Sell on Clauses - Legal Position

[ExiledAjax]

I see a lot of discussion around City's potential to receive sell-on fees. In particular we know that our last CEO was a huge fan of placing sell-on fees into our transfer agreements, and that we've at least three higher profile ex-players (Webster, Kelly and Brownhill) who have the potential to generate large windfalls for us. The legal activation of a sell-on fee has been recently considered by the Court of Arbitration for Sport ("CAS"), and their decision looks as though it makes it more likely that City would be able to claim for money under the sell-on clauses that we have out there in the world.

The case concerned the transfer of Jack Harper from Brighton to Malaga in 2017, and his subsequent move to Getafe in 2019. The case is interesting as we get to see the precise wording of the sell-on clause that Brighton inserted into the transfer agreement with Malaga in 2017. That sell-on clause read as follows:

2.2 Should the Player’s registration be transferred on a permanent basis by Malaga at any time in the future then Malaga will pay to Brighton 12.5% (twelve and a half per cent) of any transfer fee received by Malaga (deducting the amount corresponding to solidarity contribution) up to a maximum sum of €750,000 (seven hundred and fifty thousand euros).

Harper's contract with Malaga extended to 30 June 2019. On 20 March 2019, as his contract was running down, Malaga agreed a deal with Getafe whereby Harper would sign for Getafe on 1 July 2019, the day after he became a free agent. In that agreement Getafe agreed to pay Malaga 1.5m Euro in return for Malaga not renewing Harper's contract. Upon being notified of Harper's transfer to Getafe, Brighton requested details from Malaga of the transfer fee it received in order to calculate whether any sums were payable under the sell-on clause. In response, Malaga informed Brighton of the fee Getafe agreed to pay, but denied that any sums were payable to Brighton under the sell-on clause because it claimed that Harper's registration had not been permanently transferred on the basis that Harper's contract expired on 30 June 2019, so from that day on, the player was a free agent.

Brighton sued for their 12.5% payment of €187,500, plus interest and costs.

On 18 May 2021, FIFA’s Player’s Status Committee passed a decision partially accepting Brighton’s claim and ordering Malaga to pay Brighton €125,000 plus interest.

Malaga appealed the decision to CAS as they continued to argue that this was not a "transfer" because Harper would be a free agent when he signed his new contract with Getafe. The CAS panel concluded that the following issues needed to be determined in order to resolve the dispute:

• What does the concept of a “transfer” encompass in football?
• How should the sell-on clause be interpreted?
• Did the movement of Harper from Malaga to Getafe trigger the application of the sell-on clause?
• What are the legal consequences resulting from the answer to the previous issue?

CAS concluded that a "transfer" is any "movement" of a player’s registration/employment, whether to a different association or to a different club under the same association occurring under a contractual scheme or outside of such a framework. They referred to an older case from 2019 between Sevilla and Nancy in which they had determined that:

"...in the world of professional football a “transfer” of a Player means in general terms a change of “registration ” of a player or - to put it in another way -for a professional player it means a “change of employer...therefore, a “transfer” can be equated to a “movement” in the registration/employment relation.”

"No-shit sherlock" some may say (if indeed you're still reading this far in), but it needs to be defined, and this makes it pretty clear that if you write your sell-on clause to cover simply a "transfer" then you are going to be understood to mean pretty much any manner of a change in a plyer's registration or employment (permanent of course, we're not talking about loans here). This was the problem for Malaga as the clause simply referred to a "transfer", and there was no list of circumstances detailing what was, or was not, meant by that.

CAS saw that the agreement between Malaga and Getafe was signed by both those clubs and by Harper, was negotiated and signed prior to the expiry of Harper's Malaga contract, included a fee compensating Malaga, and crucially included Harper waiving the 15% of the transfer fee that he was entitled to under Spanish law. All of these things indicated that this move was a "transfer" rather than, as Malaga claimed, the movement of a free agent. CAS held that Brighton was entitled to receive the full 12.5% of the total sum received by Malaga by virtue of the agreement with Getafe, namely EUR 187,500 plus the amount of CHF 4,000 (four thousand Swiss Francs) as contribution for legal fees and other expense incurred in connection with the arbitration proceedings.

Overall this may not apply to us, Ashton and our legal team might have drafted extensive and watertight sell-on clauses that are crystal clear about when we get our 20% and when we don't. But, if they didn't, then this case certainly makes it more likely that any clause would be construed in our favour.

[Garland's Perm]

Thank you for an excellent post. Interesting that the sell on clause in this case was a percentage of the transfer fee rather than a percentage of the profit.  

[ExiledAjax]

9 minutes ago, Garland's Perm said:

Thank you for an excellent post. Interesting that the sell on clause in this case was a percentage of the transfer fee rather than a percentage of the profit.  

Thank you for reading it. I wondered whether to stick it in the transfer forum, but thought people might find it interesting.

To your point, yeh a sell-on could be phrased in any manner of ways, the bit published seems like a pretty simple sell-on clause. That might be because the player in question was an academy kid and so Brighton probably didn't anticipate much in the way of risk or reward. Note it was capped at EUR 750,000 - obviously that's a decent wedge, and Brighton were still a Championship club at the time (2017) - but it's not make or break for a club their size.

Word on the street is we had a standard 20% of profit sell-on in our agreements. 

The case highlights though that even EUR 187,000 is enough to go to court over. It will be interesting to see if there ever is a fight over any of our potential sell-ons.

[Major Isewater]

Sneaky Spaniards. 

[ExiledAjax]

2 minutes ago, Major Isewater said:

Sneaky Spaniards. 

Not sneaky enough though Major. Not sneaky enough.

[elhombrecito]

As an aside, despite having a very British name and looking very British, he was actually born in Màlaga and has the thickest Andalusian accent...

Here's me giving him my full support:

[Steve Watts]

Great post.   What I would say as a small input is that I don't think it would matter if Ashton was a fan of it.  I don't think a player has been transferred out of the club without a sell-on clause since January 1995 when the board realised what a monumental cock up occurred in the lack of a clause when selling Andy Cole to Newcastle 2 years before.

[Davefevs]

8 hours ago, Steve Watts said:

Great post.   What I would say as a small input is that I don't think it would matter if Ashton was a fan of it.  I don't think a player has been transferred out of the club without a sell-on clause since January 1995 when the board realised what a monumental cock up occurred in the lack of a clause when selling Andy Cole to Newcastle 2 years before.

I understand that had we insisted on a sell-on the fee would’ve been considerably less, and we decided that cash now was better than future proceeds.  That is, it was a commercial decision to take the bigger fee now, rather than hope we got more later.

I obviously can’t be sure of the numbers but remember hearing £1.75m no sell-on, or half that with 20%.  So it was less that we didn’t add a sell-on, more that we saw the £ signs being more beneficial than than later.

[Superjack]

47 minutes ago, Davefevs said:

I understand that had we insisted on a sell-on the fee would’ve been considerably less, and we decided that cash now was better than future proceeds.  That is, it was a commercial decision to take the bigger fee now, rather than hope we got more later.

I obviously can’t be sure of the numbers but remember hearing £1.75m no sell-on, or half that with 20%.  So it was less that we didn’t add a sell-on, more that we saw the £ signs being more beneficial than than later.

Then we should have told them to **** off. Keegan was determined to get him. They would have stumped up eventually. P*** poor from the board at the time.

[Steve Watts]

3 minutes ago, Superjack said:

Then we should have told them to **** off. Keegan was determined to get him. They would have stumped up eventually. P*** poor from the board at the time.

That would've been a bold and arguably foolish strategy to adopt a mere 9 years after almost ceasing to exist. 

[Superjack]

Just now, Steve Watts said:

That would've been a bold and arguably foolish strategy to adopt a mere 9 years after almost ceasing to exist. 

No chance that he wasn't going to get a big move.

Foolish is what happened.

[Steve Watts]

Over a million more than we paid only 6 months before, back in the days when a million wasn't the chicken feed it's considered today.

Again, with the shadow of 82 looking over us it's an understandable decision. I just had never heard the story before and could've sworn that a board member had said that they'd never let it happen again. Of course there's a strong chance that both mine and Dave's recollection are both accurate with the earlier incident promoting the latter policy.

[ExiledAjax]

Big story out of CAS being reported today. Ties in with both the case that I started this thread with and sort of with the Cardiff Sala case - although CAS judgments do not set binding precedent upon other CAS cases so don't go thinking this gives Nantes a slam dunk there. This case links into general "promises to sign or sell" players, and again highlights the risks present if you don't draft your clauses tightly.

I cannot really summarise it better than the BBC who say, in short, that Leeds signed Augustin on loan from RB Leipzig in January 2020 with an obligation to buy the Frenchman for 21m euros on a five-year-deal if they secured Premier League promotion for 21m euros, due in three instalments.

Augustin, who now plays for Swiss side Basel, struggled with fitness and injury during his time at Elland Road, featuring for 48 minutes across three substitute appearances.

Leeds won promotion to the Premier League at the end of the 2019-20 season but disputed whether the "purchase obligation" for Augustin had been triggered as the Covid-19 pandemic had interrupted the campaign.

A CAS statement said: "The CAS panel has dismissed the appeal filed and confirmed the obligation of LUFC to pay to RB Leipzig the first instalment of the transfer fee, i.e. euros 6,740,174...Further to its deliberations, the panel held that the purchase obligation had been triggered at the end of the 2019-2020 season, even though the season had concluded later than expected due to the disruption caused by the outbreak of the Covid-19 pandemic." Note that the other two installments are not yet due, which is why Leeds currently only have to pay the first one.

The Premier League club said in a statement: "Leeds United are surprised and disappointed by the Court of Arbitration for Sport's decision. [It] not only contradicts the language and meaning of the contract but also the practices adopted in European football under FIFA regulations, due to the unique impact of the extensions to the season necessitated by Covid postponements.

I have no idea how our sell-on/option to buy/obligation to buy clauses are drafted, but it's clear that CAS has been dealing with lots of these recently and getting it wrong can be very costly.

Edited November 7, 2022 by ExiledAjax

[handsofclay]

On 06/10/2022 at 00:21, Steve Watts said:

Over a million more than we paid only 6 months before, back in the days when a million wasn't the chicken feed it's considered today.

Again, with the shadow of 82 looking over us it's an understandable decision. I just had never heard the story before and could've sworn that a board member had said that they'd never let it happen again. Of course there's a strong chance that both mine and Dave's recollection are both accurate with the earlier incident promoting the latter policy.

I am fairly sure that Arsenal had a percentage of that profit so we emerged with less than a million.

I got the impression at the time that the board just wanted rid of Cole as he was causing a few issues and jumped at the first half decent offer, Clough having offered a risible amount from Forest 

[Davefevs]

From a fans point of view…an obligation to buy upon promotion is pretty clear.  No doubt there will be possible ambiguity around the term season and the initial end of contract term, e.g. 31/5 or 30/6.  But in the spirit of the deal, Leeds know they are trying to dodge it.

[GrahamC]

13 minutes ago, handsofclay said:

I am fairly sure that Arsenal had a percentage of that profit so we emerged with less than a million.

I got the impression at the time that the board just wanted rid of Cole as he was causing a few issues and jumped at the first half decent offer, Clough having offered a risible amount from Forest 

That’s my recollection re Arsenal, too.

I’m not so sure on the second bit, think we were just so “corner shop” at the time that an offer like this (even with some of it going to Arsenal) was something our board felt they had to take.

From memory Russell Osman got under half a million of it to fund any replacements.

He brought in Ian Baird for £295k who was a disaster (big Joe swapped him for Kevin Nugent a year or two later) plus Liam Robinson for £130k, he certainly didn’t score many goals but was never short of effort plus long forgotten now that we actually doubled our money on him when he joined Burnley just a year later.

[ExiledAjax]

35 minutes ago, Davefevs said:

From a fans point of view…an obligation to buy upon promotion is pretty clear.  No doubt there will be possible ambiguity around the term season and the initial end of contract term, e.g. 31/5 or 30/6.  But in the spirit of the deal, Leeds know they are trying to dodge it.

The original FIFA ruling - https://digitalhub.fifa.com/m/1631616b8e4f5126/original/Augustin.pdf - makes it pretty clear that Leeds new full well what they were doing. Firstly the original obligation to buy is triggered simply by "The Leeds United 1st men's team is promoted to the Premier League at the end of the 2019/2020 season and thus qualifies for participation in the Premier League in the 2020/2021 season". Note that Leeds also actually signed a 5 year contract with Augustin, which would take effect as and if Leeds were promoted.

Then, when the season was suspended due to COVID, Leeds emailed Augustin's agent (on 24 April 2020, five weeks after the suspension occurred) to specifically say that "[we] need to extend the deadline for the obligation to purchase the player to take us to the end of the season (whenever that may be)!" This was accepted. 

Then in June Leeds said that as they'd not been promoted before 30 June 2020, the obligation wasn't triggered. Legally this turns on whether you believe a contract should be interpreted strictly on its precise wording, or whether you instead go with interpreting it to mean “what the parties reasonably and in good faith would have agreed, if they actually had considered the issue they unintentionally omitted to regulate.” Generally that second option is best used where the wording isn't precise...but in this contract it was precise, and so FIFA went with that saying "[FIFA] held that it is reasonable and logical to conclude that the original intention of the parties was to transfer the Player on loan until the end of the sporting season 2019/2020 (originally fixed on 30 June 2020) and that such transfer would have acquired a permanent status simply in case of promotion of the Respondent to the English Premier League, regardless of the effective date of achievement". This is just "an obligation to buy upon promotion is pretty clear" but in fancier language.

Leeds are going to appeal, but could be subject to a transfer embargo if they do not pay what they've been ordered to.

Edited November 7, 2022 by ExiledAjax

[Davefevs]

Thanks for the info.

So, Leeds even asked (and had accepted) to extend the loan.

What is it with Leeds and Cardiff

[REDOXO]

On 06/10/2022 at 00:08, Superjack said:

Then we should have told them to **** off. Keegan was determined to get him. They would have stumped up eventually. P*** poor from the board at the time.

:laugh:! The board of Bristol City in a being crap shocker! 

[ExiledAjax]

11 minutes ago, Davefevs said:

Thanks for the info.

So, Leeds even asked (and had accepted) to extend the loan.

What is it with Leeds and Cardiff

Yes and specifically to "the end of the season (whenever that may be)" so specifically removing and ignoring any reference to a specific date.

[Mr Popodopolous]

Talking of this kinda thing, saw an interesting note in Man City's financials when looking earlier.

As we can see, there seem to be more caveats than usual in terms of future add-ons, ie sell on clauses and other contingent liabilities. I dunno, maybe it's more common than I realise but...

References 'in the year which the management assess', 'On a player by player basis'.

Perhaps just covering all based BUT seems like potential for disputes there too.

Edited November 8, 2022 by Mr Popodopolous