FIFA's third-party ownership crusade has major implications in S. America

When Neymar was 17, a Brazilian company called DIS Esporte paid about €5 million for 40 percent of his economic rights. By the time he moved to Barcelona in

When Neymar was 17, a Brazilian company called DIS Esporte paid about €5 million for 40 percent of his economic rights. By the time he moved to Barcelona in 2013, the player’s value more than quadrupled. Barça bought the player outright from Santos, DIS and Neymar's father for a reported €57 million.

The transfer touched off a series of legal proceedings and contributed to Barcelona president Sandro Rosell leaving the club, but DIS eventually cashed out for a major profit. Now, business practices like this one, and similar deals for Radamel Falcao, Carlos Tévez and Javier Mascherano, are under attack from FIFA.

Investors outside football clubs become partial owners of a player’s economic rights as common practice in South America. FIFA’s recent decision to ban third-party ownership raised eyebrows on the continent, where such a ruling could have major implications. Some experts believe the Brazilian league would crash without investment from outside businesses, as clubs lack money of their own.

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legislation worldwide is minimal, although FIFA transfer regulations and Premier League rules already discourage it.

Brazilian reaction to the ruling, in particular, was one of shock.

“It was kind of a surprise for the South American market to have this proposal approved,” Marcos Motta, partner at Brazilian firm Bichara e Motta Advogados, told SI.com in a phone interview. “The South American position was very clear that the issue should be better regulated instead of banned because of the impact of such a ban on the market.”

Motta is on FIFA’s third-party ownership working group, which is set to meet Thursday in Zurich for the first time since the ruling. The group comprises representatives from world players union FIFPro, the European Club Association and each of the six FIFA confederations.

Thursday’s meeting marks the first step toward putting the ban on paper. None of the parties concerned are quite sure where proceedings will start or when they will end.

“Probably, there will be a starting point from the legal department in the agenda for the meeting and then, from the starting point, we start to open discussion among the members of the working group in how this might be implemented,” Motta said.

Motta said until FIFA clarifies the ban, player contracts in Brazil would be more precarious. Soon after the ruling, he spoke to one investment fund that put a €2.5 million investment into a top-five club on hold. The fund didn’t want to purchase more players’ rights until FIFA stakes out a more permanent solution.

“This is an indication how the market has reacted in the very, very short term and how the market will react within the next years, or at least within the period in which FIFA will regulate and implement these new rules,” Motta said.

FIFA proposed a three-year transitional period before a total ban, but standard contracts in Brazil last five years, which agents say would discourage any further investment immediately.

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“If you take into consideration that between 80 and 85 percent of all players playing in the first division of Brazilian football are co-owned between the clubs and investment funds,” Motta said, “this would simply collapse Brazilian football.”

Traffic Sports director of legal and corporate affairs Rafael Botelho said the number of partially owned players is probably closer to 100 percent.

“I’ve worked for Traffic for six years. I’ve worked in soccer for 12 years. I've certainly seen, written, read or signed more than 500 contracts regarding player transfer,” Botelho told SI.com. “I don’t recall one single event in which the player was 100 percent wholly owned by the club.”

However, Botelho said after the short-term panic, a ban might serve Brazilian football well. It would be a chance to focus on developing players and modernize business practices, and whenever players are sold, clubs would receive full compensation rather than a partial bonus.

“From an economic, business perspective, it’s not at all as attractive as it was five, 10 years ago, this part-ownership thing. Luckily for FIFA, I think the market would survive easier now than five years ago,” Botelho said. “I think in the long term, actually, it’s good for the clubs because they’re going to make their own money.”

It’s also possible that the ban has no effect, at least on domestic player transactions. FIFA’s jurisdiction applies only in international cases, while local laws govern domestic cases until disputed by a foreign entity. Then, FIFA and the Court of Arbitration for Sport apply FIFA regulations and Swiss law.

In an email, a FIFA spokesperson confirmed that “FIFA can only regulate activities within the scope of organized football and for those within its jurisdiction.”

“In legal terms, it’s impossible for FIFA to say what we can or cannot do in Brazil,” Botelho said. “We treat the assignment of economic rights of the players as a regular assignment of credit that is ruled by Brazilian civil law. … So my first reaction is, I don’t care [about the ruling].”

Europe has already taken steps to eradicate third-party ownership. The Premier League outlawed it after Tévez and Mascherano’s messy move from Argentina to West Ham, and UEFA is also planning a ban in continental competitions, although the practice still flourishes in Portugal, Spain and Eastern Europe.

Henrikh Mkhitaryan moved from ShakhtarDonetsk to Borussia Dortmund in 2013 despite multiple owners of his transfer rights. Shakhtar relied heavily on Brazilian imports — and businessman Kia Joorabchian, who masterminded the Tévez-Mascherano deal and whose influence extends into post-Soviet spaces — in recent years, combining flair players with Eastern Europeans to create a winning team.

Like many in South America, Shakhtar regards third-party influences as a necessary device. The club is a perennial Champions League participant, putting those players on display across Europe, and their sale funded modern training facilities and superior working conditions in Ukraine until the Russian conflict.

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The money in the European game makes it easier to advocate against third-party ownership because the Champions League is the most profitable tournament worldwide. Clubs received €8.6 million for making the group stage in 2014-15, as well as €1 million for a win and €500,000 for a draw. In the 2014 Copa Libertadores, South America's most prestigious club competition, base fees were $250,000 with no win bonus.

“The specificities and the peculiarities of the market in South America show that the clubs have to play with their assets,” Motta said. “In South America, the assets are the players’ rights, contrary to Europe.”

Not that Brazilian clubs spend what they have wisely.

According to Globo, the group that owns the league’s television rights, investment rose 91 percent from 2010 to 2013. The large influx of money hasn’t solved any problems because of fiscal irresponsibility.

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“The TV money in Brazil is really big … and still, we don’t have the money,” Botelho said. “Instead of taking this new influx of money to do better things, they just spend — it goes mostly to salaries, commissions and coaches and wasting money, really, hiring many more players than you need for much more than you can afford.”

FIFA’s next challenge in South America will be writing a TPO ban while still keeping the world’s most fruitful transfer market intact. According to a FIFA Transfer Matching System study, Brazilian clubs moved 2,311 players and netted $579 million between January 2011 and June 2014.

Brazilian advocates would like to see better regulation, not a ban.

“For instance, you could limit the share that can be sold, or you can say that whoever buys it, it has to be public,” Botelho said. “It has to be disclosed in the national association website so everybody knows, and whoever buys it must have absolutely no connection with the management of the club.”

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One possible reaction to a total ban could be clubs move to a model closer to co-ownership, which is common in Italy. In that system, two clubs own a player’s contract jointly, but he is only registered to play for one.

Investment funds and agencies could buy shares of clubs to become co-owners in contracts. For example, Traffic founded Desportivo Brasil Participações Ltda., a state-level club with a focus on youth, in São Paulo in 2005.

Botelho said co-ownership and retaining a percentage of a future transfer are already essentially the same as third-party ownership.

“They are, in the end, trading half-players or part of players or a share of players, and that happens everywhere with exception of the top, top clubs,” he said. “What’s the difference if I sell to you 50 percent of my player, or if I sell to you my player and you pay me X plus 50 percent of the future sale? It’s exactly the same thing in practical terms.”

American agent Lyle Yorks, who represents Clint Dempsey among a number of other high-profile U.S. players, said third-party investors would likely find a way to remain involved, regardless of FIFA legislation.

“Instead of the third-party ownership going through companies and individuals, it will probably just go through the clubs themselves,” he said. “It’s really tough to get around it. … I think ultimately, it’s going to be close to impossible to police, because they’ll just use a different vehicle and a different place.”