Corporations are continuously faced with high levels of uncertainty from numerous sources and are always looking for ways to deal with this issue. Besides uncovering questionable practices in the world of football, Football Leaks has also provided a unique perspective into the way football clubs and players negotiate contingent contracts to deal with uncertainty. Only in their case, uncertainty does not stem from changing raw material prices, volatile markets, fluctuating exchange rates, natural disasters, or simply different views on how a business is going to develop. Instead, players, their agents, and the clubs protect themselves from uncertainties revolving around the future development, performance, behavior, and movement of players.
One of the biggest uncertainties of player transfers in football revolves around the future development of young players. In some cases they exceed expectations, in others they fall short of what the buying club had hoped for. Especially with the skyrocketing prices of talented players, misjudging a player’s potential can be incredibly costly. The transfer of French striker Anthony Martial from AS Monaco to Manchester United is a great example of how football clubs deal with this issue. In addition to a base fee of €50 million for the at the time 19-year-old, the two clubs also agreed on a number of contingencies. Manchester United agreed to pay up to €30 million contingent on the number of goals scored by Martial, his national team appearances and whether he is nominated for the Ballon D’Or. Besides the reduction of risk on both sides, this arrangement also removes the necessity to convince the other side of your future expectations in order to strike a deal.
An example of dealing with uncertainty from the player’s perspective was the deal between German player Kevin Volland and his club at the time 1899 Hoffenheim in 2015. In his contract, they included a clause that allowed Volland to transfer to another club for a fixed fee of €7.5 million in the case that Hoffenheim get relegated to the 2. Bundesliga (Germany’s second highest division in professional football). That way, Volland protected himself from having to stay at the club in case of relegation and was willing to sign a long-term contract until 2019.
The Football Leaks have also uncovered very specific and sometimes even seemingly obscure contingencies. When the Italian player Mario Balotelli transferred to Liverpool FC, he was known for his eccentric behavior on and off the football pitch. In order to protect themselves from his antics, Liverpool decided to include a good conduct clause in Balotelli’s contract. This clause ensured that he received a bonus payment of £1 million for not spitting at opponents or engaging in violent conduct on the pitch.
Other contingent agreements are in place to prevent the competition from getting hold of certain players. For example, when Real Madrid sold Mesut Özil to Arsenal FC they secured a special clause in the negotiation. If Arsenal intends to accept an offer for Özil from another Spanish football club, they have to inform Real Madrid about the details of that offer and then Madrid has the opportunity to buy Özil instead at the exact same conditions as the other offer. That way, Real Madrid can take action and interfere in case any of their rival clubs might attempt to strengthen their team by assigning Özil.
These agreements show the power of negotiating contingent agreements once they have been widely accepted as an industry standard. They reduce the threat of uncertainty, eliminate the need to find common ground on predictions of an uncertain future, create value at the negotiation table, and facilitate deals that would otherwise not be possible. It is important that managers realize the value of using contingencies in negotiations and overcome the typical internal resistance against these deals which are often unfortunately seen as too complex or interpreted as some form of gambling.
Author:
Professor Dr. Lutz Kaufmann
Chair of International Business and Supply Chain Management
at WHU – Otto Beisheim School of Management,
Academic Director WHU‘s Negotiations Program
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