Friday, May 02, 2014

Is football finally becoming a 21st century employer?

When rumours first surfaced that David Moyes was to be relieved of his duties by Manchester United, it seemed that his team’s lacklustre performance in the 2-0 defeat to his old club Everton FC was the straw that broke the camel’s back. However, it seems that there may have been a bit more to the timing than simply the events at Goodison Park. The result guaranteed that Manchester United would not be participating in the Champions League next season (for the first time in 19 years). It has since been widely reported that this failure meant that the manager’s six year contract could be terminated with immediate effect, with a pay-off of no more than 12 months’ remuneration, despite still having more than five years to run.

Moyes was reported to be earning £4.5 million a year under his contract with Manchester United, so even though he is only getting one year’s worth of compensation he is not doing too badly out of the deal. However, in the crazy world of football contracts and finances, such performance-related caps on severance remain relatively rare. There are plenty of examples, both past and present, of players being signed up on long and lucrative deals only for the expected levels of performance to fail to materialise. Clubs are then lumbered with paying out huge salaries season after season, with little chance of offloading the underperforming player unless they agree to pay the player off or loan them out and continue paying a hefty chunk of their inflated salary.

Managers are also awarded long contracts but, when they fail to perform, it is not an option to force them to train with the reserves or loan them out. A club wanting to part ways with its manager is therefore usually left with no option but to bite the bullet and pay out the remainder of his contract, or at least a substantial part of it. Even when such payments are paid out in instalments, there is little incentive for managers to mitigate their losses by rushing to find another job - as the FA discovered to its cost after terminating Sven Goran Eriksson’s contract as England manager. Chelsea are famously said to have paid out almost £50 million to the managers they have sacked over the last 10 years, many of whom have subsequently gone on to take well-paid jobs with other large clubs.

No other business would ever allow itself to be put in this position. In the real (i.e. not football) world, senior employees are rarely given fixed terms or notice periods of more than 12 months, which is in line with corporate governance guidelines that advise against it. We are constantly told that football is a special case and different from other businesses, not least because playing careers are short and managerial tenures are notoriously insecure. For so long as TV companies are willing to pay exorbitant broadcast fees, it is accepted that the best talent will demand their share. Add in the market-distorting antics of new entrants, rich with oil or commodity wealth, there is a case to say that some of football’s challenges may be unique. However, many of the same points can be made about individuals working in other areas of business, where these challenges are nevertheless managed through the use of properly considered and drafted employment contracts.

For example, specialist and highly paid employees in the financial services sector, such as traders and fund managers, are often critical to the fortunes of their employer and therefore generally enjoy a large slice of the profits they generate as a reward (up to 50% in some cases). They also typically have fairly short careers, often retiring in their late 30s/early 40s due to burn-out (and the fact that they have accumulated substantial wealth and never need work again). In short, they are pretty similar to professional footballers and managers in a number of material respects.

Such employees are sometimes engaged on fixed term contracts of more than 12 months. However, these invariably contain clauses allowing for early termination in the event of poor performance, sometimes coupled with a right to reduce remuneration if particular targets are not met. This ensures that both employer and employee are able to benefit when things go well but, crucially, also ensures that the employee bears his or her share of the pain when they go sour.

In addition to such performance-related incentives and disincentives, the contracts of such employees typically contain restrictions on their activities after their employment ends. Such examples being: restrictions preventing the employee from targeting or interfering with their ex-employer’s clients, suppliers or key staff for a period of time (usually 6 to 12 months) and/or a restriction on working for a competitor for a similar period. Even when such restrictions are not enforced (or are, perhaps, unenforceable), they can create a strong negotiating position from which the employer can secure a sensible severance outcome.

Engaging football players on contracts of this sort would be complicated, first by the registration system, but secondly by the fact that clubs usually treat their players’ registrations as intangible assets and account for them accordingly. However, no such concerns relate to managers and there is no reason why more managers should not be subject to ‘ejector seat’ clauses that limit their pay-outs in the event of unacceptable levels of performance. Perhaps, in his departure, David Moyes has contributed to the development of football in a way his team was unable to achieve on the pitch.


James Williams
Partner
Louise Millington-Roberts
Partner
Hill Dickinson, London
james.williams@hilldickinson.com
louise.millington-roberts@hilldickinson.com


This article originally appeared on the Hill Dickinson internet site. You can view the original by clicking here. A search on World Sports Law Report’s internet site for ‘manager contracts’ revealed seven articles. To sign up for a free trial to World Sports Law Report, click here.


Comments

Matthijs Lambregts said...

It is interesting to compare players with other professionals like for instance doctors employed by hospitals and musicians employed by orchestra's. The big difference between the sports industry and other industries is that sports can not function without a healthy competition. Without opponent there is no game. But is this a reason not apply regular labor law? Why should a football player and a violin player of a philharmonic orchestra be treated different when they unilateral terminate their contracts? It's a mystery to me. Yes transfer fee's will probably go down and become scarce but what is the problem with that? The current training compensation systems are prisons for players. And when we are busy let's also throw out the training compensation as funding tool for academies. It's unconceivable in 'the real world' that a young professional can't enter into an employment agreement because his training academies or current employer claims hundreds of thousands from his new employer. A funding tool that blocks the freedom to work is not acceptable. Alternative ways to fund academies and reward them for their excellence are easy to achieve without hostage of the player.

14/05/2014

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