Part 1: Football Australia's introduction of a Domestic Transfer System

Overview of the White Paper

The Tokyo Olympics have provided a stark reminder of just how much Australians enjoy watching their football teams thrive. From the Olyroos promising 2-0 win over Argentina, to Sam Kerr’s strike that revived the Matildas medal hopes in the dying stages of their quarter-final win against Great Britain, fans across the country watched hoping that our teams could match it with the world’s best. How can Australian soccer (football) take that next step to not just be the challenger on the world stage, but actually be a competitor?

One step in the right direction may be to implement a Domestic Transfer System (DTS). In January 2021, Football Australia released their Domestic Transfer System Transformation White Paper (White Paper), opening the discussion among the football community as to potential solutions for a domestic transfer system as part of the Australian football economy. The White Paper follows a set of principles adopted by the ‘Starting XI’ advisory panel, which includes former Socceroos such as Mark Viduka and Mark Bosnich. The principles include:

1. Registration Windows;
2. Special Provisions Relating to Contracts; and
3. Dispute Resolution and Player Status Resolution.

Football Australia CEO James Johnson has recognised that “the absence of a domestic transfer system has meant that Australian football has been unable to fully integrate into world football by embedding itself in the global football market which has led to lost economic and sporting opportunities for our game over many years”. More than 15 years after the commencement of the A-League, the White Paper represents an important step towards reform.

In this two-part series, we will consider the regulatory drivers and resulting economic opportunities provided by a functioning DTS and the proposed player contract reforms from an employment law perspective.

Realigning economic incentives to better regulate player development objectives

The White Paper recognises that on a global scale, Australia is a ‘selling country’ – a country that sells its talented players onto larger football leagues as a revenue stream. Countries such as China and Saudi Arabia would be characterised as ‘buying countries’.

In 2019, Australia only received US$1.9 million in international transfer-related payments. In comparison, Japan and Korea Republic received US$29.6 million and US$26.6 million respectively in international transfer-related payments.

Although there is nothing preventing A-League clubs from accessing lucrative international transfer payments by selling players to overseas clubs, there is currently a gap within the Australian football ecosystem. The DTS seeks to fill that gap and has the potential to provide A-League clubs with an additional source of revenue.

Up to this point there has been a lack of certainty around contracting for both the player and clubs, as well as limited recognition of the value in developing players. For example, in 2019 the domestic training compensation paid by A-League clubs to training clubs amounted to only $402,000.

The establishment of a DTS could promote and incentivise A-League clubs to engage young players and provide them with playing opportunities. It could also increase the likelihood of generating future transfer revenue from clubs internationally as well as domestically. The DTS provides a standardised system for player transfers, which has the added benefit of providing increased legal certainty for contracts (through the use of prescribed standard player contracts). This will ensure players, clubs, agents and other third parties (including sponsors) pay greater attention to the legal requirements associated with a transfer, creating integrity in the system.

The White Paper notes that, in a future DTS, transfer fees could be determined in the following ways:

1. Via the market (as per the international transfer system);
2. Via a buy-out clause (a pre-agreed amount entered into a player’s contract); or
3. Via a complex algorithm that applies certain objective criteria to determine player value.

This raises the question: could the establishment of a DTS cause a paradigm shift in the A-League with the larger clubs utilising their financial strength to continually purchase talented players from the rest of the league? This is also made more likely if there are changes to the A-League salary cap. Teams like the Melbourne City FC, the most recent A-League champions, are part of the City Football Group, which owns Manchester City FC and New York City FC. However, it remains to be seen whether the Australian football community is ready to accept the entrenchment of the potential of a ‘big club vs small club’ dynamic within a sporting culture that prides itself on equality via salary caps.

An increase in spending and the flow of money gives rise to other legal issues, such as the need to protect clubs against the prospect of insolvency, perhaps through the introduction of a form of ‘Financial Fair Play’ Rules akin to that of UEFA. These Rules were introduced in Europe to prevent professional football clubs spending more than they earn in the pursuit of success, and in doing so not getting into financial difficulties, which might threaten their long-term viability.

If similar Financial Fair Play Rules were introduced in Australia this would lead to significant compliance requirements such as audit and disclosure in relation to transfers and wages. This would need to be considered in line with the existing salary cap in the A-League of $2.1 million. However, such transparency typically also has additional benefits, acting as a deterrent to transfers that may be a front for money laundering and dealing with proceeds of crime, which although not likely to be of concern in Australia, has alleged to have occurred in larger competitions and leagues overseas¹. While unlikely to be a current issue for A-League clubs, the growth of the transfer market could lead to greater risk in dealings with clubs in countries that have less stringent legal systems and adherence to the rule of law.

Outlook for Australian football with a DTS

In December 2020, the English Football Association (FA), as part of its post-Brexit planning, introduced new rules regarding the transfer of overseas players to English football leagues. Under the new system, work visas will be granted based on a points system, which considers among other things the quality of the league a player joins from. The FA classified the A-League in the lowest band, making it more difficult for Australian players to accumulate the requisite points.

The reforms outlined in the White Paper demonstrate the collective will to push Australian football forward. The establishment of a functional DTS will benefit players and clubs from a contractual and employment law perspective. The DTS has the potential to increase revenue for A-League clubs and create a domestic marketplace for transacting talented players that are yet to attract interest from clubs internationally.

Naturally, the movement of players more freely will also have follow-on effects for sponsors, whose value of contracts with a club may rise or fall with the arrival or departure of key players. However, contracts with the league will likely receive a boost from the increased interest in the game. Similarly, the value of a broadcaster’s contract on the whole should increase as the Australian public becomes more engaged as a result of player movement and higher quality football.

This incentivisation of player development through giving younger players more playing opportunities and introducing a stronger system of training compensation, will take A-League clubs a step closer to the riches of the lucrative, and so far untapped, international transfer system. This may pave the way for significant talent growth amongst Australian footballers, improving their standing on the world stage. If the DTS is implemented successfully, the English FA may need to soon promote the A-League to a higher band.

What should clubs do to be prepared for the DTS?

We anticipate that the DTS will have significant benefits for both the operation and integrity of football in Australia. It will however create additional requirements, especially for A-League clubs, which will need to consider:

1. How they recruit and contract players, including current player agreements;
2. Auditing and disclosure under the salary cap, which could be impacted by Financial Fair Play rules or other fiscal requirements imposed by the DTS; and
3. How the DTS will improve commercial opportunities and agreements with sponsors and broadcasters into the future.

Prior to the implementation of the DTS, A-League clubs should consider undertaking a financial, legal and operational review of their transfer policies and procedures. This should be considered concurrently with existing salary cap compliance obligations.

Authors: Ross Watkins, Peter Mulligan and Jeremy Moller

¹Financial Action Task Force, ‘Money Laundering through the Football Sector’, https://www.fatfgafi.org/publications/methodsandtrends/documents/moneylaunderingthroughthefootballsector.html.