What is a buyout clause?
What is the legal definition of a buyout provision?
When is it used and how does it work?
In this article, we will break down the notion of “buyout clause”, so you know all there is to know about it!
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What is a buyout clause
A buyout clause (also called a release clause or buyout contract) refers to a contractual provision in a soccer contract or football contract between a player and a sports team.
Further to the buyout clause, the sports team is obligated to release a player in favour of another team when the buyout fee established by the buyout clause is paid.
In other words, with the payment of the buy out fee, a team can essentially “purchase” our “buy out” a player under contract with another team.
How does it work
Typically, the sports club looking to sign a player already under contract with another team will attempt to make a financial offer for the player’s release.
If the financial offer is below the buyout fee in the contract, the club receiving the offer does not have a legal obligation to release the player (although it may choose to accept the offer).
However, if an acquiring team offers an amount of money matching the buy out fee, then the club receiving the offer can no longer prevent the player’s transfer.
Purpose of buyout contracts
The purpose of including buy out clauses in a contract with a soccer player is to ensure that:
- The player is not inclined to leave the sports franchise easily
- Competing teams do not lure players by offering them more money
- A player can move to another team even if his club does not agree with the transfer (provided the full buy out fee is paid)
For example, Cristiano Ronaldo’s buyout fee with Real Madrid was at one point one billion euros.
That’s a price another team must be willing to pay to buy out Ronaldo’s contract or for Ronaldo to break his contract.
That makes other teams think twice when evaluating the feasibility of acquiring him.
In essence, if a player wants to rescind a contract with its current club or another club wishes to acquire the player, the amount provided for in the buy out clause must be paid.
A player’s contract will also outline the qualifying conditions where the release clause can be exercised, such as:
- The parties are within a transfer window
- The team is not participating in the Champion’s league
- A minimum amount required to be offered by the purchasing club so the club and the player can pursue further conversations
Release clauses or buyout clauses are established when a sports team signs a player.
In countries like Spain, buyout clauses are mandatory in football contracts.
Buyout clause vs release clause
What is the difference between a release clause vs buyout clause?
The terms buyout clause and release clause are used interchangeably in football or soccer.
If you look at the contractual obligation from the perspective of the team having a contract with a player, provided the buyout fee is paid, the team is obligated to “release” the player.
In this context, we can say “release clause”.
On the flip side, from the player’s perspective, if he wants to leave the club, he must “buyout” the contract.
In other words, he must pay the fee required under the contract to break the contract.
In practice, the acquiring team will pay the buyout fee or transfer fee on behalf of the player so the player will effectively not pay that amount out of pocket.
From the perspective of the player or the acquiring team, we can say “buyout clause” as they use this provision to “buy” or “acquire” a player.
Buyout clauses are mandatory in some countries like Spain.
The purpose of this mandatory requirement in Spain is to provide football players with the same rights as other employees working for their employers.
The fees that players are required to pay are intended to remain proportional to their wages allowing them a much greater chance of having the means to break their contract.
On the other hand, when the release clause is not regulated by law, the release fees will be much higher than a player’s actual market value making it sometimes prohibitively expensive to break a contract.
The Court of Arbitration for Sports rendered a decision where on the 70th paragraph of their decision, they referred to a buyout clause:
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.
As you can see from this buyout clause sample, the sports club undertakes to arrange for the player’s transfer when the amount of 25,000,000 euros is offered.
Buyout clause example
Let’s look at an example of how buyout clauses work and how much a team may be required to pay to buy a player.
Some of the largest buyout clauses in professional sports are the following:
- Cristiano Ronaldo for a billion euros with Real Madrid
- Karim Benzema for a billion dollars with Real Madrid
- Lionel Messi for 700 million euros with FC Barcelona
On August 3, 2017, Paris Saint-Germain triggered the buyout clause to acquire Neymar from FC Barcelona for an astronomical sum of 222,000,000 euros making this buyout transaction one of the largest in history.
In 2016, Paul Pogba’s buyout provision was triggered for a whopping 105,000,000 euros.
How do you define a buyout clause?
How is it used in professional sports?
Buyout clause definition