Football is big business. Nothing new in that statement, but for the many of the countries big clubs this has been a positive development allowing massive increases in revenue and profit. However, as a big business football is no longer immune to contract and business-to-business law.
The new "Webster clause" from the landmark decision made by the Court of Arbitration for Sport (CAS) earlier this year, is likely to shape the future of football transfers and has already caused more than one top manager a headache.
Over the summer three of the 'Big 4', namely Chelsea Arsenal and Manchester United risked losing big names (and in Arsenal's case actually lost several), for peanuts.
Arsene Wenger had to sell Mathieu Flamini for nothing and Alexander Hleb followed soon after. Reports linked Chelea's Frank Lampard with a move to Inter Milan for as little as £7m and, whilst Man U eventually kept Ronaldo, they were in fact powerless to stop him leaving.
When a player is out of contract he can sign anywhere and will cost nothing. That is, in essence, the well known Bosman ruling.
Players wishing to move clubs whilst under contract either have to agree with their employer to terminate their contract in exchange for a transfer fee, or, should a club refuse to sell, the prospective buying club will pay compensation for breach of contract. Again this compensation is in the form of a transfer fee.
Under FIFA Article 17, players under the age of 28 with less than 3 years on their contract can now buy their way out of their contract. This has reported happened in the case of Robinho the Real Madrid player who, it was reported this week "unilaterally rescinded his contract". Players over 28 can also buy out their contracts if they have less than 2 years remaining.
In both cases, the sum payable is, in the absence of a buy-out clause, the residual value of that player's contract.
It was under Article 17 that Andrew Webster sought to buy out his contract at Heart of Midlothian and move to Wigan Athletic. Hearts claimed that they should have been compensated by reference to the player's value, at the time, of £4m.
The CAS found that the alleged estimated value of a player on the transfer market cannot be considered as a form of compensation on the basis it is not clearly agreed upon contractually, and to impose it by regulation would cause the club to be enriched and the player to be penalised.
The correct residual valuation was held to be the residual value of his contract i.e. his total salary over the remaining term of the contract
This is the Webster ruling and it is likely to shape the future of football transfers. Despite claiming over £4m from the former club, the CAS held compensation should only be in the sum of £150,000 being the outstanding salary which was due to be paid over the remainder of the contract. This was even less than the value imposed by a dispute resolution panel prior to the hearing.
Previously, a world class player valued at say £20m, aged 25, with 2 years left on his contract which paid him a salary of £2m per year, was an extremely valuable asset to a football club. However, under the Webster ruling, the player or a potential buyer could buy out his contract for as little as £4m.
You don't have to be a professor to realise that selling your best assets for a fraction of their real market value is not good business.
However, what football clubs perhaps do not yet understand is that their most valuable 'assets' are people, or more accurately, employees and not buildings or contracts for services like other big businesses. The current legal framework legislates to allow free movement of workers.
Some have suggested that the way to get around this is to include massive 'buy out clauses' into players contracts. However, at first glance such a tactic may prove successful, however, they may not provide a 100 per cent guarantee.
Under contract law if a term in a contract has, as its primary purpose, the aim of preventing a party from terminating the agreement such a term is deemed to be a penalty clause and is unenforceable.
It is far from clear whether 'buy out clauses' in certain circumstances, could potentially be deemed as penalty clauses, and only time will tell how effective they will be in protecting clubs from the Webster ruling.
Another option of course would be to pay players even larger salaries; however, to do so across a whole squad may well be counter productive and not commercial in practice, not to mention being even more unpalatable to the average fan.
A third alternative would be for clubs to take greater care drafting of players' contracts and ensure that there are more frequent contract renegotiations to ensure players always have a term of 3 or more years left unexpired on their contracts.
Overall, this summer has illustrated how the Webster ruling is affecting and dictating a new framework in which the football industry operates. Clubs must consider how they can protect themselves in the light of the CAS decision. Only time will tell if clubs can find ways around the decision and the normal rules of contract law.
Philip Gray
Kirwans