Premier League head Richard Scudamore wants the world soccer to follow his lead by banning investment funds from buying shares in players, a $3 billion-a-year market. His opponents say the plan won’t work.
The world’s richest soccer league was roiled in 2006 when London’s West Ham United signed Carlos Tevez and Javier Mascherano, two Argentines whose transfer rights were wholly owned by funds. The deal led to lawsuits, fines and a controversy that still rages.
Funds buy the stakes in the hope of profiting from a share of the transfer fee paid between clubs when players move. Scudamore said the agreements threaten the sport’s integrity and could be scrapped worldwide within five years.
“A player in my view is not indentured slavery,” the 53-year-old chief executive officer said in an interview. “The registration of that player has been bought for the benefit of that club, and then that club either works that player to the end of his useful life, like any other asset, or that player is transferred.”
The former Thomson Corp. senior vice-president persuaded the Premier League to outlaw the practice in 2008 and has lobbied world body FIFA to do likewise. A key FIFA committee unanimously agreed to do so, although it has no authority to change the regulations, something only the organization’s executive can do.
FIFA says it’s evaluating the “complex matter.” European governing body UEFA has said that if FIFA fails to take action it will introduce its own ban. Gianni Infantino, general secretary, said in an interview that such funds could be used for money-laundering and that some are under investigation.
Scudamore’s importance in the world game has grown with that of his league, which is watched in more than 200 countries. That’s allowed it to negotiate a global television contract worth about $2.5 billion a year from next season.
The investment-fund issue has split the sport. While UEFA may ban it, and France and Poland have already done so, it’s accepted in southern Europe and South America. There, television deals are worth a fraction of the Premier League’s and the teams rely on selling players’ transfer rights for their cash flow.
Eighteen-time Portuguese champion Sporting Lisbon has sold stakes in all but four of its 28-member roster. In Brazil, 90 percent of players in the country’s top league “are somehow linked to investors,” says Jochen Loesch, president of international business at Traffic Sports, which has invested more than $75 million in the rights of about 60 players since it was established in 2007.
Loesch’s company is one of about a dozen known to be involved in player funds. Several are based offshore in tax havens like Bermuda, the British Virgin Islands and Jersey.
Scudamore’s plan is doomed, he said.
“We are zero worried,” Loesch said about the risk of a global ban. “This rule, if it comes, will be widely ignored by the market.”
Loesch said funds lose money on some players, so they have to invest in a “big portfolio.”
“We have huge downside: if the player won’t be sold we don’t get a penny,” he said. “With the top-third, you will make so much money that they will compensate the losses of the lower third.”
The practice is misunderstood and is similar to a bank loan, Loesch said, adding that a court would overturn a ban. Scudamore said sport’s special status in European law offers legal protection.
The issue is being looked at as new financial controls are set up in Europe. Clubs face penalties from 2014 if their spending outstrips income, limiting how much billionaire owners such as those at the Premier League’s Manchester City and Chelsea can spend on new players. Scudamore said it’s contradictory to curtail the ability of wealthy owners to fund clubs and yet allow “this opaque third-party ownership.”
West Ham pleaded guilty in 2007 to league charges that it concealed an agreement that gave control of Tevez and Mascherano to two offshore companies, leading to an English record fine of 5.5 million pounds ($8.3 million).
“It kicked off with a huge act of bad faith by West Ham United, who lied to us,” Scudamore said, describing the episode as the worst in his 14 years at the league.
The Hammers are still owe Sheffield United part of 20 million pounds in compensation after the Blades argued Tevez’s seven goals in the last 10 games helped West Ham stay in the top league at their expense. Neil Warnock, Sheffield United’s manager at the time, called for Scudamore’s resignation.
Some funds’ opacity makes it difficult for regulators to trace their backers. Five years after Tevez’s move it emerged that now-deceased Georgian billionaire Arkady Patarkatsishvili owned the company that held the player’s transfer rights.
“In Europe, clubs don’t want to talk about it,” Loesch said. “They do it but they don’t want to talk about.”
Pini Zahavi, an Israeli who started out as an agent before moving into player investment, said the Premier League has double standards. He said the practice of teams loaning players to others in the league is a type of third-party ownership.
“There are some contradictions,” Scudamore said. “All these things test the limits of integrity. Loans certainly do. I wouldn’t have them, the clubs want them and it’s their constitutional right.”
Striker Tevez and midfielder Mascherano have since moved on and are now at Manchester City and Barcelona, respectively, but the issue remains. Whatever the arguments, Scudamore said he’ll never be convinced that third-party investors in players’ transfer rights could ever benefit soccer.
“The fact we still bear the scars from Tevez, Mascherano is not in any way driving us to this conclusion,” he said. “I think the whole thing has an integrity issue, a reputational issue, an economic issue and we just fundamentally think it’s wrong.”