Sell-on Clauses and Their Effect on a Player Transfer

How do sell-on clauses work when players are transferred between clubs?

In a transfer involving two clubs, it is common for more than just the two sides involved in the transaction to have an interest. The premise for this is to allow smaller clubs to benefit if a prospect moves on a is successful at a bigger club, so that they can reinvest the money back into the club to help with their progress to the upper tiers of their respective leagues.

Authority: Article 21 – FIFA Regulations on the Status and Transfer of Players

21 Solidarity mechanism:  If a professional is transferred before the expiry of his contract, any club that has contributed to his education and training shall receive a proportion of the compensation paid to his former club (solidarity contribution). The provisions concerning solidarity contributions are set out in Annexe 5 of these regulations.

What is a “Sell-On Clause?

The amount of money to be given is decided by the percentage figure included in the player’s contract with his new club. The percentage is based on the estimation of the player’s current potential and long-term one. The two clubs negotiating the deal have to decide on the figure, and there is generally some room for negotiation. For example, sometimes the club purchasing the players will offer the club selling the player a bigger sell-on clause in exchange for a smaller transfer fee, so that they can save money in the short-term.

A sell-on clause must be stipulated as an addition to the player’s contract. It is common for managers or sporting directors these days include such a clause in the contracts of their most promising young players.

There is some risk in negotiating a higher sell-on percentage though. If the player becomes an elite one and leaves for a team of a higher calibre, most of the funds received during the transfer will go to the club selling him.

There is also significant risk to the selling club of not including a sell-on clause in the transfer of a player. A great example of this is Southampton Football Club. They were the club in the losing position during Gareth Bale’s world-record £86 million transfer from Tottenham Hotspur to Real Madrid CF. The Saints missed out on potentially as much as £20 million by failing to include a sell-on clause in the transfer of Bale to Tottenham at the end of his contract with Southampton in 2006.

Gareth Bale

  Example of a Sell-On Clause

Let’s take a real life example using fictitious team and player names to illustrate a sell-on clause as well as a dispute that occurred. Our example beings on 1 July 2009, when South Wales FC, a club in Swansea, Wales (hereinafter the “Selling Club”) and East London United, a Premier League club from England (hereinafter the “Club”), concluded a transfer agreement (hereinafter the “Agreement”) for the transfer of Paul Onze, (hereinafter the “Player”), a promising young player, from South Wales to East London United. In addition to the various terms and conditions of the contract, the following clause appeared:

Player Contract [Reproduced in Part]:

ARTICLE 6
The Selling Club will be entitled to participate in the future transfer of the Player from the Club to a third club under the following conditions:
a) If the transfer is carried out before the 1st September 2011, the Selling Club will be entitled to receive twenty-five percent (25%) of the difference between the transfer price and the amount of Euro 425,000.00.
ARTICLE 9
(…) This contract may not be altered, amended, changed or modified, unless the same shall be in writing and signed by the parties.

Paul Onze played the 2009 season with East London United. During the summer transfer window, on 19 August 2010, Paul Onze was transferred from East London to Sport Clube Lusitania, a team in Portugal (hereinafter “SCL”) in a deal with transfer compensation in the amount of EUR 3,750,000 payable in three equal installments of EUR 1,250,000. The first payment was to be tendered within three days after the registration of the player with SCL, with additional payments on 27 August 2011 and on 27 August 2012, respectively.

On 7 September 2010 the Club provided the Selling Club with a copy of the transfer agreement concluded with SCL. The Club, via email, sent the following payment plan to the Selling Club: