At 3.5 billion followers, it is safe to say that Football or Soccer (an example of how it should NOT be referred to) is the most popular sport in the world. As someone who plays, and watches football and ends up crying after the game (well, am not guilty of that :P), I have always been intrigued by how these clubs pay such exorbitant prices for the players, and where does the money come from.
Before I begin talking about how financial transactions play behind the scenes, let us play a simple game. There is a famous and amazing actor who plays two very interesting characters in two movies –
In the first movie, he plays a smart & sharp individual who helps a renowned baseball team general manager in recruiting & building a team that relies on data analysis & statistical measure of player performance in the past games. In the second movie though, the same actor plays a shrewd & largely manipulative stockbroker who utilizes his connects, relationships & back-door techniques to make money for himself & the firm of wolves. Guess the actor and the movies? Well, once you are through with the post, you will know why we started with this puzzle 😊
Show me the money, Matey!
It’s no secret that clubs like Manchester City and Paris St. Germain (PSG) are owned by some of the richest groups in the Middle Eastern Region; Manchester City by Sheikh Mansour bin Zayed Al Nahyan, half-brother of the ruler of Abu Dhabi, and PSG by Qatar Sports Investments, a state-backed body founded by the emir of Qatar, Sheikh Tamim bin Hamad Al Thani. While these clubs are spending hundreds of millions to acquire the best talent in the world, there is competition brewing in the Land of the Dragon – China, where the uber-rich property tycoons are splurging to please the Chinese Leader, Xi Jinping!
China didn’t have a large involvement in football until President Xi expressed his fascination for the sport, and his desire to make China a football powerhouse, such that it can host the world cup someday and go on to win it. This dream seemed far-fetched, but the leader has taken certain steps in that regard by making elementary and secondary school students mandatorily take part in football training, enforcing it as a part of the national curriculum.
Additionally, this passion to make football large in China resulted in the Chinese property tycoons betting large on foreign players and try to bring in more talent into China as well. A prominent Kickstarter to this campaign was when President Xi visited the UK in October 2015, he took an iconic selfie with Manchester City forward, Sergio Aguero, and for some reason, Britain PM David Cameroon was also part of that picture. However, the reason for this flashback is to point out that President Xi’s visit to Manchester kickstarted a buying spree when China Media Capital Holding (a state-backed Private Equity firm) and Citic Bank Holdings, shelled out a whopping $400M to obtain a minority stakeholding of 13% in the clubs’ holding company – City Football Group. Moreover, Wang Jianlin (founder of China’s largest real estate development company) purchased 20% of Spanish side Athlético Madrid for $52M; China Rastar’s Group purchased 56%, a controlling stake, in another Spanish club Espanyol; and CFEC China Energy purchased a 60% stake in the Czech Republic side Slavia Prague for an undisclosed amount.
These are the larger investments being made in Europe, however, Chinese tycoons aren’t staying silent in breaking the bank to bring in the talent over to their land. Funnily enough, this is the one industry where China is paying attention to importing rather than exporting. Here on out, the big Chinese Super League club owners started buying players directly from the big European Clubs in an attempt to strengthen their local sides in order to win more trophies and become contenders for the Asian Champions League. Some of the famous transfers to China include Oscar ($76.5M), Hulk ($61M), Alex Teixeira ($55M), Jackson Martinez ($47M), and Ramieres ($30M).
Although you’re probably wondering that if you wanted to read about the transfer market you could have Googled that, right? So, in this article, I will try to shed some light on a lesser-known phenomenon in the world of football – Third Party Ownerships (TPOs).
Party number 3 – Is it a reason to dance with glee?
To be honest, TPO rules have existed for nearly 2 decades, but many avid football fans still aren’t well versed with or aware of these rules, and coincidentally these have major financial ramifications on the players, clubs, and obviously the third party involved. As the name explains,
TPO is a financial instrument where a third-party (which is usually a private investor or a fund of some sort) that acquires either all or part of the economic rights of a professional football player. This implies that a third-party, other than the clubs involved, will benefit from the transfer fees of the player in which they have a stake.
In simple terms, it means that when Player X transfers to another club, then the third-party investor would receive the proportion of his investment from Player X’s transfer fees. Comprende?
But what this contract does is destroy the purity in the competition since the third-party wields significant influence over the transfer of the player, even without the players’ knowledge, as these agreements are created as private legal contracts between the third-party and the club involved, thus the TPO is kept from those not privy to the contract, including the player concerned. So, what this entails is that the players are transferred for profits and financial gains rather than the club to which they want to play for, hampering the growth of both the players and the prospective club.
Football is a beautiful sport, which is played for the entertainment of billions of viewers across the globe, but TPOs are adversely affecting the fair play as a result smaller clubs lose out on potential talent because of the selfish motives of third-party owners.
In China’s land of secrets, TPOs mystery could still get resolved!
I think this is enough coverage on the basics of TPOs, but how this relates to China dates back to 2015/16, when Europe’s most powerful football agent and founder of Gestifute, Jorge Mendes, and Chinese Billionaire, Guo Guangchang and co-founder of an investment group Fosun, worth more than $10 billion, announced a partnership to create an agency for the expansion of soccer in China and building talent from the grassroots level, is of significance. Interestingly, this was a façade meant for the public, but behind the curtains the partnership was more about the profit as opposed to talent. Seems like a very strong allegation, right?
Well, according to the contract signed between Fosun and Gestifute, Jorge Mendes’ agency allegedly held a stake in more than 50 top players in late 2015. Thus, one would naturally assume that the purpose of this partnership was to benefit from Mendes’ connections and affiliations. However, there was one entity that ruined these monetary plans for Fosun and Mendes – FIFA, the global governing body of football. FIFA imposed a rule in May 2015, banning TPOs that were distorting the competition, although allowing existing contracts to run their course, but preventing clubs from entering into new ones.
This was a step forward in the right direction, to take financial gains out of the equation, however, the ban did little to stop Fosun. FIFA banned TPOs, but it didn’t stop Fosun from buying a football club – Wolverhampton Wanderers in 2016 for £45M. Now from the time Fosun invested in Wolves in 2016, to their promotion to the top rung of English Football – English Premier League, the club spent approximately £60M (account for forex differences).
Some of these players were ‘partly-owned’ by Mendes, or in some cases, few deals were arranged with the help of Mendes, including Nuno Espirito Santo who was appointed as the club manager and was also responsible for helping Mendes start his career as Europe’s best agent. TPOs are/were prevalent in Portugal, and South America, and when Wolves played in the EPL in August 2018, they had 5 Portuguese players out of the starting 11.
Well, all said and done, it is evident that TPOs were hampering the integrity of the sport, thus FIFA’s decision to ban the rule is in the best interest of the game. After the Chinese government imposed restrictions on overseas acquisitions in 2016 & 2017, investors such as Fosun will continue to find loopholes in the system in an attempt to make financial gains from this form of modern slavery (of sorts). However, a blanket ban of TPOs certainly solves the issue temporarily, some argue that a proper, thought-out approach to deal with the issue should be worked upon, such that there is more transparency in the financial system in football and thereafter restores trust in the fans.
Hope this shun light and gave some insight on the finances behind the scenes.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of any agency, organization, employer, or any company. Fintuned Co. LLP shall not be held responsible in any manner whatsover, for any decision/action taken by readers on the basis of the content mentioned in the article. Readers are requested to exercise their best judgement before taking any decision/action. Fintuned Co. LLP shall also not be held responsible for any copyright infringement committed by the author in the process of writing and/or publishing this article and in the event any such offence is found, cooperate with necessary authorities to take remedial action
Thank you Yuva members for organising such a fun and informative lecture. We enjoyed it a lot. Meeting and learning from Mihir Sir was really an amazing experience. And this is not only our feeling but all the students enjoyed his lecture very much and look forward to many such events.