Since the commercialisation of football in the late 19th Century, the sport has continuously grown so as to become an industry which attracts a lot of investment and generates massive revenue. Due to the huge financial stakes the issues in football which have legal implications become relevant for discussion. Though there has been wide discussion on the employee status of footballers, and the relationship of employment law with the sport, some modern aspects of a footballer’s contract have not been discussed. One such aspect is the buy-out clause. This type of clause is theoretically supposed to allow greater freedom to footballers, something which has been the goal of the players’ trade unions since long before the famous Bosman case was decided. However, in an age when the footballer has a stronger bargaining position vis-à-vis the club he plays for, the use of buy-out clauses is still rare in English football. The buy-out clause is seen to be advantageous for the player because it is an agreement between him and the club that the payment of a specified sum will be enough to release the player from his contract. As such the buy-out clause is capable of forming the basis of a quantifiable measure of damages due to the club for a breach of the playing contract by the footballer.
The football world governing body, FIFA, has recognised this and Article 17(2) of the FIFA Regulations on the Status and Transfer of Players states that the damage for a breach of contract ‘may be stipulated in the contract or agreed between the parties’. However the Court of Arbitration of Sport (‘CAS’), which has jurisdiction over sporting disputes, found in the important case of Matuzalem that there is a clear distinction between buy-out clauses (an arrangement between player and club to quantify damages in the event that the player unilaterally breaches his contract) and what is referred to as ‘minimum transfer fee’ (clauses which are the minimum a club would accept in a transfer for a player). Therefore, though a clause that obliges a club to accept a transfer offer for a player is not recognised by the authorities of football, an agreement between the club and player that the payment by the player of a certain sum would release him from his contractual obligations is recognised. But if FIFA does recognise buy-out clauses, why are they not used more widely in English football?
One major issue with the buy-out clause is the belief that this type of clause would be unenforceable in the English courts. In English law, though the courts have allowed parties to pre-agree damages for a breach of contract, they have taken it upon themselves to limit the use of penalty clauses. The English courts have generally held that a clause imposing the obligation on the defaulting party to pay an extravagant sum for the breach of contract is a penalty clause and hence is void and unenforceable. Conversely, a genuine pre-estimate of damage would be an enforceable liquidated damages clause. It must be noted that a pre-estimate of damages does not need to be a correct prediction of the damage that will be caused by a breach; it must simply be a genuine attempt to estimate the amount of damage likely to occur to the innocent party. It is unclear what would constitute a ‘reasonable’ pre-estimated damage calculation for a football contract. The value of a player in footballing terms is usually determined by the market , and so is not quantifiable. In most cases the transfer value of a player is much higher than the value of his contract to the club, so it is difficult to establish what the actual damage to a club is, if a player does not honour the terms of his contract. Most clubs, if they are to agree to include a buy-out clause into the footballer’s playing contract, will demand that they set the value in the clause. Hence, they usually set the value to the perceived market value of the player (or sometimes even higher than this). Because of this, the values usually contained in buy-out clauses are extravagant sums. As a result, a buy-out clause containing the ‘transfer value’ of the player is more akin to a penalty clause than a liquidated damages clause.
However, the English Courts are generally unwilling to conclude that a clause is oppressive, particularly when it has been agreed by two parties with equal bargaining power, and it can be argued that in the current age of superstar footballers, some players at the top of the game have equal bargaining power with the clubs they play for. Also if the agreement is such that the player will pay monthly sums (the damages spread over time) for terminating his contract, the courts will be unable to find this to be a penalty clause even where the overall sum agreed is equal to a transfer fee and not therefore a true attempt at calculation of damage. This suggests that there could be ways for players and clubs in England to make use of enforceable buy-out clauses. Indeed in recent times, though the terms of footballers’ contracts are usually confidential, there have been confirmed reports in the press of the use of buy-out clauses in the contracts of footballers such as Demba Ba and Joe Allen, though the enforceability of such clauses has not actually been tested.
Another problem with buy-out clauses is the fact that it is not clear whether they actually offer any greater freedom to footballers. In Spain, where it is a requirement by the Real Decreto 1006/1985 of 26 June (For the Regulation of the Employment of Professional Sportspeople) for buy-out clauses to be inserted in every player’s contract, Spanish clubs insert over-inflated buy-out fees on the player’s contracts so as to deter other teams from bidding for their important players. For example, according to information released from the clubs themselves, Portuguese star Cristiano Ronaldo has a €1Bn clause in his contract with Real Madrid, and star players Lionel Messi and Sergio Busquets have €250m and €150m value buy-out clauses respectively in their FC Barcelona contracts. Clearly the large value of these buy-out clauses make it very difficult for the players to leave the club and are therefore of no assistance to a player who becomes disillusioned in his current employment and wants to leave. But not every footballer is a big star with an almost priceless transfer value. Most players are affordable in football market terms. Could buy-out clauses work widely for these players?
The fact is that there are problems even where buy-out clauses include reasonable values for the players. Privity of contract ensures that only the footballer and the club he plays for are party to the playing contract. As such a breach of the terms of that contract, that is, by the player deciding to leave the club early, would lead to the player being liable primarily. Despite earning large sums, most footballers would not have the capital to pay for their own transfer value and therefore release themselves from their playing contract. It is therefore the prospective club they want to play for who would need to fund the release of the player. As stated above, the buy-out clause has been distinguished from a ‘minimum release clause’ by the CAS; therefore an offer equal to the buy-out value does not have to be entertained by a club if the bid is hostile. That is, if the club is not prepared to sell a player they will refuse to do so, regardless of an offer equal to the buy-out value being made by another club. As a result, the player seeking to move may have to apply to court to enforce the clause. This will inevitably take time; not an ideal scenario for players seeking to move immediately. Furthermore, as it is the player that has to pay the buy-out value to release himself from the contract, any money given to the player by a prospective club, will be treated as income for tax purposes. Therefore any amount given to the player to release himself would be liable to income tax as soon as it is received by him. Once tax is removed, the value would diminish and there would not be enough to pay the release sum, unless the prospective club is willing to fund the tax liability as well. As such, unless the club is willing to allow their player to leave, the value of the player could escalate to above market value. This makes the use of buy-out clauses unattractive commercially, and explains why they are not used widely. Though the concept of the buy-out clause is attractive to footballers, not many would make an effort to negotiate the insertion of such a clause into their contract as it may not really be of much help in the future.
By Andi Terziu
Law and Football 