You have probably all already seen that Falcao is destined for Monaco. There were a lot of rumors about a potential move to Manchester United, Chelsea, Real Madrid and others - so why does he end up moving to Monaco?
The answer is because of the complicated third-party ownership involved with Falcao. There was a very similar situation with Hulk when he moved to Zenit.
To explain this, we need to take a step back and first see how third party ownership works. Those in England would have previously seen this topic as it reached prominence when Carlos Tevez and Javier Mascherano signed for West Ham United. Here were two stars from Argentina signing for a club in London who were struggling to stay in the top flight. The controversy lead to West Ham paying compensation of £18M to Sheffield United, and lead the FA to ban third party ownership.
But third party ownership is still alive and well on the continent. It is most often applied with South American stars making the jump across the Atlantic to Europe. The way it works is that investment groups will purchase the registration rights of an upcoming player. This is sometimes done while the player is at a club, and sometimes as part of a transfer.
For eg. one scenario would be that a 16 year old star in South America would be approached by an agent and asked if he wants backing with marketing and making it big in Europe. These deals usually involve paying the player a better salary, hooking him up with a better agent, better management, sponsorship deals etc. If and when the player agrees, the third party owners will then go to the club he is registered to and negotiate to buy his registration rights - either all of or part of.
The player is then in the hands of the management and third party ownership group, who manage every aspect of his career from that point on. That usually involves paying him a larger salary on top of his club salary, placing him in clubs where he will get more exposure, etc.
The other way third-party ownership happens is that the investment group finances a transfer for a player. For eg. Porto want to sign a player from Brasil but don't have the funds, they would approach an investment group and have them stake 50-60% of the deal in return for the players registration rights.
The investment group make all of this upfront investment with the hope that at some point in the future the player proves himself, becomes a star, and can then exit at a very large valuation.
Some examples: Tevez and Mascherano were placed into West Ham by their investment group as a way of getting them more exposure. It worked out well in both cases as Liverpool purchased Mascherano (buying out the investment group and giving them a good return) and City eventually ended up buying out Tevez - albeit via Manchester United (who never owned the entirety of his transfer rights).
Back to Falcao. He was purchased by a third-party ownership group as part of his transfer to Porto. They bought 55% (likely more) of his transfer rights, supplemented his salary while he was paying at Porto and then moved him to Atletico for the purpose of getting him more exposure (likely with an eye on moving him eventually to Real Madrid). During the time Falcao was there, the investors were supplementing his wages again (infact paying most of them) and working on negotiating his big move which would see them cash out.
Porto's financials show the following for the Falcao transfer:
sale of 60% of the economic rights of the player Bolatti to the entity Natland Financieringsmaatschappij B.V., on July 2009, by the amount of, approximately, 1,500,000 Euro, (transaction perform under the acquisition process of 40% of the registration of Falcao)
There is another section where it is disclosed that they sold another 5% option in Falcao, and another section where it is disclosed that there is an option for a third party to purchase a further 10%.
The same filing shows that Porto only owned 45% of Hulk.
What is more interesting is who is involved in the Falcao ownership. The group is called Doyen Sports and it was founded by Jorge Mendes (most famous as Ronaldo's agent, but an infamous player agent who is involved in a lot of third-party deals) and Peter Kenyon (former Chelsea chairman).
On their website they have a page for Falcao and you can also see the other players listed. Falcao, like Hulk, ended up in a situation where there was so much invested in him that it would take a lot of money for the investors to see a return (known as being highly leveraged). They were paying his salary for a few seasons, had floated Atleti some money to keep them alive (they got some shirt sponsorship in return) and had made the initial investment when he first transferred.
Falcao ends up moving to Atletico in a 40M move - despite Atleti the previous season stating that they had to clear players out because of their 220M euro tax bill with the Spanish government. What this ended up being is a 20 + 20M deal. 20M never gets paid because its just the third-party owners paying themselves, and of the other 20M only 18M is owed by Atleti, who take an option of paying in two 9M installments (they were late on the first one, they only paid 2.5M and defaulted to the point of Porto threatening to sue and taking the issue up with FIFA). End situation is that around 60% of the rights are with the Doylen group. It also appears that while Falcao was at Atletico that Doylen took an option for a larger stake in him since Atleti were late on their payments. Something weird happen which involved Doylen taking a sponsorship. Either way, they had the majority stake and Atletico had no say or control of the player. For all purposes it was nothing more than a loan with Atletico having a small stake in his registration rights.
The president of Atletico Madrid continuously insisted that they own all the rights to Falcao, but this simply isn't true.
Falcao is on a wage of 10M euro per year, and the return the investors wanted is 60M euro in transfer fee. This narrows down the list of potential clubs that can buy you out to very few. Atletico had no say in where Falcao goes, they had an option in the winter transfer window, but that expired. The owners needed their return and they were going to get it one way or the other.
The list can be narrowed down to PSG, Monaco, Real Madrid, Chelsea and City. City aren't making large investments any longer, PSG have their fix of strikers. Of the remaining three, it is apparent that Real Madrid didn't want to pay up the 60M + 50M in contracts for Falcao (for whatever reason). Apparently Chelsea matched the 60M clause but to pay Falcao the 10M per season in wages would involve a total gross salary of 300k+ per week, which just isn't manageable.
Chelsea also have the issue of not being allowed to directly purchase a player from a third-party owner (apparently this is what turned ManU off a move) so it would have required a two-step sale with Falcao going to one club outright and then to Chelsea. Apparently with the David Luiz transfer on the same day he moved to Chelsea Benfica bought out the entirety of his rights from third-party owners (so you can summize that Chelsea gave them the money to buy out that deal so that they could purchase 100% of Luiz directly from Benfica, thus avoiding the third-party rule in England).
With all of these factors you end up with only one target: Monaco. They have the 60M to pay out the investors, they have the funds to pay his wages of 10M per year and better yet they have no income tax so they don't have to supplement the gross.
So in the end Falcao is moved around Europe by his investors with the only goal of making a return for them. He has little to no say in his final destination because of a deal he agreed to years ago while he was still in South America.
Links and further reading:
A comment I left below with more details on calculating the percentages and who owns what, with more details of the Atletico debt *
Do Atletico own Falcao?
Swiss Ramble on Atletico Madrid and their financial struggles
- "one of the worst run clubs in Europe"
Porto threaten to report Atletico over late Falcao payments
Monaco eye Falcao move
- "Chelsea’s attempts to sign the former Porto man had been complicated by third-party ownership issues"
BBC: Does third-party ownership benefit or hinder football?
Quality Sports Investments
- another third-party ownership fund that Kenyon and Mendes were involved with
edit part that I missed which some people might not know - Monaco were purchased by Russian billionaire Dmitry Rybolovlev, the 79th richest man in the world. Similar MO to the Al Thani's at PSG except he is investing as an individual, rather than with the backing of a state.
BBC on the takeover
His Wikipedia page
When he bought the club in December 2011 they were bottom of the second division in France. He rescued them that season and has now seen them promoted back to Ligue 1.
Edit some more links, this time from UEFA, who have strong words against third-party ownership (but it still goes on):
General Secretary: No place for third-party ownership
UEFA call for ban on third-party ownership
This is why, as asked below, Atletico insist in public statements that they own 100% of Falcao - they don't want to risk any potential clampdown from UEFA.
edit further, thanks for the reddit gold, and all the messages and responses. really wasn't expecting it.
Spammers If you find anybody online ripping this post off, like this guy (bookieinsiders) please report them as spam
|but can you prove that this time he's lying again?
The "official story" is that Doyen didn't meet the promissed payments
Doyen didn't have payment to make, they owned ~60% of the player. Atleti had payments to make for their part of the transfer, and missing those payments is how Doyen apprently took an even larger holding in Falcao.
It goes something like this:
Falcao transfers to Porto, Doyen fund 60% of the transfer fee. At Porto Falcao is 60% owned by Doyen, 5% by the Dutch party and 35% owned by Porto
Doyen want to move Falcao somewhere else, and strike up a deal with Atletico. The agreed value is 40M Euro
Doyen already own 60% of him, so they don't have to pay their 24M euro share of the deal. All that is left is Atletico have to pay their 16M share (18M when you include fees) to Porto
Atletico don't have the money, so they agree to two payments: 9M in a year, 9M in two years
The first payment comes up and Atletico only send 2.5M euro, meaning they still owe 6.5M euro for the first payment and a further 9M
The missed payment drags on for so long that Porto threaten transfer sanction action with FIFA
Somehow now Atletico make the 7.5M payment, and for some crazy reason at the same time (or thereabouts) Doyen and a subsidiary of theirs turn up as a shirt sponsor at Atletico
Doyen didn't have any payments to make - they simple transferred their part ownership from Porto to Atletico. It was Atletico who had payments to make for their part of the transfer.
The figures can be confirmed in two ways: first Porto's financial filings mention them, and then second when Porto complained about missed payments, they revealed it was Atletico who owed the money and that I was 18M, which adds up to exactly what Atletico's share would be of a 40M euro transfer.
The source on the 60% figure is the Porto financial filing, the source on the money owed is in the Soccernet article (and many others, it was a big story). It takes a bit of deduction to figure out what happen in between.
The part that is my own speculation is how much more of a shareholding Doyen picked up when Atletico missed their payments. Either way, Doyen had complete control of the player with their 60% holding. The only option Atletico had was to sell at the buyout clause, and that option expired Dec 2012 (that is a rumor, but 'matches up').
There are also inconsistencies in what Atletico have said. First they said it was the third party owners who are responsible for the debt, but then later they admit that they borrowed money from the same third party owners. If you look back at my version that I deducted, you'd see that it makes sense that Doyen took a larger stake via that "loan" to Atletico. Having Doyen as a shirt sponsor is very weird, they aren't a consumer facing company, there is more to that.
There are two incentives for Atletico to 'lie'. The first is to save face with their fans. The second reason is because if they admit that they don't own his rights, it would compromise a deal to the Premier League. There is also the ever-present threat of UEFA challenging third party ownership and banning it at any moment, which would threaten the exit plan for Atletico and Doyen. That is also why some of these deals are now being done off-book, meaning that the registration rights would be 100% with the club, but that 'off book' there would be an agreement with third party owners.
We are only really going to find out what is going on when Atletico make their next financial filing. Their financials are also not very transparent, they do a very good job of hiding what is really going on. For eg. there is no clear disclosure of their debt levels, not even to the government for taxation purposes. It is somewhere around the 500M euro mark in total debt.
In short, I tend to believe that Doyen stumped up the money for the Porto payments before I believe that an indebted Atletico who couldn't afford the payment in the first place and are struggling with government debt somehow came up with the 18M euro.