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.

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.

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

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.


k webb said...

It's about time rules were implemented regarding agents and their fees. Practices should be standardised, and it should be recorded as to who they work for and where they invest their money. Managers invest in agencies. This should be made illegal, as its like working for the Stock Exchange (they invest their money in agencies then buy their players from them because they receive the profit). In the Stock Exchange this would be called insider trading. Another example would be working for the Pools, yet being prevented from betting, yet agents and managers can do as they like so long as they know each other. They also manufacture players by what they do. If a player does not employ one of them, then the word is they are not good enough and they are demoted to the lower leagues because the agents are not receiving the benefits. I noted today in a write up that there are approximately 250 agents yet only 80 are represented by the agents association who are always against representations to change matters for the better of clubs. A well known agent in UK says that there are 350 agents in this country, but only about 25 of them are earning money. Unless drastic measures are taken now, the game of football will suffer because you will never get the best as some will miss out because of corruption.


fornecedores clientes said...

Great Article!

Here in Brazil we see the same things...


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