Hedge Funds Eye More Transfer Fees as FIFA Ban Approaches

Updated on

Hedge funds are trying to hold on to a piece of soccer’s $4 billion player transfer market even as the sport’s governing body prepares to shut them out.

Skarbiec TFI SA raised 6 million zloty ($1.6 million) to invest in the transfer policy of Poland’s Legia Warsaw, according to Maciej Podgorski, a director for strategy at the Warsaw-based asset manager. Meanwhile, London-based advisory firm Football Finance Group has proposed a model on its website where lenders would receive a bonus payment based on the size of a club’s future transfer-fee income.

Investors owned stakes valued at 1.1 billion euros ($1.2 billion) in the trading rights of 1,100 players in European soccer, according to a 2013 report by KPMG LLP. FIFA, the sport’s ruling body, maintains outside investors can interfere with how clubs are run and is banning the deals starting tomorrow. The organization will find it difficult to police the ban, according to Sean Cottrell, chief executive officer of lawinsport.com.

“It’s unchartered territory, and people will push the boundaries until they’re told they can’t,” Cottrell said. “Lawyers and accountants are trying to find new mechanisms and it’s going to evolve as the market evolves.”

Third-Party

FIFA on Dec. 22 told its members that after May 1, clubs can no longer sell future transfer compensation rights to third parties. The practice, known as third-party ownership, caught on among cash-strapped clubs in Argentina and Brazil in the 1990s. It spread to parts of Europe after the 2008 financial crisis caused banks to suspend credit lines to teams including Atletico Madrid and Valencia in Spain and FC Twente in the Netherlands.

FIFA didn’t immediately set any sanctions for clubs that break the rule. Teams can let existing agreements expire, the organization’s circular said.

Malta-based fund Doyen Sports, which acquired 80 million euros of player rights since 2011, filed a complaint with a Paris court last month seeking to overturn the ban. The court ordered soccer officials to give evidence on May 28, according to court papers. In February, the Spanish and Portuguese leagues complained about the FIFA proposal to the European Union’s competition unit.

Some teams such as Twente say they still need financing from funds as banks restricted lending. Last year, the Dutch team sold the rights of several players including forward Luc Castaignos to Doyen Sports to raise cash. Twente were deducted three points by the Dutch football association in March after they failed to reduce debt as planned.

‘Be Creative’

“Our situation isn’t very easy, we have to be creative, and this is the only way out,” FC Twente chairman Aldo van der Laan told a conference in Madrid last month.

Skarbiec will assist in developing Polish soccer and share in transfer profits, according to Podgorski.

Poland, third at the 1974 and 1982 world cups, struggled to replicate that success in European club competitions and last had a team in the group stages of the Champions League in 1996. Limited access to financing is one of the barriers to success, according to Podgorski.

“In the opinion of ours and of the lawyers we’ve consulted, such rules of co-operation are fully in line with FIFA regulations,” Podgorski said.

In an e-mail, FIFA declined to comment on Skarbiec’s plan, saying it couldn’t comment on potential scenarios. Each case would be analyzed individually, FIFA added.

Much Maneuvering

Polish clubs traded players for 72 million euros from 2009 to 2014, with the most frequent moves to Germany and Russia, according to law firm Grant Thornton.

An official at Football Finance Group, which says its partners have helped arrange more than 1.5 billion euros of funding, said by phone that it had held discussion with FIFA about various financing models that may be used after May 1. He declined to comment on details of the discussions.

Clubs and financiers are still adjusting, according Andrew Nixon, a sports lawyer at Sheridans in London.

“There is going to be a lot of maneuvering,” Nixon said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE