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Neymar Transfer: An Analysis of Buy-Out Clauses – Part 2

Since part 1 of this blog series was published, the Neymar transfer saga moved to a denouement.  Overnight, FC Barcelona were reported to have accepted the buy-out fee and today (4 August 2017), Neymar was officially unveiled as a Paris Saint-Germain player.

In the case of Neymar, the inclusion of a buy-out clause in the player’s employment contract worked to Paris Saint-Germain’s advantage.  They were able to use it to poach Neymar from FC Barcelona, against their European rival’s wishes, and to force through a transfer.  It is the perfect case-study of how buy-out clauses in contracts can cut both ways.

As discussed previously, a buy-out clause is a type of penalty clause.  Another area in which penalty clauses are applied in Spain is in contracts entered into by clubs with minors.  A typical contract between a Spanish club and a player will oblige the young player to enter into a professional contract with its training club upon the completion of his training.  If that player chooses not to enter into the agreement, the club will require the player to pay it a sum (often in excess of €3 million).

The size and frequency of the penalties included in these contracts were in evidence in the Provincial High Court of Barcelona decision in Futbol Club Barcelona v José Raul Baena Urdiales (Case No: 476/2009-C AB&L 59087A). According to a report from the National Professional Football League dated 12 August 2008, of the penalty clauses included in contracts and pre-contract agreements for players aged under the age of 18 and registered with the Spanish national league since 1 January 2004, 28 contracts contained penalty clauses of €3 million while 86 contracts or pre-contract agreements contained penalty clauses exceeding €3 million, the highest of which was €10 million.

Mérida

There are a number of high profile cases in which the use of such clauses by Spanish clubs has been upheld by the Spanish courts. One of the most widely publicised involved the player Fran Mérida and his former club, FC Barcelona. In that case, the Spanish Court of First Instance ruled that Mérida, then under the age of legal majority, was required to pay €3,201,000 to FC Barcelona for breaches of his non-professional contract and his pre-contract agreement.

Mérida had played in the FC Barcelona youth system between 1999 and 2005 and his parents had entered into the two contracts with FC Barcelona on his behalf. At the end of the 2004/2005 season, Mérida unilaterally declared that he wished to leave FC Barcelona but FC Barcelona wished to retain his services. As a result, the club called on him to fulfil the terms of the pre-contract agreement by signing a professional contract with FC Barcelona. Mérida chose not to do so and entered into a contract with Arsenal Football Club in England.

The pre-contract agreement entered into by Mérida’s parents with FC Barcelona contained a penalty clause which stated that, if Mérida failed to sign an employment contract with FC Barcelona because he had chosen to join another football club, Mérida would have to pay a sum of €3 million (which could be increased depending on Mérida’s development) to FC Barcelona to compensate it for its loss. FC Barcelona alleged that Mérida was in breach of this term and, as a result, sought payment of a penalty sum totalling €3,201,000.

The Court ruled in favour of FC Barcelona and ordered Mérida to pay the amount sought, together with costs and interest. In its judgment, it stated that the penalty clause in question was “not in any way abusive”.

Jusdado

Very similar facts had earlier arisen in the case of Club Atlético de Madrid, S.A.D. v Javier Fernandez Jusdado. Alejandro Fernandez Sanchez was registered as a player with Atlético Madrid and his father, Javier Jusdado entered into an agreement with the club on the player’s behalf. This case differed slightly from that of Mérida, as it was the player’s father who incurred the pecuniary liability under the penalty clause, rather than the player himself. Clause 2.2 of that contract stated that:

“…if Alejandro Fernández Sánchez, during the aforementioned time period, namely the 2001/02, 2002/03 and 2003/04 seasons, should no longer hold a licence as a player of CLUB ATLÉTICO DE MADRID, S.A.D., taking up a licence with any other national or international team, Mr Javier Fernandez Jusdado shall be obliged to compensate CLUB ATLÉTICO DE MADRID, S.A.D., by way of penalty clause, with the sum of one million five hundred thousand euros (€1,500,000)”  

Upon Sanchez entering into an agreement with the Italian team AC Perugia, Atlético Madrid brought a claim against Mr Jusdado for breach of the contract and sought payment of €1.5 million in respect of the penalty clause. The High Court confirmed that penalty clauses are “perfectly valid under Spanish law”. However, it also considered that the penalty clause in question was abusive and disproportionate, applying the principle of equitable moderation to rule that Mr Jusdado had to pay the sum of €12,000 to Atlético Madrid. Notwithstanding the recognition that the sum in the penalty clause was ruled to be excessive, the principle of including penalty clauses in contracts was affirmed.

However, the fact that some penalty clauses have been reduced as abusive gives players and prospective new clubs no comfort, as a number of decisions of the Spanish courts and the content of the Civil Code have suggested that penalty clauses were prima facie permissible under Spanish law. As a result, Spanish clubs have had very little to stop them securing the services of young football players for considerable periods by using the threat of such penalties as a deterrent to moving clubs. As a result, the clubs are better able to retain the best talent brought up through their youth systems and are less at risk of such players being picked up by other clubs than might be the case in other countries throughout Europe.

Baena

Yet the protection previously afforded to Spanish clubs appeared to have been removed as a result of the decision in the Spanish Supreme Court’s judgment in Baena. There, the Supreme Court determined that a pre-contract agreement entered into by a training club and a minor’s parents (together with the penalty clause found therein) were both null and void.

In that case, the parents of José Raul Baena Urdiales, then thirteen years old, signed two contracts on his behalf with FC Barcelona. The first contract was a non-professional contract commencing on 1 July 2002 and expiring on 30 June 2010, and the second contract was a pre-contract agreement that regulated the grant of a future professional contract between Baena and FC Barcelona, contingent on the player’s development as a player.

Over the course of the next eight years, Baena played for the different teams in FC Barcelona’s youth system. At the end of the 2006/2007 season, FC Barcelona wanted Baena to enter into a professional contract in accordance with the terms of the pre-contract agreement, but negotiation between the parties broke down. Subsequently, Baena purported to terminate his non-professional contract and entered into a professional contract with Real Club Deportivo Espanyol SAD at the beginning of the 2007/2008 season.

FC Barcelona alleged that by signing his contract with Espanyol, Baena was in breach of both the non-professional contract and the pre-contract agreement. As a result, FC Barcelona sought payment of €30,000 in respect of the early termination of the non-professional contract and €3,489,000 for breach of the commitments in the pre-contract.  Baena refuted FC Barcelona’s claims, arguing that the pre-contract agreement signed between FC Barcelona and Baena’s parents violated Baena’s right to freely choose his profession. In addition, Baena alleged that the penalty clause in the pre-contract agreement was invalid or, at the very least, should be significantly reduced.

After two hearings at which the contracts were upheld, the Supreme Court ruled that both the preliminary contract and the penalty clause were void.  In terms of the pre-contract agreement, the Supreme Court ruled that a minor’s parents or guardians could not enter into agreements on behalf of their children because to do so would violate the “free development of personality” of the child, as established by the Spanish Constitution. As a result of the invalidity of the pre-contract agreement, the penalty clause was also ruled to be null and void and the Supreme Court confirmed that it was, in any event, contrary to the concept of public order in labour matters and did not protect the best interests of minors. The amount of the penalty was ruled to have violated Baena’s ability to elect which football club to play for.

The decision in Baena undoubtedly cast doubt on the ability of Spanish football clubs to continue to enter into such penalty clauses in the future. The corollary of this is that young players may now feel more inclined to move to other clubs and their training clubs will be less able to retain the talent they have nurtured. This may be of particular concern to Spanish clubs when consideration is given to the fact that, in England, players are permitted to sign their first professional contract at the age of 17.

© Copyright 2017 Squire Patton Boggs (US) LLP

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About this Author

Thomas Lloyd, Squire Patton Boggs Law Firm, Sports and Litigation Attorney
Associate

Lloyd Thomas is an associate in the Litigation department and is part of the Sports Law team based in our London office.

Lloyd provides a range of contentious and regulatory advice to a number of leading sports clubs, individuals and national governing bodies on a variety of issues. As part of such advice, Lloyd regularly assists in proceedings brought before the FIFA Dispute Resolution Chamber and the Court of Arbitration for Sport.

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