Amid the ongoing overhaul of regulations affecting football agents, HMRC have provided further clarification on its position concerning the payment of football agent fees.

Football agents are remunerated depending on the services that they provide, and to whom, but by and large, there are three standard services that attract a fee (Service Fee):

1. Player Services – a payment made directly by the football player (Player) to the football agent (Agent) in consideration for services the Agent has provided to the Player;
2. Club Services – a payment made directly by the football club (Club) to the Agent in consideration for the services that the Agent has provided to the Club; and
3. Dual-Representation – a payment made by the Club for the services provided by the Agent to the Club and the Club pays the Agent on behalf of the Player (effectively, both 1 and 2, but the Club is paying both).

The Agent is generally working in the interest of Player to place them with (or retain them at) their preferred Club, and, in doing so, secure the Player the best employment terms. In practice, the Club almost always pays the Service Fees on behalf of the Player, even where there are no services performed by the Agent to the Club. This is currently permitted both under the FA rules and by HMRC, provided that the Club recognises this as benefit in kind, formally known as P11D, in favour of the Player. This could soon change subject to the new FIFA Football Agent Regulations, that are currently part suspended, which will require the Player to directly pay the Agent in quarterly instalments. 

HMRC have taken issue with Dual-Representation Agreements whereby the fees paid to the Agent are split as 50% of the total Service Fee being regarded as Player Services, and 50% of the total Service Fee being apportioned to Club Services.

HMRC’s position:

HMRC have a keen interest in how the Service Fee is split in a Dual Representation Agreement. This is because the allocation of the Service Fee between Player and Club Services can have a significant impact on the Player’s liability to income tax, National Insurance contributions, the Club’s VAT liability and entitlement to reclaim VAT.

Effectively, the more weight given to Club Services within the Dual Representation Agreements, the less income tax and National Insurance contributions the Player must make (through P11D) and the higher the VAT the Club is able to reclaim.

Dual Representation Agreements

HMRC guidance states that “the split of payment value of the Agent Fee[s] between Player Services and the Club Services must represent the commercial reality of the services provided”. The default position cannot be a 50/50 split.

Proving which way the Service Fee is apportioned must be considered by an Agent when negotiating future transactions to avoid inviting any unnecessary investigation by HMRC.

Genuine Dual Representation Agreements – how should the services be evidenced?

HMRC have provided the following criteria that could be used to evidence the relationship between Player, Club, and Agent, and therefore show why the Service Fee is split 50/50, or in fact further one side than the other.

They include evidence relating to:

• the Player-Agent representation agreement;
• permission given by the Club holding the Player’s registration to the potential buying Club to approach the Player and their Agent, when the potential buying Club wishes to recruit that player
• the potential buying Club’s initial approach to the Player and the Player’s Agent, including any terms offered to the Player and Agent
• the Club’s request for:
  • the Agent to provide the Club with services
  • the specific services the Club requires the Agent to provide to the Club
  • the amount the Club would be content to pay to the Agent in return for those services
• the Agent’s agreement to enter into a dual representation contract, including the types of services to be provided, the initial terms on which any such agreement was negotiated, and the final terms agreed — this information should also make clear the valuation that the Agent itself placed on its services to the Player and Club respectively;
• the Player’s agreement to enter into a dual representation contract;
• the dual representation contract between Agent, Player and Club;
• the Player’s agreement to enter into an employment contract with the Club, including initial terms on which any such agreement was negotiated, as well as the final terms agreed

HMRC have further indicated that where Dual Representation documents are dated on the same date as the Player’s employment contract is entered into, it is likely that the apportionment of the Service Fee between Player Services and Club Services may not reflect the commercial reality.

Players on loan

There can often be significant confusion between the Clubs when a Player is on loan. Neither the parent Club nor the loanee Club will want to incur further costs regarding the Service Fees of the Player. It is often omitted from negotiations as to who is responsible for any employment reporting obligations concerning the benefit received by the Player (due to the Service Fee being paid on behalf of the Player), and, therefore, the applicable P11D requirements.

HMRC states that the ultimate responsibility falls on the parent Club to report this through its normal payroll procedures.

You can access the full guidance published by HMRC here.

Navigating the complexities and scrutiny of any transfer can leave the Agent seeking reassurances from external legal support, let alone the additional burdens now imposed by HMRC. The sports law team at Blaser Mills Law are here to guide you through every step of the transaction, or simply with a view to advising on the HMRC regulations. Contact a member of the team for an initial discussion on your transaction.

This article is not intended to constitute legal advice and you should not take, or refrain from taking, any action based on the information which it contains. Always seek the services of a professional legal adviser.

Get in touch with us today on 020 3814 2020 or email enquiries@blasermills.co.uk.

The European Super League – Part 2

Introduction

The idea of a super league competition in Europe has been floated around in one guise or another since 1968. However, in April 2021 a new European Super League (“ESL”) was announced but almost immediately collapsed amidst widespread condemnation from rival clubs, domestic leagues, and European politicians. Six English Premier League teams signed up to the ESL — Arsenal, Chelsea, Liverpool, Manchester City, Manchester United and Tottenham Hotspur.

Fast forward to 2023, the ESL has reared its head again this time with a new look proposal being announced by A22 Sports Management.

New Proposals

A22 Sports Management (“A22”), which is the company created by Barcelona, Real Madrid and Juventus to sponsor and push through legislation for the ESL, has released its 10-point principles for the competition.

Under the revamped system, the new Super League (“SL”) will consist of the following:

• Up to 80 teams
• Multi-divisional format
• No permanent members
• Minimum of 14 matches per season

It has been reported that A22 has consulted with 50 clubs across Europe since October 2022 and, as a result, has formed 10 principles that underpin plans for the new look SL.^[1]

The new proposal consists of 60 to 80 teams, with no permanent members (in contrast to the 2021 concept) and will instead be based on sporting performance, avoiding the controversial closed league system as was highly criticised under the previous concept. The clubs would continue to play in their respective domestic leagues, however, would also compete in the SL for a minimum of 14 times per season. ^[2]

A22 have been at the forefront of the challenge to UEFA and FIFA’s right to block the formation of the ESL and, in doing so, also sanction the clubs who join the breakaway league. They (A22) have suggested that the governing bodies are abusing a dominant position under EU competition law.

Legal Position

The European Court of Justice (“ECJ”) is expected to issue its final decision on the case later this year. In December, however, the Advocate General, Athanasios Rantos (“Rantos”), provided a non-binding opinion on the case, which states that the regulations permitting the international governing bodies to prevent the establishment of new leagues must comply with EU law.^[3] He added that sports governing bodies such as UEFA do not infringe EU competition rules by putting in place pre-authorisation systems ensuring all competitions respect common overarching standards.

The essentially closed character of the ESL made it incompatible with the principles of sporting merit and open competitions as enshrined in UEFA’s statutes. The ESL must have known what would lie ahead, as it took the step of initiating proceedings against FIFA and UEFA before a Madrid Court in parallel to the announcement of the project. The purpose of these proceedings was to avoid such constraints and prevent any potential disciplinary actions against the founding clubs.

Rantos’ opinion clearly hints at the legitimate, necessary, and proportionate character of UEFA’s procedure, and of its response in the face of the ESL project announcement.

Conclusion

Rantos’ opinion marks the last step of the preliminary ruling proceedings before the ECJ delivers its judgment answering the questions referred by the Madrid Court.

The new SL is undoubtedly a direct competitor to UEFA; even more so now as the proposed format is extremely similar to the new format of the Champions League that is scheduled to start during the 2024/25 season.

It goes without saying that the outcome of the ECJ case is eagerly anticipated and will undoubtedly have huge implications on the progression of the new SL.

[1] European Super League: Fresh plans for 80-team competition announced by chief executive Bernd Reichart | Football News | Sky Sports

[2] The Super League’s return explained: How it would work, the response — and what happens next – The Athletic

[3] European Super League: Fresh plans for 80-team competition announced by chief executive Bernd Reichart | Football News | Sky Sports

The plan for a regulator, recommended by a fan-led review (the “Review”) last year, has been confirmed by the UK government. Preventing historic clubs from going out of business is one of the aims, as well as giving fans greater input and a new owners’ and directors’ test.

This White Paper builds on those recommendations and outlines a comprehensive plan to introduce an independent regulator (“Regulator”) for English football clubs. In theory, it will be a Regulator that is free from the vested and conflicting interests that have hindered progress in the past, and one that makes sure football works for its fans and communities.

The main purposes of the proposed Regulator will be:

• Stopping English clubs from joining closed-shop competitions, which are judged to harm the domestic game.

• Preventing a repeat of financial failings seen at numerous clubs, notably the collapses of Bury and Macclesfield.

• Introducing a more stringent owners’ and directors’ test to protect clubs and fans.

• Giving fans the power to stop owners from changing a club’s name, badge and traditional kit colours.

• Ensuring a fair distribution of money filters down the English football pyramid from the Premier League.

Issues

In short, the government believes there is an unacceptably high and growing risk of financial failure among football clubs throughout English men’s professional football. This, and the risk of breakaway competitions, threatens the stability of the football pyramid. Many clubs lack resilience against financial ‘shocks’, as Chelsea and Derby have highlighted.

Furthermore, breakaway competitions represent another potential shock to the market. Proposals like the European Super League would exclusively benefit a small number of clubs at the expense of others.

Intervention

Fans

The government believes that clubs play a pivotal role in many communities. Which is true. Fans of these clubs have deep emotional and social connections to their club. In economic terms, this means when their club ceases to exist, they will not substitute for an alternative ‘supplier’.

Communities

Football clubs are community assets with cultural heritage value. In addition to the direct and indirect economic benefits they deliver to local areas, they benefit the local and wider society.

Government

The Football Creditors Rule also affects HMRC. HMRC estimates that administrations at EFL clubs have contributed to the UK Government being unable to collect nearly £30 million in unpaid taxes since 2019.

Football clubs are more community and heritage assets than typical businesses, with fans rather than consumers. As such, football clubs should not be left to fail. However, if football continues on its current trajectory there is a material risk of further and extensive financial failures.

Industry self-regulation

Many problems in football are not new. However, despite repeated calls for reform, neither clubs nor leagues have taken the necessary actions to transform. As such, the government is of the view that football alone warrants intervention.

Independent regulator

Several options were considered, but none were considered independent of influence or that reforms would be guaranteed long-term. In contrast, the UK government believes that there has been widespread public support for a Regulator, including from fans and football finance experts. The UK government has also heard from football investors, club owners, and representatives of the EFL and National League who all support a new statutory independent regulator.

The government will seek to introduce the Regulator to reform the culture of governance in English football clubs and mitigate the risk of clubs being entirely lost to fans and communities. It would have three secondary duties, to have regard to:

1. Domestic competition,
2. International competitiveness, and
3. Investment. This would ensure it balances these objectives when striving for its primary purpose.

Furthermore, the government believes regulated clubs should bear the cost of regulation. Therefore, the Regulator would be funded by a levy on clubs proportionate to their revenue.

Scope

The Regulator will consider the top 5 tiers of the English men’s football pyramid. It’s unclear where the Regulator will be housed (i.e. government department or a football body). Nevertheless, the government believes that football has shown itself incapable of sufficient reform and of taking the necessary decisions for the good of the whole pyramid. The governance arrangements mean football has the wrong incentives and is therefore unlikely to deliver the protections the game needs.

Framework

The Regulator would set detailed Specific Licence Conditions to clubs, under each Threshold Condition as set out below:

1. Appropriate resources – The club must have adequate financial and non-financial resources and controls in place, to meet committed spending and foreseeable risks.

• Fit and proper custodians – Persons at a club deemed to exercise significant decision-making influence must be fit and proper custodians.

• Fan interests – The club must have appropriate provisions for considering the interests of fans on key decisions, and issues of club heritage, on an ongoing basis.

• Approved competitions – The club must agree to only compete in leagues and competitions that are approved by the Regulator based on predetermined criteria

While the four Threshold Conditions above would be set in legislation, there will be detailed requirements underlying each called Specific Licence Conditions which would be determined by the Regulator. Clubs would have to comply with these Specific Licence Conditions in order to meet the overarching Threshold Condition.

Four Pillars

There are 4 proposed pillars and foundations for reform, these being:

1. Financial regulation

Clubs would be required to demonstrate good basic financial practices and have appropriate financial resources or ‘buffers’ to enable the club to meet cash flows in the event of a financial shock, and to be able to protect the core assets and value of the club – such as the stadium.

This regulation would be delivered through the Regulator’s licensing system under the first Threshold Condition of ‘Appropriate Resources’. The Regulator will also want to see that clubs can demonstrate and have in place good contingency/scenario planning, multi-year forecasting, monitoring, and reporting procedures.

• Corporate governance

The Review found poor internal governance at clubs allowed owners to act unilaterally, pursuing short-term interests with little accountability or scrutiny. The Regulator should seek to improve corporate governance through the creation of a compulsory ‘Football Club Corporate Governance Code’. Compliance with the code would be enforced through the ‘Appropriate resources’ Threshold Condition.

The Football Club Corporate Governance Code would draw on established corporate governance principles applied in other industries. The Football Club Corporate Governance Code would adopt a tiered approach to accommodate the vast difference in scale and resources of the clubs across the pyramid. Each tier would have a different level of requirements.

The government believes corporate governance will not be an unnecessary burden. Rather, corporate governance is an opportunity for clubs, helping them to achieve better business outcomes, risk management and transparency for fans. There will be a requirement for clubs to report and publish on corporate governance annually.

• Owners and Directors’ Tests

The Review found examples of unsuitable custodians, including owners with long histories of business bankruptcies, owners with serious criminal convictions, owners later imprisoned for crimes including money laundering, and directors recruited without a proper, transparent appointment process.

To address these shortcomings, the Regulator would establish new owners’ and directors’ tests consisting of three key elements:

• a fitness and propriety test (owners and directors),
• enhanced due diligence of source of wealth (owners); and
• a requirement for robust financial plans (owners)

The Regulator would establish and implement new tests for owners and directors, which would be enforced through the ‘Fit and proper custodians’ Threshold Condition.

Tests would consist of three key elements:

1. fitness and propriety test (owners and directors);
2. enhanced due diligence of source of wealth (owners); and
3. a requirement for robust financial plans (owners).

• Fan engagement and club heritage

The Regulator would set a minimum standard of fan engagement as part of its licensing regime through the ‘Fan interests’ Threshold Condition, in line with the aims of the Review. This would require clubs to have a framework in place to regularly meet a representative group of fans to discuss key strategic matters at the club, and other issues of interest to supporters (including club heritage).

Clubs will need to satisfy the Regulator that they have appropriate and proportionate provisions for considering the interests of fans on key decisions and issues of club heritage. Clubs will need to show they are regularly consulting a representative group of fans on key strategic matters at the club, and other issues of interest to supporters (including club heritage).

Financial distributions

English football clubs have been highly successful in growing their income. Combined revenues across the top four men’s leagues. Despite this, analysis of the financial health of English clubs indicates that a large number of clubs struggle to remain financially viable without the help of external owner funding.

A football-led solution to solving distributional issues remains the strongly preferred outcome both now, and for the future. Both the Premier League and EFL agree that a greater quantum of cash needs to flow through the pyramid, alongside cost controls, in order to achieve the financial sustainability that is so urgently needed.

The Regulator will undertake a periodic assessment of how the industry is working and the health of finances. Any Regulator intervention would only come after the market has been given adequate opportunity to reach a settlement. This could potentially involve an arbitral process whereby the Regulator would set out the terms of the process, including the issues that any financing would need to address.

Conclusion

The government is due to go through a process of targeted engagement and consultation with key tenets identified in the White Paper. Targeted consultation will take place shortly, following the publication of the White Paper. Alongside this, the government is to continue to draw on advice from legal, regulatory and industry experts.

On one hand, the White Paper should be applauded for attempting to tackle the endemic failings within professional football in England once and for all. Given the recent financial issues facing Premier League clubs such as Man City and Chelsea, as well as EFL clubs such as Derby County, Bury and Macclesfield, it is clear that stakeholders who currently administer and run professional football clubs in England have made a poor job of doing so.

The Review offered a unique opportunity to understand the views and concerns of stakeholders across football and beyond. However, the White Paper and its contents will be viewed with hostility by many stakeholders within the game given the scale and scope of the proposed reforms. These same stakeholders will be required to implement the proposed changes. Ultimately, the Regulator has been designed to deliver a shift in culture that puts fans back at the heart of the game. Only time will tell whether this shift can be achieved.  

The Government’s White Paper can be viewed here.

Here’s everything you need to know about UEFA’s new financial sustainability rules, including their objectives, key pillars, and implementation timeline. The regulations represent a major reform of UEFA’s finance regulations since they were first introduced in 2010, previously knowns as UEFA’s Financial Fair Play (FFP).

As the name suggests, the key objective of the new regulations is to achieve financial sustainability, through three key pillars:

1. Solvency
2. Stability; and
3. Cost control.

The new rules include the following:  

• No overdue payment rule; and
• Football earnings rule; and
• Squad cost rule.

The regulations came into force in June 2022, with gradual implementation over three years to allow clubs time to adapt.

UEFA’s club licensing and financial regulations project, which has been ongoing since 2010, has successfully improved the financial stability of European clubs at all levels. However, the COVID-19 pandemic has negatively impacted club finances, necessitating new regulations to promote financial sustainability in the evolving global football industry.

The new regulations aim to ensure that clubs maintain stability and solvency with a focus on strengthening balance sheets and promoting better cost control. The regulations were developed through consultation with various stakeholders, including national associations, the European Club Association, FIFPro, supporters, the European Commission, the European Parliament, and the Council of Europe.

The no overdue payables rule

The no overdue payables rule promotes solvency and protects the integrity of competitions by requiring clubs to settle payables to football clubs, employees, social/tax authorities, and UEFA by specific deadlines. Clubs with overdue payments may face sanctions.

The football earnings rule

The football earnings rule encourages clubs to build equity and invest in infrastructure and youth development by requiring them to cover the costs of relevant investments with existing equity or contributions. The acceptable deviation has been increased from €30 million (under the, now, old FFP) to €60 million over three years, with the potential for further increases for financially healthy clubs.

The squad cost rule

The squad cost rule restricts spending on player and coach wages, transfers, and agent fees to 70% of club revenues, with gradual implementation of up to 90% in 2023/2024, 80% in 2024/2025, and 70% in 2025/2026. Breaches to the regulations may result in sanctions, with strengthened overdue payable sanctions and progressive squad cost rule sanctions based on severity and the number of breaches.

The Premier League has announced that it has referred a number of alleged breaches of Premier League rules by Manchester City Football Club (“City or Club”) spanning over a period of 14 years, since 2009, to an independent commission (“Commission”). Specifically, the Premier League (“PL”) has charged the Club with alleged breaches (“Charges”) of 115 of its financial rules (the “Rules”) following a four-year investigation.

Background

The PL announced on its website on 6 February 2023, (without warning), that it, “has referred a number of alleged breaches of [our] rules [by City] to a commission”.  The charges relate to nine seasons from 2009/10 to 2017/18. The alleged breaches are a result of a 4-year investigation by the PL into the financial affairs of City.

This article looks at the Charges facing City and the possible sanctions facing the Club should the Commission find that the Rules have been breached.     

The Charges

As mentioned, the PL has charged City with alleged breaches of the Rules on no less than 115 occasions over 14 seasons from 2009-10 to the present campaign in 2022-23. This can be further broken down into 5 distinct groups:

Group 1 (50 breaches) – Acting in Good Faith  

The alleged breaches in this group relate to the requirement to provide “in the utmost good faith”, accurate financial information that gives a true and fair view of City’s financial position. There is particular emphasis on the reporting of revenue (including sponsorship revenue) which the Club received, as well as its operating costs and related parties.

Group 2 (24 breaches) – Player and Manager Remuneration  

This group relates to providing details of manager and player remuneration. The PL allege that breaches of the Rules took place requiring a member club to include full details of manager and player remuneration in its relevant contracts.

Specifically, the Rules require clubs to have any employment contract with a manager or player to be evidenced in writing and ensure that the said contract is registered with the league secretary. It must also include the standard clauses set out in the Premier League Handbook. It is alleged that City has breached both Rules in some form or another.

Group 3 (5 breaches) – UEFA Financial Fair Regulations

The PL must ensure that its members (the clubs) comply with all regulations set out by UEFA, specifically, the regulations concerning Financial Fair Play (“FFP”). In 2020, UEFA imposed a ban on City (a 2-year competition ban) after having found them (the Club) guilty of breaching club Licensing and Financial Fair Play Regulations, instead, they were only on the receiving end of a £10 million fine.

However, it was later overturned by CAS on appeal, which ruled that some of the alleged offences were timed barred.

Unfortunately, the PL has no such rules that would allow breaches to be time barred and, as such, this would not be a defence that City can rely on during this investigation. The alleged breaches are said to have taken place during the seasons 2013/14 – 2017/18.

Group 4 (6 breaches) – Profitability and Sustainability

The PL has alleged that City has breached rules related to its Profitability and Sustainability regulations throughout 2015 to 2018. The PL requires clubs to submit annual accounts to the league secretary before 1^st March each season along with copies of its director’s report and auditor’s report.

Group 5 (30 breaches) – Cooperation with the Premier League

The breaches in this group are alleged to have taken place from 2018/19 season to the present season (2022/23). Further, it is alleged that City breached the Rules requiring member clubs to cooperate with and assist the PL with its investigations”, including, “by providing documents and information to the PL in the utmost good faith”. In short, it is alleged that City have been engaging in conduct with the intention of circumnavigating the Rules.

Potential Sanctions

Unlimited Fine

Rule W.51 of the PL handbook states that the Commission may impose a fine, unlimited in amount. This is a similar sanction to those that have been utilised by UEFA in its policing of FFP throughout Europe.

Suspension

Moreover, where the respondent is a club, as is the case here, the PL can suspend it from playing any league matches. However, this is unlikely to happen given the logistics of such suspension, nevertheless, it is an option open to the Commission.

Points Deduction

The Commission could deduct points from the Club. However, it is not difficult to foresee the issues and problems arising from such a move, particularly, when looking at which campaign this could and would be applied to.

There is guidance to an extent in this area in that Juventus, previous league champions in Italy, were recently handed a 15-point deduction as a result of breaching Italian regulations.

Expulsion

The PL could also expel the Club from the league. It can only be assumed that this style of punishment is only reserved for exceptional circumstances however, it is not unimaginable in the event that it is found proven that City breached all or most of the rules it stands accused of.  

Any order it thinks fit

The Rules permit the Commission to impose any such sanction that it sees fit in the circumstances. This could come in various combinations and forms, for example, automatic relegation could be a possibility, a transfer ban, or a combination of both.

It is also open to the Commission to take retrospective action whereby it decides to strip the Club of its success throughout seasons where the breaches occurred.

Conclusion

Although the hearing is to be conducted in private, there will be much speculation over the coming months and throughout the hearing as to the potential outcomes. Nevertheless, should the Commission find that City have breached the Rules there will, no doubt, be moves from other PL clubs to have the record books updated and trophies reallocated.

Moreover, some clubs may seek financial recompense for missing out on European competition. In addition, UEFA may look to come calling on City’s door again and furthermore, there may be a clamour for the PL to make an example of City, thereby discouraging other clubs to adopt the same tactics.

It’s no coincidence that the PL’s announcement has come just before the Government’s long awaited white paper for a football regulator is due to be made public. The PL must be seen to be keeping its house in order.