Introduction
Jadon Sancho, a English football player currently playing for Chelsea, has recently experienced the limelight owing to the uncertainty surrounding his future in English football. Beginning his professional career with Manchester City, he moved to Borussia Dortmund in 2017, where he showcased exceptional talent and notable consistency. In 2021, he joined Manchester United in what was regarded as a high profile transfer for the young player. However, at the latter, his form dipped, marked by inconsistent performance and limited playing time.
Therefore, in the summer of 2024, he was loaned out to Chelsea for the 2024-25 Season. The loan agreement included an obligation for Chelsea to make the transfer permanent for £20 million, with an additional £5 million in performance-related add-ons, contingent upon Chelsea finishing within the top 14 positions in the Premier League. However, reports suggest that Chelsea inserted an escape clause that would allow them to withdraw from the obligation to permanently transfer Sancho for a £5 million penalty payment to Manchester United. This arrangement raises important questions about the legal and financial implications of loan agreements themselves as well as the consequences of such clauses in football.
Transfers and Loan Agreements
Loan agreements allow clubs to temporarily transfer players, providing flexibility in squad management and financial planning. Transfers are a fundamental aspect of the sport’s economic and competitive structure, allowing clubs to acquire, sell, or temporarily move players based on strategic needs and financial considerations. While permanent transfers involve an immediate purchase, loan agreements provide a temporary alternative. As a result, these are particularly useful for clubs looking to develop young talent, offload surplus players, or manage wage expenses. On the other hand, loanee clubs can acquire players without committing to a full transfer fee upfront. Depending on the structure of the agreement, loans may include clauses such as an option to buy or an obligation to buy, adding to the complexity of transfers and allowing clubs to strategically manage risks and financial liabilities while navigating stringent regulations.
Option to Buy v. Obligation to Buy
Clauses such as an option to buy or an obligation to buy a player on loan to the club are quite common and have been thrust to the forefront due to Sancho’s loan agreement between Chelsea and Manchester United. One notable example is João Félix’s loan to Chelsea from Atlético Madrid during the 2022-23 season, which included no obligation to buy, giving Chelsea the flexibility to assess his performance without committing to a permanent transfer.
An option to buy clause in a loan agreement grants the loanee club the option, but not the obligation, to purchase the player at the end of the loan period. This is essentially in the nature of a right which the loanee club can exercise at its discretion. Such clauses offer the loanee club an opportunity to assess the player’s performance and fit within the team before committing to a full transfer. These are often unilateral, in that, they can only be exercised by the loanee club, while the loaning club must honour the pre-agreed price and terms, depending upon the terms.
An obligation to buy clause, in contrast, mandates the loanee club to permanently transfer the player at the end of the loan period, generally in the event certain agreed upon conditions are fulfilled. Thus, unlike an option to buy, which is discretionary, an obligation to buy creates a binding commitment upon fulfilment of pre-agreed criteria. This arrangement ensures the loaning club of a future transfer fee and allows the loanee club to defer the financial commitment for better planning.
For instance, in Leeds United FC v. RB Leipzig (CAS CAS 2021/A/8229), the dispute was following a loan agreement for the player Jean-Kévin Augustin, which included both a purchase option and a purchase obligation contingent upon Leeds United’s promotion to the English Premier League. The agreement stipulated that if Leeds were promoted, the purchase obligation would be automatically triggered. Leeds achieved promotion but contested the enforcement of the purchase obligation, leading to legal proceedings. The CAS upheld the binding nature of the purchase obligation, emphasizing that such clauses are enforceable when clearly defined and mutually agreed upon. A comparable case was the obligation-to-buy clause in Giovanni Lo Celso’s loan from Real Betis to Tottenham Hotspur in 2019, which was contingent on Spurs qualifying for the UEFA Champions League and was eventually triggered.
Other Preferential Rights
In addition to options and obligations to buy, football loan agreements often include other preferential rights that shape the future relationship between the involved clubs and the player. One common provision is the right of first refusal, which grants the loanee club the opportunity to match any future offer made for the player before a transfer to a third party can occur. Additionally, performance-based incentives or conditional payments may be included, whereby additional sums are payable depending on appearances, goals, or team achievements during the loan period. These clauses reflect the commercial and sporting interests of the parties and demonstrate how loan agreements can be tailored to include a variety of strategic legal mechanisms beyond straightforward transfer arrangements. An example of this was FC Barcelona’s loan of Philippe Coutinho to Bayern Munich in 2019, where Bayern had a purchase option but chose not to activate it. However, Barcelona retained control over his next move and benefited from performance-related bonuses.
The Penalty Clause in Sancho’s Loan Agreement
Jadon Sancho’s loan agreement with Chelsea is structured as an obligation to buy, purporting a binding commitment for Chelsea to complete the transfer permanently. However, the reported £5 million penalty clause, which allows Chelsea to withdraw from the obligation, effectively transforms the agreement into something closer to an option to buy rather than a true obligation. In practical terms, Chelsea can either proceed with the transfer or pay the penalty to opt out, giving them a financially structured choice rather than an absolute duty. Thus, Chelsea retains the flexibility to assess Sancho’s performance and financial viability before committing to a permanent transfer. This raises legal questions about whether the clause constitutes a genuine penalty or a disguised option, a means of artificially structuring the deal to maintain financial flexibility while avoiding full commitment to the transfer.
Implications for the Parties
This peculiar structure of the instant loan agreement has distinct legal and financial implications for all the three parties involved.
For Chelsea, this agreement offers a degree of financial flexibility and risk management. While an outright obligation to buy would typically force them to complete the transfer under specific conditions, the penalty clause creates an escape route. Chelsea can use the season to evaluate Sancho’s performance in the team and analyse the cost-benefit ratio before going through with the transfer.
For Manchester United, the deal represents a conditional sale rather than a guaranteed transfer, which impacts their financial certainty. If the obligation were absolute, Manchester United could have recorded the guaranteed transfer fee in their financial accounts as secured future income. However, with Chelsea retaining the right to withdraw by paying a penalty, they now face an uncertain financial outcome. If Chelsea cancels the transfer, the former will need to reassess Sancho’s market value, possibly finding themselves forced to renegotiate with another club under less favourable terms.
For Sancho, this agreement leaves his long-term future uncertain. Unlike a straightforward loan with an obligation to buy, where he would have clarity about his career path, the penalty clause introduces an element of instability. If Chelsea chooses to trigger the penalty clause, Sancho could find himself in limbo, returning to Manchester United, where he has already had a public falling-out with the manager.
Conclusion
The Sancho loan agreement highlights the evolving complexity of modern football transfers, where financial flexibility, legal structuring, and regulatory compliance all play a crucial role. This loan agreement is not a straightforward obligation to buy but a legally complex arrangement that benefits Chelsea’s flexibility at the potential expense of Manchester United and Jadon Sancho. While it allows Chelsea to assess their commitment before making a permanent transfer, it leaves Manchester United with financial uncertainty and Sancho with career instability. As football transfers become increasingly intricate, the Sancho deal serves as a reminder that legal and financial manoeuvring can shape not just a player’s future, but also the strategic and economic landscape of the sport.