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Spanish Buyout Clauses: What do they mean for Barcelona's summer transfers?

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With the summer transfer window coming up rumors are running rampant. That means buyout clauses will be discussed. How do they work? What impact could they have on Barça's transfers this summer?

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It seems like the rumors between Athletic Bilbao defender Aymeric Laporte and FC Barcelona have been around for years (because, well, they have been around for years). Despite the consistent flow of rumors linking the two entities, the only consistency among the rumors is the inconsistency in fees reported. That is not entirely uncommon, either. The inconsistencies center around buyout clauses, and how they work. It seems there's a lot of uncertainty amongst fans regarding the procedure of buyout clauses and the impact they have on transfers and their fees. Hopefully I can clarify some of that uncertainty.

For starters, let's go over what a buyout clause is. This sounds like a very simple concept, but it's a little more complex than it lets on. Most people associate "buyout clause" with "release clause" and use the terms interchangeably. That's not quite accurate, however. A release clause is merely the fee at which a club is forced to allow the player to leave. They're typically centered around a specific event, but the general concept is merely that the release clause is the maximum fee a team will be forced to pay for a player.

In Spain, however, buyout clauses are included - not release clauses. Buyout clauses get a little more tricky, as there are several scenarios in which they can activated. First of all, a buyout clause is "a notional amount, included in the player's contract, stating what that player is worth to the selling club." Buyout clauses are not applicable to clubs, though. The only entities, under Spanish law, that are allowed to activate the clause are players. This is where things get tricky - as there are a few scenarios that could take place, and each scenario has a few scenarios that deviate, as well.

Let's start with the easiest scenario. In the easiest scenario, the selling club accepts a bid from the buying club for roughly the same fee as the buyout clause - usually for a slightly lower price than the buyout fee itself. The clause, under this scenario, is never activated. It's merely a transfer between two clubs for a player.

From there, the scenarios get trickier. If the selling club decides that they want the full value of the buyout clause, they can demand the buying team activate the buyout clause.  In that case, the buying club includes the fee of the clause and a Value Added Tax (VAT) - typically around 18%. This means that instead of paying €50 million for the player, the buying team would pay €59 million (€50 million + (€50 million * 18%)). In this scenario, the selling club is still willing to sell their player - they just demand the clause be activated to receive the full amount in which they value their player.

Then there's the scenario in which the selling club does not want to sell. Even if the buying club were to offer €59 million for a player with a €50 million buyout, the selling club is not obligated to accept it. At this point the buying club is still a third party - completely irrelevant to the contract and clause, themselves. In this instance, the player is forced to terminate his contract by buying out his own contract. This becomes a problem, however, because most players don't have tens of millions of Euros lying around in their bank accounts. As such, the buying club typically provides the funds for the player to buy themselves out. In this scenario, the fee is no longer reliant upon the 18% VAT. Instead, it's subject to income taxes.

In Spain, the top tax bracket is currently at 52% for those making more than €300,000, with the potential to drop to 45% in 2016. In this scenario, it's not as simple as addition an subtraction like it is with a VAT. In this scenario, the player needs the amount required to activate the buyout clause after taxes are removed. This means that in an equation, the fee is no longer on the left side of the equation, but on the right side as the answer. The equation would be set up as such: X * (1-tax rate) = buyout fee, where "X" is the amount of money the player needs to receive before tax.

That can be complicated to follow, so let's put some numbers to the equation to try and sort it out. Let's stick with the example of a €50 million buyout clause. In this scenario, the equation would set up as: X * (1-0.52) = 50,000,000. When isolating the variable to solve the equation, it simplifies to: X = 50,000,000/0.48 - which equals an eye watering €104 million (and no, that's not a typo). This is the only scenario in which the selling team is obligated to allow their player to leave - and it certainly isn't cheap.

There's good news, though. While all of these rules are certainly applicable to Barcelona's transfers, they only really apply to the players they sell. Under Spanish laws, taxation isn't applicable in a transfer between two Spanish clubs. The only time the really complicated scenarios happen is between a Spanish club and a non-Spanish club. For transfers between two Spanish clubs, only the buyout fee applies.

For instance, if Barcelona decided that they liked Aymeric Laporte - the way the rumors say they do - they merely have to meet the €50 million fee to activate the buyout clause and agree to personal terms with the player. Assuming those two things happen, the player is free to go for the "low" price of €50 million (it's certainly low compared to having to pay tax as well as the fee).

While transfer rumors can get pretty complicated, they can be simplified with a few simple questions. When determining the fee of a player's buyout, the first step is determining the nationality of the two clubs involved. If they're both Spanish, it becomes pretty simple - just pay the fee. If not, it comes down to whether the club will or will not sell. If you can answer either of those questions, you've solved the issue of complex transfer rumors and fees.