By Daniel Geey published on 24 August 2015
Every so often, I receive an excellent question (or set of questions) from readers of the blog. Recently, I received some really insightful queries from Jason Ives in relation to specific transfer agreement clauses. I set out his questions and provide some detail on how such clauses work in the football industry.
Can you please explain how buy-back clauses work – like the one used in Barcelona’s agreement with Aston Villa for Adama Traore?
Buy-back clauses in transfer agreements are used primarily to give a selling club the security of being able to repurchase a promising player at a set fee should the player excel in the future. Some high profile examples of such reported clauses include Álvaro Morata (Juve back to Madrid),Casemiro (Porto back to Real Madrid) and Gerard Deulofeu (Everton back to Barcelona).
In many cases, the benefit of the transfer extends to the:
- selling club as they receive a transfer fee for a player that at present probably isn’t getting regular playing time with the possibility of requiring the player if he plays well at a predefined fee;
- buying club who can purchase a player that they otherwise may not have been able to acquire had it not been for the clause. In addition, the buyback figure is usually significantly higher than the original transfer fee; and
- player (who can play regular first team football, probably receive a pay rise and demonstrate their talent).
- The buy-back provision is usually based on a number of individual or cumulative triggers including activating the clause:
- In defined transfer windows (i.e. the selling club cannot buy back the player for a minimum of two seasons);
- should the original selling club bid a set amount (which could vary depending on the season that the buy-back clause is triggered i.e. €2m in the 15-16 windows and €2.5m in the 16-17 windows).
- Should a buy-back provision be triggered, there is usually a contractual obligation to enforce the contract and transfer the player accordingly.
As such provisions are commercial agreements between contracting parties, there is always the possibility of removing a buy-back clause should both parties agree (usually through payment made to the club that has the benefit of the buy-back clause).
An interesting situation was reported over the summer with Atletico Madrid defender Toby Alderweireld who was on loan at Southampton for the 2014/15 season. Southampton had an agreement with Atletico when entering into the loan deal that they had the option to purchase the defender for £6.8m.
Although not a buy-back provision, the clause gave Southampton the ability to convert the loan into a permanent transfer unless Atletico paid Southampton £1.5m to remove the clause. In the 2015 summer window Tottenham bid around £11.5m which Atletico accepted. Southampton though wanted to enforce the £6.8m purchase clause.
It has not been publically reported how the matter was finally resolved but it is likely that Atletico provided compensation to Southampton in order for the player to transfer to Tottenham.
How is it different from a first refusal clause?
A first refusal transfer clause gives the club who has the benefit of the clause the opportunity to be informed of any deal that the selling club is willing to accept for the transfer of the player.
This is different from a buy-back clause because usually with a first refusal clause, the selling club retains the power to decide whether to sell the player or not.
Typically, a buy-back clause automatically triggers the transfer of the player should specific contractual conditions be met. In practice, the selling club will not have any way of refusing the buy-back offer if the clause is intended to be an automatic trigger and it is drafted appropriately.
What price does the original club have to offer to buy the player back?
The most common way for the original club to repurchase the player is through a set transfer fee that is inserted into the transfer agreement i.e. If the club bids £15m in any of the first 2 transfer windows.
In practice, these matters can become more complicated if there are different set fees depending on the year that the clause is activated, if the player is called up for the national team, if he scores a certain number of goals or makes a number of appearances.
So, for example, a basic buy-back clause could be structured as follows to ensure that the buy-back fee will be set at:
- €5m should such a bid be received from the Offer Club in the Summer 2016 Window; or
- €6.5m should such a bid be received from the Offer Club in the Summer 2017 Window.
- An additional €1m fee will be required to activate the buy-back condition should the player:
- be called up to play in an officially recognised FIFA national team representative match;
- score 10 Premier League goals in any season consisting of 38 league matches; or
- play for at least 60 minutes in 50% of all Premier League, domestic cup and UEFA Champions League or Europa League competition matches.
What if a third club comes along with a bigger offer than the original club was offering? Does the original club have to match it? What if the third club then ups its offer in response?
This was a similar scenario to the Toby Alderweireld situation discussed above. In practice, a selling club, just as Atletico did, can have the benefit of a stipulated transfer amount cancellation clause, which caters for such a scenario where a third club bids more than the stipulated buy-back amount.
Whether such a cancellation clause is inserted in the first place can depend on the negotiation position of the parties. If the original seller (who will have the benefit of the buy-back) is in a strong position, there is less likelihood of such a cancellation figure being inserted or in the alternative the cancellation figure being set at a high sum.
If there is such a provision and the buy-back cancellation sum is paid to the original club, then the selling club is free to sell the player and accept a higher amount.
If the club refuses to pay the buy-back cancellation sum or there is no clause in the contract, then the original selling club should be able to enforce the buy-back clause so long as it can agree personal terms with the player and that the player wishes to re-join the club (though these factors may not be straightforward in practice!).
Note that for ease of reference the drafting presumes that the player will be playing in the Premier League for the first two seasons. If the player, for example, was transferred after his first season, and that season was not covered by a buy-back clause (which would be very unlikely), the buying club may still have the benefit of a first refusal transfer clause to match any other offers.
Daniel Geey, email: email@example.com