Third party ownership arrangements: An alternative financial instrument for sports companies apart from football?

Abstract

Sports companies (equivalent to professional sport teams) are increasingly confronted with difficulties in raising capital. On the one hand, they have to fulfill league- and association-linked infrastructure requirements. On the other hand, they must ensure to be competitive in an increasingly demanding sportive and financial environment. However, future athletic success is highly uncertain (for example, because of players’ injuries) and hence, associated cash flows are difficult to predict which makes it difficult to attract investors. An alternative financing option that has become more popular in recent years – especially in football - is Third Party Ownership (TPO). TPO is a way of investing in the player squad of a sports company and therefore reducing investment risks for sport companies. However, due to the wide usage in football and legal concerns about the usage of TPOs, the FIFA has forbidden the implementation of TPOs since 2015. But, the question rises, whether TPOs are still economic useful for sports companies in other sports? What are the reasons why TPO arrangements in football are so popular? What is their economic benefit for involved stakeholders? To answer these questions and to judge the appropriateness of TPOs for sports companies and the ban in football, a financing-theory-oriented view on the design and functional possibilities of TPOs is needed, but still missing. Our paper tries to fill this gap and, moreover, sets the economic basics for a profound legal and economic discussion on the use of TPOs in sports