Selling Your Soul: Radamel Falcao Controlled by Third-Party Ownership

2.1kshares

Stop what you’re doing and go take a look at the standings for Ligue 1, France’s top division for association football. If you follow European football you shouldn’t be surprised to see Paris Saint-Germain at the top of the table, but what may surprise you is the newly promoted team currently nipping at their heels. AS Monaco, recently promoted from Ligue 2, had 66.67% of its controlling shares purchased by a group headed by Russian billionaire Dmitry Rybolovlev in 2011. Upon being promoted to Ligue 1 at the end of the 2012-2013 season, the club embarked on a very busy transfer season. Approximately $239 million USD were spent bringing in new players in a few short months, with Colombian striker Radamel Falcao being the key purchase for the new AS Monaco. Atlético Madrid were persuaded to let their star striker go for a whopping €60 million ($82 million USD).

It was widely expected that Falcao would be leaving Atlético as he was being eyed by some of the titans of European football, including the likes of Real Madrid, Manchester United and Chelsea. His decision to select AS Monaco over teams with an established international brand and fan base puzzled many, as it seemed to make little sense. True, the large salaries provided by a billionaire-backed club must have been enticing, but other clubs surely could have matched his demands. France’s Ligue 1 is ranked as the 6th strongest league in Europe according to the UEFA coefficients, statistics used to seed and rank teams in the UEFA Champion’s League, quite a step down from 1st ranked Spanish league La Liga, and AS Monaco’s average attendance hovered around a miserly 5,000 people per game. If Falcao’s ambition was to play with the best in the world, a move across town to Real Madrid or to England would have been the natural choice. What many people failed to realize was that the decision over Falcao’s future was not entirely his to make.

AS Monaco presenting new signing Radamel Falcao.

In 2009, Radamel Falcao left South America to play for Portuguese team Porto FC in a deal brokered by private firm Doyen Sports Investments, who purchased 55% of his economic rights by financing a large chunk of his transfer fee to Porto. Doyen operates by purchasing portions of registration and economic rights of individual players. After Falcao gained exposure to European audiences from his time at Porto, Doyen decided it was time for the next step. Atlético Madrid were in need of a clinical striker, but had debts hovering around €500 million ($684 million USD). In august of 2011, Doyen stepped in and agreed to finance 55% of Falcao’s €40 million transfer fee in exchange for 55% of his registration rights, meaning Atlético only had to pay Porto €18 million.

At this point in the story, it’s important to clarify the difference between economic rights and registration rights. Economic rights involve potential revenue streams from sponsorships and image rights. Registration rights deal strictly with transfer fees. In addition to profiting from of their share of his economic rights, when Doyen financed Falcao’s Porto-Atlético move, they were essentially betting that further down the line his stock would rise even further and they would be able to profit from of yet another transfer.

Doyen proved to be savvy investors as Falcao spent two seasons in Spain making a name as one of the elite strikers on the planet, driving up his value considerably. If the reported €60 million AS Monaco paid is an accurate figure, then Doyen’s 55% stake would be valued at €33 million, considerably more than the €22 million it cost them initially. So, to recap, that’s €11 million of profit from transfer fees in addition to the surely considerable sum that is associated with owning the majority of the Colombian’s economic rights. That’s good money for a sports organization that isn’t involved with any of the action on the field.

The Doyen Group officially sponsored Atlético Madrid during Falcao’s inaugural season.

The madness surrounding the various transfer sagas of Radamel Falcao is a glimpse into the largely unregulated, often confusing, and always controversial world of third-party ownership. Firms in the business of third-party ownership generally approach talented players when they are very young, offering to take care of training and legal fees while using their connections to place them into positions with well-known teams, bettering their chances of future success.

In practice, the majority of players who come up using this system are from South American countries. Critics contend that it’s a practice that preys on players who generally come from poorer countries, and are therefore ignorant to the potential profits they are signing away at a young age. While UEFA has publicly gone on record against third party ownership in football, the only league to have actively banned the practice is the English Premier League, the top division in England. Many fans despise it simply for what it represents, the increased commercialization of the beautiful game. The idea that a player can sign away the right to decide their own future and be treated like stocks in a portfolio is inherently reprehensible to many. Also, situations where a player would be forced to choose between the best interests of his team and the best interest of his third-party management group greatly increase the possibility of ethical conflict and misconduct.

Its defenders will argue that without the help provided by these companies, many of the players who succeeded using the third-party ownership system would have never had the means to break through into the top tier of the football world. Then there’s the matter of financing expensive transfers. Kia Joorabchian – founder of Media Sports Investments, a company that does business in third-party deals – believes that third-party transfers are “a way of bringing outstanding players to clubs that would not be able to afford them ordinarily, so they increase the competition”.

Kia Joorabchian, founder of Media Sports Investments

These are certainly valid arguments to make, because in modern football it’s become increasingly apparent that success can be bought and sold like any other commodity. The rise of Manchester City after its purchase in 2008 by the Abu Dhabi United Group, or Chelsea’s success following the takeover of Russian oligarch Roman Abramovich in 2004 have emphasized the new era of football where cash is king. Teams strive to compete in the Champion’s League for both the prestige and a slice of the €530 million in TV revenue that they can then reinvest in their team and facilities. Athletic success begets financial success and rich teams capitalize on that momentum to become even more dominant, leaving smaller teams in the dust.

Most of Europe’s top leagues are dominated by 2 or 3 legitimate title contenders, with the smaller teams functioning more as moving targets for the larger ones than legitimate competition. Third-party ownership offers a potential solution, financing star transfers for mid-table teams. The current success of Atlético Madrid post-Falcao could one day be a textbook example of how to utilize third-party transfers. Falcao, and the money he helped bring in through domestic and European success, helped rejuvenate Atlético. As of writing, they are battling Barcelona for first place in La Liga and demolished their competition in the group stage of the Champion’s League. The club still has a significantly higher debt levels than both Real Madrid and Barcelona, the two biggest teams in La Liga, but if they can leverage their steadily increasing cash flows and perform consistently on the field, their financial health should improve. Defenders of third-party ownership will tell you that none of this would have been possible without the initial help in financing.

Whether you support it or vilify it, it’s apparent that in the immediate future – at least outside of England – third-party ownership is here to stay. If UEFA and FIFA decide to impose regulation or transparency on the practice, then one day we may be able to objectively evaluate its benefits and failures. Until then, it will remain mired in mystery and controversy while Doyen Sports Investments and their peers laugh all the way to the bank.

On TheRichest.com

Leave A Comment

Selling Your Soul: Radamel Falcao Controlled by Third-Party Ownership