Third Party Ownership and Traffic Sports

Third Party Ownership and Traffic Sports

Golazo Podcast – Episode 18 – Remembering El Tri Legend Jorge Campos
Don’t Call it Soccer Podcast – Episode 8 -We are back!
Sporting Kansas vs Vancouver Whitecaps – MLS Preview

By Manuel Veth –

Traffic Sports is more than just a player agency, it is Brazil’s football factory. Founded in 1980, the company is now the leader in sports marketing in Latin America, selling TV, sponsorship and promotional rights, as well as working with various brands as a sports advertisement agency.

Traffic Sports’ subsidiary company Traffic USA also holds the marketing and television rights for several competitions in the Americas, such as the national and international TV rights for the FIFA World Cup Brazil Qualifiers for the CONCACAF region, Copa Sadia Do Brasil and the North American Soccer League (NASL).

Most recently Traffic has been in the news as part of FIFA’s attempts to curb Third-Party Ownership (TPO) agreements in football. According to FIFPro: “TPO is the agreement between a club and a third party (businesses and/or individuals – investment funds, agents etc.) in exchange for owning a percentage, the so-called ‘economic rights’, of the future transfer (value) of the player.”

At the same time, however, TPO is widely practiced in South America, and a major part of Traffic’s business strategy. As part of the Traffic business operation, the agency has shares in clubs in Brazil, United States, and Portugal. Yet FIFA’s attempt to make changes to TPO practices means that Traffic has had to reconsider some of its business dealings.

Desportivo: the Dream Factory

In Brazil, Traffic Sports owned and operated the Brazilian club Desportivo Brasil until November 2014. Founded in November 2005, Desportivo is part of a development strategy of the Traffic Group. Located in Porto Feliz, outside of São Paulo, the club also operates an academy for 200 players. The club’s academy also has a partnership agreement with the Manchester United Academy, São Paulo FC, as well as with the United States based club Carolina RailHawks (through their subsidiary Traffic USA), and several other clubs in Europe.

603Y1638_crop_galeria

Desportiva Academy in action in game vs. São Paulo.

Desportivo is a talent factory where players between the ages of 13 and 18 are schooled to become professional football players. Once they have reached the age of consent, when they are eligible to sign international transfer contracts, the players are either sold or dropped. This practice has been heavily criticised by specialists such as Martin Curi, professor for Social Studies at the University of Rio de Janeiro, and author of the Book “Brasilien, Land des Fußballs” who sees player-factories such as the Traffic Academy critically. He says that: “only one or two out of 60 kids per year manage the step to professional football,” the remainder, however, “face a bleak future as agencies often fail to provide proper schooling to players [in] the academies.”

The President of International Business at Traffic, the German Jochen Lösch, however, sees no problem with Desportivo’s business practice. Speaking to the German newspaper Die Welt, Lösch pointed out that at Desportivo between 70% and 80% of the players manage the step to professional football. In comparison Brazil’s most popular club Corinthians only has a success rate of about 2%.

Desportivo: Selling the Dream

This high success rate has made Desportivo the most popular destination for young talented players in Brazil. In the past big clubs like Corinthians and Santos FC would often snap up the most talented players from Desportivo, but the fact that the company can afford to pay wages even to underage players, and that the academy has infrastructure in place that far exceeds that of Brazil’s larger clubs means that in recent years Desportivo has become the country’s premier talent school.

Next to football training, these young players also receive English courses and are educated in important facets of European culture – measures that are deemed essential if a player wants to make a seamless transition from Brazil to one of Europe’s top leagues. How far such a specific education helps those players who fail to make the cut is doubtful, and the pressure is high as Desportivo expects to capitalize on players the moment they reach the age of 18.

It is this practice in particular that has earned Traffic Sport a heap of criticism. Lösch, however, believes that there is no difference between Desportivo and some of the smaller clubs in Europe that have also specialised in developing young talent in order to sell them for a profit to bigger clubs. Lösch named German club SC Freiburg as an example of a club that has made the development of players a part of its business strategy.

Inauguracao-CT-Shandong-Bruno-Grossi_LANIMA20140715_0065_25

Desportivo’s new Chinese Owners.

At the same time, however, the club, just like its players, was a business investment by Traffic. In November 2014 the club was surprisingly sold to a Chinese business consortium that owns and operates the Chinese Super League team Shandong Luneng. According to the Brazilian specialist Paulo Freitas the deal was worth R$ 8 million (about $2.5 million) for the club, and another R$ 30 million (about $9.5 million) for the facilities. Rumour has it that the club accumulated a massive debt, and that investors that stand behind the Traffic consortium have decided to pull the plug on the club. Paulo Freitas has revealed to FutebolCidade.com that in reality nothing much will change at the facility itself, as the Chinese consortium is hoping to maintain the academy program. In fact the deal may eventually help Traffic to open up new business channels to China.

Traffic and Third Party Ownership

ng2516923

Estoril SAD Traffic’s asset in Portugal

There were also rumours that the same fate might also be in store for Traffic’s Portuguese club Estoril. Since 2009 Traffic has held 74.5% of the shares in the Portuguese club Estoril SAD, and since March there have been rumours that Estoril could be sold to a British investment group. But no sale has been finalized as of this time.

In the past Desportivo Brasil and Estoril were important mechanism in the company’s player development scheme. The best players from Desportivo were sent to Portugal to play for Estoril in the much more competitive Portuguese Primeira Liga. But recent changes to Third-Party Ownership laws may have put enough pressure on Traffic to rapidly reconsider its investment schemes, as it now appears that Traffic wants to focus on Estoril rather than Desportivo, which makes it unlikely that Traffic will sell the Portuguese club after all.

As of the 2015/16 new rules will be introduced regarding TPO agreements between clubs and players. While old TPO contracts will be honoured, new contracts cannot be signed with a third-party owning parts of a player’s commercial rights. In the past an investor could give money to a club in exchange for a share of a player’s potential future transfer fee. This was an especially important mechanism for clubs in South America, but also for those in Eastern Europe, who were often not able to purchase players without investment money.

In a television interview with Bloomberg on March 6 Lösch was adamant that the new TPO rules not only violate national and international laws, but that third-party ownership as defined by UEFA, and FIFA de-facto did not exist: “a player either owns himself, that is if he is a free agent or is owned by a club where he is under contract. There is nothing in between. A company cannot buy transfer rights of a player; we [Traffic] can only acquire a future claim on a maybe happening transfer fee.” When asked what sort of return investors can expect from player investments, Lösch answered about 25% as Traffic has a large portfolio of players.

TPO in Brazil

In the past Brazilian clubs have been especially dependent on TPO agreements, and it is even essential to the survival of professional football in Brazil. In the period between January 2011 and June 2014 Brazilian clubs moved 2,311 players for a total fee of $579 million. New York Times estimates that about 90% of these players were part of third-party ownership agreements.

Brazil, where the season officially gets underway in January, is not the first country that will be affected by the new FIFA rules, but is perhaps the country that will feel its impact the most. Marcos Motta, a Brazilian lawyer based in Rio de Janeiro, said to Bloomberg that the Brazilian transfer market has “seen a big decrease” already.

Marcelo-Cirino-Flamengo-Gilvan-Souza_LANIMA20150102_0069_1

Marcelo Cirino after signing for Flamengo.

The biggest transfer within the Brazilian Série A saw striker Marcelo Cirino join Flamengo from Atlético Paranaense for $6.1 million. This deal was concluded before the FIFA deadline on TPO deals came into affect as Doyen Sports, a Maltese registered sports agency, was involved in the purchase of the player.

Bloomberg also reported that in general transfer activities were down in the internal Brazilian market as foreign investments were repelled to invest into Brazilian talent due to the new FIFA rules on third-party ownership.

Estoril and a Change of Strategy

Traffic has to adjust with the times, and the sale of Desportivo was partly a response to the changing economics in Brazil. At the same time, however, by hanging on to Estoril in Portugal, Traffic can now develop players directly in Europe, and can no longer be accused of TPO agreements because the agency is also the owner of the club. Traffic can also still effectively develop players through other clubs by using loan agreements, which, unlike TPO agreements, remain legal in European football.

At the same time, however, Lösch believes that the ban on TPO will not be practical. Speaking to Bloomberg Lösch says: “since the 2007 Tevez case there was no serious discussion on third-party ownership, because clubs don’t want to [discuss] it, therefore UEFA is inventing something where there is no need for [ban on TPO].” Furthermore, Lösch believes that this rule will not stand as UEFA and FIFA are not lawmakers, and furthermore the market may ignore TPO rules implemented by FIFA and UEFA, as is already the case in the English Premier League.

Furthermore, Spanish and Portuguese clubs have already publically stated that they will challenge FIFA’s ruling on TPO agreements in European courts. Both leagues issued a joint statement in February stating: “The prohibition of third-party ownership constitutes an economic agreement that restricts the economic liberty of clubs, players and third parties without any justification or proportionality.”

As the owner of Estoril, it is safe to assume that Traffic had a major influence on the statement issued by the Portuguese and Spanish leagues. Estoril is therefore not only a major component in developing major talent for the European market, but also a foothold for a company within EU jurisdiction, which would make it easier for the agency to challenge restrictions such as the TPO ban in front of European courts.

In their nature TPO agreements are major money making schemes, and as a multi-million-investment platform Traffic will make its international influence count in order for clubs and players to challenge the current FIFA and UEFA rules on TPO agreements. Hence, while it appears that Traffic for now has somewhat retreated from the Brazilian market, it is safe to assume that such an absence will only be temporary, as it is extremely unlikely that FIFA’s TPO rules will stand the test of time.

Manuel Veth is a PhD candidate at the University of London King’s College, London. Originally from Munich, his thesis is entitled: “Selling the People’s Game: Football’s transition from Communism to Capitalism in the Soviet Union and its Successor States”. Follow Manuel on Twitter @homosovieticus

COMMENTS

WORDPRESS: 3
  • comment-avatar

    Manuel, about TPO you say ‘In the past Brazilian clubs have been especially dependent on TPO agreements, and it is even essential to the survival of professional football in Brazil.’

    I thought TPO was bad for football.

    See this article by Owen Gibson and David Conn at guardian.com/football,

    [title]…’Fifa inactivity allows menace of third-party ownership to go unchecked
    Growing trend for investment funds to own stakes in players is causing major damage to world football, but the governing body has done virtually nothing to address the problem
    • Uefa plans rule change in third-party ownership clampdown
    • Jorge Mendes: the most powerful man in football?’
    …at Fifa inactivity allows menace of third-party ownership to go unchecked .

    Here is what Jonathan Howard had to say about the most famous TPO case – the Carlos Tevez to West Ham affair…

    ‘The Carlos Tevez affair is a prime example. Kia Joorabchian is an Iranian businessman who founded Media Sports Investment (MSI) and is connected to at least 4 other Investment groups. Many times the rights of players that these companies negotiate with clubs are proportions, sometimes as low as 5%. In the case of Carlos Tevez it was significantly more, MSI owned 100% of Tevez’s rights. Consequently even though Tevez transferred from Corinthians to West Ham, no money was due to Corinthians. Beyond that it is questioned whether any money even exchanged hands in the deal because even though the player was registered to play for West Ham, MSI still controlled 100% of his economic rights and had put in a stipulation in his contract that they maintained the right to transfer Tevez in any transfer window to any club they saw fit.’

    quote from article at http://www.businessofsoccer.com/2013/04/18/the-realities-of-third-party-ownership/

    So West Ham Utd gets Tevez in breach of FA rules. Then Tevez almost singlehandedly keeps WHU from getting relegated. Then Sheffield Utd gets relegated instead. Then the FA imposes a slap-on-the-wrist monetary fine on WHU, but they still let the cheating WHU stay in the Premier League. Meanwhile Corinthians got zero cash for the Tevez transaction, and that weasel Joorabchian still owns 100% of Tevez’ transfer rights. So how is all of that ‘essential to the survival of [Brazilian] clubs’ ? It sounds to me more like TPO is a threat to the viability of club football.

  • comment-avatar

    Hi Bill,

    thanks for your comment. I have read the above mentioned articles, and yes TPO can be bad for football, however, it is not as simple as it is portrait in the above mentioned Guardian articles. TPO can have both benefits, and draw backs the problem is that especially poorer teams in Brazil, and South America are dependent on investors that in turn for their investments want to benefit from transfer income. In the case of Brazil, Portugal, Spain, Eastern Europe, and even Germany the outright banning will mean that many smaller clubs now face financial uncertainty. These clubs often form the backbone of player development in their respective countries.

    Also while I am in principle for regulations on TPO rules I believe that a carpet ruling on banning TPO in the game as FIFA has done will do more harm than good. In England TPO agreements are very much part of the business (see Lösch interview linked in, in this article) and instead being conducted openly are done under the table, with potentially more harm to the game than if the FA had regulated the praxis instead of full out banning it. I have done an interview with VICE Sports a year ago following an article I did on the Mkhitaryan Case (http://futbolgrad.com/double-agents-shakhtar-donetsk-role-third-party-ownership/) where I explained that basically banning it would do the same as banning prostitution the praxis would simply continue without FIFA, UEFA or any other governing body being able to control it. Another issue is that international ruling bodies such as the EU-Labour Court could actually rule against the FIFA ruling.

    Anyhow as I suggest it is not black, and white, and yes shady characters can abuse TPO, but if they wouldn’t do it through TPO they would find alternative ways to abuse football financially. I believe that issues such as multiple club ownership are far more pressing, and this model could very well now become prevalent as clubs are scrambling to find alternative financial resources.

    Best,

    Manuel

  • comment-avatar

    The league’s rule U18 had previously stated that the third parties were not permitted to “materially influence” a club’s “policies or the performances of its teams”.

  • DISQUS: 0