January 3, 2019 / 10:46 AM / 20 days ago

Special Report: How a soccer agent and Chinese tycoon planned to trade in players

LONDON (Reuters) - In early 2016, Europe’s most powerful soccer agent, Jorge Mendes, stood dressed in his trademark dark suit and white shirt alongside Chinese billionaire Guo Guangchang at a luxury hotel in Shanghai. They were there to launch a new partnership in front of an audience of soccer glitterati, including former Chelsea and Real Madrid manager Jose Mourinho and bosses from major European clubs.

FILE PHOTO: Agent Jorge Mendes poses for photographers on the red carpet at the world premiere of "Ronaldo" at Leicester Square in London, Britain November 9, 2015. REUTERS/Stefan Wermuth/File Photo

Mendes and Guo, co-founder of a Chinese investment group called Fosun, announced they would create an agency to expand soccer in China and help players build careers. But that was only part of the plan.

What Mendes and Guo didn’t publicly reveal then, or since, was that they also envisaged creating a network of clubs and soccer academies in Europe and buying and selling players, emails and internal presentations related to the deal show. Such a network would enable the partners to sidestep a ban on investors buying stakes in players and trading them. With the help of top agents like Mendes, such trading could capture profits that might otherwise go to assist smaller clubs.

Trading and representing players, Fosun believed, according to an internal presentation from 2015, was the only sustainably profitable part of the soccer industry.

The Fosun group, which encompasses a range of entities controlled by Guo and his two co-founders, is worth more than $10 billion and has assets ranging from the Club Med holiday group to prime New York property. In 2016 it set out bold ambitions in soccer. In August that year, an analyst working for Fosun emailed Mendes’ business partner, Luis Correia, saying: “Our goal is to build a complete system in global football world with you, with different levels of clubs and training facilities ... I believe together we can establish our strong presence in every major league.”

One aim was to create a network for identifying players who could later be sold on for profit, Fosun presentations and emails show. A 2016 email from a Fosun executive described investing and trading in players as “the most lucrative part of business in the football industry.”

Fosun, Guo, Mendes, and Correia did not respond to requests for comment.

The insight into the ambitions of Guo, Fosun and 52-year-old Mendes comes from “Football Leaks,” a cache of emails, contracts and other documents relating to several football organisations that were obtained by the German publication Der Spiegel and reviewed by Reuters in partnership with European Investigative Collaborations, a media consortium.

The documents reviewed by Reuters run to mid-2017. It’s unclear to what extent Fosun and Mendes have advanced their partnership since then.

Trading in talent is often more profitable than owning soccer clubs, say academics who study the sport. But it is also a business model that some fans, officials and club owners criticise and oppose. They say it diverts money to agents and financial investors that would otherwise go to clubs and help sustain the vibrant competition that fans pay to see.

Ivo Belet, a Belgian member of the European parliament who has taken a close interest in football governance, said the relationship between agents and clubs is a “big threat to football in Europe and it should be looked into more carefully.”

The integrity of competition in the sport is at risk when there are multiple connections between players, agents and owners of teams, he said, and the EU needs to “keep putting pressure” on football authorities to increase transparency in the game.

“Those relationships ... they are all big threats to the integrity of our football,” he said.

Simon Chadwick, professor of sports enterprise at Salford University in England, expressed concern about the financial effects of close relations between clubs, agents and investors. “If there is leakage (of money) from the sport, then you potentially have an impact upon the lower reaches of football, into grassroots football,” he said.

Soccer governing bodies say the transfer of players between clubs should be about strengthening competition and helping teams to win trophies, and not about generating profits for financial investors.

“Football is an entertainment business and should not be a financial business,” said Didier Quillot, chief executive of France’s governing body, Ligue de Football Professionnel. Speaking about the game in general, he added that it was important to avoid an “excess of player trading.”

ENORMOUS POTENTIAL

Mendes started out as a soccer player but shifted focus to business after he didn’t make the big time, running a video rental store and a nightclub in northwestern Portugal. At the nightclub, he met a goalkeeper called Nuno Espirito Santo and negotiated his transfer to a bigger team in 1996. For Mendes, a new career as a soccer agent beckoned.

He founded an agency called Gestifute, and Correia, who is his nephew, became a partner. In the early 2000s, Mendes began representing manager Jose Mourinho and striker Cristiano Ronaldo, who went on to be among the biggest stars of their generation. Mendes never looked back: At the 2017 Globe Soccer Awards he was voted Best Agent in the World for the sixth time.

Players are bought and sold by clubs. If someone other than a club has a share in the “economic rights” of a player, this is known as “third-party ownership.” Newspapers in Portugal and Britain have reported over the past two decades that Gestifute had stakes in around a dozen prominent players. Mendes has not publicly gone into any detail about the matter.

But the documents seen by Reuters show Mendes’ third-party ownership went much further than previously thought. His agency came to hold stakes in more than 50 top players by late 2015, according to a signed contract between Fosun and Gestifute.

By holding stakes in players, Mendes stood to increase his influence and to gain when those players were bought and sold by clubs. In July 2014, for example, Mendes’ company Gestifute bought a 40 percent stake in a young player called Diogo Jota from Pacos de Ferreira, a soccer team of modest means based near Porto in Portugal. The player, then 17, was beginning his professional career and Gestifute acquired its stake for just 35,000 euros (£31,645), according to the sale contract.

Jota became a rising star and in March 2016 Atletico Madrid, one of the top Spanish clubs, bought him for about 6.4 million euros. Gestifute’s stake entitled it to about 2.5 million euros of the proceeds, according to emails and an invoice. Another agent was entitled to another 20 percent of the transfer proceeds, the emails show, leaving Pacos de Ferreira with only 40 percent of the profit on the player.

Pacos de Ferreira said the Jota deal was a “closed matter,” and that it believed it got the best price possible in the conditions prevailing at the time. Jota did not respond to a request for comment sent to him via his current club; Atletico Madrid did not respond to a request for comment.

Among those who saw the advantages of Mendes and his connections was China’s Fosun. In October 2014, it approached him and suggested a partnership, with the idea that Fosun would provide capital and Mendes would select football projects in which the two could co-invest, according to emails.

Mendes’ nephew Correia appeared excited at the prospect. “The potential is enormous, in my opinion,” he wrote in an email to Mendes on Oct. 31, 2014.

An internal Fosun presentation circulated between executives in November 2014 outlined the company’s plans. A slide titled “build a comprehensive football business empire” showed an organisation chart split between a “Non-China” business and a “China entity”. The non-China business would include Gestifute, where the activity was described as “Share economic rights of football players.”

As the two sides discussed a tie-up, Fosun was effusive in its admiration for Mendes. A September 2015 internal presentation in Chinese prepared by a Fosun analyst outlined the strength of the agent’s business model. “Mendes has surpassed the business influence of ordinary football agents. He has actually indirectly controlled many clubs in major European leagues on the strength of dependence from clubs and players on his ability to make deals,” the presentation said. “This has made him able to place his coaches and players in these clubs, thus achieving full closed-loop control of the player’s career and strong long-term influence on the clubs by providing full service to the players.”

Another Fosun presentation a month later said that, with many clubs struggling to break even, operations like Mendes’ were the only ones “that can enjoy sustained profitability in the industry chain.”

Mendes’ holding company, Start SGPS, had a net income of 25.1 million euros in 2015, emails show. That was more than all but 10 European soccer clubs, according to data compiled by governing body UEFA.

Mendes did not respond to requests for comment on the Fosun assessment.

In September 2015, Fosun’s board agreed to buy 15 percent of Start SGPS, which owns Gestifute and other Mendes interests. Guo and his partners agreed to pay about 42 million euros for the stake, valuing the group at almost 280 million euros, and obtained the right to raise its holding to 37.5 percent over time.

“Bingo!!!!!!!!,” Correia wrote in an email to Mendes and Carlos Osorio de Castro, a Gestifute lawyer and holding company director, when he heard Fosun had agreed to proceed with the deal.

According to the contract selling the Gestifute stake to entities controlled by Fosun’s founders, Mendes’ agency had acquired stakes in 54 players by November 2015. They included Diogo Jota, star goalkeeper Ederson Moraes, and defensive midfielder “Fabinho” Tavares, who recently joined English club Liverpool FC.

Moraes did not respond to questions sent to him via his club Manchester City; the club said it would not provide any comment. Tavares did not respond to a request for comment sent via his club.

At the time of the Fosun-Gestifute deal, Mendes publicly talked about the partners’ ambitions in China, not Europe. “I am more than honoured to be a part of this project and to be able to help Chinese football become a new world power,” Mendes said in a news release at the time of the deal.

Mendes and Gestifute did not respond to requests for comment on the Fosun tie-up or ownership of players’ economic rights. De Castro declined to comment, saying that the content of Reuters questions was “blatantly based on information obtained through a criminal hacking attack on privileged data.”

THIRD-PARTY BAN

But there was a problem for the Mendes business model and Fosun’s grand vision. In 2012, Europe’s governing body for soccer, UEFA, had said third-party ownership potentially distorted competition and took money out of the sport; and in May 2015, FIFA, soccer’s global governing body, imposed a new rule intended to end the practice. It allowed existing contracts to run their course but barred clubs and players from entering new third-party ownership contracts.

There is no public register of third-party ownership, making it impossible to know how prevalent the practice was or is; and the influence of third-party owners can also be subtle. Some pre-2015 contracts stipulated that a club buy out a third-party owner if the club declined another club’s lucrative bid for a player, according to emails reviewed by Reuters. Such arrangements could effectively force a club to sell a player it wished to keep, say some experts.

Officials believed that only players and clubs should influence where and when a player moved between clubs. And players’ representative organisations, including FIFPro World Players’ Union, said third-party ownership by agents, or similar arrangements, created incentives for the agents to steer young players towards accepting transfers that were in the best interests of the agent, not the player.

Some club owners and football officials also felt that financial investors took profits out of the game to the detriment of smaller clubs, which often rely on windfalls from the sale of rising stars like Jota to fund their development of young hopefuls, often from pre-teen ages.

Mendes opposed FIFA’s ban, saying third-party ownership spread the cost of players and helped smaller clubs to afford better players. The ban was “killing the competition, killing it,” he told Reuters in an interview in January 2015.

Either way, the ban did little to hamper Fosun’s ambitions. FIFA had stopped third-party investors. But there was nothing to prevent Fosun from buying a soccer club, which could freely own players’ economic rights without Fosun breaching the ban on third-party ownership.

Initially, Fosun considered buying Espanyol, a club in Spain, and clubs in Portugal and Italy. Emails show that Fosun wanted Mendes’ advice on these potential deals and proposed that Mendes either manage or invest in Espanyol. None of the prospects went ahead; Reuters could not determine why. Espanyol did not respond to a request for comment.

Still, Fosun remained keen to work with Mendes. “If Fosun does any deal with a football club it’s only for the future benefit of our alliance,” wrote Jeff Shi, head of Fosun’s media division, in an email to Correia in August 2015.

BUYING WOLVES

Fosun toyed with buying another Portuguese club and an English club, emails show. Again, no deals materialized. Then in May 2016, Correia emailed Shi to inform him about an English club called Wolverhampton Wanderers, which was on the market for about 40 million pounds. “Wolves,” as the club is popularly known, was struggling financially and on the soccer field. “It’s worth taking a look at,” Correia said, attaching some details about the club, which is based in the Midlands city of Wolverhampton.

Within a month, Fosun had decided to buy Wolves, emails show, and Mendes remained important to its plans.

Ahead of a meeting between Mendes and Fosun co-founder and President Wang Qunbin, Shi wrote to Correia: “Mr. Wang will be very keen to learn from Jorge about how to run a club very well and promote it to Premier League. And you always know the reason for the investment of Wolves is mainly because of our bet and trust on Jorge.”

In return for his guidance, Fosun promised Mendes significant reward. “Jorge can take Wolves as the most reliable partner and agency revenue source for long long time,” Shi wrote.

Fosun, Wang and the club did not respond to requests for comment on the strategy for Wolves.

Between Fosun’s decision to buy the club in 2016 and February 2018, Wolves spent more than 65 million pounds buying players, its published accounts show. In some cases, the players purchased were represented by Mendes or he helped arrange the deals, the club has said in statements. Full details of the transfers are not publicly available, so Reuters could not determine the extent of Mendes’ involvement.

The club also appointed as manager Nuno Espirito Santo, the former goalkeeper who had helped to launch Mendes’ career as an agent.

The signings helped propel Wolves into the Premier League, the top rung of English soccer, last August. They also attracted criticism from several rivals. In March 2018, the owner of Leeds United Football Club, Andrea Radrizzani, said on Twitter and in a media interview that Wolves had an unfair advantage. He said Mendes’ relations with top players and clubs allowed Wolves to buy talent not available to clubs that did not have strong ties with him. Officials at Aston Villa Football Club also questioned how Wolves could attract such high-quality signings.

Leeds said Radrizzani did not wish to comment for this article, and Aston Villa did not respond to a request for comment. Mendes and Espirito Santo did not respond to requests to comment.

Executives at Wolves have previously acknowledged that Mendes was an adviser but downplayed the links. “Jorge is an agent just like any other,” Wolves’ sporting director Kevin Thelwell told reporters in June 2018. Wolves did not respond to Reuters requests for comment about the role of Mendes at the club.

In an interview with the Wolverhampton Express and Star newspaper in March 2018, Fosun executive Shi, who had been appointed executive chairman of Wolves in 2017, said rivals’ criticism of Wolves’ relationship with Mendes was “laughable.” He said the English Football League and Football Association knew all about Wolves’ deals and transfers.

In April, the English Football League said it had examined Mendes’ relationship with the club and found it was not a breach of its rules forbidding an agent from having an executive role at a club or controlling its strategy. It said in a statement at the time that Mendes “holds no role at the club.”

In response to questions from Reuters, the EFL referred to its statement from April 2018. The FA said it had strict regulations on intermediaries and had obtained information from Wolves regarding its compliance with those rules.

PROFIT SHARE

After acquiring Wolves, Fosun and Mendes pressed ahead with their broader plans to create a network from soccer training academies to clubs, according to emails.

On Aug. 16, 2016, Yang Zhang, then a business analyst for Fosun, sent Correia an email with the subject line “Portugal Football Opportunities.” Fosun wished to press for a deal to buy a club called Rio Ave and pursue a partnership with a training academy. Zhang also wrote that Fosun wanted to buy a “TPO club” – apparently a reference to third-party ownership. Such a combination of assets would give Fosun and Mendes platforms for training, holding and trading players of different levels and ages - without being in breach of rules on third-party ownership because clubs are freely allowed to invest in players.

“Portugal is the perfect place to start with less regulation, larger talent pool, and your help,” Zhang wrote.

Slideshow (7 Images)

However, Shi said in an April 2017 email to Gestifute’s Correia that Chinese government restrictions on companies making overseas acquisitions, which were tightened in late 2016 and 2017, were complicating Fosun’s plans to buy Rio Ave. It isn’t clear where those plans stand. Rio Ave didn’t respond to a request seeking comment.

Meanwhile, Wolves, just two years after being bought by Fosun, ascended to the top tier of English soccer. The team relies heavily on players from Mendes’ home country. When it took to the field for the first time in the Premier League in August, five of the 11-man team were Portuguese.

Wolves did not respond when asked how many of those players were clients of Mendes.

Reporting by Tom Bergin and Cassell Bryan-Low; Editing By Richard Woods and Janet McBride

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