An easy guide to understanding a release clause

[Legion]

What is a release clause?

It is a clause in a player’s contract that, subject to qualifying conditions (i.e. a particular transfer window or non-participation in the Champions League), automatically requires a club to accept an offer of a pre-determined contractual amount expressly set out in the contract from the offering club.  If the minimum amount stipulated in the contract is triggered by a the purchasing club, the player will be entitled to speak to that club.

Examples of release clauses

Only a few Premier League transfers have been reported to have included release clauses. This was the case with the Demba Ba transfer from Newcastle to Chelsea and Joe Allen from Swansea to Liverpool  In the case of Allen, reports were that the bid could only trigger the release clause if it came from one of five clubs that included Liverpool.

What is the difference between buy-out and release clauses?

Buy-out clauses are prevalent in Spain and are somewhat different to a release clause. They are a mandatory element of most Spanish contracts and are usually set at a very high figure which is not necessarily the true market value of the player. The player has to literally ‘buy out’ his contract at the stipulated amount, though in practice, it is the purchasing club who pays the amount via the player. This can be a complicated process because of the practical tax logistics of a purchasing club transferring the ‘buy-out’ fee to the player who will in turn buy out his contract.  We saw this with Manchester United’s reported failed bid with Anders Herrera and Javi Martinez’s successful transfer to Bayern Munich.

One such example of what the Court of Arbitration for Sport called a ‘buy-out clause’ but may be in fact closer to a ‘release clause’ became publically available in the case of Matuzalem (CAS 2008/A/1519) –  at paragraph 70 which stated:

“The relevant part of clause 3.3 of the employment contract between Player and Shakhtar Donetsk reads as follows: “During the validity of the Contract, the Club undertakes – in the case the Club receives a transfer offer in amount of 25,000,000 EUR or exceeding the some [recte: sum] above the Club undertakes to arrange the transfer within the agreed period.”

What happened with Luis Suarez?

During the summer transfer window, the PFA reported that the contractual provision in Suarez’s contract with Liverpool was a ‘good faith’ release clause rather than an automatic release clause. The two are quite different. With an automatic release clause, player ‘y’ must be allowed to speak to purchasing club ‘x’ if the minimum release amount is offered. A ‘good faith’ clause means the parties are required to negotiate in good faith once a bid has been made. Importantly, a good faith clause does not automatically trigger the selling club to accept the offer.

The PFA were reported to have been arbitrating between the player and the club, and explaining to the player the likelihood of the clause standing up to a robust legal examination. As such, it was considered by the PFA that the clause was not an automatic release clause.

Are release clauses meaningless?

I do not believe release clauses have ever been tested from a European law, restriction of trade perspective but they are included in contracts for a specific reason. If an automatic release amount is triggered, a club will be contractually bound to accept the amount offered.

If the club who has the player’s registration refuse to release him, then it is likely an arbitration process would follow between the two clubs to assess the validity of the release clause. In the case of a dispute between two Premier League clubs, if a Premier League tribunal viewed the contractual provision as an automatic release clause, the potential purchasing club would be allowed to speak to the player and proceed with the transfer. The only way there may be an issue with a release clause in the UK would be if the clause was so high that it was far beyond the market value of the player. A player may argue that the he would be restricted from moving to another club because the release fee was too extortionate.

Is there scope for  release clauses in future?

There may well be instances where a player is willing to move down the football ladder to get more visibility and playing time in the short term, on the condition that a release clause is inserted into his contract, so that if he plays well a bigger club  can then trigger the predetermined release clause.

Taken from Daniel Geey, a senior associate in Fieldfisher’s  Competition and EU Regulatory Law Group.