen, as one of the most active players in the market, recently announced it had invested €100 million in the European footballing markets and had begun plans to invest €200 million more over the coming seasons.

If Falcao, at €18 million, was their biggest investment to date, this means, at a rough estimate, they likely have stakes in the future of at least 10 other players. But if most stakes are nearly €5 million, that would mean they have 40 other “stocks," not including Falcao.

Doyen does not just provide financing for player acquisitions, however. As a fund statement read: “The canny co-operation with various football clubs includes assisting with cash flow problems for operations as well as signing bright young talent to increase competitiveness on the pitch.”

“Assisting with cash flow problems” could mean many things, but most likely, it means buying stakes in the registration rights of existing squad members in exchange for a lump sum.

For example, Lucas recently claimed credit for Atletico Madrid's La Liga and Champions League exploits last season, saying the squad could not have been kept together without their assistance.

Andres Kudacki/Associated Press

“Atletico was able to keep the best players through alternative financing by us,” Lucas told The Times (subscription required) last month. "For sure, in part [their success was] due to our support."

This is the other side of third-party investment. Not only does it allow clubs to sign players that might otherwise be out of their reach, it allows them to keep hold of those they might otherwise have had to sell for a little while longer.

Atletico's league-winning squad may well be dismantled in the transfer windows to come—the club remains in vast debt, after all—but keeping it together this long enabled them to achieve something great.

The trade-off is they might not profit as much as they could have when Diego Costa, Koke or Filipe Luis (or whichever players Doyen showed interest in) finally depart the Vicente Calderon.

When those players are sold, Doyen will share in reaping the rewards. The question, the problem at the core of third-party investment, is what happens at that point. Do the players, who are living these careers, actually get a say in where they go?

Or do investors, wanting the maximum returns, pull all the strings?

Did Falcao really want to go to Monaco, for example, when more prestigious clubs were reportedly interested in him? Or did the €60 million fee and generous salary package—two figures other clubs would surely have declined to match—render everything else moot?

This is exactly why UEFA and FIFA are against the practice. They fear it limits players' control over their own destinies, leaving them at the hands of men whose interests do not include the well-being of their career (not in the endgame, at least).

"It raises ethical and moral questions," UEFA general secretary Gianni Infantino wrote in March, as his organisation urged FIFA to deal with the problem. "This would be unacceptable in society and has no place in football.”

 

 

Claude Paris/Associated Press

The Arrangement Evolves 

FIFA is due to debate the issue and produce a report on it this month, but so far, there has been little indication as to how they will respond.

Eliaquim Mangala, the Porto and France defender, is one of the few high-profile players whose registration rights are known to be at least partly owned by an investment group. Mangala has yet to move clubs despite being linked with some of Europe's wealthiest sides over the last 18 months, but he remains pragmatic about his situation.

"We are financial products,” Mangala said, according to Inside World Football. “A football club is like a factory, and we are its outputs. You have to be realistic."

Paulo Duarte/Associated Press

Premier League rules do not permit third-party ownership, but that does not mean investment firms are not looking for workarounds. Doyen, while announcing its plans to invest a further €200 million in football, revealed at the same time it was hoping to bring Premier League clubs into their orbit.

“The group is excited to announce a planned investment of €200m through 'Doyen Sports II,'” their statement continued, “which will serve to leverage and expand on the current network established by 'Doyen Sports.'”

This would be in the form of loans, fronting cash to Premier League clubs to buy players, with the expectation the loan would be repaid within three years or that the player would be sold and any profits split between club and investors (Doyen, unlike precursors and other investment groups, is adamant it only loans clubs money, that they do not buy stakes in players).

This sort of proposal is likely to be of most interest to mid-tier sides with a desire to move to the next level but without the financing to make that leap alone—West Ham, for example, or perhaps the likes of Aston Villa and Crystal Palace.

Using Doyen's funds (and contacts) could enable them to sign a standard of player that might otherwise be out of reach, without leaving themselves open to a disastrous financial loss if the deal fails to work out.

“We are sharing the risk,” as Atletico CEO Miguel Angel Gil told Bloomberg's Panja, pointing out an alternative ending to the Falcao story. “If the player doesn't do well the club doesn't lose everything.”

As Kia Joorabchian, who brought Javier Mascherano and Carlos Tevez to Upton Park and subsequently helped Benfica to bring Ramires and David Luiz to Benfica, making a healthy profit when they subsequently joined Chelsea, told the Daily Mail way back in 2007: “It is a way of bringing outstanding players to clubs that would not be able to afford them ordinarily, so they increase the competition.”

JANE MINGAY/Associated Press

The Premier League's experience with Tevez and Mascherano means they vehemently oppose third-party ownership, but it is difficult to see exactly how they can prevent Doyen's plans from happening. Clubs are allowed to take on loans as part of their day-to-day running (although, as per the terms of their title sponsorship, Barclays has first-option to be the provider) and that is all they would technically be doing.

But it is difficult to be sure that this sort of arrangement would not come with either implicit or explicit agreements about how and when repayments would be made, something the Premier League would prefer to avoid.

Such agreements could influence transfer activity: how, where and when players move.

“We believe that the practice threatens the integrity of competitions, reduces the flow of transfer income into the sport and has the potential to exert external influence on player transfer decisions,” league spokesman Nick Noble said in an email to Bloomberg. “Any lending arrangements entered into by Premier League clubs must not allow lenders to exert influence over player transfers.”

“In England they don't understand it at all,” “super-agent” Pini Zahavi, for whom Lucas worked before moving to Doyen, bemoaned to The Guardian in 2006. “It's easier to buy a player who you are unsure about for £10m if you are sharing the risk with a partner.”

 

Miguel Riopa/Associated Press

The Blurred Line Between Agent and Owner

Doyen would presumably be less confident about receiving a profit through the resale of an “asset” when working with English clubs, but with television contracts delivering over £70 million per annum to top-flight sides in the Premier League (a number that is only going to rise), they would reasonably expect that any loans would be repaid one way or another.

If Doyen is to make any inroads into the English market, then they may have to work around others who are already operating in some of the same waters—as they already do in Europe.

One such individual is Portuguese “super-agent” Jorge Mendes. Mendes' company GestiFute has a good relationship with both Manchester United and Chelsea, although the closest relationship has always been with one of Mendes' star clients, manager Jose Mourinho.

According to Diego Torres' compelling book on Mourinho, The Special One: The Secret World of Jose Mourinho, upon re-hiring the coach for Chelsea, owner Roman Abramovich insisted the Portuguese would have no say over transfer policy, having grown concerned that Mourinho had combined with Mendes to sign a number of GestiFute-represented players—including, at Real Madrid alone, Fabio Coentrao, Angel Di Maria and Ricardo Carvalho—for the clubs he managed.

Jordan Mansfield/Getty Images

Yet Chelsea's only signing so far this summer is a GestiFute player, Diego Costa, whom Mendes persuaded Braga to take on in 2006, while another, Tiago, is widely expected to re-join the club on a free transfer.

GestiFute have not publicly declared any financial interest in Costa, whose €38 million (£32 million) release seems suspiciously low for a player of his quality, but they previously profited from investment arrangements with the likes of Paulo Ferreira, Pepe and Bebe.

They eventually stopped such deals involving their own clients due to concerns about conflicts of interest, yet earlier this year, The Guardian's David Conn reported that a fund with ties to Chelsea and Mendes had bought stakes in a number of Sporting Lisbon players, including Ricky van Wolfswinkel, prior to him joining Norwich.

Mendes also now represents Falcao, signing him as a client around the time the striker made his move to Monaco last summer. That will have brought him into contact with Doyen Sports (in the past, it has been erroneously reported that he founded the fund), establishing a relationship even if there was not one before.

Perhaps a similar situation has happened with Costa: Doyen buying a slice of the striker's registration rights, Mendes representing the player and everyone profiting when he was sold.

But if Costa ends up being an asset on the pitch and Chelsea and Atletico are both happy with the deal, then is there even a problem?

 

Shaun Botterill/Getty Images

The World Cup a Perfect Environment Again 

Ultimately, the process works like any other market: Buy low, sell as high as possible. To do this, investors rely on one thing: the potential of the players they are looking to invest in.

Pick the wrong footballer to invest in and that could be money you never see again (unless the agent involved is particularly persuasive). Find the next Neymar or Falcao at the right moment, however, and the returns could be better than anything you would get from a balanced, diverse portfolio in more traditional markets.

For third parties, that means there is a premium on identifying the best possible players and getting to them at the most opportune times. That means scouting extensively but also cultivating the best possible relationships with the greatest number of managers, sporting directors and chairmen—so you know which players are looking particularly promising and when clubs are particularly interested in receiving external cash injections.

If third-party ownership and investment is the future, then the 2014 World Cup becomes a different kind of market, one that no longer brings players together for the world's scouts to observe, but instead, one that now conveniently brings the world game's power-brokers together at the same time in the same place to build relationships and discuss potential strategies.

Where before, European clubs were tentatively approaching international players to see which ones might be interested in moving abroad, now, agents and investors are discussing which clubs are searching for immediate financing, or which players are on the radar of clubs who cannot quite afford the down payments.

That is why it is former agents and negotiators—Lucas, Mendes, Joorabchian—who are at the forefront of this new industry and not banks or traditional hedge fund managers.

“The money is only one part, the most important part is the networking,” as Lucas said in Sao Paulo earlier this year. “I know all the sports directors, all the presidents. They're my friends for so many years.

“There's a friendship situation in order to negotiate.”

FIFA is expected to make a statement on third-party investment at some point this month. Banning seems unlikely, especially considering how widespread the practice already is and how little it is understood by many other than those who practise in it.

Regulation is a more likely route. But if the World Cup does create new opportunities for the likes of Lucas, even that might prove an immensely difficult project.

 

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