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A sports lawyer's notes from the January transfer window including "buy out clauses" and the structure of player contracts.
During the January transfer window it has been reported that both Yohan Cabaye and Wayne Rooney could be in line to "buy out" their contracts. The reports have focussed on how the players could unilaterally terminate their contracts to force through moves.
Rooney and Cabaye are reported to be outside their "protected period" (the first three years for a contract signed before a player turns 28, the first two years otherwise) and can therefore terminate their contracts without receiving a ban.
Compensation will be due, however, with the player and his new club jointly liable to pay it. The amount of compensation is the key uncertainty and some journalists appear to believe that the calculation would be based on the salary the player is due to receive on the unexpired portion of the contract.
This approach is based on the now infamous 2008 Court of Arbitration for Sport (CAS) ruling featuring Andy Webster, the Scotland international whose move from Hearts to Wigan was disputed by the Scottish club.
Subsequent CAS cases (including those of Matuzalém, who terminated his contract with Shakhtar Donetsk to join Real Zaragoza, and Morgan De Sanctis, who tried to terminate his contract with Udinese to move to Sevilla) have deviated from this approach, however, and focused on the loss suffered by the club ie the cost to replace the player or his market value.
In any event, discussion of these cases is probably academic in relation to Rooney and Cabaye as most Premier League contracts now include a clause specifying that compensation for unilateral termination should be based on a player's "true transfer market value".
Rooney and Cabaye could leave, but they would be in breach of their contracts and would have to work together with their new clubs to compensate Manchester United and Newcastle for the loss of their market value (as determined, ultimately, by a panel of lawyers at CAS).
The uncertainty around the amount of compensation to be paid has meant that unilateral termination has remained rare. It could be, however, that UEFA's Financial Fair Play (FFP) regulations have an unintended consequence in encouraging more players to follow in Webster's footsteps.
It is not difficult to envisage a club which finds itself tight against the FFP ceiling prompting transfer targets to terminate their contracts (with nothing to pay until a lengthy legal process has concluded, perhaps in three years time) rather than negotiating a transfer fee with the player's current club (which would impact FFP figures immediately).
Although often discussed interchangeably, there are important differences between unilateral termination (discussed above), release clauses and buy-out clauses. A release clause dictates that a club has to sell a player when it receives a bid over a certain amount (potentially with timing restraints and additional club specific conditions such as relegation or failure to qualify for the Champions League).
Release clauses are not common in English football, but a number of examples have been reported in recent years, such as Demba Ba at Newcastle and Marouane Fellaini at Everton. As became apparent during the Luis Suárez transfer affair last summer, the drafting of a release clause is key.
Given their relative scarcity, an industry norm has not yet developed and I have seen some examples, perhaps drafted by a stressed club secretary at 10pm on deadline day, that would be unlikely to withstand legal challenge.
A buy-out clause, on the other hand, sets a figure for which the player can buy his way out of his current deal with the club.
They are mandatory in Spain but are rarely triggered for a variety of reasons:
The tax issues arise as the money technically must come from the player, resulting in the "buying club" having to transfer money to the player, who then has to pass it on to the "selling club".
It is a difficult process, one navigated admirably by Bayern Munich in prising Javi Martínez away from Atletico Bilbao in 2012, and not something that can be rushed through on transfer deadline day, as Manchester United appeared to discover last summer in relation to Ander Herrera.
These clauses are very rare in England, however, as English law would require the buy-out figure to represent a "genuine pre-estimate of loss" thereby exposing the club to considerable risk should the player appreciate in value over the duration of the contract.
The player cycle - the identification, recruitment, development, motivation, remuneration, retention and sale of players - is, by a distance, the key factor in determining the success of a football club. The money available to pay players is relatively fixed and predominately dependent on success on the pitch.
Outside the biggest three or four Premier League sides, a really smart commercial strategy might give you enough additional revenue to pay for a new second choice left back but will struggle to really make an impact.
In that context, it is particularly surprising that this window has not yet offered any indication that clubs are focussing additional attention on contract structures, something which impacts most elements of the player cycle.
I've previously written about the potential of performance-based pay, but most clubs still operate a very simple structure based around a fixed amount per week, some appearance bonuses and a relatively minuscule squad bonus pool.
To the extent that performance-based pay is used, it appears to be implemented with little (or wrongheaded) thought. I recently reviewed the contract of an attacking player at a leading English club which included a goal bonus equivalent to 90% of his weekly wage and an assist bonus worth less than a quarter of that amount.
Does this clause properly align incentives between the player, his team-mates and the club?
A handful of clubs have recognised that the structure of a player's contract can be used to align interests, aid motivation and improve the team dynamic but, even in the age of FFP, most clubs do not yet "Pay Smart".
First published in The Guardian, Monday 20 January 2014