This article is written by Siddhant Choudhary, pursuing Certificate Course in Introduction to Legal Drafting: Contracts, Petitions, Opinions & Articles from LawSikho. The article has been edited by Zigishu Singh (Associate, LawSikho) and Ruchika Mohapatra (Associate, LawSikho).

Introduction

A buyout clause, also known as a release clause, is a clause in a contract that requires another organisation interested in acquiring the services of an employee under contract to pay the clause’s (usually substantial) fee to the organisation that issued the contract and currently employs the employee.

It is most commonly used in the context of sports teams, where a transfer fee is usually paid for a player under contract; however, the current owning club is not obligated to sell their player, and if a suitable fee cannot be agreed upon, the buying club can instead pay the player’s buyout fee, which the owning club cannot block if the contract contains such a clause. Buyout clauses are frequently set higher than the estimated market worth of the player. However, a player from a lesser club may sign a contract but demand a modest buyout cost in order to entice bigger teams if their performances pique their attention, thereby acting as a reservation price for the selling club.

The purpose of this provision is twofold: first, the high amount discourages competing teams from seeking to acquire the player if the present club shows no signs of selling them, and second, it raises any hint to the players not to fulfil their contractual obligations.

Release clauses were reportedly included in only a handful of Premier League transactions. This was the case with the Demba Ba and Joe Allen transfers from Newcastle to Chelsea and Swansea to Liverpool, respectively. According to rumours, a bid for Allen could only activate the release clause if it came from one of five teams, including Liverpool.

Importance of a buy-out clause

The application of sports fines may have irreversible consequences for the player’s football career as well as severe financial losses for the new club. As a result, it is critical for clubs to be certain of their legal position if a player is transferred from one club to another, either before the conclusion of his existing contract with the club or before the expiration of the protected period.

Release clauses, I believe, have never been put to the test in terms of European law and trade restriction, but they are included in contracts for a reason. A club is contractually obligated to accept the sum given if an automatic release amount is triggered.

If a club that has the player’s registration refuses to release him, the two clubs will almost certainly engage in an arbitration process to determine the validity of the release clause. If a Premier League tribunal views the contractual provision as an automatic release clause in the case of a dispute between two Premier League teams, the potential acquiring club will be allowed to speak with the player and complete the deal. The only way a release clause may cause a problem in the UK is if the clause was so high that it exceeded the player’s market value. A player may argue that because the release cost was too high, he would be unable to transfer to another team.

Risks involved in absence of a buy-out clause

For the player

A contract between a player and his current club that lacks an escape mechanism, such as a buy-out clause, binds the player to his present club (until the expiration of his ongoing contract). The player’s club may demand exorbitant release fees, which neither the player nor his new football team can afford.

For the new club

When a player uses a buy-out clause without the approval of his present club, it may be deemed a unilateral termination of the player’s contract for no reason. The player may therefore be responsible to his current club for compensation.

Furthermore, the player’s existing club may allege that the new club coerced the player into breaking the contract during the protected time. If the player and the new club are found to be ineligible, they may face sports punishment (Article 17 of the FIFA Regulations). Furthermore, the player may be barred from participating in official matches for a period of 4 to 6 months, which is a substantial amount of time in a player’s brief career, and the new club may be barred from signing new players nationally and abroad for two transfer windows.

Case of Luis Saurez

The PFA reported during the summer transfer window that Suarez’s contract with Liverpool Football Club included a ‘good faith’ release clause rather than an automatic release clause. The two are diametrically opposed. If the minimum release amount is offered, player “y” must be allowed to speak with purchasing club “x” under an automatic release condition. A ‘good faith’ clause requires the parties to negotiate in good faith after a proposal is submitted.

A good faith clause, it should be noted, does not obligate the selling club to accept the offer. According to reports, the PFA was mediating between the player and the club, explaining to the player the possibility of the provision withstanding a thorough legal review. As a result, the PFA determined that the clause was not an automatic release clause.

Non-compliance with buy-out clause evaluated under the FIFA Regulations

A buy-out provision in a football player’s contract usually entails paying a sum of money to the club in exchange for the player’s freedom to transfer to another team. If a club denies that the contractual clause in question has this effect, it can refuse to agree to the transfer, and the parties will be stuck in a dispute about the contract’s content for the duration of the contract’s validity. The FIFA Dispute Resolution Chamber (“DRC”) and/or the Court of Arbitration for Sport (“CAS”) are the competent bodies to rule on the dispute within the area of application of the FIFA Regulations. In this regard, it is crucial to emphasise that resolving a contractual dispute before these organisations takes time, and reaching a final decision on the case can take months or even years. As a result, continuing to execute the contract while waiting for a ruling from the FIFA DRC or the CAS on the dispute is usually not an option for the player.  

The absence of consent from the player’s present club does not preclude the player from using the buy-out provision to leave and join another team in a different nation. The problem with this strategy is that it might be construed as unilateral termination of the player’s contract without cause, resulting in negative implications for both the player and his new team. The requirements of the famous Article 17 of the FIFA Regulations apply in circumstances of unilateral contract termination without reasonable cause, and the party that has breached the contract is responsible for sporting consequences as well as compensation. Sporting sanctions will be imposed on a player found to be in breach of a contract within the protected time, as well as a club found to be encouraging a breach of contract by a player, according to Article 17 paragraphs 3 and 4 of the FIFA Regulations. According to the FIFA Regulations, the protected period is “a period of three entire seasons or three years, whichever comes first, following the entry into force of a contract where such contract is concluded prior to the professional’s 28th birthday, or two entire seasons or two years, whichever comes first, following the entry into force of a contract where such contract is concluded prior to the professional’s 28th birthday, or two entire seasons or two years, whichever comes first, following the entry into force of a contract where such contract. The sporting sanction in question is a four to six-month ban on playing official matches for the player, while a club that induces a player to breach a contract is barred from enrolling any new players nationally or internationally for two consecutive registration seasons.  Because of the severe penalties that a new club faces, clubs are frequently hesitant to incur the risk of signing a player whose contract has been cancelled within the protected period.

Nevertheless, the FIFA Commentary to the FIFA Regulations on the Status and Transfer of Players (the “Commentary”) provides a potentially relevant statement about contract terminations with buy-out clauses:

As a result, the Commentary indicates unequivocally that a player who ends his contract by utilising a buy-out clause will not face any sporting penalties. Nonetheless, the aforementioned comment in the Commentary cannot be regarded as ensuring the player’s safe arrival at his new club.

• To begin with, the Commentary is not a legally binding source of information; it merely provides suggestions for interpreting the FIFA Regulations. A deciding body is not obligated to follow the statement when resolving a contractual dispute because the provision in question is not mentioned in any official FIFA regulation.
• Second, any mistakes in the language of a buy-out clause can reduce the certainty of the statement’s applicability. It has been argued that buy-out clauses and liquidated damages clauses should be distinguished. According to this theory, a buy-out clause gives a party the right to terminate a contract in exchange for a predetermined sum without incurring sporting sanctions, but it should not be considered relevant when determining the amount of compensation payable under Article 17 of the FIFA Regulations for unilateral termination of contract without cause. A liquidated losses clause, on the other hand, does not give either party the freedom to terminate the contract without facing sporting fines and is only relevant for determining the amount of compensation for a unilateral termination in accordance with Article 17. However, the difficulties in identifying a clause as either a buy-out clause or a liquidated damages clause, which has been regarded as “one of the most difficult tasks of any judging authority,” contributes to the uncertainty surrounding sporting sanctions

The Court of Arbitration for Sport (hereinafter, CAS) jurisprudence tends to believe that clauses requiring a player to pay a certain amount of compensation to a club have the legal nature of liquidated damages provisions, but it does not provide a definitive response on the issue of sports punishment. The CAS panel in RCD Mallorca SAD & A. v. FIFA & UMM Salal SC (CAS 2009/A/1909 RCD Mallorca SAD & A. v. FIFA & UMM Salal SC) did not believe that the inclusion of a liquidated damages provision precludes sports consequences for unilateral contract termination. Surprisingly, the panel went even further and stated that the parties might not be able to use a contract to exclude sporting punishments outlined in the FIFA Regulations. Nevertheless, it appears that the panel did not consider what is said in the Commentary while making its judgement, making the award’s significance as a precedent for the problem dubious. 

In the case of CAS 2011/A/2356 SS Lazio S.p.A. v. CA Vélez Sarsfield & FIFA, a different approach was taken in regards to solidarity contribution in line with FIFA Regulations. FIFA, serving as a party in the arbitration, described a provision that appeared to be intended as a liquidated damages clause as a buy-out clause. The CAS panel appeared to accept, interpreting the phrase as indicating the club’s prior approval to the player’s departure in exchange for the sum in question.

Because of the commentary’s status as a non-binding source of law, provisions that might be interpreted differently, and inconclusive jurisprudence, there’s a lot of space for uncertainty regarding whether a player can securely cancel his contract based on a buy-out clause. Most significantly, a club interested in a player who is embroiled in a buy-out clause issue may not be completely certain that the transfer would not result in sports punishment if the player is still inside the protected period. Even if it is doubtful that a club buying a player on the basis of a buy-out clause would face sanctions as a result of what is said in the Commentary, the possibility of a transfer ban for two registration periods implies that the club is signing the player with high risks.

As a result, if the contract is inside the protected period, a club contesting a player’s effort to leave on the basis of a buy-out clause is in a pretty strong position. The threat of sports punishment acts as a strong deterrent to a player terminating his or her contract unilaterally, making it impossible to leave without the club’s permission.

Conclusion

There may be cases where a player is keen to shift down the football ladder in the near future in order to gain more accessibility and playing time, in this situation that a release clause is placed into his contract, allowing a bigger club to trigger the predetermined release clause if he performs well.

When a player and a club have a disagreement over a buy-out provision, the parties’ views are heavily influenced by whether the contract is still inside the protected period as outlined by FIFA Regulations. The player’s legal alternatives for retaliating against the club during the protected period are severely limited by the consequences of the sport that apply to a unilateral contract termination without cause. However, once the contract’s protected time has elapsed, the club’s position is weakened owing to the severe repercussions that the club would face if the player unilaterally ends the contract due to the disagreement.

---

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:

https://t.me/joinchat/J_0YrBa4IBSHdpuTfQO_sA

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.