In 2009, FIFA announced that it would be reforming its licensing system for players’ agents, as over 70% of international transfers were being conducted using unlicensed agents. Its proposal was to require clubs and players to record the use of any intermediary in a player transfer, and to regulate how such intermediaries are used. Robert Turner, an Associate with Bird & Bird, examines FIFA’s proposals and the extent to which they may successfully address FIFA’s stated goals.
In 2009, FIFA announced that it was going to undertake a wholesale review of the way in which agents in the football industry are regulated. Whilst FIFA raised a number of issues with the current FIFA Players’ Agents Regulations (which came into force on 1 January 2008), it highlighted two in particular that it wants to address.
First, FIFA estimates that only around 25 to 30% of international transfers are concluded through licensed agents. The FIFA Players’ Agents Regulations require each member association (‘MA’) to operate a licensing system for agents in the MA’s jurisdiction which provides a contractual link for MAs (or FIFA if the transaction is international) to sanction unscrupulous behaviour by agents. With 70% of international transfers involving unlicensed agents, the current licensing system does not provide the desired level of control over intermediaries in football transactions.
Secondly, FIFA disclosed that the average commission paid by clubs to agents for international transfers is around 28% of the value of the transaction. With all but a handful of Europe’s elite clubs suffering from the effects of a prolonged economic depression, FIFA understandably wants to curb excessive agents’ fees and bring their fees closer into line with the value of the services they provide.
The FIFA Congress approved a new regulatory approach in May of this year, and it is understood that a full draft of the proposed regulations has already been circulated to key stakeholders for comment, ahead of public disclosure in 2014 and implementation in early 2015. The clearest indication, to date, of FIFA’s proposed new approach was given by Marco Villiger (the Director of Legal Affairs at FIFA) who presented an overview of the key changes in a 2011 presentation to the EU Conference on Sports Agents (the ‘Draft Regulations’).
This article will examine the extent to which the proposals contained in the Draft Regulations may successfully deal with FIFA’s two primary reasons for reform.
Controlling the activities of intermediaries
The Draft Regulations indicate a radical change in approach by FIFA. First, the Draft Regulations cover the activities of ‘intermediaries’ rather than just agents. Any natural or legal person who either:
- represents players and/or clubs with a view to negotiating an employment contract; or
- represents clubs in negotiations with a view to concluding a transfer agreement;
will be deemed an intermediary, irrespective of whether the services provided by such intermediary take the form of the traditional agency role.
Secondly, FIFA intends for the players and clubs (rather than the intermediaries) to take responsibility for compliance with the new regulations. Article 1 of the Draft Regulations states that the ‘[p]rovisions are aimed at players and clubs that engage the services of an intermediary’. The current licensing system will be abolished. FIFA’s logic, presumably, is that with so many unlicensed agents operating in the football industry, attempts directly to control their activities are failing. Instead, clubs and players will be held accountable for the conduct of their intermediaries, with Article 9 of the Draft Regulations stating that sanctions for breach will be imposed on players and clubs.
The question, therefore, is the extent to which these proposed changes will allow FIFA and the MAs to control better the activities of intermediaries. On the one hand, there is an argument in favour of making clubs and players more accountable for their use of intermediaries. FIFA and the relevant MAs have direct control over clubs and players and so circumstances should not arise in which no governing body has jurisdiction. Provided the sporting sanctions are sufficiently serious, it is possible to envisage clubs and players undertaking greater due diligence before instructing an intermediary and taking more interest in the intermediary’s methods.
It is not clear, however, that the proposed changes are a panacea. First, there may be circumstances in which it is inappropriate to sanction the club or player, such as when an intermediary has acted against the best interests of his principal. Some intermediaries have been described as ‘gatekeepers’, willing to advise their player to join whichever club is willing to pay the highest fee to the intermediary. In these circumstances, the player is being taken advantage of by the intermediary and it would be inappropriate further to punish the player.
Local law will often provide remedies for the player. Under English law, for instance, an intermediary acting as gatekeeper may be in breach of the implied duties to act in the best interests of the player, not to have any conflicts of interest and not to make a secret profit. Unless also constituting a criminal act (such as under the Fraud Act 2006 or the Prevention of Corruption Act 1906), such breaches can be waived by the player. Even when the player is aware of the implied duties, his personal relationship with his intermediary may mean that the player is unwilling to hold the intermediary to account and, in some cases, may depend on the support of the intermediary. Preventing abuse of an intermediary’s position is important not just for the principal, but also for the integrity and financial health of the football industry and so stripping FIFA and the MAs of the ability to sanction intermediaries may create problems in circumstances in which it is inappropriate to sanction the principal.
Secondly, abolishing the licensing system may mean that FIFA cannot ensure that all intermediaries have a minimum level of understanding of the various regulations and contract law that govern the types of transactions on which they will be acting. Article 8 of the FIFA Players’ Agents Regulations requires the passing of an exam as part of the licence application. FIFA may seek to retain certain eligibility criteria by requiring clubs and players not to instruct intermediaries who have, for instance, a criminal record. Without an exam, however, FIFA may not be able to check that each intermediary has a working knowledge of FIFA’s regulations and local law.
In summary, whilst there are arguments in favour of holding players and clubs to account for their use of intermediaries, it is not clear why this has to be at the expense of, rather than supplemental to, the current licensing system.
FIFA has proposed capping the remuneration paid to an intermediary on a transaction-by-transaction basis. Article 7 of the Draft Regulations states that the total amount of remuneration must not exceed:
- when acting for a player in the negotiation of an employment contract, 3% of the player’s basic gross income;
- when acting for a club in the negotiation of an employment contract, US$2 million or 3% of the player’s basic gross income (whichever is lower); and
- when acting for a club in a transfer, US$2 million or 3% of the eventual transfer fee paid in connection with the relevant transfer (whichever is lower).
Whilst a cap is a common sense way to curb excessive fees, it may be subject to a challenge under European Union (EU) competition law. It is clear from a line of cases, starting with Meca-Medina1, that sporting rules should be subject to the scrutiny of EU competition law if such rules involve economic activity.
Following the Court of First Instance’s (now the General Court) judgment in Piau2, FIFA is both an ‘undertaking’ (as it undertakes economic activity) and an ‘association of undertakings’ (as it is an association of MAs, who in turn are both undertakings and are an association of the clubs who are undertakings). Applying Article 101 TFEU, it may be found that the proposed cap:
- affects trade between member states, as it is sufficient for there to be a direct or indirect, actual or potential, effect on the pattern of trade between member states;
- has an appreciable effect on trade, as it affects the whole of the relevant market; and
- has the effect (if not the object) of distorting competition as a form of price fixing.
It is not clear that Article 101(3) TFEU would apply. Similarly, under Article 102 TFEU, FIFA may be found to hold a (collectively) dominant position. FIFA, despite not being an economic operator that pays for the services of agents, was found in Piau to hold a dominant position in the market for agents ‘since FIFA is the emanation of the national associations and the clubs, the actual buyers of the services of players’ agents, and it therefore operates on this market through its members’3. Whilst in Piau, the Court of First Instance went on to find that the then FIFA Players’ Agents Regulations did not constitute abuse, the courts may look differently upon a quantitative restriction on earnings.
As set out in the Staff Working Document to the European Commission’s White Paper on Sport, if the test in Article 101(1) is satisfied, the question becomes whether the principles established in the Wouters4 judgment apply to justify the rule. To be justifiable, the proposed cap must have a legitimate objective, the anti-competitive effects must be inherent in the pursuit of that objective and the restriction must be proportionate in light of that objective. The ‘ensuring of financial stability of sport clubs/teams’ is recognised by the European Commission as a legitimate objective and the capping of intermediaries’ fees may be deemed inherent in the pursuit of that objective. It is conceivable, however, that the courts may not consider a cap to be proportionate. To be proportionate, a rule must be the least restrictive measure capable of achieving the stated aim. Setting a fixed cap on the amount that an intermediary can earn from a transaction, irrespective of the services provided by an intermediary, may not be deemed the least restrictive way to prevent excessive fees for intermediaries. FIFA has sought representations from key stakeholders in the football industry and it is likely that FIFA will have been advised that it is possible the cap may be void for infringing EU competition law. One therefore suspects that FIFA may back down on the capping of intermediaries’ fees.
The above analysis turns on whether a fixed cap would be deemed proportionate. An alternative, and perhaps less restrictive, solution is for FIFA to require the principal to pay the intermediary’s fee. In most high profile transfers or employment contract negotiations, the intermediary acting for the player will have his fee negotiated with, and paid for by, the club. The dichotomy between the beneficiary of the service (the player), and the party required to pay for the service (the club), means that the market for an intermediary’s services has not reached an efficient equilibrium. When a club pays the player’s intermediary, the intermediary’s fee more often represents the value of the player’s services to the club than the intermediary’s services to the player.
It is true that, for many transfers, a club will have a finite budget. Any payments made to a player’s intermediary should, therefore, reduce the amount available to pay to the player and, in theory, this should create a level of accountability between the intermediary and the player. In many cases, however, the player will have an expectation as to the salary he should be paid, based on what his peers earn and the advice of his intermediary. A player may not realise the impact that the intermediary’s fee may have on his salary and, in some cases, may not even be aware of the fee negotiated between the intermediary and the club. Requiring the player to pay his intermediary’s fee will mean that the player will be fully aware of what that intermediary is costing the player and may therefore bring that intermediary’s fee closer into line with the value of the services provided by that intermediary.
In order for a prohibition on a club paying a player’s intermediary’s fee to be effective, FIFA would also need to prohibit dual representation - the practice by which an intermediary switches from acting for a player to acting for a buying club on a transfer of that player. Unless dual representation is also prohibited, it will be difficult evidentially to prove for whom the intermediary was acting.
If FIFA does decide that capping fees is not possible, prohibiting clubs from paying players’ intermediaries and dual representation could be an attractive alternative to increase transparency and make intermediaries more accountable to players for their fees. To be effective, however, these prohibitions would need to be absolute.
FIFA recognises that the current regulatory regime governing agents is failing. The Draft Regulations, however, do not provide a full solution and FIFA may need to make further changes if it wants to achieve its stated goals.
This article first appeared in World Sports Law Report Volume 11 Issue 12, December 2013. The original is available by clicking here