FIFA report could transform the transfer system

A task force established by FIFA President Gianni Infantino in November 2017 has produced a report proposing reforms that would drastically alter the nature of the player transfer system in world football (“Report”).

Key reforms proposed in the Report

Although the Report has not been released to the public, it has been seen by Reuters who published an article outlining some of its key reforms.[1]

• Firstly, the Report proposed the use of an algorithm created by the CIES Football Observatory to calculate transfer fees by estimating “transfer values and probabilities in a scientific way.”[2]
• The Report also suggested imposing a luxury tax on “excessive” transfer spending, with any money raised going towards some sort of “solidarity fund.”[3]
• There was also a recommendation to confine the number of player loans that clubs can make in a single season to “between six and eight in and the same number out”, and a specific suggestion that the “loan system needed to have a clearly-defined purpose.”[4]
• In light of the proposed limitations on player loans, the Report also called for a limit on overall squad sizes, making it clear that “the stockpiling and subsequent loaning of players, particularly young players, can be detrimental to their development due to the unsettling nature of being on loan.”[5]
• There were also significant reforms proposed in relation to player agents, including a cap on agent fees and a prohibition on the same agent acting for both clubs and a player in a single transfer.[6]
• Finally, the Report addressed concerns about “fraudulent conduct and money laundering” by citing the need for establishing a “clearing house” to process transfers and pay player agents and other relevant parties.

Conclusions

Although the Report has not been made available to the public, the information released by Reuters suggests the proposals contained in the Report would have significant ramifications if implemented.

Firstly, the proposed introduction of a transfer fee algorithm is going to naturally raise considerable concern for clubs. It will take the calculation of transfer fees out of their hands in favour of an algorithm overseen by an independent third party. There will inevitably be calls that the algorithm will overlook factors that do not lend themselves easily to a “scientific” or mathematical estimate, such as an individual player’s place in the overall composition of a club’s squad and the future direction of the squad, their alignment with the values of the club and culture and their mentoring of more junior players.

The Report has also not made clear whether clubs will be able to withdraw from a transfer once a fee has been imposed. This raises a number of serious issues.

• If clubs can withdraw from a transfer after the algorithm has been used to calculate a fee, then this may undermine the efficacy and efficiency of the system if the algorithm must be calculated again if another club then chooses to bid for the player.
• However, if the algorithm applies universally to all bids in a single transfer window, then this will reinforce suggestions that the algorithm excludes a number of factors that might be relevant. For example, a club that may be in desperate need for a striker would undoubtedly be willing to pay more than a club which has three or four top strikers already on the books. Why should the selling club be penalised from capitalising on the potential extra interest of the club that has a greater need for a striker and selling to them at a higher price?
• Conversely, if clubs are not permitted to withdraw from a transfer once the algorithm has been used to calculate a fee, then serious questions arise about how this system can operate alongside the UEFA and domestic league financial fair play systems. Broadly, the financial fair play systems currently restrict the amount that a club can spend on transfers to a proportion of its overall revenue. If a transfer fee is calculated after a transfer has been agreed and subject only to the algorithm being completed, then a surprisingly high transfer fee may place clubs in breach of the financial fair play rules.

The use of a luxury tax may also cause issues. Although it has worked in US sports such as Major League Baseball, this is a single league sport spread across only two countries. There are serious questions about how a luxury tax could be effective given that football is a global game, with most leagues having a promotion and relegation system. Given the scale of football around the world, there will be serious debates about where the money generated by the luxury tax should go, including whether it should go to certain countries and/or competitions. Further, the luxury tax is only likely to be imposed on the very top teams who already have significant financial resources and in many cases are backed by wealthy owners, and there is an argument that it is unlikely to have much of a deterrent effect on spending.

The restrictions on loans are also problematic. A number of clubs such as Manchester City and Barcelona have set up elite academies that can cater to hundreds of junior footballers. They would argue that the loan system is an integral part of the development of academy players, as it allows them to get first team football experience at other teams or in other countries. A restriction on loans may force clubs to sell academy players early, denying them the benefit of access and continued development at the elite academies once they have returned from loan.

Despite the issues above, the potential agent reforms and introduction of a clearing house seem long overdue, and would presumably be uncontroversial if implemented.

The significance of the proposed reforms in the Report should not be underestimated, and football clubs around the world are no doubt keeping a close eye on developments. CMS will keep you updated on the implementation of any of the reforms contained in the Report.

[1]Reuters, “FIFA report proposes regulating transfer fees, limiting player loans”, published on 15 September 2018.

[2] Ibid.

[3] Ibid.

[4] Ibid.

[5] Ibid.

[6] Ibid.