Jean-Louis Dupont, left

A news story I initially missed until it was brought to my attention by commenter Greatest Cockney Rip Off in the morning links  involves a lawyer—Jean-Louis Dupont,  one of the solicitors who argued the famous Bosman ruling which allowed players to leave their club for free after their contract expired—who says the Premier League’s ban on third party ownership of players is likely illegal under EU provisions.

What is third party ownership? Wikipedia does the job well enough:

Third-party ownership in association football is the ownership of a player’s economic rights by third-party sources, such as football agents, sports-management agencies, or other investors.

In practice, it allows investors to speculate on players much as they would on a stock or commodity. An interested financier could buy the “economic rights” of a talented young prospect, “sell” the player to an interested club for a smaller fee than they would normally command on the transfer market, and then reap the profits when the player is sold up to a big club for a substantially higher fee.

The practice is popular in South America; as John Sinnot writes in this detailed piece on the BBC, third party-owned footballers are referred to as “pizza players,” as they’re often owned by a multitude of investors (like CDOs!).

Sinnot does all the right things in his article. He carefully looks at the pros and cons in the current financial climate in European football, remarks on how financially advantageous it’s been for clubs like Sporting Lisbon and Braga in the Portuguese Super Liga in attracting talent they wouldn’t otherwise be able to afford, notes that it reduces club debt, remarks on the competitive disadvantage in European competition for English clubs unable to reap the benefits of third party ownership, and leaves you to make up your own mind on the matter.

But it’s the quote in the piece from Coventry University prof John Beech, who is opposed to third party ownership, that resonates for me:

“I’m against credit being too easily available to a sector which has a uniquely bad record for business failures. If a club is cash-strapped, its problems won’t be solved if it doesn’t sort out its business model.”

What Beech doesn’t mention is that quite a few football clubs throughout Europe are cash strapped, far more than would be tolerated in any other industry. Moral objections to treating player like thoroughbred horses owned by a long list of shadowy investors aside, third party ownership makes good economic sense—investors win because they earn a tidy profit on the back of promising talent, clubs win because they don’t pay exorbitant transfer fees—only as a short term remedy for a unsustainable financial problem: wage inflation.

Much like you can trace the collapse of the global economy in 2008 back to Alan Greenspan’s refusal to raise interest rates in the early 2000s—which prompted both a housing price bubble and the desire for banks to find an alternate source of investment, like collateralized debt obligations—you can trace the popularity of third party ownership to un-affordable club wage bills (which of course was in part the legacy of the Bosman ruling—full circle!).

In other words, the popularity of TPO is a symptom of a bigger financial problem—clubs are forced to spend the majority of turnover on player wages just to stay afloat, financially and competitively. Financial Fair Play will hopefully mitigate by stopping clubs from posting losses year after year, forcing them to operate on turnover alone instead of investor money, in addition to carefully managing their debt obligations. Whether FFP will be enough to one day reduce wages enough to affect the necessity of third party ownership for clubs struggling to afford to buy talent to compete remains to be seen, but it at least helps address the core problem.