Third party ownership arrangements: Is a ban in football really appropriate?

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Abstract

Football companies (equivalent to professional sport teams) are increasingly challenged with raising capital. However, future athletic success is highly uncertain and associated cash flows are difficult to predict which makes it difficult to attract investors. An alternative financing instrument that has become more popular in recent years is Third Party Ownership arrangements (TPOs). TPO is a way for financiers to invest in the player squad of a football company and therefore reducing investment risks. Due to the wide usage in football and legal concerns about TPOs, FIFA has forbidden the implementation of TPOs since 2015. But, the question arises, whether a ban of TPOs is really appropriate avoiding a potential conflict of interests as well as problems in ethics and compliance. To address these aspects and finally to judge the appropriateness of TPOs for football companies and the ban itself, a financing-theory-oriented view on the design and functional possibilities of TPOs is needed, but still missing in the literature. Our paper tries to fill this gap and sets the economic basics for a profound legal and economic discussion on the use of TPOs in football as well as sports in general.

Keywords: Sport Management, Third Party Ownership, Governance, Transfer Fee, Transfer Rights

Authors’ individual contribution: Conceptualization – T.H.; Methodology – T.H. and A.O.; Writing – T.H., A.O., and F.W.; Investigation – T.H. and F.W.; Resources – A.O.; Supervision – T.H. and A.O.

Acknowledgments: We would like to thank anonymous reviewers as well as participants of the 2019 conference “Corporate Governance: Search for the Advanced Practices” in Rome for their valuable comments. We do not receive any grants or funds for our paper. All remaining errors are our own.

JEL Classification: G15, G23, G32

Received: 22.05.2019
Accepted: 02.08.2019
Published online: 05.08.2019

How to cite this paper: Herberger, T. A., Oehler, A., & Wedlich, F. (2019). Third party ownership arrangements: Is a ban in football really appropriate? Journal of Governance & Regulation, 8(3), 47-57. https://doi.org/10.22495/jgr_v8_i3_p4