Growing trend for investment funds to own stakes in players is causing major damage to world football, but the governing body has done virtually nothing to address the problem

With typical insouciance, Sepp Blatter did not hesitate before tossing another unmet promise on to the tottering pile he has amassed during his scandal-hit years as Fifa’s president. Faced with mounting concern over third-party ownership of players in the wake of the Carlos Tevez and Javier Mascherano affair in England and growing evidence of its pernicious influence, he did not pause before vowing to ban it outright.

Announcing a clampdown on the practice of divvying up the “economic rights” in a player between various business interests and the club he plays for, Blatter promised new rules by the end of the year.

That was in 2007. Seven years later, the practice has grown into what has been described by Sporting Lisbon’s president Bruno de Carvalho as a “monster” that, according to a recent study for Fifa seen by the Guardian, locks clubs in a “vicious cycle of debt and dependence”.

As the practice has mushroomed, and the weighty academic and economic studies that show it can have a negative impact not only on players but on clubs and the fabric of football have piled up, inertia at football’s global governing body has ruled.

It is a familiar story – as Fifa is besieged over everything from the voting process for the 2018 and 2022 World Cups to his own presidential ambitions, the big structural issues tend to take a back seat in favour of fire-fighting or PR initiatives such as Blatter’s recent conversion to the merits of video challenges.

However, the sheer scale of the challenge of trying to unpick third-party ownership in South America, where it is so entrenched, is a daunting one for Fifa. The practice is so deeply ingrained in Brazil and Argentina, where it took hold in the early 1990s, it is hard to know where an attempt to ban it outright would begin. Scores of funds have invested in hundreds of players, with Ronaldo and Neymar among their biggest paydays.

A Bloomberg investigation last year revealed one Brazilian investment group, Traffic Sports, made a 62% profit on the first 21 players it bought and sold, using $50m raised for one of its funds.

The scale of the challenges involved in turning off the tap of third-party investment in Brazil, Argentina and Portugal has caused paralysis in Zurich, despite the secretary general Jérôme Valcke once labelling the practice “modern-day slavery” .

Jérôme Valcke has been vocal in his criticism of third-party investment. Photograph: Arnd Wiegmann/Reuters

A Fifa spokeswoman told the Guardian: “Gaining a thorough understanding of this form of investment in the football market has been challenging due to the limited economic data available and the varied global relevance of third-party ownership. As that understanding develops over time, particularly through initiatives such as the two recent studies produced at the request of Fifa, as well as the ongoing consultation process, with contributions from all relevant football stakeholders, Fifa remains fully committed to reaching a solution that best protects football and that corresponds to the evolving needs of the game after hearing the positions of all members of the football community.”

Arsenal’s chief executive, Ivan Gazidis, was among those who spoke at the first meeting of yet another working party set up by Fifa to discuss the issue in Zurich earlier this month, making the case for immediate action.

His speech was remarkably similar to the presentation given by the Premier League chief executive, Richard Scudamore, in November 2012 to Fifa’s eclectic “football committee” (members range from a member of the Malaysian royal family, Tengku Abdullah, to Pelé and the former Leeds United player Harry Kewell) in the presence of Blatter.

This time around there were also presentations from Brazilian and Portuguese clubs and leagues. While there was widespread agreement the status quo was not acceptable, an outright ban was only one option on the table, with others favouring a requirement for complete transparency or a cap on the number of funds or the amount they could invest.

Understandably, some in Europe see the stance of the English clubs as special pleading. There is also some irony in the fact it is the spiralling broadcasting income generated by the Premier League – £5.5bn over three years at the last count – that partly allows these funds to cash in their chips by selling to moneyed English clubs.

Yet as the talking goes on, the influence of third-party funds and the inherent risks is only increasing. Various studies suggest there is a clear risk of collusion between owners of the funds and the coaches and sporting directors at clubs where their players ply their trade.

Agents provide the glue between the two, acting as advisers to the funds and sometimes receiving stakes in the players they represent in return.

Now a frustrated Uefa is understood to be willing to take action to ban any players who are owned, in full or in part, by third parties from the Champions League and Europa League – with new rules phased in from perhaps as early as next season.

Facebook Twitter Pinterest Carlos Tevez and Javier Mascherano are unveiled at West Ham in September 2006. Photograph: Jane Mingay/AP

Eight years ago the Tevez and Mascherano affair cost West Ham £27m in fines and compensation and brought a then obscure agent called Kia Joorabchian to prominence as the representative of those who ultimately owned the players. Under the agreement, Tevez was brought to West Ham from the Brazilian club Corinthians in order to put him in the shop window, and his investors could effectively decide when he was sold, where to, and how much for.

It led the Premier League to ban third-party ownership outright but its use as a means for clubs in Spain and Portugal to buy players they might not otherwise be able to afford continues to grow.

A KPMG study carried out for Fifa in August last year and seen by the Guardian found that the estimated market value of players under third-party ownership was up to €1.1bn (£860m) with the vast majority playing in eastern Europe, Portugal and Spain. In eastern Europe, the practice is widespread with whole swathes of players owned by investors.

But it is at Portuguese clubs – Benfica, Porto and Sporting Lisbon prominent among them – where third-party ownership has had the most obvious effect. In the Premier League, four eye-catching summer transfers involved the careful unpicking of third-party agreements and required top-flight English clubs to buy out investors.

Manchester United’s convoluted £16m purchase of the Argentinian defender Marcos Rojo and Liverpool’s capture of the Serbia international Lazar Markovic both involved buying out third parties.

Liverpool’s Lazar Markovic arrived from Benfica. Photograph: Andrew Powell/Liverpool FC via Getty Images

Manchester City’s £32m deal for Eliaquim Mangala and the same club’s purchase of the midfielder Bruno Zuculini (immediately loaned out to Valencia) also involved third-party contracts being bought out.

Mangala’s transfer from Porto is an interesting case in point. Under the Premier League’s rules, City had to buy out the stakes of two investment firms – Doyen and Robi Plus – to complete the deal. The French international last year admitted he had no idea he was part-owned by the two funds until confronted by a TV documentary crew.

Third-party ownership is banned in England, France and Poland and exists at a low level in other European countries – which is not to say it may not yet take off there too.

Meanwhile, an interminable Fifa consultation process that effectively began in 2007 is continuing, and an extensive report commissioned from Centre de Droit et d’Economie du Sport and the Centre International d’Etude du Sport, not made public but seen by the Guardian, relates in painstaking detail the negative effect on the game.

It paints a bleak picture in which clubs are held in a “vicious cycle of debt and dependence”, players are denied the ability to decide where they want to play, and the development of homegrown players is harmed.

It details the risks posed by the spread of third-party ownership, stemming from an “institutionalisation of conflicts of interests” in the relationship between the investors in a player, the owners of a club, agents and those on the coaching side.

In particular, it notes the extent to which a small number of agents increasingly control the top end of the transfer market. Their positions as advisers to companies that invest in the economic rights of players makes this worse by strengthening what it terms the “oligopolisation” of the higher regions of the transfer market.

Moreover, it says national football associations are concerned about the further damage to the image of the game and public confidence in the integrity of competitions. The rapid turnover of a large number of players also further threatens the already fraying ties that bind fans to players.

The independence of clubs could also be under threat, the report warns. “The spread of third-party ownership in the majority of cases may be closely related to a partial takeover of the clubs’ control by actors seeking primarily short-term profit and speculating on the purchase and sale of economic rights, regardless of sporting concerns,” it says.

This trend, of clubs being used as virtual roulette tables by speculators more concerned with maximising profit through player trading than success on the pitch, is a clear and present danger.

“The development of third-party ownership is thus closely associated with an increasing takeover of clubs by persons motivated by the possibility of speculating on the purchase and sale of player rights,” it says. A previous CIES survey of 269 European agents estimated 15% of them owned stakes in players they represent.

And it states third-party ownership increases the risk of favouritism towards those players who are owned by investment vehicles “especially when club officials and even coaches are personally involved in the division of possible gains linked to the payment of transfer compensation”.

In such a scenario, it can even lead to pressure being put on national team coaches to select players to increase their value or, conversely, players being leaned on to skip international duty for fear of picking up an injury and jeopardising a deal.

“In most cases, the player is not even aware of these financial arrangements,” the report concludes. “Indeed, from an ethical point of view, several football stakeholders from different backgrounds underlined that the fact many players are kept out of the transactions regarding the transfer of their economic rights is also highly questionable when it comes to the issue of free movement.”

To take one extreme example from the CIES survey, in the Danish Super Liga, Midtjylland last year sold the economic rights of five players to private investors. In return, investors owned 75% of the transfer value of the players if they were transferred before 2014. The five players were not informed by the club, nor involved in the deal.

Under a standard third-party ownership agreement, the percentage of a player that would usually be taken by an investment fund is anywhere between 10% and 50%.

The duration of the investment, and as such the time frame in which the player is projected to be sold, typically ranges from one to less than four years.

Critics argue such deals inevitably put pressure on the club involved to increase the value of the player in that time and to sell him. Often, the contracts will include clauses to incentivise the club to sell within a time period.

The KPMG report says a key clause in most third-party ownership contracts “authorises the investor to promote the definitive transfer of the player through the corresponding Fifa agents” – in direct contravention of Fifa regulations. Uefa says there is “little doubt” the funds influence transfer policy even though third-party influence is expressly forbidden by Fifa rules.

Marcos Rojo’s move to Manchester United involved a third-party contract. Photograph: John Peters/Man Utd via Getty Images

Some of the biggest and most glossily presented funds, such as the Doyen fund that found itself at loggerheads with Sporting Lisbon over Rojo’s transfer, insists they do not exert any influence over the playing side and would welcome greater regulation.

Rather than taking a stake in a player, Doyen instead lends the club a percentage of the transfer fee required to buy the player over a fixed period. Yet the net effect is arguably the same.

One of the biggest concerns is transparency. The owners of the schemes tend to be shrouded in secrecy and, though the Premier League asks its clubs for the identity of the owners of the scheme they buy out, there is no requirement for that information to be made public.

The schemes tend to be registered offshore, enabling their investors to remain secret and leaving potential conflicts of interest unexplored. Other deals are done through so-called letterbox companies in the UK or the Netherlands, which allow investors to shield their ownership.

Worse still, there are concerns the widespread introduction of third-party ownership schemes has coincided with a match-fixing epidemic throughout Europe.

The risks of overlap between the two are obvious, and Sporting Lisbon’s De Carvalho made the link explicit in a recent outburst. “Many times there are similar owners from the funds and gambling companies, so match-fixing is the worst fear now for football,” he said.

Uefa general secretary Gianni Infantino. Photograph: Martial Trezzini/AP

Much of the concern stems from the opacity of the identities of those involved. Uefa’s patience has worn thin and its general secretary, Gianni Infantino, says it has been calling for urgent action since its executive committee decided in December 2012 that third-party ownership should be banned.

Michel Platini last month reiterated his opposition to third-party ownership. The Uefa president said: “It is not easy, it is not right. But you know there is a lot of money involved, and I think we have to fight it.” The Frenchman pointed out he went on strike in the 1970s for the freedom of players to move clubs yet now many of them are owned by financial companies.

Infantino told the Guardian third-party ownership raises “ethical and moral questions” for the game. “It threatens the integrity of sporting competition, it damages contractual stability, it undermines the relationship of trust that should exist between a player and the club that employs him, it creates conflicts of interests, it means that players have less control over the development of their own careers, it keeps clubs in a vicious cycle of debt and dependence and damages the overall image of football,” he says. “Furthermore, there is little doubt third-party investors do influence the transfer policies of clubs even though Fifa rules expressly forbid this. These are actually the findings of Fifa’s own research into this subject. So, it’s now time to act, and if Fifa does not address the problem, then Uefa will.”

It is a battle that will bring the governing body into direct conflict with football’s kingmakers and the overlapping circles of coaches, owners and players they have built up during Fifa’s decade of inaction. In doing so, it may also bring the shadowy network of financiers who invest in the funds that increasingly shape the modern game blinking into the light.