Wednesday, December 20, 2006

Bungs, tapping up and dual representation: football agents under fire

Football agents have had a chequered history and, once again, they are in the news for all the wrong reasons. In September, a BBC Panorama Programme revealed that illegal payments – known in football parlance as ‘bungs’, a name reputed to have been coined by Alan Sugar at the time he owned Tottenham Hotspur Football Club and was involved in a High Court case in 1992 against Terry Venables concerning the £2.1 million transfer of Teddy Sheringham from Nottingham Forest Football Club to Tottenham, in which it was alleged that illegal payments amounting to £50,000 had been made to Venables and the Forest manager, Brian Clough – are regularly being paid by and to agents and managers to facilitate the transfer of players from one club to another. These allegations led to an investigation by the English Football Association by a team of inquiry consisting of the then chief executive of the English Premier League, Rick Parry, Robert Reid, QC, and former player, Steve Coppell. Three years and £1 million in costs later, Clough received a national and international ban for one year, but no other action was taken.

Bungs
It has long been suspected that football managers and other team officials have been in the habit of accepting payments from agents in order to facilitate and conclude player transfers. And the BBC Panorama programme alleged that the use of bungs is still common in English football.
As a result of these suspicions, in March 2006, the FA Premier League announced that it had commissioned an investigation under the chairmanship of Lord Stevens, the former Metropolitan Police Commissioner, into the bung allegations surrounding Premier League transfers.
Lord Stevens examined all 320 Premier League transfers that had taken place since 1 January 2004; and, in his interim report published in October 2006, he identified 39 transfers as requiring ‘further investigation’. One prominent football manager suggested that this figure should be multiplied four or five times if Football League transfers were also to be investigated by Stevens.

Tapping Up
Another breach of FIFA and FA rules highlighted in the BBC programme was the common practice of ‘tapping up’, often facilitated by agents, whereby players are offered for sale to other clubs without the knowledge and consent of the club with whom the player is registered.
Article 14(c) of the FIFA Players’ Agents Regulations provides that a licensed player’s agent must never ‘approach a player who is under contract with a club with the aim of persuading him to terminate his contract prematurely or to flout the rights and duties stipulated in the contract’. Similar rules are included in national association laws and are designed to maintain contract stability between the club and player.
In June 2005, Chelsea, its manager Jose Mourinho and the then Arsenal player Ashley Cole, were found guilty of tapping up charges by the FA Premier League Independent Disciplinary Commission; and, later, in September 2006, Cole’s agent had his agent’s licence revoked for eighteen months (nine months suspended) for his role in the affair. Chelsea received a fine and a suspended three-point deduction, and Cole eventually signed for Chelsea.
Subsequently, in September 2006, the BBC documentary alleged that Chelsea, with the help of an agent, had once again attempted to ‘tap up’ a player contracted to another club. If proved, Chelsea could still face the points’ deduction suspended following the Cole affair. Questions remain as to whether the prohibition on tapping up, currently constituted, is disproportionately restrictive on agents’ activities and out of step with the current practice of players seeking alternative employment and clubs seeking new employees. In the Cole case, the English High Court held that ‘tapping up’ did not constitute an unreasonable restraint of trade.

Dual Representation
The third issue attracting media attention in the UK in the summer of 2006, but to a lesser extent than those issues exposed in the BBC Panorama programme, is the issue of dual representation. This arises where an agent represents both a club and a player in the same deal. This is prohibited by Article 14(d) of the FIFA Players’ Agents Regulations, which provide that a licensed player’s agent is required ‘to represent only one party when negotiating a transfer’.
The rationale against dual representation is that it avoids conflicts of interest. Nevertheless, agents prefer to claim their commissions from clubs in order that their clients are not disadvantaged. However, in the UK, from a tax point of view, this is considered as a benefit to the player and as such attracts 40% income tax, payable by the player. To avoid this, an agent needs to act creatively. He could do so by suspending his representation of the player at the point at which he found a club willing to sign the player. He would then move sides in order to represent the club. Often, another agent from the same agency firm would step in and represent the player. This does not breach the FIFA Regulations and as the agent would be acting for the club; his commission would not be taxed as a benefit to the player. However, the 2006 English FA Regulations extend the prohibition on acting for more than one party to a transaction to cover agencies as well as individual agents. The practice described above is therefore incompatible with these Regulations.
In the case of Newcastle United PLC (Appellant) and the Commissioners for Her Majesty’s Revenue and Customs (Decision 19718), the practice of dual representation was made public. In this case, it was revealed that Newcastle United FC often approached a player’s agent and asked him to persuade his player to sign a contract on terms favourable to the club. The club would then pay the agent on the basis of how close to the club’s terms he managed to get in securing the player’s signature. The player, who is also represented by the agent, is ignorant of the agent’s dual representation and, therefore, unaware that the agent has breached his contract with the player as he no longer works ‘exclusively’ for the player. Thus, the agent (in such circumstances) is in breach of his fiduciary duty to the player to obtain for him the best possible contractual terms in the form of signing-on fees and remuneration.
After concluding new contracts with players, clubs are required to submit to the FA two forms stating the parties involved in the negotiation, and the agent is required to sign these forms. This is confirmed in the FIFA Players’ Agents Regulations (Article 14). In the above case, Newcastle United lodged papers with the English FA stating that the agents involved in the transfers worked exclusively for them, when in fact the agents were also representing the players. Furthermore, the tribunal found no evidence of the club using FIFA’s standard representation contract with the agent (required by the Regulations), a common breach of the rules found in other associations. In this case, the agent is in breach of Article 14(a) of the FIFA Players’ Agents Regulations, having failed to adhere to Code of Professional Conduct in Annex B to the Regulations, by behaving untruthfully. Furthermore, in some jurisdictions such as the UK and Spain, this failure to confirm contractual relations in writing would breach national law. For example, in Spain, Article 1280 of the Spanish Civil Code requires written formalities when the obligations to fulfil exceed €9.
Whilst the club may benefit from tax advantages by declaring to the tax authorities their relationship with the agents, they are making false statements in their paperwork submitted to the FA, and are in breach of regulations on dual representation. On that point, and in evidence given to the VAT and Duties Tribunal, an unnamed player’s agent (and solicitor) said that ‘whilst the Club, players and licensed [players’] agents are obliged to follow the FIFA rules and guidance, it is generally acknowledged that the rules do not always reflect industry practice’. Furthermore, Russell Cushing, Newcastle United's Chief Operating Officer, said during the same proceedings that ‘it is generally acknowledged throughout the industry that the rules cannot accurately reflect the global business we are now operating in’. As the tribunal pointed out, industry practice cannot prevail over the Regulations, and if practice differs from them, it contravenes them.
The FA will investigate these breaches once any appeals process has been exhausted. The implications of the Newcastle case are potentially far reaching. Not only has the case revealed that industry norms are not always in accordance with industry rules, raising questions about the vigour with which rules are enforced, it has also confirmed (subject to appeal) that in the circumstances described above, clubs are not allowed to claim back the tax on fees paid to agents involved in transfers. Clubs may now face investigation by Her Majesty’s Revenue and Customs and backdated tax may be demanded. Some clubs may take the view that paying agents’ fees is not in their interests and thus wish to see the burden of paying agents’ fees passed on to the players.

Conclusions
The Stevens’ final report on ‘bungs’ is noted with interest; and even more so the action that the English FA will take in response to it. However, in the opinion of many sports law commentators - the author of this article included - we should perhaps not hold our breath, particularly bearing in mind the outcome of the 1995 investigation referred to above! The FA – at least to date – has not generally proved to be tough or decisive on regulating the ‘beautiful game’ - even under its new supremo Brian Barwell! One of the nettles still to be grasped is the need for separation between the FA’s functions as a regulator and its extensive activities on the commercial side - often raising the spectre of potential - if not actual - conflicts of interests. A nettle, incidentally, grasped some years ago in Formula One by its governing body, the FIA, albeit on some prompting from the European Competition Directorate in Brussels.
Apart from action at the national level, there is also a need for decisive and effective action at the global level by FIFA. And, in particular, a wholesale review and reform of their Football Agents’ Regulations, in order to tackle the important issues covered in this article, thereby introducing more transparency and fairness into the activities of football agents - for the ‘good of the game’.
So, it is over to you, Mr. President Blatter, to clean up these murky areas without delay!

Ian Blackshaw is an International Sports Lawyer and Professor
cblackshawg@aol.com

Acknowledgement
This article is prompted not only because Football Agents are again in the news (when are they not, if only because of the sums they earn in connection with transfers of high profile players?), but also because of a forthcoming book on 'Players Agents Worldwide' to be published shortly by the International Sports Law Centre of the TMC Asser Instituut in The Hague, of which I am an Honorary Fellow. Indeed, some of the comments made in the article reflect certain remarks made in the Concluding Chapter of this Book by Dr Richard Parrish of Edgehill University, United Kingdom, whose erudition in this evolving field of Sports Law I am happy to acknowledge.

Tuesday, December 12, 2006

Caborn warns of “imbalance” in English football

Speaking at the launch of The State of the Game report by the Football Governance Research Centre, Birkbeck, University of London today, UK Minister for Sport, Richard Caborn warned that in England, there is a “growing imbalance” between the economic side of the game and its sporting nature.

“There is a need to put rules in place to ensure that the communities that those clubs grew out of are not left behind”, said Caborn.

Caborn highlighted the Tribunal de Commerce de Charleroi’s decision to refer Royal Charleroi Sporting Club’s case against FIFA to the European Court of Justice as one of the key cases in sport at the moment.

“There is currently a lack of clarity about how European law should apply to sport”, said Caborn. “Football has got to take the lead. The autonomy of sport is non-negotiable”.

It was a shame that Caborn was forced to head off before the presentation of Gordon Taylor, Chief Executive of the Professional Footballers’ Association, who disagreed. “If we are going to try and be autonomous, then we need to try and be inclusive”, he said.

Monday, December 11, 2006

Dave Boyle: Overseas Investment in Clubs

The issue of foreign ownership is one which is generating a lot of heat, but not as much light as the column inches the issue has received would suggest. For starters, the real issue is less the nationality of the owner (though there are legitimate concerns here) than the fact that they can be bought and sold in the first place. There are reasons why this isn’t happening in Germany, nor Spain, and it’s nothing to do with bombast about the Premiership being the best league in the world.

This isn’t a natural, inevitable consequence of the increasingly globalised sports world, but a specific function of the way in which English football has been (un)regulated, and its market-based approach to dealing with its financial problems.

If we are serious about responding to this issue, we have to deal with the fundamental economics. The game has in the past been blasé about the kind of people who have bought its clubs, and the effect they have on those clubs. That issue has started to receive far more attention thanks to the campaigning work of fans, who have lobbied for fit and proper persons tests. These need to go further if they are to deliver on their promise of deterring the unsuitable, but we need also to look beyond the effect an owner can have on their own club and look at the league as a whole.

For example, Roman Abramovich prevented Chelsea going bankrupt, but are the actions of that club making others more likely to go bankrupt, by starting an ‘arms race’ of players and salaries that only Chelsea have the resources to win?

The early response has been caution, with no club attempting to match them, but the recent wave of takeovers are all prompted by the fear that the virtues many within the game have worked hard to promote – good governance, prudential management and good cost control – will never enable a club to compete. As clubs are driven to achieve glory, the good work of recent years threatens to be undone. And, given the sums of money required to buy a club, pay-off debts and invest in stadia and players, the pool of people from the UK who can ride over the hill to the rescue of once-great clubs is very small, hence the search abroad.

But at least we know who Randy Lerner is, and we can have a giggle about his name. As worrying is the development of debt-based takeovers, such as that of the Glazers, who look at the new TV deals, home and abroad, secured by the Premiership and think that this time, there are pickings to be had. Kia Joorchabian, prospective owner of West Ham, said that he and his partners ‘saw an opportunity for gain’. His refreshingly honest statement of intent demonstrates that following the Makhtoums might be hedge funds, truly faceless and dedicated not to adding-value to the cultural capital held by England’s great clubs, but to generating a nice return.

That’s all based on the idea that fans will, as they have done so before, put up with it, keep on going, keep on paying for tickets, for merchandise, for pay TV subscriptions. I can’t speak of the elasticity of demand in the other markets around the world, but all my experience here in the UK suggests that a business plan built on the idea that football fans remain a captive market and easy to exploit is a lot shakier than it would have been 10 years ago. There’s a growing disquiet in the air, and the gamble is whether this lingering discontent represents a potential sea-change, or a classic example of British grumbling, about which nothing will ever transpire. In short, the fans might not like it, but they’ll keep turning up. I wouldn’t be so sure. Supporters Direct

Friday, December 08, 2006

FIFA to appeal MasterCard ruling

FIFA is dismayed by the decision of the US Federal Court in New York which upheld MasterCard's complaint regarding the granting of the financial services category sponsorship package. FIFA will appeal this decision and fully expects to prevail.

FIFA remains convinced that at all times it acted in good faith and it will therefore continue to vigorously pursue its case. Furthermore, FIFA notes that the Zurich arbitration tribunal is competent to hear this dispute, and FIFA awaits the outcome of this proceeding.

Thursday, December 07, 2006

Autonomy of sport, Jack Warner and the 2014 World Cup

FIFA made a number of significant decisions at its year-end Executive Committee meeting, which took place in Zurich, 5-6 December.

Autonomy of sport
In a press release entitled ‘Clear declaration to defend the autonomy of sport’, FIFA ‘reaffirmed the resolution passed by the International Olympic Committee, the national Olympic committees and the international sports federations on 21-22 September 2006. The Executive Committee also directed President Blatter and vice-president Lennart Johansson, who is also the president of the Union of European Football Associations (UEFA), to continue to work together on the challenges that are currently facing the game, particularly in Europe’.
As reported by World Sports Law Report in October, the IOC and sporting federations wrote to European Commissioner, Ján Figel, who is consulting on a white paper on sports governance due to be published next summer, to state that sport should be free to govern its own affairs.

Jack Warner
FIFA also answered allegations that FIFA Vice President Jack Warner and the Simpaul Travel Company had sold tickets at many times above face value. ‘The FIFA Executive Committee followed the recommendation of the FIFA Disciplinary Committee chaired by Marcel Mathier (Switzerland) and closed the file’, read the press release. ‘The Executive Committee expresses disapproval of vice-president Jack A. Warner’s conduct and reminds him to exercise the requisite level of care in ticketing matters in the future and to strictly abide by all directives. Jack A. Warner should, in particular, ensure that his son, Daryan Warner, does not abuse the position held by his father.’

2014 World Cup
The FIFA Executive Committee also opened the official bidding for the 2014 World Cup, which will be held in South America.
Andy Brown

Wednesday, December 06, 2006

Ian Lynam: FIFA's 6+5 Proposal

The Memorandum of Understanding entered into between FIFA and FIFPro on 2 November 2006 stated that FIFA and FIFPro had agreed on "introducing, over several seasons, the 6+5 system regarding eligibility for national teams." Sepp Blatter mentioned the "6+5" proposal in his address to Soccerex on 26 November 2006 and again referred to it in an interview published on 4 December 2006 in which he said "the '6+5' is coming, for sure".

FIFA have been slow to provide details as to how they propose to implement this rule but it seems that each club XI would be required to include six players eligible to play for the national side of the country in which the club is located. Eligibility to play international football under current FIFA rules is determined purely on the basis of the citizenship/nationality that a player holds.

FIFA's proposal, therefore, would clearly represent a directly discriminatory restriction on the free movement of professional footballers in breach of Article 39 of the EC Treaty. It is a similar type of restriction to the pre-Bosman "3+2" rule and the "Italians only" rule that existed in Italy in the 1970s. The ECJ’s decision in Bosman made it very clear that restrictions of this type are in breach of European law:

"…Article [39] of the Treaty precludes the application of rules laid down by sporting associations under which, in matches in competitions which they organize, football clubs may field only a limited number of professional players who are nationals of other Member States."

It seems extremely unlikely, therefore, that the "6+5" proposal would survive a legal challenge.

 


Mel Stein: FA Football Agents' Regulations - Draft

I don't think the Football Association like me. 
Some 18 months ago when they first decided, unilaterally, to introduce new Regulations for agents, they must have hoped they would have a smooth ride. They claim to have had a full consultation process but when we got around to forming the Association of Football Agents, none of the initial Board members who represented the six largest agencies in the United Kingdom had ever been consulted! Notwithstanding that, on the basis of shooting first and asking questions afterwards, the FA managed to introduce an unworkable piece of quasi legislation on a par with the government's efforts to stop people using mobile phones whilst driving.  
 
Draft 1 (which astonishingly became "law" on 1 January 2006, was so unworkable that even the FA themselves merely paid lip service to it. Drafts 2, 3 and 4, which followed at fairly regular intervals, proved no final works of art (or indeed draftsmanship). What we now have is a set of Regulations which are due to come into force in May 2007. The reason they have not introduced these immediately is to allow agents to "familiarise" themselves with the same. However, in this case, familiarity can only breed contempt as having read them, re-read and re-read them again, my mouth drops ever open with disbelief at the impracticalities of the Regulations. It is astonishing that they have been drafted by (or at least approved by) those who seek to regulate the game of Football in the United Kingdom. When the FA Council gave them a rubber stamp on 21 November, one assumes they must have been following the party line as it is impossible to believe that anybody with any real experience of football could have read them and approved them unless they were told to do so.
 
What these regulations will do (if allowed to stand and remain unchallenged, which is unlikely) is to push football back into the dark ages, where all sorts of schemes and fictions are developed simply for the purposes of avoiding the regulations and driving what had become a transparent industry back underground.