Purchase Obligation clauses in Sports Contracts

Purchase Obligation clauses are vital components of sports contracts, and they’re particularly prevalent in football. Imagine a scenario in football where a player is loaned to another team/club. The loaning team may include a Purchase Obligation clause in the loan agreement, that is, a clause requiring the borrowing team to permanently purchase the player at the end of the loan spell if certain conditions are met. These conditions could for example be the player scoring a certain number of goals during the loan period. This article focuses on the interpretation of such clauses, drawing guidance from the case of Leeds FC v. RB Leipzig, CAS 2021/A/8229, to illuminate and inform the discussion. Below, you’ll find a summary of the said case, providing the groundwork for the lessons drawn at the end of the article.

Brief facts    

Mr. Jean-Kevin Augustin, a French football player, was an employee of RB Leipzig with his employment contract being valid until 30 June 2020.

In January 2020, RB Leipzig loaned its player to Leeds FC under a loan agreement which was also due to expire on 30 June 2020.    

The loan agreement contained a Purchase Obligation clause which provided that Leeds FC was to purchase the Player for € 21 million on condition that their 1^st men’s team was promoted to the English Premier League at the end of the 2019/2020 season.

The Purchase Obligation clause also provided that if the said condition was to occur, the player would be permanently transferred to Leeds FC on 1 July 2020.

However, due to the Covid-19 pandemic, the 2019/2020 season that had been initially slated to finish by 1 July 2020, finished on 22 July 2020, with the 1^st men’s team of Leeds FC securing their promotion to the English Premier League i.e., winning the EFL Championship.

As a result, RB Leipzig demanded from Leeds FC the € 21 million but Leeds FC refused to pay the transfer fee for the player on grounds that – 1) the player did not permanently transfer to Leeds FC on 1 July 2020; and 2) the loan agreement had expired prior to the conclusion of the 2019/2020 season.

RB Leipzig filed a claim against Leeds FC before the FIFA Players’ Status Committee which upheld RB Leipzig’s claim to be paid a transfer fee of € 21 million by Leeds FC.

Leeds FC then filed an appeal with the Court of Arbitration for Sport (CAS) against the Committee’s decision.

Main Issue

Was the Purchase Obligation triggered?

Court’s decision

The CAS held that the Purchase Obligation was triggered because:

1. Based on the Purchase Obligation clause, the obligation to transfer the Player permanently to Leeds FC for an agreed transfer fee of EUR 21 million was conditioned only on Leeds FC’s promotion to the Premier League at the end of the 2019/2020 season.

2. The Parties’ primary intention as deduced from the Purchase Obligation clause was that the Player would transfer from RB Leipzig to Leeds FC if the latter would be promoted to the Premier League at the end of the 2019/2020 season. When this would exactly happen was only ancillary to the primary intention. 

3. A delay of only 22 days (counting from 1 July 2020) was insignificant and did not appear to cause any meaningful prejudice to Leeds FC. In fact, Leeds FC would have saved itself about 3 weeks of salary due to the later entry into force of the employment contract with the Player.

4. The Player’s loan stint with Leeds FC indeed ended on 30 June 2020 while the season was ongoing. However, the Purchase Obligation was not dependent on the duration of the Loan Agreement, because the Parties’ primary intention was anchored on the condition precedent i.e., if Leeds FC would be promoted to the Premier League at the end of the 2019/2020 season. Therefore, the mere fact that the Player’s registration may have returned to RB Leipzig or that the Player’s employment contract with RB Leipzig resurrected did not mean that the Player could not be definitely transferred to Leeds FC after 1 July 2020 in accordance with the Purchase Obligation clause.

5. The Complementary Contractual Interpretation principle – the principle applies whenever the parties unintentionally do not consider an issue that later materialized – in that case, it must be examined what the parties reasonably and in good faith would have agreed, if they actually had considered the issue they unintentionally omitted to regulate – the principle however must result as a compelling, self-evident consequence from the entire context of what was agreed. CAS applying the principle: The entire text of the Loan Agreement proved that the Parties’ primary intention was that the Player would transfer from RB Leipzig to Leeds FC if the latter would be promoted to the Premier League at the end of the 2019/2020 season – had the Parties known at the time of conclusion of the Loan Agreement that the EFL Championship would not finish by 1 July 2020, but only on 22 July 2020, they would have amended the various terms of the Loan Agreement in such a way as to enable the Player’s registration with Leeds FC at such later date prior to the start of the 2020/2021 season – therefore, the principle proves that even if the Parties had known that the EFL Championship would not finish by 1 July 2020, they still would not have given up on the loan agreement but rather would have figured out something to keep their primary intention alive.

The CAS accordingly dismissed the appeal and confirmed in full the decision of the FIFA Players’ Status Committee. 

Lessons drawn from the Decision

1. Careful drafting of sports contracts is important, particularly with regards to the inclusion of condition precedents and their specific wording. In the Leeds FC v. RB Leipzig case, the Purchase Obligation clause was unambiguous in its language something that explains why the CAS was able to ascertain the primary intention of the Parties.

2. It is important to consider the impact of external events on contracts, particularly in light of unexpected circumstances such as earthquakes, wars or even a pandemic. In the Leeds FC v. RB Leipzig case, the delay in the conclusion of the 2019/2020 season was due to the Covid-19 pandemic but it did not have a negative bearing on the Purchase Obligation clause because the said clause was properly drafted.

3. Parties should strive to consider all possible scenarios and contingencies when drafting a contract. However, if they unintentionally omit an issue that later materializes, the Complementary Contractual Interpretation principle should be applied to determine what the parties would have agreed upon if they had considered the issue. The principle emphasizes the importance of good faith and reasonableness in interpreting and enforcing contracts. It also highlights the need for parties to be proactive in anticipating potential issues and addressing them in their agreements, in order to avoid disputes and legal challenges down the line.

Conclusion

In a nut shell, the Leeds FC v. RB Leipzig case highlights the importance of anticipating and addressing unforeseen events when drafting Purchase Obligation clauses in sports contracts. The case also emphasizes the value of carefully interpreting the terms of an agreement in accordance with established legal principles. As we navigate an unpredictable world, it is imperative to be mindful of the potential impact of external factors on contractual obligations and to take steps to mitigate risks through contingency planning and clear communication between parties.