Friday, October 31, 2014

Consolidation a key theme at Day Two of Player Contracts 2014

Day Two of Player Contracts 2014 highlighted how through regulation, football is consolidating its financial position, but this process is causing a new set of issues. Through financial fair play (FFP) regulations, the deregulation of agents and bans on third party ownership, football appears to be managing growth in player wages better than ever before. However, these measures are having more of an impact on clubs outside of the established European elite, and risk affecting their competitiveness.  

In 2012, revenue growth in European football outpaced wage growth for the first time since UEFA started collecting data in 2006, highlighted Daniel Geey of Field Fisher Waterhouse, in the opening talk of the day. However, Geey said that as many as one third of the Football League Championship clubs may be in breach of the Football League's FFP regulations. He gave the example of Queens Park Rangers, which faces a potential fine of between £30 million and £40 million for the season it spent in the Football League Championship, before being re-promoted.

Geey said that as a result of this, the Football League is to hold a meeting next week to bring its regulations "more into line with" the FA Premier League's FFP regulations, which have much more of a wide remit for losses. "The Football League will be the new FFP flashpoint come December / January, when a number of clubs could be sanctioned", he said.

Ian Lynam of Charles Russell highlighted how the Premier League already operates a "soft salary cap" through its short term cost control measures, which limit how much more a club with a large wage bill can spend on wages in the following seasons. In a session on performance-related contracts he said that currently, the amounts specified in such contracts are so small that players disregard them, but there has been a huge increase in their use during the last five to ten years.

FC Barcelona and Manchester City were highlighted as two clubs that are innovating in offering a new contract structure to players, which consists of two-thirds fixed wages, one third variable pay. Lynam said that as the average tenure of a Premier League player is now less than three seasons, players are naturally risk-averse. However, Lynam said that agents had indicated that players would go for performance-related pay as long as it balances the interest of the club with that of the player.

It was highlighted that difficulties may arise in this area - for example if a striker is paid a goal bonus, does that make him less likely to pass? In answer to this, it was highlighted that many clubs offer some players positive motivation, whilst offering others negative motivation - for example, some players will be offered a goal or win bonus, whilst others will be offered incentives for not losing. It was pointed out that in the Premier League, relegation clauses are hugely important for all clubs outside of the top eight, as clubs don't want to be saddled with a Premier League wage bill in the Championship.

The globalisation of football has also affected player image rights contracts. Fladgate LLP highlighted that in recent years, agencies will often agree both onshore and offshore deals regarding the same area of image rights for a player. 'Tweet quotas' are often included in image right contracts, such as a reward for a certain number of new followers. In an interesting 'show of hands', nobody considered Nike to be an official sponsor of the FIFA 2014 World Cup, despite their huge marketing spend around the tournament, whilst many correctly agreed that Adidas was the official sponsor.

In an detailed session on training compensation, Mark Hovell of Mills & Reeve explained that clubs have two years in which to put forward a claim for compensation under Article 25.5 of FIFA's Regulations on the Status & Transfer of Players (RSTP). He pointed out that this can create problems when a case is referred to FIFA if clubs have already been in contact, but one has refused to pay, as FIFA can rule that the two-year time limit has elapsed. This happened in CAS 2012/A/2919, FC Seoul v. Newcastle Jets, but FC Seoul was successful on appeal to the Court of Arbitration for Sport (CAS).

Marie-Anne Lindhardt, of Maqs Law Firm, pointed out how Article 49 of UEFA's FFP regulations can ensure that clubs are paid training compensation, through the requirement that no overdue payables are due to other clubs. She said that clubs often repeatedly request payment only to receive nothing, then as soon as the payee qualifies for Europe, payment magically arrives!

Andrew Rogers, Salary Cap and Regulations Manager of Premiership Rugby, gave a fascinating insight into how salary caps can work and be effectively policed by sport. "The key is that it is their regulation", he said. "The 12 club board members make the decisions about the system, and we manage it".

Perhaps the hottest topic of the day was FIFA's proposed ban on third party ownership (TPO) of players in football. Wouter Lambrecht, Legal Manager with the European Club Association (ECA), explained how the FIFA Working Group on TPO had considered three approaches:

• Full transparency, involving uploading all documents through FIFA's Transfer Matching System;
• Full transparency, but involving restrictive regulations;
• An outright ban.

He said that the Working Group had chosen the third option at a 2 September meeting - a second meeting was held yesterday, the outcome of which you can read about here. He said that the ECA had been "taken by surprise" by the timeline, which aims to have final regulations in place for approval at the May 2015 FIFA Executive Committee meeting. The ECA agrees with the decision to ban TPO, but believes that it should be allowed when it is "pure financial investment".

Lambrecht also expressed surprise that none of the stakeholders had requested analysis of whether a ban on TPO is consistent with European Union law. Ángel Juárez, of Juárez Veciana Abogados, said it was "quite possible" that a complete ban could come into conflict with Article 63 of the Treaty on the Functioning of the European Union. The ECA's main concerns are that a ban would drive the practice underground; and that FIFA will face difficulty in policing the regulations and issuing sanctions.

Through Article 18bis RSTP, FIFA currently does ban any TPO that 'enables any other party to that contract of any third party to acquire the ability to influence in employment and transfer-related matters its independence, its policies or the performance of teams'. However, it was pointed out that FIFA hasn't sanctioned any clubs under this article since its introduction on 1 January 2008.

In a detailed presentation, Juárez said that the "overall economy weight" of TPO is estimated at $360m per year, or 9.7% of the transfer compensation paid in international transfers. He said that the percentage of transfer compensation accounted to third parties, when they are involved, ranges from 10% to 40%. 

Juárez, Benfica CF and FC Porto disputed the suggestion that TPO presented a risk to the integrity of football, pointing to the lack of any evidence. "The only clubs that will benefit under an outright ban on TPO will be the top clubs", said Juárez. "Smaller clubs will suffer". A suggestion was made that a sensible solution might be to create a panel or sub-committee, to which all TPO deals were submitted under agreed criteria. "The more you restrict movement and fees, the more the big clubs will profit", said a delegate, pointing out that clubs in European countries where TPO is permitted will become less competitive.

Ariel Reck, an independent Argentinean sports lawyer, pointed out that no FIFA rules currently exist prohibiting bridge transfers, where a club sells a player to another club by putting it through a 'middle' club. He explained in detail the reasons that clubs do this, and how it can create a problem when clubs use bridge transfers to inflate player fees, circumvent FIFA regulations or tax law.

Reck pointed out that as FIFA's regulations on intermediaries are set to limit the amount that agents can be paid, a TPO ban is possible and loans are on the increase due to FFP, bridge transfers will become more common. "There is therefore a need for a specific rule on this", he said.

Many thanks to all 200 delegates who made the journey to Player Contracts 2014 from 35 countries (and 43 clubs!), and to our excellent Chairmen and Advisory Board, which made Player Contracts 2014 possible. Also, many thanks to the Cecile Park Publishing team, especially Paul Moran and Carli Nelson, who worked tirelessly to make this event happen.

You can read a review of Day One of Player Contracts 2014 by clicking here. Presentations are available to delegates through a link in the delegate pack. For more information on World Sports Law Report events, click here. We hope to see you at Sport & Betting 2014 at the end of the month!

Andy Brown



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