Sports Law & Taxation

Sports Law & Taxation formerly known as: Global Sports Law & Taxation Reports (GSLTR)

Contents

2020/01 Settling international sports disputes through the Court of Arbitration for Sport – Part one

2020/02 Gender discrimination impact on US sports – Part two

2020/03 International tax aspects of esports – Part one

2020/04 Esports gamers cannot be considered as sportspersons for income tax purposes according to the Turkish tax administration

2020/05 Swimming: FINA v. International Swimming League. A new tension between sport and competition law?

2020/06 Basketball: Image rights agreements and guaranteed employment contracts

2020/07 CAS jurisprudence through the lens of the tax expert

2020/08 Football: Assignment of image rights and the Xabi Alonso case

2020/09 Sun, sand and bright lights. Taxation of artists and sportspersons in Portugal 11M1 march 2020

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managing editor Vol. 11 No. 1 March 2020 Dr. Rijkele Betten

consulting editor Editorial 4 Prof. Dr. Ian S. Blackshaw

members of the editorial board Articles Prof. Guglielmo Maisto Maisto e Associati, Milano 2020/01 Settling international sports disputes through the Court of Arbitration for Sport – Part one Dr. Dick Molenaar by Ian Blackshaw 8 All Arts Belastingadviseurs, Rotterdam 2020/02 Gender discrimination impact on US sports – Part two Mr. Kevin Offer by Paul J. Greene , Matthew D. Kaiser and Yelena G. Hazim, LLM 13 Hardwick & Morris LLP 2020/03 International tax aspects of esports – Part one Mr. Mario Tenore by Robert Esau 18 Maisto e Associati, Milano 2020/04 Esports gamers cannot be considered as sportspersons for coordinator income tax purposes according to the Turkish tax administration Erica Pasalbessy (MSc) by Dr. Alara Efsun Yazıcıoğlu 26 Nolot P.O. Box 206 2020/05 Swimming: FINA v. International Swimming League. 5270 AE Sint-Michielsgestel A new tension between sport and competition law? The Netherlands by Rohit Walavalkar 30 Tel.: +31 (0)625279308 Fax: +31 (0)735530004 2020/06 Basketball: Image rights agreements and E-mail: [email protected] guaranteed employment contracts by Vassil Dimitrov 38 For further information on the activities of Nolot see: 2020/07 CAS jurisprudence through the lens of the tax expert www.nolot.nl. by Mario Tenore and Panagiotis C. Roumeliotis 42

ISSN nr.: 211-095 2020/08 Football: Assignment of image rights and the Xabi Alonso case © Nolot 2020 by Mariana Díaz-Moro Paraja 48 All rights reserved. 2020/09 Sun, sand and bright lights. Taxation of Preferred citation: GSLTR 2020/1, at page artists and sportspersons in Portugal number(s) by Serena Cabrita Neto, Dinis Tracana and João Rodrigues 52

disclaimer 2020/10 Just how marginal can gains be? Why Ivey v. Genting Whilst every care has been taken in the Casinos (UK) Ltd may have implications for sporting competition production of this publication and its by Kris Lines 57 contents, the publisher and the authors of the articles and reports cannot 2020/11 Interview with Formula 3 and 4 driver Vladimiros Tziortzis accept any legal liability whatsoever for by Athena Constantinou 62 any consequential or other loss arising therefrom incurred by any subscribers or other readers as a result of their relying on any information contained therein, which is not intended to constitute any advice on any particular matter or subject but merely provide information of a general character.

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It is with much pleasure that we welcome readers has since brought an application (no. 74989/11) against to the March 2020 edition (citation: Sports Law & Switzerland with the European Court, which is ongoing. Taxation 2020/1) of our ground-breaking journal The second to fourth applicants are amateur football and on-line database Sports Law and Taxation. players. Proceedings were brought against them with the TFF when they were accused in 2010 of match-fixing during As usual, association football (soccer) continues to claim an important end of season match for their team, İçmeler widespread attention, both on and off the field of play. Belediyespor Kulübü. In a first-instance decision by the Following the European Court of Human Rights Decisions Amateur Football Disciplinary Committee of the TFF, it was in the Pechstein and Mutu cases of 2 October 2018 and found that the applicants had committed the disciplinary confirmed on 4 February 2019 by the Grand Chamber of the offence of “influencing the match result” and were banned Court, there has been another landmark decision issued from any football-related activities for a year. This decision by the Court on 28 January 2020 in the case of Ali Rıza was then unanimously upheld by the Arbitration Committee. and Others v. Turkey (application nos. 30226/10, 17880/11, Mr Akal, the fifth applicant, is a football referee. He lodged 17887/11, 17891/11 and 5506/16). This is purely a football an objection with the TFF Arbitration Committee in 2015 case and the Court came to the conclusion that Turkey about the Federation’s decision to downgrade him from top- must reform its system for settling football disputes level assistant referee to “provincial referee”. The committee to conform to art. 6.1 of the European Convention on dismissed his objection, finding that his downgrading Human Rights.1 In view of its importance, we set out the had been in accordance with the law and procedure. text of the Court press release of 28 January 2020 giving the details of the case and the findings as follows: Complaints, procedure and composition of the Court Relying on Article 6 § 1 (right to a fair hearing and access to Principal facts court), all five applicants alleged that the proceedings before The applicants were Ömer Kerim Ali Rıza, a dual British and the Arbitration Committee had lacked independence and Turkish national, and Fatih Arslan, Şaban Serin, Mehmet impartiality. They alleged in particular that the members of Erhan Berber, and Serkan Akal, Turkish nationals, who were the Committee who had decided on their cases were biased born in 1979, 1974, 1980, 1981, and 1977 respectively. They live in towards football clubs because they had been appointed Broxbourne (the UK), Mugla, Kocaeli and Zonguldak (Turkey). by the TFF’s Board of Directors, which was predominately Mr Rıza was a football player for Trabzonspor Kulübü composed of former members or executives of football clubs. Dernegi, a club in the top Turkish professional league. He They all, except for Mr Rıza, also made several other returned to England, his home country, in 2008 and the complaints under Article 6 § 1 about procedural club brought proceedings against him with the Turkish shortcomings in the proceedings, and the lack of Football Federation (“the TFF”) for breach of contract. In judicial review of the decisions against them. his defence he submitted that the club owed him salary The second to fourth applicants complained under arrears and match appearance fees. The TFF Arbitration Article 1 of Protocol No. 1 (protection of property), Committee ultimately found in 2009 that he had wrongfully taken alone and in conjunction with Article 13 (right terminated his contract and fined him approximately 61,596 to an effective remedy), that banning them for a year euros (EUR). He applied against this decision to the Swiss- from football had deprived them of their income. based Court of Arbitration for Sport, but his application was The application was lodged with the European declared inadmissible for lack of jurisdiction. An appeal Court of Human Rights on 20 April 2010. to the Swiss Federal Court was dismissed in 2011 and he Judgment was given by a Chamber of seven judges, composed as follows: 1 Under art. 43 and 44 of the Convention, this Chamber judgment is not Robert Spano (Iceland), President, final. During the three-month period following its delivery, any party may Marko Bosnjak (Slovenia), request that the case be referred to the Grand Chamber of the Court. If such a request is made, a panel of five judges considers whether the case Valeriu Gritco (the Republic of Moldova), deserves further examination. In that event, the Grand Chamber will hear Egidijus Küris (Lithuania), the case and deliver a final judgment. If the referral request is refused, Ivana Jelic (Montenegro), the Chamber judgment will become final on that day. Arnfinn Bårdsen (Norway), Once a judgment becomes final, it is transmitted to the Committee of Saadet Yüksel (Turkey), Ministers of the Council of Europe for supervision of its execution. Further information about the execution process can be found on www.coe.int/ and also Stanley Naismith, Section Registrar. en/web/execution (accessed 17 February 2020).

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Decision of the Court former members or executives of football clubs. Amateur footballers’ complaints Similarly, the wide powers given to the Board of Directors The Court rejected the applicants’ complaints under had to have been at work in Mr Akal’s dispute, which Article 6 § 1 as inadmissible because that provision was was of a regulatory nature. The board set the rules not applicable to the proceedings against them. governing the composition, principles and procedure of In particular, at the time of the events under Turkish law, the functioning of the Central Referee Committee of the influencing a match result was a disciplinary offence TFF, the first-instance body which had decided on his involving the risk of a three-year ban and did not concern case. Indeed, TFF rules required that the list of referees the determination of a criminal charge under Article 6. prepared by the Central Referee Committee had to be Nor could the proceedings come under the scope of civil rights submitted to the Board of Directors for prior approval. and obligations. Domestic law stated that amateur football In sum, the applicants had had legitimate reason to doubt players were not remunerated and therefore their right to that the Arbitration Committee members would approach exercise a profession was not at stake. Furthermore, although their case with the necessary independence and impartiality. it might be common practice in Turkey for amateur football There had therefore been a violation of Article 6 § 1. players to receive a salary or other benefits, the applicants had not provided proof of receipt of such payments or of any Other complaints kind of contract with their club. They had thus failed to prove The Court considered that there was no need to that the dispute had involved any kind of pecuniary right. examine separately the other complaints about the Owing to that lack of proof regarding pecuniary losses, fairness of the proceedings, including the right of the Court also rejected as inadmissible these applicants’ access to court, before the Arbitration Committee. complaint under Article 1 of Protocol No. 1 and Article 13. Article 46 (binding force and implementation) Professional footballer’s and referee’s complaints The Court noted that the violation found revealed a The Court noted that at the time of the applicants’ proceedings systemic problem regarding the settlement of football the Arbitration Committee had exclusive and compulsory disputes in Turkey. It considered that the State should jurisdiction over the respective football disputes brought take measures to reform the system for settling by Mr Rıza and Mr Akal, and stressed that that body’s such disputes under the auspices of the TFF, such as rulings were final and not amenable to judicial review by restructuring the Arbitration Committee so that it was any court. As such, it had to provide the same safeguards sufficiently independent from the Board of Directors. as guaranteed under Article 6 § 1 of the Convention. However, the Court considered that there were Article 41 (just satisfaction) inadequate safeguards to protect the members of the The Court held that Turkey was to pay Mr Rıza and Mr Arbitration Committee from outside pressure, notably Akal 12,500 euros (EUR), each, in respect of non-pecuniary from the TFF’s executive body, the Board of Directors, damage. It awarded Mr Rıza EUR 6,975 in respect of costs and which had an undeniably strong influence on the way expenses. It dismissed, by six votes to one, the remainder the Committee was organised and functioned. of these two applicants’ claim for just satisfaction. In particular, the Board of Directors, which appointed the members of the Arbitration Committee, had always Separate opinion largely consisted of members or executives of football Judge Marko Bošnjak expressed a partly concurring and partly clubs. Those who represented the interests of football dissenting opinion. His opinion is annexed to the judgment. other than those of clubs were in the minority. The Arbitration Committee, composed mostly either We now turn to the financial results of the January of lawyers or academics who specialised in sports law, 2020 football transfer window, which, as usual, were not bound by any rules of professional conduct. has produced some impressive figures. They neither had to swear an oath or make a solemn According to the financial analysis made by the declaration before taking up their duties. Moreover, Deloitte Sports Business Group, clubs in the English FA they were not protected from civil liability actions. Premier League (Premier League) spent a total of £ 230 Furthermore, TFF rules had no fixed term for members’ million in the January 2020 transfer window. This term of office. Their mandate was the same as the surpasses the January 2019 transfer window total of Board of Directors’, unduly aligning their tenure with £ 180 million and is the second-highest gross spending the executive body. In addition, members did not have total for the winter window. Other highlights: to disclose circumstances affecting their independence – Premier League clubs spent a total of £ 1.6 and impartiality and there was no specific procedure to billion on transfers during the 2019-202 season, deal with challenges to a member on those grounds. the second-highest seasonal gross transfer As concerned Mr Rıza, who was involved in a contractual expenditure (record 2017-2018: £ 1.9 billion); dispute, the Court therefore considered that the balance – net transfer expenditure (player purchases less player had been tipped in favour of the football club, given that sales) for Premier League clubs totalled £ 165 million for at the time of the proceedings against him, all members the window, a record for the January transfer window; of the Arbitration Committee had been appointed by – intra Premier League sales made up just 2% of gross the Board of directors, predominantly composed of transfer spend, significantly less than the previous

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low of 11% set in January 2019, with Premier League – the Premier League was the highest-spending league club’s favouring talent from Europe; and amongst the “big five” European football leagues – Premier League clubs spent £ 25 million on the in the 2020 January transfer window: Serie A (£ 180 deadline day, significantly less than the record million/€ 215 million), Bundesliga (£ 165 million/€ 195 sum of £ 150 million set in January 2018. million), La Liga (£ 110 million/€ 130 million) and Ligue Furthermore, the total gross spend (i.e. before including 1 (£ 100 million/€ 120 million) all spending less; and player sales) of £ 1.6 billion for the 2019-2020 season is – on a seasonal basis the Premier League remains the second-highest since the introduction of the transfer the highest-spending league amongst the “big five” window in January 2003. This compares to £ 1.4 billion European football leagues, with £ 1.6 billion/€ 1.9 in 2018-2019 and is £ 0.3 billion short of the all-time billion. La Liga (£ 1.2 billion/€ 1.4 billion), Serie A (£ 1.2 record of £ 1.9 billion set in the 2017-2018 season. billion/€ 1.4 billion), Bundesliga (£ 785 million/€ 930 Premier League clubs’ restraint in transfer spending million) and Ligue 1 (£ 690 million/€ 820 million) in the January 2020 transfer window may also be clubs all spent less than Premier League clubs. driven by the global value of Premier League broadcast Further information may be obtained at www.deloitte. rights for the 2019-2020 – 2021-2022 cycle, seeing only co.uk/sportsbusinessgroup. (accessed 17 February 2020). a slight uplift compared to the previous cycle. This transfer window follows a record-breaking summer We would also mention the Nike Vaporfly running 2019 window, which saw the “big five” European leagues shoes controversy which has recently led to some spend in excess of £ 5 billion for the first time, with four changes in the Regulations of World Athletics (the leagues setting transfer records for spending in a single world-wide governing body of track and field), window in the process. In January 2020: Serie A £ 180 million and which were issued on 31 January 2020. (2019: £ 140 million), the Bundesliga £ 165 million (2019: Essentially, the new Regulations £ 65 million), La Liga £ 110 million (2019: £ 65 million) and implement three key changes: Ligue 1 £ 100 million (2019: £ 65 million) have all increased – from 30 April 2020, any shoe used in competition their transfer expenditure since last season’s window. must have been previously available on the open Spending across the “big five” European leagues has market for a period of at least four months; reached record levels this season. The unprecedented – the sole must be no thicker than 40 mm; and level of spending by European clubs has been driven – the shoe must not contain more than by a number of factors, including increased income one rigid embedded plate or blade from improved domestic league broadcast agreements This is important because, in recent years, there have and the participation in and subsequent financial been suggestions that shoes, such as the Nike Vaporfly, distributions from UEFA club competitions. may give a performance advantage of 4-5% by improving Additional findings: running economy. At its core, the question for regulators – Premier League clubs spent a total of £ 230 million was whether the performance advantage was such that in the January 2020 transfer window, according it changed the nature of the competition for athletes. to analysis by Deloitte’s Sports Business Group. Also, whether athlete restrictions in accessing certain This surpasses last year’s January window total prototype shoes was contrary to the value of universality. of £ 180 million and is the second-highest gross Of particular note, however, were the conclusions of World spending total for the winter window; Athletics on how the loopholes affected the spirit of sport: – Premier League clubs spent £ 230 million to acquire new players in the January 2020 transfer window, “If people want to run a marathon in Vaporflys or falling short of the record achieved in 2018 (2019: any other shoe, it’s not our job to stop them, but if £ 180 million; 2018: £ 430 million; 2017: £ 215 you want a ratified record, then you are classified million; 2016: £ 175 million; 2015: £ 130 million); as elite and have to abide by the rules.” – Premier League clubs recorded net transfer spend of £ 165 million in January 2020 (2019: net spend According to Kris Lines, this is a pragmatic solution to of £ 55 million; 2018: net spend of £ 90 million; balancing integrity with participation, although it runs 2017: net receipts of £ 40 million; 2016: net spend of contrary to the UK Supreme Court Decision in Ivey v. £ 100 million; 2015: net spend of £ 40 million); Genting Casinos (UK) Ltd t/a Crockfords [2017], which is the – the “big six” Premier League clubs accounted for 52% subject of a post on the GSLTR website on 3 February 2020, of the total gross expenditure in the January 2020 and also an in-depth article by him in this issue of GSLTR, transfer window, compared to 43% in January 2019; that every gambler/sports person be treated the same. – Premier League clubs have been reluctant to transfer players within the Premier League, with 2% of gross On the sports law side, we publish the following articles: transfer spend as a result of intra Premier League sales – “Just how marginal can gains be? Why Ivey v. in the January 2020 window, compared to an overall Genting Casinos (UK) Ltd may have implications long term intra Premier League average of 29%; for sporting competition” by Kris Lines; – Premier League clubs’ deadline day expenditure – “Interview with Formula 3 and 4 driver Vladimiros totalled £ 25 million, which represented a decrease Tziortzis” by Athena Constantinou; of £ 125 million from deadline day in January 2019; – part two of “Gender discrimination impact on US sports”

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by Paul J. Greene, Matthew D. Kaiser and Yelena G. Hazin; – “FINA v. International Swimming League. A new tension between sport and competition law?” by Rohit Walavalkar; – “Basketball: Image rights agreements and guaranteed employment contracts” by Vassil Dimitrov; and – part one of “Settling international sports disputes through the Court of Arbitration for Sport by Prof. Dr. Ian Blackshaw.

On the sports tax side, we publish the following articles: – part one of “International tax aspects of esports” by Robert Esau; – “Esports gamers cannot be considered as sportspersons for income tax purposes according to the Turkish tax administration” by Dr. Alara Efsun Yazicioglu; – “Football: Assignment of image rights and the Xabi Alonso case” by Mariana Díaz-Moro Paraja; – “CAS jurisprudence through the lens of the tax expert” by Mario Tenore and Panagiotis C. Roumeliotis; – “Sun, sand and bright lights. Taxation of artists and sportspersons in Portugal” by Serena Cabrita Neto, Dinis Tracana and João Rodrigues.

Finally, and as always, we would welcome and value your contributions in the form of articles and topical case notes and commentaries for our journal and also for posting.

So, now read on and enjoy the March 2020 edition of Sports Law & Taxation.

Dr. Rijkele Betten (Managing Editor) Prof. Dr. Ian S. Blackshaw (Consulting Editor)

March 2020

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by ian blackshaw1 the two – “med-arb”. Mediation to identify the issues and, if mediation is not successful, arbitration to settle them.

The international sporting community has long preferred Part two of this article will be published to settle their disputes “within the family of sport” and in the June 2020 issue of GSLTR. in private. That is “extra-judicially” by ADR. The Court of Arbitration for Sport (“CAS”) was set up for this purpose Abstract in 1983, beginning operations in 1984, and currently Sport is now big business globally and is registering between 550 and 600 new cases each year. worth more than 3% of world trade. Many of these cases involve doping infractions. Two such In the European Union (EU), comprising some 508 cases involve the former professional footballer, Adrian million people, sport accounts for 3.7% of the combined Mutu, and the Olympic speed skater, Claudia Pechstein. GNP of the current twenty-eight member states. That is, a staggering c 407 billion; and employs 5.4% of the Through appeals within the sports system, including the EU labour force, that is, some 15 million people. CAS, they have taken their cases to the European Court of Human Rights, challenging the sport-arbitration system, Sport is now a product in its own right. And, football, for in particular proceedings before the CAS, on the grounds example, is not only the world’s favourite game, but also that their rights to a fair trial, under art. 6.1 of the European the world’s most lucrative sport. The European football Convention on Human Rights, have been infringed. The market is now worth some c 28.4 billion, according to European Court of Human Rights issued its Decision in the Deloitte 28th Annual Football Finance Review. the combined cases of Mutu and Pechstein on 2 October See also the 23rd edition of the Deloitte Football Money 2018, and this Decision became final and binding on 5 League Report 2020 issued on 14 January 2020.2 February 2019 (more about their quest for justice later).

Likewise, the Olympic Games have been well In this article, we will look at the settlement of described as the “greatest sporting show on earth” international sporting disputes through the CAS and and generate billions of dollars – not least from the also take note of some recent important procedural sale of broadcasting and new media rights as well as and organisational changes and developments. corporate sponsorship under the “TOP” programme. Finally, we will draw some general conclusions. With all this money circulating in sport, there is much at stake both on and off the field of play. It is not surprising, Introduction therefore, that sports legal disputes are on the increase. Although there are several ADR bodies that deal The question then arises: how best to settle them? with sports disputes, for example, the American Traditionally, through the courts? Or the modern way, Arbitration Association (for the United States Olympic through ADR (Alternative Dispute Resolution)? That is, Committee), the UK Sports Resolutions and the WIPO mainly by arbitration or mediation or a combination of Arbitration and Mediation Center (especially sports domain name disputes), the most important of these bodies is the CAS, which is the focus of this article. 1 International sports lawyer, academic, author and a member of the Court of Arbitration for Sport. Also consulting editor of this journal. He may be contacted by e-mail at [email protected]. It should be mentioned, en passant, that the CAS also offers a mediation service, but, in this article, 2 The highlights of this report can be found on the GSLTR- website we will concentrate on CAS arbitration. (www.gsltr.com) on 16 January 2020.

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To put this article into context, we will begin creation of special rules to settle disputes arising out with a brief history of this important sports of a decision taken by a sports federation (the “Appeals disputes’ resolution body, which was set up in 1983 Procedure”). The first such body to adopt this clause and opened its doors for business in 1984. was the International Equestrian Federation (“FEI”).

This means that the CAS has been operating The next significant development was in February 1992, for 35 years and which is currently registering when a horse rider, named Elmar Gundel, lodged an appeal between 550 and 600 new cases each year. for arbitration by the CAS, based on an arbitration clause in the FEI statutes, in which he challenged a decision Brief history of the CAS rendered by the FEI. This decision, which followed a horse doping case, disqualified the rider, suspending and also Origins fining him. The award, which was rendered by CAS on At the beginning of the 1980s, an increasing number 15 October 1992, found partly in favour of the rider – the of international sports disputes and the lack of any suspension was reduced from three months to one month. independent body to deal with them in a flexible, quick, Dissatisfied with the CAS ruling, Gundel filed an appeal inexpensive and binding manner prompted a number of with the Swiss Federal Tribunal (Swiss Supreme Court). international sports federations to look at this situation He disputed the validity of the award, on the grounds and see what could be done. Soon after assuming the that it was rendered by a tribunal that did not meet the presidency of the International Olympic Committee (IOC) conditions of impartiality and independence needed in 1981, the late Juan Antonio Samaranch had the idea of to be considered as a proper arbitration court. In its creating a sports court that would become “the supreme judgement of 15 March 1993, the Tribunal recognised the court of world sport”. The following year at an IOC meeting CAS as a true court of arbitration. And noted, inter alia: in Rome, the late Judge Keba Mbaye, from Senegal, an IOC member and at the time a Judge and Vice president at the – that the CAS was not an organ of the FEI; International Court of Justice in The Hague, was asked to – that it did not receive instructions chair a working party with the aim of preparing the statutes from this federation; and of a sports dispute resolution body that, in time, would – that it retained sufficient autonomy with regard become known as the “Court of Arbitration for Sport”. to it, in that it placed at the disposal of the CAS only three arbitrators out of the maximum of 60 In 1983, the IOC officially ratified the Statutes of the members of which the CAS was composed. CAS, which came into force on 30 June 1984. On the same date, the CAS became operational under the However, in its judgement, the Tribunal drew attention late Judge Mbaye as its first President, a position he to numerous links between the CAS and the IOC: the occupied with distinction until his death in 2007. fact that the CAS was financed almost exclusively by the IOC; the fact that the IOC was competent to modify The first ten years the CAS Statutes; and the considerable power given to The 1984 CAS Statutes were supplemented by a set of the IOC and its President to appoint CAS members. Procedural Regulations. Both were slightly modified in 1990. Under these Regulations, the CAS was composed In the Tribunal’s view, such links would be sufficiently of 60 members appointed by the IOC, the International serious to call into question the independence of the Federations (“IFs”), the National Olympic Committees CAS if the IOC were a party to proceedings before it.3 (“NOCs”) and the IOC President – 15 members each. The IOC President had to choose members outside the other three As Matthieu Reeb, Secretary General of groups. All the operating costs of the CAS were borne by the CAS, remarked at the time: the IOC. In general, the proceedings were free of charge, except for financial disputes, in which the parties could “The Federal Tribunal’s message was thus perfectly be required to pay a share of the costs. The CAS Statutes clear: the CAS had to be made more independent of could be modified only by the IOC meeting in General the IOC both organizationally and financially.” Session, on the proposal of the IOC Executive Board. Thus, this decision led to some major The CAS Statutes and Regulations provided for only one reforms of the CAS in 1994. kind of contentious procedure, irrespective of the nature of the dispute. In addition, there was also a “consultation The 1994 (Paris) reforms procedure” open to sports bodies or individuals. Through Firstly, the CAS Statutes and Regulations were completely this procedure, which no longer exists, the CAS could revised to make them more efficient and to modify the give a legal opinion on any sports-related issue. structure of the institution to make it more independent of the IOC, which had sponsored it since its creation. The In 1991, the CAS published a Guide to Arbitration, which included several model arbitration clauses, including 3 See further comments on this landmark case by Prof. Ian Blackshaw in one for incorporation in the statutes or regulations of chapter 4 of: Jack Anderson (ed.), Leading Cases in Sports Law (TMC Asser Press, The Hague 2013). international sports federations. This clause foresaw the

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most important change resulting from these changes was (“ASOIF”) and the Association of Winter Olympics the creation of an International Council of Arbitration for International Sports Federations (“AIWF”); and Sport (“ICAS”) to deal with the running and financing of – 5 persons from the Association of National the CAS, thereby taking the place of the IOC (see below). Olympic Committees (“ANOC”).

Another major change was the creation of two arbitration ICAS members are appointed for four-year renewable terms. divisions of the CAS – the “Ordinary Division” and the “Appeals Division” – in order to make a clear distinction The ICAS appoints the CAS arbitrators and mediators between disputes of sole instance and those arising and approves the budget and the accounts of the CAS.5 from a decision rendered by a sports body. And the CAS reforms were enshrined in a new Code of Sports-related The funding of CAS is shared between the arbitration, which came into force on 22 November 1994. constituents of CAS as follows:

All these reforms were approved in Paris on 22 June – 4/12 by the IOC; 1994 with the signing of the Agreement concerning the – 3/12 by the ASOIF; Constitution of the International Council of Arbitration – 1/12 by the AIWF; and for Sport – known as the “Paris Agreement”. – 4/12 by the ANOC.

Later developments The organisation of CAS The ICAS was responsible for the creation of the The CAS, also known by its French acronym TAS (Tribunal decentralised offices of the CAS (referred to below) and also Arbitral du Sport) – the official languages are French the “Ad Hoc” Divisions (also referred to below); as well as and English – is based in Lausanne, Switzerland, and the introduction of a “Mediation Procedure” (see below). has two permanent branches in Sydney, Australia, and New York, USA, facilitating access to CAS for More recently, the CAS moved to new headquarters parties residing in Oceania and North America.6 at the Chateau de Bethusy in Lausanne. This not only provided the CAS with the possibility to expand its Because CAS is based in Switzerland, with its seat in personnel and facilities to cope with its ever-increasing Lausanne, CAS proceedings are generally governed workload, but also represented a further – physical – by Swiss law.7 It has its legal seat in Lausanne for all separation and independence of the CAS from the IOC. purposes, even when it hears cases outside Switzerland.8

It has recently been announced that the CAS, The CAS Court Office, headed by the Secretary General once again, will move to larger premises at and assisted by several legal counsels and secretaries, the Chateau de Beaulieu in Lausanne. supervises the arbitration and mediation procedures and acts as a registry; it also organises the “Ad Hoc” Divisions The International Council of Arbitration for Sport (ICAS) (see below) and deals with other administrative matters. We will now briefly describe the constitution and role of the governing body of CAS, namely, the CAS arbitrations are conducted in accordance with the Code International Council of Arbitration for Sport (ICAS). of Sports-related Arbitration, the latest version of which dates and is effective from 1 January 2019. See further on The ICAS is the supreme organ of the CAS. It is, like CAS itself, the changes to the Code as explained by Rafael Braegger.9 ia Swiss foundation, based in Lausanne, Switzerland. Its main function is to safeguard the independence of the CAS CAS proceedings are generally confidential, but Awards and the rights of the parties appearing before it.4 Thus, it is responsible for the administration and financing of the CAS. 5 See generally on the ICAS art. S4-S11, ibid.

The ICAS has 20 members, who, on appointment, must 6 See generally M. Reeb, “The Role and Functions of the Court of sign a declaration in which they undertake to exercise Arbitration for Sport (CAS)”, in: The International Sports Law Journal 2 their functions in a personal capacity, with total (2002), p. 21, 23-25. objectivity and independence. The members comprise: 7 See art. R45 and R58 of the CAS Code of Sports-related Arbitration.

– 5 sports persons; 8 For the legal and practical significance of this, see the Judgement of – 5 independent persons, who are outside the the New South Wales Court of Appeal of 1 September 2000 in the case Olympic Movement and sport generally; of Angela Raguz v. Rebecca Sullivan [2000] NSWCA 240. In that case, a – 5 persons from the IOC; legal challenge against a CAS arbitral award was dismissed on the ground of lack of jurisdiction because the Court upheld the choice of Lausanne, – 5 persons from the Association of Summer Switzerland as the seat (i.e. place) of arbitration under the CAS Code of Olympics International Sports Federations Sports-related Arbitration.

9 Rafael Braegger, “Court of Arbitration for Sport: The new Anti-Doping 4 For a complete list of the functions of ICAS, see art. S6 of the Code of Division and other amendments to the CAS Code”, in: GSLTR 2019/4 Sports-related Arbitration (2016 edition in force from 1 January 2016). (December 2019), p. 27-31.

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may be published in certain circumstances.10 questions of CAS jurisdiction generally15 and, in particular, the possible “ousting of the jurisdiction of the ordinary courts” The CAS is able to grant, subject to certain conditions, for the settlement of sports disputes arising during the provisional and conservatory measures, such as orders to Olympics. This is an interesting and thorny issue, which safeguard vital evidence, for example, in doping cases.11 the author of this article has addressed elsewhere.16 The CAS can also order expedited hearings in appropriate cases, a useful measure, where sporting deadlines apply, The CAS has a minimum of 150 arbitrators, who are for example, in eligibility disputes where the sporting specialists in arbitration and sports law.17 They are event concerned is due to take place imminently.12 appointed for four-year renewable terms and must sign a “letter of independence” confirming that they will In general, CAS ordinary proceedings take between six act impartially. The ICAS appoints the CAS arbitrators and twelve months; whereas CAS appeal proceedings in accordance with certain prescribed criteria.18 must be completed within four months from the transfer of the file to the Panel. CAS arbitration proceedings In establishing the list of CAS arbitrators, the are generally confidential, although, as result of the ICAS must “consider continental representation ECtHR Decision in Pechstein (see later), hearings of and the different judicial cultures.”19 CAS cases of a disciplinary nature may be held in future in public under certain limited conditions.13 It is possible to challenge, before the CAS Challenge Commission, the impartiality of CAS arbitrators when During the Olympic Games, the CAS operates an “Ad Hoc” appointed to serve on CAS panels, but, in practice, Division (“AHD”), which was first set up on 28 September many such challenges are unsuccessful. Reasons for 1995, for the Centennial Atlanta Summer Games of such decisions are given and may be published.20 the Modern Era in 1996, resolving disputes relating to the Games within 24 hours and free of charge.14 The CAS also has a permanent President, an Australian lawyer, John Coates, first appointed in 2011 in succession The AHD decides cases “pursuant to the Olympic Charter, to the previous President and Founder Member of the applicable regulations, general principles of law CAS, Judge Keba Mbaye, who died on 11 January 2007. and the rules of law, the application of which it deems Coates’ mandate has recently been renewed for a appropriate.” All athletes participating in the Summer further term of four years (see later on this subject). and Winter Olympic Games must submit their disputes to the CAS AHD. The actual submission forms part of CAS arbitrators, who sit on panels composed of one or the Athlete’s Entry Form to participate in the Olympics three members, are not generally obliged to follow earlier and without it they may not participate, even though decisions (stare decisis) (binding legal precedent), but they have qualified to do so on sporting grounds.

Of course, this mandatory submission to the CAS AHD raises

10 See art. R43 of the CAS Code of Sports-related Arbitration, which 15 See art. R27 of the CAS Code of Sports-related Arbitration, which provides as follows: “Proceedings under these Procedural Rules are provides as follows: “These procedural rules apply whenever the parties confidential. The parties, the arbitrators and CAS undertake not to disclose have agreed to refer a sports-related dispute to CAS. Such reference may to any third party any facts or other information relating to the dispute or arise out of an arbitration clause contained in a contract or regulations the proceedings without the permission of CAS. Awards shall not be made or by reason of a later arbitration agreement (ordinary arbitration public unless all parties agree or the Division President so decides.” proceedings) or may involve an appeal against a decision rendered by a federation, association or sports-related body where the statutes or 11 Art. R37 of the CAS Code of Sports-related Arbitration; see regulations of such bodies, or a specific agreement provide for an appeal to also chapter 5 by Ian Blackshaw and Tilo Pachmann in: Yearbook of CAS (appeal arbitration proceedings). Such disputes may involve matters of International Sports Arbitration 2015 (Asser Press, The Hague, The principle relating to sport or matters of pecuniary or other interests relating Netherlands). to the practice or development of sport and may include, more generally, any activity or matter related or connected to sport.” 12 Arti. R44.4, ibid. 16 See Professor Ian Blackshaw, “CAS at the London 2012 Olympics: a 13 See art. R57, ibid., which provides in para. 2 as follows: “At the hearing, question of jurisdiction”, in: GSLTR 2012/3 (September 2012), p. 11-12. the proceedings take place in camera, unless the parties agree otherwise. At the request of a physical person who is party to the proceedings, a public 17 At the time of writing, namely January 2020, there are some 350 CAS hearing should be held if the matter is of a disciplinary nature. Such request arbitrators, from almost 90 countries, and around 550-600 cases are now may however be denied in the interest of morals, public order, national registered with the CAS each year. security, where the interests of minors or the protection of the private life of the parties so require, where publicity would prejudice the interests of 18 These are laid down in art. S14 of the Code of Sports-related justice, where the proceedings are exclusively related to questions of law or Arbitration. where a hearing held in first instance was already public.” 19 Art. S16, ibid. 14 See Ian Blackshaw, “A sporting decision in just 24 hours”, in: The Times, 23 July 2002. 20 See art. R34 of the CAS Code of Sports-related Arbitration.

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they usually do so in the interests of legal certainty.21 Thus, a useful body of sports law (lex sportiva) is steadily being built up.22 The extent to which this is happening continues to be the subject of academic debate.23

The CAS arbitrators may hold a hearing or decide the dispute without one, based only on the documents submitted to them in the case.24

The CAS has recently introduced a new division, the Anti-Doping Division (“ADD”), to deal with anti- doping rule violations. The ADD has two instances: a first instance and an appeal instance.25

The CAS has also introduced a pro bono legal representation service for those athletes who would not ordinarily, on economic grounds, be able to afford to take their cases to CAS, operated by the Legal Aid Commission.26

On the subject of the costs of CAS proceedings generally, see art. R64 and R65 of the CAS Code of Sports-related Arbitration.27

To be continued: part two of this article will be published in the June 2020 issue of GSLTR.

21 See the Case of UCI v J. 7 NCB, CAS 97/176 Award of 28 August 1998, 14. See also, the Book “The Code of the Court of Arbitration for Sport: Commentary, Cases and Materials” by Despina Mavromati and Matthieu Reeb, March 25, 2015, Wolters Kluwer Law and Business, The Netherlands,. See further the Andrew Webster and Matuzalem Francelino da Silva CAS Awards of 2007/A/1298 and 2008/A/1519 respectively, which are briefly discussed at p. 136 of “International Sports Law: An Introductory Guide” by Ian S. Blackshaw, 2017 Asser Press, The Hague, The Netherlands. Reference should also be made to the Oscar Pistorius and IAAF CAS Award of 2008/A/1480, in which it was expressly stated that, in the particular circumstances of this case, the Award did not create any precedent.

22 From time to time, the CAS publishes Digests of Cases, but respecting, as appropriate, the confidentiality of the parties. The latest Digest of CAS Awards Volume III covers the period the period 2001 – 2003 and was published in 2004 by Kluwer Law International, The Hague, The Netherlands (ISBN 90-411-2259-1). Previous Volumes I and II covered the periods 1986-1998 and 1998-2000 respectively and were published by Editions Staempfli SA Berne and Kluwer Law International/Editions Staempfli respectively.

23 See K. Foster, “Is There a Global Sports Law? Entertainment Law 2/1 (2003), 1-18. Foster argues that the CAS as an institutional forum is not yet “globally comprehensive”. And see also James A.R. Nafziger, “International Sports Law”, Second Edition, 2004, Transnational Publishers, Inc., Ardsley, New York, 48-61. Prof Nafziger characterises the CAS lex sportiva as “still incipient”.

24 See Article R44.2 (final para.) of the CAS Code of Sports-related Arbitration.

25 For further information, see: Prof. Dr. Ian Blackshaw, “CAS establishes an anti-doping division”, available at www.sportsandtaxation. com/2019/01/doping-cas-establishes-an-anti-doping-division (accessed 14 February 2020).

26 CAS Statutes, S6 10 and S7 2.b.

27 See also on the subject of CAS costs: Ian S. Blackshaw, International Sports Law: An Introductory Guide (Asser Press, The Hague, The Netherlands 2017), p. 133.

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by paul j. greene1, matthew d. kaiser2 and Teams in men’s professional sports are lagging yelena g. hazim, llm3 behind league offices in providing opportunities for women Of the men’s professional sports in the USA, the NBA is the overall leader for gender hiring practices at both the league Part one of this article was published in office and team-level. In the most recent studies, 39.7% of the December 2019 issue of GSLTR. all professional positions at the NBA League Office were held by women5, compared to 40.9% in the MLS6, 35% in There is a dearth of women holding the NFL7, and 30.8% in the MLB8. Moreover, 54 women held influential positions within US sports positions of vice president or higher in the NBA League Just as women were not viewed as relevant stakeholders Office9, compared to 50 in the NFL10, 86 in the MLB11, and in sports prior to the increase in domestic violence 15 in the MLS12. Most significantly, the NBA had the first issues within sports, women have similarly not been two women to hold “the title of President in the league considered for influential positions within the sports office of a major men’s professional sports league”.13 industry. Specifically, there is a noticeable lack of female representation in the upper corporate echelons of teams, Even at the team level, the NBA was still far and above the leagues, and organizations. While initiatives have most progressive league. It has the most female majority been created to bring more women into the industry, owners (4)14 compared to any other men’s professional sport the progress has been slow, especially considering (NFL has 115 and both the MLB and MLS have 0) and there the lack of women in positions of influence.

Over the last several years, The Institute for Diversity 5 The 2019 Racial and Gender Report Card: National Basketball and Ethics in Sports (“TIDES”) has published its highly Association (2018-2019 season), p. 5, available at https://docs.wixstatic. com/ugd/7d86e5_300e4497c4484b6c91fc61f762443d9a.pdf (accessed 14 regarded Racial and Gender Report Card, which is “an February 2020). assessment of hiring practices in coaching and sport management in professional and college sport”.4 As the 6 The 2018 Racial and Gender Report Card: Major League Soccer (2017 description suggests, the Report Card evaluates the hiring season), p. 3, available at https://docs.wixstatic.com/ugd/71e0e0_ and promotion practices of the leagues that participate in f681280d5ea24ff3bf5c7730b1cf4869.pdf (accessed 14 February 2020). the assessment. Currently the NFL, MLB, MLS, NBA, and 7 The 2018 Racial and Gender Report Card: National Football League WNBA all participate. Overall, the most recent Report (2018 season), p. 8, available at https://docs.wixstatic.com/ugd/7d86e5 Cards illustrate that, although leagues have created many _8a53eea031f64ec48177a167c8f3479a.pdf (accessed 14 February 2020). diversity initiatives to attract women to their sports, Note: Green Bay, Oakland and Cincinnati franchises did not participate in there is still opportunity at both the league- and team- the survey. levels to improve women’s involvement in sports. 8 The 2019 Racial and Gender Report Card: Major League Baseball (2018 season), p. 6, available at https://docs.wixstatic.com/ugd/7d86e5_32674 92245744522893b464512c42cad.pdf (accessed 14 February 2020).

9 NBA Report Card, p. 10.

10 NFL Report Card, p. 8. 1 Founder, Global Sports Advocates, e-mail pgreene@ globalsportsadvocates.com. 11 MLB Report Card, p. 14.

2 Associate, Global Sports Advocates, e-mail mkaiser@ 12 MLS Report Card, p. 6. globalsportsadvocates.com. 13 NBA Report Card, p. 4. 3 LLM, sports lawyer, e-mail [email protected]. 14 Ibid., p. 48. 4 The Racial & Gender Report Card, TIDES, available at www.tidesport. org/racial-gender-report-card (accessed 14 February 2020). 15 NFL Report Card, p. 11.

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are also more female CEOs/presidents (7) in the NBA than provide them with the resources to succeed.30 “all other professional sports leagues combined”16 (NFL: 117, WNBA: 518, MLB: 019, MLS: 020). Moreover, 25.4% of NBA teams’ The success of women’s professional sports demonstrates positions of vice president and higher were filled by women21 how women can excel in the sports industry (18.2% for the NFL22, 28% for the MLS23, 19.2% for the MLB24). There are three major women’s professional sports leagues in the USA: the Women’s National Basketball Association As these numbers illustrate, while the league offices are (“WNBA”), the National Women’s Soccer League (“NWSL”)31, committed to providing more opportunities for women and the National Women’s Hockey League (“NWHL”). in the sports industry, the commitment has not been The WNBA is the largest and most developed of the three taken up as fervently by the teams. This is particularly leagues, having played games since 1997, with the NWSL, true with “game-impacting” positions within teams, i.e. recently concluding its 7th season, coming in second, general managers, coaches, and assistant coaches. No followed by the NWHL, a league still in its infancy, entering male professional league has a female general manager. its 5th season. Even with these three leagues at different To find one, you would have to go back to 1982 when Susan stages of their evolution and growth, they have generally Spencer25 was appointed general manager of the NFL’s provided more opportunities for women to get their foot Philadelphia Eagles by none other than her father, who into the sports industry at both the league office- and was team owner at the time. As for coaching positions, no team-levels as compared to the men’s professional leagues. team has a female head coach, but the NBA leads the group with 3 female assistant coaches26, followed by the NFL with At the top, all three women’s professional leagues are led 227. The MLS28 and MLB29 have 0 female assistant coaches. by a female commissioner. While TIDES has calculated that the WNBA currently has 45.2% of all professional positions Women have long worked hard to break into the filled by women with 22 women working in the league office male-dominated sports industry. Through diversity and 30 women serving as vice presidents and above in the initiatives focused on women, leagues have made WNBA team front offices32, no such data is readily available progress including more women in important decision- for either the NWSL33 or NWHL; however, a quick search on making roles. As the data above shows, however, there LinkedIn and the teams’ websites show that many executive is still plenty of need to expand the role of women in positions have been filled by women in these leagues, too. professional sports. Considering the recent successes of the various women’s professional leagues, where women Not only have more women been given the opportunity to hold many influential positions, men’s professional work at the league office and team’s front offices, but, in the leagues need to continue championing women and three leagues, they have also been hired in more “game- influencing” positions and have had success. For example, in 2019, out of the 12 WNBA teams, 5 had female general 16 NBA Report Card, p. 2. managers in 2019.34 Of the 5 female general managers, 3 were on teams that made the 2019 playoffs. Although none of 17 NFL Report Card, p. 28. the teams made it to the finals, over the last four years, two 18 “The 2019 Racial and Gender Report Card: Women’s National WNBA titles have been won by a team who had a female Basketball Association (2019 season) p. 40, available at https://docs. wixstatic.com/ugd/7d86e5_78609389efa7471292ce8844703a310f.pdf (accessed 14 February 2020).

19 MLB Report Card, p. 35.

20 MLS Report Card, p. 19.

21 NBA Report Card, p. 2. 30 The National Lacrosse League just named former NHL executive 22 NFL Report Card, p. 2. Jessica Berman to be its Deputy Commissioner making her the first woman to hold the title of Deputy Commissioner in a North American 23 MLS Report Card, p. 21. male professional sports league. See www.nll.com/news/national- lacrosse-league-names-former-nhl-executive-jessica-berman-deputy- 24 MLS Report Card, p. 37. commissioner-and-evp-of-business-affairs (accessed 14 February 2020).

25 Bill Shea, “A chat with NFL’s first – and only – female general 31 NWSL currently does not have an official commissioner, however manager”, available at www.crainsdetroit.com/article/20170327/ Ms. Amanda Duffy, the current President of the NWSL, has been acting BLOG003/170329831/a-chat-with-nfls-first-and-only-female-general- commissioner for the last three seasons. manager (accessed 14 February 2020). 32 WNBA Report Card, p. 2. 26 NBA Report Card, p. 50-51. 33 NWSL has 13 full-time staff members in the league office, 5 of 27 NFL Report Card, p. 26-27. which are in the media office. Ronald Blum, “Women’s league seeks more fans, sponsors after US title”, available at https://apnews.com/ 28 MLS Report Card, p. 17-18. d14ade034ab94fa1b5e4c406068ac47e (accessed 14 February 2020).

29 MLB Report Card, p. 7. 34 WNBA Report Card, p. 12.

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general manager and female CEO/president.35 In comparison, and now that the 2019 season is over, the management the NWHL has female general managers in 4 out of 5 agreement between the federation and the NWSL has teams while the NWSL only has 1 amongst its 9 teams. expired, meaning “ultimate power over league decisions” has been transferred from the USSF to the owners.40 All of the Regarding coaching, the WNBA is in the lead with NWSL teams are independently owned, unlike either the women holding 5 head coaching and 16 assistant WNBA or NWHL, with some being owned by MLS owners.41 coaching positions36 among its 12 teams, while the NWSL has 2 head coaches and 4 assistant coaches spread The NWHL was founded by its commissioner, Ms. Dani throughout its 9 teams and the NWHL has 1 “co-coach” Rylan, and held its inaugural season in 2015-16. All four and 7 assistant coaches amongst their 5 teams. initial teams were owned by the league and at various points independent owners have taken control of one or The prominence of women in the league office, two teams. Currently, four teams are owned by the NWHL, the team front offices, and coaching positions and one, the Boston Pride, is owned by an independent demonstrates that women can successfully lead investor42. Using partnerships from the NHL and its and contribute to the development of the game teams as well as sponsorships from companies such as as well as the business side of the sport. Dunkin’ Donuts and Twitch – a video-streaming service – the league has been able to reach more consumers. The women’s professional sports leagues have been increasingly successful regardless of their business structure Of the three leagues, the WNBA has been the most While the women’s professional leagues are still small successful, generating, conservatively, an estimated US$ 60 compared to their male counterparts and have unique million in 201843 and having an average attendance of business structures, they have made significant strides to 6,535 in 2019. However, the recent boost from the World demonstrate that women’s professional sports can succeed. Cup has helped the NWSL gain extra publicity and even ink a broadcasting deal with ESPN44, making it a more The WNBA and its teams, unlike the NWHL or NWSL, were household name within the USA as demonstrated by its rise originally owned by its male counterpart, the NBA37. As the in attendance from an average of 6,017 fans at each game in league has become more prosperous, the NBA has given 2018 to 7,386 in 2019.45 While the NWSL, like the MLS, does some of its control up. Some teams are now independently not release its revenue numbers, given the new broadcasting owned, but half of the WNBA is still owned by the NBA’s 30 agreement and continued rise in popularity of the players team owners through a company called WNBA Holdings.38 who play in the league, namely those on the U.S. Women’s National Team, the NWSL will likely be rivaling the WNBA The NWSL was launched in 2013 with the support from both in revenue sooner rather than later. In fact, it was recently the Canadian Soccer Association and United States Soccer announced that the NWSL will expand to include a 10th Federation.39 Since the beginning, the soccer federations have continued to help by subsidizing the salaries of many of the top national players. Additionally, the USSF “provides logistical support in the NWSL’s front office”, 40 John D. Halloran, “The NWSL might be missing its World Cup window”, available at https://equalizersoccer.com/2019/07/05/nwsl- womens-world-cup-bump-us-soccer-management-agreement-ending 35 Ms. Alisha Valavanis is the CEO and General Manager of the Seattle (accessed 14 February 2020). Storm, which won the WNBA title in 2018; see “Storm CEO & GM Alisha Valavanis”, available at https://storm.wnba.com/alisha-valavanis 41 Sean Rollins, “How MLS Owners are Helping to Create a Better (accessed 14 February 2020). Ms. Penny Toler was the assistant general Future for the NWSL”, available at https://www.themaneland. manager and Ms. Christine Simmons was President of the Los Angeles com/2018/3/24/17144136/how-mls-is-creating-a-future-for-the-nwsl Sparks when it won the WNBA title in 2016; see, “Sparks President & (accessed 14 February 2020). COO Christine Simmons Steps Down to Become COO of the Academy of Motion Picture Arts & Science”, available at https://sparks.wnba.com/ 42 Pete Blackburn, “NWHL will get “significantly” more financial support news/simmons-steps-down (accessed 14 February 2020) and Sabreena from NHL following folding of CWHL”, available at www.cbssports.com/ Merchant, “The Los Angeles Sparks have let go of GM Penny Toler”, nhl/news/nwhl-will-get-significantly-more-financial-support-from-nhl- available at https://highposthoops.com/2019/10/04/penny-toler-los- following-folding-of-cwhl (accessed 14 February 2020). angeles-sparks-gm-fired (accessed 14 February 2020). 43 David Berri, “WNBA Players Are Simply Asking For A Greater 36 WNBA Report Card, p. 38-39. Share Of WNBA Revenues”, available at www.forbes.com/sites/ davidberri/2018/09/04/what-wnba-players-want/#2dd93fc933eb 37 Joshua Lobdell, “Sports Business 101: What is the WNBA?”, available at (accessed 14 February 2020). https://bit.ly/2piwegP (accessed 14 February 2020). 44 “NWSL Reaches TV Deal with ESPN for Second Half of Season”, in: 38 Howard Megdal, “WNBA CBA Negotiations: Adam Silver, Terri Jackson Sports Illustrated, available at https://bit.ly/2q1ZhFf (accessed 14 February Discuss The Stakes And The Grand Bargain”, available at https://www. 2020). forbes.com/sites/howardmegdal/2018/11/19/wnba-cba-adam-silver-terri- jackson-discuss-stakes-and-the-grand-bargain/#419235fd5b7b (accessed 45 Jamie Goldberg, “National Women’s Soccer League averaged over 14 February 2020). 6,000 fans per game for first time in 2018”, available at www.oregonlive. com/portland-thorns/2018/09/national_womens_soccer_league_18.html 39 “NWSL and A+E Networks announce historic partnership”, available at (accessed 14 February 2020),.and “Attendance Project: NWSL”, available at https://bit.ly/2q53nMY (accessed 14 February 2020). www.kenn.com/the_blog/?page_id=5596 (accessed 14 February 2020).

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team next season, with more teams likely on the horizon.46 when such failure is pervasive within the USA.51

The most fledgling of the three women’s leagues is the However, the WST situation is not solely about financial NWHL, with an average attendance of 954 in 2018 and compensation. As explained in their complaint, the WST only 5 teams in the league. While the NWHL does not was not provided with similar terms and conditions of have a major network to broadcast its games, it still is employment as those of the Men’s National Soccer Team able to reach its fans by streaming games through outlets (“MST”). For example, the WST has had to play many more like YouTube, Twitter, and now Twitch, which garnered games on artificial turf than the MST, which endangers the an average of 70,000 viewers for its games.47 The NWHL’s physical wellbeing of athletes more than playing on grass. apparel sales increased significantly last season, too, The USSF has even gone out of its way on multiple occasions further demonstrating the leagues growth and interest to “arrange [...] for natural grass to be installed temporarily among U.S. fans. Unfortunately, prior to the start of the over artificial surfaces” for the men’s national team but 2019-2020 season, just after the Canadian Women’s Hockey allowed the women’s national team to play a World Cup League folded, over 200 players, many of whom were on on artificial turf in 2015.52 Further, the MST was provided the U.S. National Hockey team, announced they would with more charter flights (as opposed to commercial boycott the NWHL season because they “cannot make flights) and was more heavily promoted than the WST.53 a sustainable living” playing in the NWHL considering the NWHL cannot provide health insurance and pay “as The WST is not the only female team in the USA who has low as” US$ 2,000 a season.48 Consequently, the league’s voiced its displeasure with the difference in treatment viability is still in doubt. If the national team players come from their male counterparts. The U.S. Women’s National back and the NWHL incorporates Canadian teams that Ice Hockey Team (“WHT”) has also sought to have better have been displaced, there is a significant opportunity treatment from its national governing federation. In for the NWHL to stabilize, survive and maybe even catch March 2017, the WHT threatened they would “boycott the up to the other women’s leagues in the USA over time. International Ice Hockey Federation World Championship after negotiations with USA Hockey for support equal to the These women’s pro sports leagues demonstrate men’s team came to a standstill.”54 Similar to the WST, the that, when given the opportunity, women are WHT brought to light how not only were they being paid thriving in leadership positions in sports. significantly less than the men’s team, but they also had to endure less favorable conditions of employment such as The prevalence of equal pay discrimination “having to travel in coach while the men’s team flew business between men and women in US sports class, having to share rooms [with] other teammates while One of the most important issues in women’s sports recently the men got singles, and not being allowed to bring guests has been the wage gap between male and female athletes. when competing in world championship games while the men Overall, in the USA, women earn about 85% of what men could – and had their transportation costs covered”.55 Not earn.49 And as the recent United States women’s national only were fewer resources being devoted to the women’s soccer team’s (“WST”) class action lawsuit against the USSF team for marketing the team or even developing grass illustrates, this trend holds true for female athletes in the roots programs for younger girls, most shockingly, “[t]he USA.50 While this is not a U.S.-specific issue, considering women also didn’t have their disability insurance covered”.56 the USA is seen as a progressive country, it is noteworthy Ultimately, with the threat of a boycott looming, USA Hockey and the WHT concluded a four-year agreement. In the end, the women received many of their demands including, boosts in their salaries of almost US$ 70,000, the potential for performance bonuses, travel and 46 Mitchell Northam, “NWSL President Amanda Duffy weighs in on insurance provisions equal to the men’s national league’s transition, Louisville, compensation”, available at (accessed 14 February 2020). 51 See Prof .Dr. Ian Blackshaw, “Football: FIFA Women’s World Cup Pay 47 Mike Murphy, “Attendance numbers, merchandise sales, more from Gap”, 13 June 2019, available at www.sportsandtaxation.com/2019/06/ NWHL’s 2018-19 season released by league”, available at https://bit. football-fifa-womens-world-cup-pay-gap (accessed 14 February 2020). ly/2N0EM4L (accessed 14 February 2020). 52 Morgan, et al v. USSF, 2:19-cv-01717-RGK-AGR, Central District of 48 Erica Ayala, ““We’re not going to play”: Will a player boycott save California, Complaint, p. 13. women’s hockey ... or harm it?”, available at www.theguardian.com/ sport/2019/may/06/womens-hockey-boycott-north-america-nwhl-cwhl 53 Ibid., p. 14. (accessed 14 February 2020). 54 Alix Langone, “Before Team USA Women’s Hockey Won Olympic 49 Nikki Graf, et al, “The narrowing, but persistent, gender gap in pay”, Gold, They Won Equality Off the Ice”, available at http://money.com/ available at www.pewresearch.org/fact-tank/2019/03/22/gender-pay- money/5170726/usa-olympics-womens-hockey-boycott-gold.(accessed 14 gap-facts (accessed 14 February 2020). February 2020).

50 See Matthew D. Kaiser, “U.S. Women’s National Soccer Team Strikes 55 Ibid. Again: WNT Sues USSF for Gender Discrimination Ahead of World Cup”, In: Football Legal, Issue 11. 56 Ibid.

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team, and a larger training stipend from the USOC. Conclusion Women are at the forefront of a changing landscape Although deemed a significant success initially, there has that is reshaping the U.S. pro sports world and been recent criticism about the lack of support for girls and forcing leagues, owners, and players to have women’s hockey as was promised: “[t]he Women’s High uncomfortable – but real – conversations about how Performance Advisory Group created in the deal has been sports leagues should function within society. largely invisible” and there has been “[m]inimal promotion for the team” as well as a “lack of organizational diversity The next year should continue to bring real change in U.S.A. Hockey”.57 The team also feels like they have as the U.S. Women’s National Soccer Team continues missed out on various opportunities to further capitalize to seek fair and equitable treatment and the WNBA on the success they have had on the ice such as by having collective bargaining agreement will be renegotiated. exhibition games or more focused media coverage. Overall, while the individual gains are great, the women know The time is now for women to make an indelible that if their sport is to become popular and sustain itself, mark on the future of U.S. pro sports leagues! more must be done to cultivate excitement and interest in their team and the sport at the grass roots level.

One last example is the WNBA players’ decision this year to opt out of their collective bargaining agreement. Similar to the WST and WHT, the WNBA players have vocalized their displeasure regarding their pay, travel conditions, lack of marketing its stars, and the condensed schedule, amongst other topics.58 Regarding pay, it is estimated that the WNBA players’ portion of the leagues revenue allocated to salaries is only around 20%, whereas their male counterparts have agreed to a split of about 50%.59 As a result, player’s salaries are severely limited, so much so that NBA star LeBron James himself makes about “three times the combined salaries of the [entire] W.N.B.A.’s 144 players”.60 Between the pay discrepancy, travel conditions, and marketing issues, the negotiations for the next collective bargaining agreement will certainly have to seek solutions to these significant unresolved issues.

As these three instances demonstrate, female teams typically take a backseat to their male counterparts. While interest continues to grow in women’s team sports, as illustrated by ESPN’s recent decision to purchase the broadcast rights for the 2019 NWSL season, critics point out that women’s teams still fail to bring in revenue close to men’s teams. The recent flurry of publicity surrounding women’s sports should be a catalyst for creating sustainable change in sport, one that views female and male athletes on a more level playing field.

57 Seth Berkman, “Hefty Raises, Olympic Gold, and Then Crumbs for U.S. Women’s Hockey”, available at https://nyti.ms/2PtSe2V.(accessed 14 February 2020).

58 Matt Ellentuck, “Why WNBA players are opting out of their CBA”, available at www.sbnation.com/wnba/2018/11/1/18050302/wnba- players-opt-out-cba.(accessed 14 February 2020).

59 Ibid.

60 Kim Tingley, “The W.N.B.A. Is Putting On Some of the Best Pro Basketball in America”, available at www.nytimes.com/2019/09/02/ magazine/wnba-atlanta-dream.html..(accessed 14 February 2020).

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by robert esau for the game Counter Strike: Global Offensive held in June 2019 with a prize pool for the online qualifiers of US$ 250,000 (about c 220,000). The online qualifiers culminated in an offline tournament, with a prize pool Part two of this article will be published for the winning team of US$ 500,000 (about c 400,000).4 in the June 2020 issue of GSLTR. Given the extensive size and growth potential of the Overview of the esports industry market, there are many companies wishing to monetize Esports, also known as electronic sports, refers to the this viewership. The major income streams arising from competitive play of video games. Under its most widely the esport industry are analogous to the sports industry. accepted definition this competitive play must contain These major income streams consist of sponsorship, three elements in order to be considered an esport: advertising, media rights, and merchandise and ticket sales. An additional stream of income unique to the esports – professional players; industry is a publishing fee paid by game publishers to – organized games; and tournament organizers in order to produce large esport – a competitive tournament.1 events. This unique revenue stream exists in the esports industry because there is an owner of the video game, as Esports can be further divided into two opposed to a sport (i.e. soccer) in which no one owns the subcategories: online and offline play.2 game itself. As such, these publishers pay tournament organizers to put on large scale esport events, helping to Offline play, currently considered to be the larger of the increase awareness of the game and expand the game’s two subsets, refers to when competitors play against playership. In general, these income streams are initially each other in a venue, often with large numbers of live monetized by teams, publishers and tournament organizers spectators, such as a stadium. These offline matches are and subsequently paid to players in the form of prize usually simultaneously live streamed on online platforms money and the player’s salaries, in an employment setting, such as Twitch TV and YouTube Gaming, reaching hundreds or player fees, in the independent contractor setting. of millions of viewers worldwide. These tournaments are often played for large amounts of prize money. The 2018 total revenue amassed from these income The largest tournament to date was the Dota 2 World sources is estimated to be US$ 906 million (about Championships in 2018, held in Vancouver, Canada. The c 802 million) and is expected to surpass 1 billion in prize pool for this event was over US$ 25 million (about 2019.5 This revenue can be broken down as follows: c 22.5 million), with US$ 11.2 million (about c 9.8 million) awarded to the first-place team consisting of five players.3 source 2018 2019 revenue estimated revenue Online play is where competitors play against each (millions US$) (millions US$) other via the internet, not in a centralized location. sponsorship 359.4 456.7 These tournaments are live-streamed on services such advertising 173.8 189.2 as Twitch TV and YouTube Gaming for viewers to watch media rights 160.7 251.3 around the world. An example of this type of play was game publisher fees 116.3 95.2 the seventh season of the esports Championship Series merchandise and ticket sales 95.5 103.7

1 PricewaterhouseCoopers Hungary Ltd., E-sport’s moving into the big Source: Newzoo, 2019 Global Esports Market Report ( Newzoo, Amsterdam 2019). leagues (PricewaterhouseCoopers, Budapest 2018).

2 S. van Overbeek and D. Molenaar, “The Emergence of Esports”, in: Bulletin for International Taxation Volume 73 No. 2 (18 December 2018), p. 4 See “Tournament Info”, available at https://ecs.faceit.com/ 106-111 at 107. tournament-info (accessed 17 February 2020).

3 See “E-Sports Earnings”, available at www.esportsearnings.com 5 Newzoo, 2019 Global Esports Market Report (Newzoo, Amsterdam (accessed 17 February 2020).. 2019).

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Similar to the sports industry, these competitions are It is important to note that the scope of art. 17 does not performed in various countries around the globe. The solely apply to business or employment income earned majority of the players have a different domicile than by an entertainer or sportsperson, but also to income that the country they are performing in. In addition, these has a close connection to the public performance. The tournaments are simultaneously broadcast worldwide. As commentary to the OECD Model Convention establishes such, for a given tournament there will, in general, be many that this connection exists when it cannot be reasonably countries involved all of whom wish to tax in some capacity. considered that the income would be earned in the This creates a significant potential for double taxation absence of such performance.8 Given the various streams or double non-taxation without the proper allocation of of income derived from the public performance of the taxing rights through the use of international tax treaties. esport players (see sections “Taxation of income streams” below and “Player taxation” in Part two), this broadened In this article, I will begin by analyzing whether esports scope of art. 17 can have a substantial impact on a given players should be considered entertainers or sportspersons professional esports player or team’s tax situation. Therefore under the OECD 2017 Model Tax Convention on Income it is essential to determine whether these players will be and on Capital, hereby referred to as the “OECD Model considered entertainers or sportspersons in order to analyze Convention”. I will then discuss the concept of a team the taxation of the various income streams properly. or personal management company as an intermediary between the esport player and their income, and the The OECD Model Convention notoriously does not define ability for countries to look through the team or personal either of these terms. Therefore, under art. 3 of the Model management company in order to tax the player’s Convention, we are required to look at the domestic law income in the jurisdiction of performance. Next, I definition of the terms entertainers and sportspersons will analyze each stream of income referred to above unless the “context otherwise requires”.9 It is generally against the OECD Model Convention to determine the considered that in defining these terms the context proper allocation of taxing rights between participating does, in fact, require otherwise and that an autonomous countries. I will then apply the same methodology in treaty definition should be used without regard to the order to analyze the proper taxation of the prize money relevant countries’ domestic law.10 This is the view and salaries or fees paid to the participating players. taken by many academics, courts, and tax authorities around the world.11 Therefore, when considering whether Key taxation concepts an individual will be considered an entertainer or sportsperson for purposes of applying the OECD Model Entertainers and sportspersons Convention, we must look to the commentary of the convention and apply the analysis on a case-by-case basis. Definition of entertainers and sportspersons A key driver in the analysis of the taxation of esports In aiming to clarify what constitutes an entertainer under the OECD Model Convention relates to whether the for purposes of the OECD Model Convention, the text of participants, herein referred to as “professional esports the first paragraph of art. 17 provides a list of examples players” will be classified as entertainers or sportspersons including theatre, motion picture, radio or television as prescribed in the convention. This is an important artistes and musicians.12 The commentary to the first distinction because income earned under art. 17 of the OECD paragraph of art. 17 further clarifies that this list is not Model Convention, covering the taxation of entertainers exhaustive and that an entertaining character is a and sportspersons, may be taxed in the source state. This is necessary consideration when determining who constitutes in contrast to art. 15, covering employment income, which an entertainer.13 The commentary further excludes requires a substantial presence test to be met in order for certain activities such as visiting conference speakers or the source state to have taxation rights, or art. 7, covering models during a fashion show who are “acting as such”, business income, which requires a permanent establishment as opposed to an entertainer, clearly placing an emphasis for source taxation. It is important to note that art. 17 takes on this entertaining character of the performance. As precedence over art. 15 and 7. With respect to art. 17’s priority over art. 7, this is explicitly stated in paragraph 4 of the 8 Sec. 9, 3rd sentence, OECD Comm. on Art. 17. OECD Model Convention, which states that art. 7 will not impact items of income covered by other articles within the 9 Art. 3 OECD Model. convention.6 Concerning art.17’s priority over art. 15, this 10 L.A. Romero Topete, “Analysis of the Case Law on the Scope of Article 7 is explicitly stated in paragraph 2 of art. 17. Therefore any 17 of the OECD Model: Issues Resolved and Yet to Be Resolved”, in: Bulletin individual professional esports player earning income as for International Taxation, Volume 71 No. 3/4 (27 February 2017), p. 1-12 at 1. an entertainer or sportsperson, depending on the national law of the relevant jurisdictions, will be subject to tax in the 11 A. Cordewener, “Article 17. Entertainers and Sportspersons”, in: Ekkehart Reimer & Alexander Rust (ed.), Klaus Vogel on Double Taxation source state of performance and their state of residence. Conventions, Volume 2 (Kluwer, Alphen aan den Rijn 2015), p. 1287-1411, at 1321.

6 Art. 7.4 OECD Model. 12 Art. 17.1 OECD Model.

7 Art. 17.2 OECD Model. 13 Sec. 3, 2nd and 4th sentence, OECD Comm. on Art. 17.

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stated by Cordewener (2015), an essential requirement performance element is not necessarily an essential for applying art. 17 of the Model Convention is that the element for the personal activities of an entertainer performer must directly or indirectly “address an audience or sportsperson to fall under the scope of art. 17. with a performance of an entertaining character”. 14 Stated differently, there must be a public performance element Offline professional esports players as inherent in the personal activities of the entertainer in entertainers or sportspersons order for their income to fall under the scope of art. 17. Offline professional esports players refers to those who play in esport tournaments in front of a live audience. With regard to sportspersons, the OECD Model Convention As discussed above, this form of professional play has does not provide a list of examples as it does with historically generated the largest amount of income for entertainers. It is generally considered that the term professional esports players and participating companies sportsperson covers “any persons who engage in some alike. In its traditional sense, this form of esport gaming physical or mental activity that is exercised as an end in involves professional esports players competing in large itself, usually on the basis of certain rules and in certain stadiums, not unlike a professional soccer match, with organizational forms specifically designed for it”. 15 This thousands of fans in attendance. Note that these events theory is supported by the commentary to the OECD almost always consist of an online element as well, as they Model Convention which specifically states that the term are simultaneously live-streamed to millions of viewers sportsperson is not restricted to traditional athletic events16 worldwide. Therefore, almost any professional esport and further applies to activities primarily considered to player competing in an offline tournament in front of live have an entertaining character such as chess or bridge.17 spectators will also have an additional online viewership This use of the term “entertaining character” helps component inherent in their competitions. This is identical establish the link between the concept of an entertainer to the sports industry in which matches are played in front and sportsperson for purposes of the OECD Model of a live audience as well as being broadcast worldwide. Convention: both require an entertaining character and a public performance element to fall under the scope It would be farfetched to classify a professional esports of art. 17. Therefore, it is the author’s opinion, as well of player competing in an offline tournament as anything many others, that the distinction between whether an other than a sportsperson. While not performing a individual is considered an entertainer or a sportsperson traditional sport, these individuals are clearly engaging is largely irrelevant for the purposes of applying art. 17. in a physical and/or mental activity given the intense competition that surrounds these esporting events. These It should be noted, however, that the OECD Model competitions are performed for the entertainment of the Convention and accompanying commentary does not public, drawing in millions of viewers around the globe specifically state the need for a public“ performance” in through both direct (audiences at events) and indirect order for an entertainer or sportsperson’s income to fall (streaming, video on demand, etc.) channels. As mentioned under the scope of art. 17. In fact, the commentary to above, this is in direct comparison with traditional sporting art. 17, updated in 2014, specifically states that ancillary events which have both an online and offline component. activities, such as training or rehearsal, would be covered As such, it is the author’s opinion that it is clear that these by art. 17 “regardless of whether such rehearsal, training or professional esports players should be considered to be similar preparation is related to specific public performances sportspersons for purposes of applying the OECD Model taking place in that state”.18 The OECD’s rationale is that Convention. Therefore, any business or employment income these activities are part of the regular activities of the derived by a professional esports player in respect of his or entertainers and sportspersons and as such should fall her public participation in esports, or any income having a under the scope of the article. This is in contrast to the close connection to this public performance, will fall under original invention of art. 17 which was to allocate taxing the scope of art. 17. As in traditional sports the income rights involving a public performance.19 It is therefore of earned by the sportsmen, in this case the professional the author’s opinion, as well as others20, that with the esport players, is not delineated between income deriving 2014 update to the OECD Model commentary a public from local offline viewership or online viewership.

Online professional esports players as 14 A. Cordewener, supra, note 11 at p. 1322. entertainers or sportspersons Online professional esports players are participants in 15 A. Cordewener, supra, note 11 at p. 1331. esport competitions that do not have a live in-person 16 Sec. 5, 1st sentence, OECD Comm. on Art. 17. audience. Often this is done from their home and 17 Sec. 6, OECD Comm. on Art. 17. personal computers. While historically this has been a smaller market in terms of income streams than offline 18 Sec. 9.1, 10th sentence, OECD Comm. on Art. 17. play, as discussed above the addition of professional 19 Dick Molenaar, Mario Tenore, Richard Vann, “OECD - Red Card Article esport games such as Fortnite has vastly increased 17?”, in: Bulletin for International Taxation, Volume 66 No. 3 (27 January the monetization of this subset of the industry. 2012), p. 127-173 at 132. The concept of a sport without live participants is unique to 20 L.A. Romero Topete, supra, note 10, at p. 11. the online play subset of the esports industry. In traditional

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sporting events, as well as offline esporting events, fans Indirect earnings gather to view the competition in a live setting, whereas In the sports and esports industry it is common practice in online esports there is no live audience. This makes the for individual players to earn income indirectly. In many public performance factor, considered an essential element cases, income will first be earned by the player’s team and in the determination of which activities fall under the subsequently paid to the player in the form of a salary scope of art. 17, a more complicated consideration. This or independent contractor fees. The team often has its industry also creates a new and unique form of the term own contractual relationships with event organizers, sportsperson. In the author’s opinion the activities of these sponsors, and so on as well as obligations to pay salaries purely online esport players still clearly fall within art. or independent contractor fees to the team members. 17 of the OECD Model Convention. These individuals are Teams will therefore take in income from esports events, still sportspersons engaging in an organized competition, for example in the form of sponsorship and prize money, requiring physical and mental prowess and with organized keep a profit portion, and subsequently remunerate the rules. In addition, although there may be no live fans players for their participation in the sport. In general, this in attendance, these individuals are performing for activity will cause teams to be considered enterprises millions of viewers worldwide who are able to watch the within the meaning prescribed in art. 3 of the OECD Model performance through online streaming platforms for Convention, as it applies to the “carrying on of any business”. 23 entertainment value. This is comparable to a film actor As such, the team can be recognized as a separate taxpayer, who performs his or her role not directly in front of an especially in cases where the team itself is incorporated.24 audience but is able to meet the requirements of art. 17 due to the fact that his or her film is broadcast indirectly for Additionally, the players may incorporate themselves into audiences worldwide through various mediums. Therefore, a single shareholder management entity, referred to in the there is no need for a direct performance in front of the model commentary as a “star company”. and pay themselves audience in order to be considered a performing artist as subsequently through dividends or salary. This indirect an indirect performance through other forms of media is earning of income can create problems for the application of specifically accepted by the OECD and relevant case law21. the first paragraph of art. 17 which aims to tax entertainers and sportsperson on their personal activities exercised in a Based on this analysis these online esport players will state in which a public performance occurs. Legal entities, also fall under the scope of art. 17, which will allow for such as teams or a player’s personal management company, taxation in the state in which they are competing in are not able to carry on personal sporting activities.25 the tournament with relief provided in their state of residence. It should be noted that often the source and If taken at face value, the first paragraph of art. 17 would residence state will be the same as these individuals indicate that any income earned by the team or single are able to compete from their countries of residence, shareholder management entity of the player would often competing directly from their homes. fall out of the scope of art. 17. This would mean that entertainers and sportspersons could easily avoid paying At this point, it should be noted that the concept of tax in the jurisdiction of performance by interposing entertainers and sportspersons first made an appearance entities between themselves and the enterprise paying with the OECD in 1963 in an effort to address the challenges their income. The payment of income to the entity would of taxing these groups of individuals,22 primarily actors be governed by art. 7, covering business profits, and would and athletes, who earned income in multiple jurisdictions. not accrue source taxation in the absence of a permanent The landscape of how these individuals earn their income establishment. Given that the professional esports players has clearly changed with the modernization of the are generally only in a performance jurisdiction for a few world and the mediums in which these industries are days and not operating out of a fixed place of business monetized. While the commentary has been updated in made available to them per se, it is very unlikely that an effort to reflect these changes, the emergence of an the threshold for a permanent establishment would be industry such as the esports industry, and specifically met. Therefore, any income earned by the professional the online esports industry, is a clear indication of the esport player would only be taxable in the state of need to modernize the OECD Model Convention and residence of their personal management company. Commentary to accurately represent present day reality. It is the author’s opinion that the terms entertainers and The subsequent payment to the player would be taxable sportsmen should be clearly defined within the OECD Model under art. 15, covering employment income, in the Convention in order to limit the confusion associated with case of a salary payment from the team or personal interpreting these terms. It is also of the author’s opinion management company, art. 7, covering business income, that the need for a public performance element should be clearly defined within the OECD Model Convention. 23 Art. 3, OECD Model Convention.

21 J. Roeleveld and K. Tetlak, “Article 17: Entertainers and Sportspersons - 24 Karolina Tetlak, “Tax Treatment of Team Performances under Art. 17 of Global Tax Treaty Commentaries”, Global Tax Treaty Commentaries IBFD the OECD Model Convention”, in: World Tax Journal, Volume 2 No. 3 (accessed 14 Nov. 2019). (3 September 2010), p. 262-290 at p. 273.

22 Dick Molenaar, Mario Tenore, Richard Vann, supra, note 19, at p. 127. 25 Karolina Tetlak, supra, note 24, at p. 273.

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in the case of a payment to the professional esport player income is never paid as remuneration to the player himself. engaged by the team as an independent contractor, However, a treaty by itself cannot create a taxing right. Art. or art. 10, covering dividend income, in the case of a 17 states that the source country “may” tax the income, not dividend payment made to the professional esport that it must. Creating taxing rights is left to a country’s player by their personal management company. domestic law, with the treaty serving to allocate these taxing rights between competing jurisdictions. Therefore, Art. 15 would restrict the taxing rights to the residence in the absence of a look through provision in the jurisdiction state of the professional esports player, unless he of performance, the amounts paid to an intermediary will or she met one of the following connecting factors not be covered by the first paragraph of art. 17.28 They will prescribed by the OECD Model Convention: therefore escape taxation in the state of performance unless a permanent establishment exists that has attributable 1 the professional esports player was present in the source income under art. 7 of the OECD Model Convention. state for a period exceeding 183 days in a 12 month period beginning or ending in the fiscal year in question; The second paragraph of art. 17 specifically deals with 2 the income was paid by or on behalf of an this issue. The text of this paragraph states that : employer resident in the source state; or 3 the remuneration is borne by a permanent “where income in respect of personal activities exercised by establishment of the team or personal management an entertainer or a sportsperson acting as such accrues not company in the state of performance.26 to the entertainer or sportsperson but to another person, that income may, notwithstanding the provisions of Article Given the limited amount of time spent by a player at 15, be taxed in the Contracting State in which the activities a tournament, generally less than a week, it would be of the entertainer or sportsperson are exercised”. 29 unlikely that the first threshold would be met in the case of a professional esports player participating in a tournament. This paragraph allows source taxation in instances Unless the team or personal management company where the income is paid to an intermediary entity, and paying the income is resident in the state of performance the domestic law of the source state lacks a look through or operating out of a permanent establishment there, provision, thereby not allowing taxation of this amount. which generally will not be the case, the second and third Art. 17 paragraph 2 was introduced specifically to avoid thresholds will also not be met. Therefore, this income tax avoidance scenarios caused by entertainers and would only be taxable in the professional esport player’s sportspersons earning income through intermediary country of residence. Art. 7 allocates exclusive taxation companies in an effort to avoid or minimize source taxation. rights to the country of residence of the recipient unless they are operating through a permanent establishment Art. 17, paragraph 2 works by allowing jurisdictions to in the source state. As mentioned above, it is unlikely look through these intermediary companies and tax any that the professional esport player will be deemed to performance related income from the personal activities have a permanent establishment in the performance of entertainers and sportspersons regardless of whom state and therefore there will be no source taxation. Art. they are paid to. This applies regardless of whether the 10, covering dividend income, would not consider where entertainer or sportsperson owns the intermediary the tournament took place that generated the income. company (i.e. their personal management company) Instead, the article would allocate taxing rights between or not (i.e. their team). Therefore, any earnings of these the residence state of the interposed company that is intermediary entities will be subject to taxation as if it was paying the dividend and the residence state of the player. received by the entertainer or sportsperson themselves. This conclusion has been supported by case law covering The end result of the application of either art. 10, covering situations in which an entertainer or sportsperson earned dividend income, art. 15, covering employment income, or income indirectly, including a 2009 case administered by art. 7, covering business income, is that the source state the Federal Court of Fiscal and Administrative Justice of in which the performance occurred has no taxing right. Mexico in which a Netherlands company earned income This is in conflict with the goal of art. 17, which aims to tax from an entertainer’s public performance in Mexico. The entertainers and sportspersons on their personal activities court withheld that this income should be taxable in Mexico acting as such in the jurisdiction in which the performance under the second paragraph of art. 17 of the Netherlands occurs. The commentary of the OECD Model Convention and Mexico income tax treaty as the income was related aims to address this issue by stating that the first paragraph to the public performance of the entertainer during their of art. 17 applies to income received directly or indirectly time spent in Mexico, even though the income was paid by an entertainer or sportsperson.27 The commentary specifically allows for a contracting state to “look through” teams and personal management companies in order to tax the player under the first paragraph of art. 17, even if the 28 E. Cacciapuoti and I. Zammit, Outline of Art. 17 (Entertainers and 26 Art. 15, OECD Model Convention. Sportspersons) (ITC, Leiden 2017).

27 Sec. 8, 1st sentence, OECD Comm. on Art. 17. 29 Art. 17.2, OECD Model.

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to the Dutch company.30 It should be noted that paragraph This permanent establishment threshold is unlikely to be 2 of art. 17 of the tax treaty between the Netherlands and met by a professional esport player given the brevity of their Mexico at the time of the case mimicked that of the current time in a source jurisdiction for a tournament, generally just OECD Model Convention for all intents and purposes. a few days, as well as the lack of a fixed place of business made available to them. However, the commentary to Given this taxation at the level of the intermediary the OECD Model Convention specifically states that” covered by paragraph 2 and taxation at the level of the entertainer and sportsperson under paragraph 1, “Article 17 will apply to advertising or sponsorship there exists a potential for double taxation. While not income, etc. which has a close connection with a providing specifics on calculating the split of income performance in a given state (i.e., payments made to a covered under each paragraph, the commentary is clear tennis player for wearing a sponsor’s logo, trade mark that the entertainer or sportsperson should not be taxed or trade name on his tennis shirt during a match)”.34 twice on their earnings.31 An example provided by the commentary would be to include the entire amount paid Therefore it is clear that art. 17 will apply to any sponsorship to the intermediary that is connected to the performance income earned by a professional esport player that has of the entertainer or sportsperson in the intermediary a close connection with their performance in the source company’s taxable income, under paragraph 2 of art. 17, state.35 As art. 7 is considered lex generalis, as indicated and allow for a deduction on any amount subsequently in the text of paragraph 4 of art. 7 in the OECD Model paid to the individual entertainer or sportsperson that Convention, art. 17 will take priority over this income. is taxed in their hands under paragraph 1 of art. 17. As concluded above in the section “Entertainers and Taxation of income streams sportspersons” of this article, professional esport players are to be considered entertainers and sportspersons for Sponsorship income purposes of applying the OECD Model Convention. Therefore Sponsorship income represented the largest income any sponsorship income realized by the professional stream to the esports industry in 2018 and is projected esport player that has a close connection to his or her to grow significantly in 2019.32 It is an attractive option public performance will be governed under art. 17 of the for esports related companies to attract new consumers treaty. In determining whether the sponsorship income as esports events are broadcast to millions of viewers is closely connected to an entertainer or sportsperson’s around the world. There are three main options available public performance, the OECD provides limited guidance. to sponsors, each with their own specific international tax Per the commentary to the OECD Model Convention, this considerations, namely the sponsorship of individuals, the close connection between a player’s sponsorship income sponsorship of teams, and the sponsorship of events.33 and their public performance may be evidenced by the contractual relationship between the two parties.36 This Sponsorship of individuals contract may specifically state that the player must wear Sponsoring individuals in the esports industry can be or use the company’s product at a specified event or may directed towards the players, the commentators, or social list a number of unspecified events where the player media influencers. This paper will focus on the sponsorship must comply with the sponsorship agreement. This of the individual players as this is the primary source of direct link in a contract between the sponsorship income individual sponsorship and the most directly connected to and the public performance would clearly demonstrate the esports industry. An example of this form of sponsorship the close connection between the sponsorship income includes having individual players use certain hardware and the player’s public performance at an esport event, during a tournament in order to increase brand awareness. thereby bringing this income under the scope of art. 17. Note that the connection will not always be as clear as At first glance, this sponsorship income paid directly to the contract described above. Therefore, this analysis the individual esport players would seem to fall under should be performed on a case by case basis to determine the scope of art. 7, covering business profits, of the OECD whether the link between the income and the public Model Convention. This would result in sponsorship performance is strong enough to fall under art. 17. income only being taxed in the state of residence of the individual professional esport player unless he or she was Art. 17 will allow the jurisdiction in which the performance deemed to have a permanent establishment in the state of occurs to tax this closely connected sponsorship income. performance under art. 5 of the OECD Model Convention. Under Art. 23 of the OECD Model Convention, the state of residence will subsequently provide relief in the form of an income exemption or foreign tax credit. In cases 30 Case 24947/06-17-01-3/2081/08-PL-08-09 (2009 - Federal Court of where sponsorship income is closely connected to public Fiscal and Administrative Justice), Tax Treaty Case Law IBFD.

31 Sec. 11.5, 1st sentence, OECD Comm. on Art. 17. 34 Sec. 9, 6th sentence, OECD Comm. on Art. 17.

32 Newzoo, supra, note 5. 35 A. Cordewener, supra, note 11 at p.1355.

33 PricewaterhouseCoopers Hungary Ltd., supra, note 1. 36 Sec. 9, 7th sentence, OECD Comm. on Art. 17.

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performances given in multiple jurisdictions, the OECD determine the amount of deductions a team can make.41 The Commentary clearly states that this sponsorship income example provided by the OECD in the commentary would be should be allocated across all jurisdictions in which the to allow the intermediary company, in this case the team, performance takes place.37 The OECD’s recommended to take a deduction for any amounts paid to the player that approach is first to allocate any sponsorship income directly will be subsequently taxed in their hands under art. 17. connected to a performance in a given state directly to those states.38 An example of this would be a company asking an Advertising income e.port player to use their product specifically at the Dota Advertising income represented the next largest source International 2018 in Vancouver, Canada. The income the of esport-related income in 2018. This source of revenue professional esport player earned under this contract would is projected to continue to grow in 2019; however it be directly connected to his or her performance in Canada. will be surpassed by media rights income, discussed Therefore, under art. 17, Canada would be able to tax the below in the chapter “Taxation of income streams”. income for this entire contract as the source state, as this Advertising income represents income earned from income directly relates to the professional esport player’s advertisements aired on online platforms, such as performance in Canada. Any remaining sponsorship income YouTube Gaming or TwitchTV, advertisements shown on relating to public performances in multiple jurisdictions video-on-demand esport content and advertisements should then be allocated on the basis of the working days on TV relating to the esports industry.42 This income is of the professional esports player in each state unless earned by the platform airing the advertisements and another method is considered to be more appropriate.39 The paid for by brands wishing to increase their exposure. commentary further clarifies that any sponsorship income not directly connected with the player’s public performance This stream of income is much more straightforward from would be covered under the standard rules of art. 15, in the an OECD Model Convention perspective. This income is case of an employment relationship, or art. 7 for personal recognized by the platform distributing the broadcast of services not indicative of an employment relationship.40 the live esporting event and is not sufficiently connected to the professional esport player’s public performance Sponsorship of teams to be taxed under art. 17. Therefore this income will be The taxation of the sponsorship of teams has its own governed by art. 7 of the OECD Model Convention relating complexities. A team may be sponsored by a company to business profits. As such the platform or broadcaster that wishes to increase its brand awareness by having the airing the advertisements, and therefore earning the professional esport players of the team wear the brand’s advertising revenue, will be taxable only in their state of logo on their uniforms or some other form of sponsorship. residence unless they have a permanent establishment Although this income is paid to the team, a substantial in the country that the advertisement is aired. portion of this income is clearly attributable to the public performance of the players as they create the brand Media rights awareness for the sponsoring brand by wearing or using the Media rights accounted for the next largest source of products as part of their public performance. As discussed income in 2018 and is projected to grow at the fastest rate above in the section “Indirect earnings”, income earned by in 2019. This income stream represents revenue paid to a team is not immune to the application of art. 17 when this obtain the rights to distribute esports content on a given income is directly attributable to the public performance platform. It includes payments from online platforms or of the players. Therefore, the portion of this sponsorship broadcasters to secure distribution rights and copyright income directly attributable to the public performance of fees to show video content or photos of an esports event.43 the players may be taxed by the source state of performance. An initial question with regards to these types of media It should be noted, as discussed above in the section rights fees is whether they fall under the scope of art. 17. “Indirect earnings”, that this layer of taxation at the team This would be possible if it was considered that these fees level creates the potential for double taxation on this were in fact directly connected to the public performance income: once in the hands of the team when receiving the of the professional esports players. The result of the income and again in the hands of the players when they application of art. 17 to this income would be that the media receive their remuneration. The OECD Model Commentary rights fees would be taxable in the country in which the specifically addresses this issue by noting that the income esport tournament or event was held. The OECD directly should not be taxed twice when applying art. 17 and leaves addresses this question in the commentary to art. 17, it up to the domestic law of the state of performance to stating that royalties in relation to the broadcast rights of an event, paid to the owner of these broadcasting rights, as opposed to royalties paid to the sportsperson themselves, will not be covered under art. 17 as the payment is not 37 Sec. 9, 7th sentence, OECD Comm. on Art. 17. 41 Sec. 11.5, 1st sentence, OECD Comm. on Art. 17. 38 Sec. 9.2, 3rd sentence, OECD Comm. on Art. 17. 42 Newzoo, supra note 5. 39 Sec. 9.2, 5th sentence, OECD Comm. on Art. 17. 43 Newzoo, supra note 5. 40 Sec. 9.2, 8th sentence, OECD Comm. on Art. 17.

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directly related to the performance of the individual.44 The OECD Commentary specifically states that payments The commentary further uses an example of a football received for exclusive distribution rights within a given tournament organizer receiving income for broadcast territory will not be considered to be royalties within the rights as an example of these types of fees that would scope of the OECD Model Convention.49 The reasoning not be captured under art. 17. Therefore we can rule out behind this exception is that the acquiring company the application of art. 17 on these media rights fees. does not use or obtain the right to use the copyrighted material, but instead obtains the exclusive right to We then must turn to art. 12 of the OECD Model Convention distribute the material in the given jurisdiction. Under covering royalty payments. The commentary to the OECD this arrangement, the payments would fall under art. Model Convention on art. 17 discussing these broadcast 7, as prescribed by the OECD Model Commentary. payments, referenced above, points us in this direction, stating that “whether such payments will constitute Game publishing fees royalties covered by Article 12 will depend, among other Game publishing fees are an income stream unique to things, on the legal nature of such broadcasting rights, the esports industry. This stream of income represents in particular under the relevant copyright law”.45 Under fees paid by the game publisher to third party esport the OECD Model Convention, royalty income represents organizers for hosting esport events.50 Note that some “payments of any kind received as a consideration for game publishers, including Riot Games, the publisher of the use of, or the right to use, any copyright of literary, League of Legends, host their own events. Therefore, this artistic or scientific work including cinematograph stream of revenue is not inherent in all esports events. This films, any patent, trade mark, design or model, plan, income stream is unique to the esports industry because, secret formula or process, or for information concerning unlike in traditional sports, esports have companies who industrial, commercial or scientific experience”. 46 actually own the game itself. Publishers are willing to pay these fees in order to increase awareness for their games Therefore, in order to determine whether these rights which translates into additional players and revenue. meet the scope of art. 12 it must be looked at on a case-by- case basis as to whether these rights are protected by the This income will be recognized by an independent esport copyright law of the relevant jurisdiction. Although these production company for their work in producing and hosting laws will differ from country to country, they generally the esport event. As discussed above in the context of event follow similar principles including the protection from sponsorship income, the commentary of art. 17 is clear unauthorized reproduction, distribution, broadcast or other on the fact that income earned by third party companies communication to the public for original artistic works.47 for the production of an event is not covered under art. As such it is reasonable to conclude that in general, these 17. Therefore this income will clearly fall under the scope broadcasting and copyright fees will be covered under of art. 7 and will be taxable in the residence state of the art. 12 of the OECD Model Convention. The application of organizing company unless the income can be attributable art. 12 over this type of income will generally result in to a permanent establishment in the state of performance. exclusive taxation in the residence state of the company receiving the media rights income. An exception to this, as Merchandise and ticket sales noted in paragraph 4 of art. 12, occurs when the company Merchandise and ticket sales represented the smallest receiving the income operates in the payer’s country portion of esports revenue in 2018 and projected 2019. through a permanent establishment and the property This category of income represents ticket sales for generating the royalty income, in this case the live live esports events as well as merchandise sold by recording of the esporting event, is effectively connected event organizers, esport teams and publishers. with the permanent establishment.48 Under this situation, this income will be governed by art. 7 of the OECD Model This category of income is clearly covered under art. 7 Convention, resulting in taxation in the source state of of the Model Convention as it represents profits of an any income attributable to the permanent establishment enterprise and is not covered under a separate article with the residence state providing relief in the form of a of the convention. As such, this income will be taxable credit or exemption. Any residual income not attributable solely in the residence state of the event organizer, esport to the permanent establishment will be taxable solely in team or publisher, unless a permanent establishment the residence state of the company earning the income. exists in the jurisdiction where the sale is made.

There is an important exception to be noted here, however. To be continued: part two of this article will be published in the June 2020 issue of GSLTR. 44 Sec. 9.4, 2nd sentence, OECD Comm. on Art. 17.

45 Sec. 9.4, 4th sentence, OECD Comm. on Art. 17.

46 Art. 12, OECD Model.

47 A. Cordewener, supra, note 11 at p. 1004. 49 Sec. 10.1, 1st sentence, OECD Comm. on Art. 12. 48 Art. 12, OECD Model. 50 Newzoo, supra, note 5.

GSLTR11-1.indd 25 24-02-2020 21:53:06 sports law & taxation 2020/04 Esports gamers cannot be considered as sportspersons for income tax purposes according to the Turkish tax administration

by dr. alara efsun yazicioglu1 While a great variety of video games may be used for esports purposes, the games that are typically employed tend to be regrouped into five main categories on the basis of their contents, namely: Introduction In a ruling2 rendered in July 2019, the Istanbul Directorate 1 games depicting and mimicking traditional of Tax Administration indicated that esports gamers3 sports activities (like football); cannot benefit from the provisional clause 72 of the Turkish 2 first‑person shooter (FPS) games (e.g. Counter‑Strike); Income Tax Law4 (“TITL”), which provides a special tax 3 real-time strategy games (RTS) (e.g. Starcraft); rate applicable to salaries and payments considered to be 4 multiplayer/massively multiplayer online role playing salaries accruing to sportspersons. The ruling means that games (MMORPGs or MMOs) (e.g. World of Warcraft); and esports gamers are not considered as sportspersons for 5 battle royale games (e.g. Fortnite). income tax purposes in Turkey, at least for the time being. Scholz argues that these different categories should This article aims to offer a brief comment on the ruling, be considered as distinct sports disciplines (such as in the light of the practice that is/may be adopted by basketball and volleyball), which are to be regrouped other countries in the future. To this end, first the concept under the umbrella term “esports” (which is, therefore, of esport is defined and its legal status is clarified from akin to the term “sport”).5 The most quoted definition an international perspective. Then, the legal status of esport belongs to Wagner, who defined the concept of esport in Turkey is elucidated. Finally, the specific as “[…] an area of sport activities in which people Turkish income tax rate applicable to sportspersons and develop and train mental or physical abilities in the use the ruling of the tax administration are described. This of information and communication technologies”.6 article concludes by arguing that esport constitutes one of the areas in which legal certainty needs to There has been an ongoing debate on whether esport be ameliorated, preferably in a swift manner. can, or should, be considered as a “sport” from a legal perspective. Despite the fact that esports’ professionals Definition and legal status of esport seem to employ a considerable physical and mental effort during competitions in accordance with the Definition research conducted in this particular field,7 esport Esport (the short‑term for “electronic sport”, also contains virtual violence and lacks a recognisable written as eSport or e-sport) can be defined as organisational structure akin to traditional sports. the competitive practice of video gaming. As a matter of fact, the main purpose of the most frequently

1 Assistant Professor in Tax Law, Head of Financial Law Section, Member of the Advisory Board of Sports Studies Research Centre, Kadir 5 Tobias M. Scholz, eSports is Business, Management in the World of Has University. The author may be contacted at alara.yazicioglu@khas. Competitive Gaming (Palgrave Macmillan 2019), p. 8. edu.tr. 6 Michael G. Wagner, On the Scientific Relevance of eSports, Conference 2 Ruling no. 62030549-120[94-2017/908]-603722 of the Istanbul Proceedings of the 2006 International Conference on Internet Computing Directorate of Tax Administration. & Conference on Computer Games Development, US, 26-29 June 2006, p. 3 [emphasis added by the author]. 3 The author opts for the use of the term “gamers” when referring to esports professionals in order to make a clear distinction between 7 For more information on this point, see for example Science shows sportspersons (who can sometimes be referred to as “players” as well) that eSports professionals are real athletes by Martin Schütz, article and professional gamers. of DW published on 12 March 2016, available at www.dw.com/en/ science-shows-that-esports-professionals-are-real-athletes/a-19084993 4 Gelir Vergisi Kanunu, No 193, date 31 December 1960. (accessed 17 February 2020).

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used esports’ titles, like Counter‑Strike and League of incorporating the logics of sport to non‑sporting contexts”. 12 Legends, is to kill and/or to cause physical damage to, Sportification is typically achieved by adding sports‑world on a purely virtual and yet – in some cases – violent elements, such as stadium‑like facilities, cheering stands, manner, members of the other team. Also, to date, esport sponsors, high level of competition, instant replays, remains largely industry‑driven. The titles are created, jumbotrons13 and referees, to the chosen entertainment designed and curated by video game developers, that activity,14 which are all present in esports tournaments. also act as gatekeepers of their games.8 Game developers may unilaterally decide to change the rules of their Labelling an activity as a sport does not only allow to games and, in most cases, that is, unless they signed create a “positive image”. Under certain circumstances, a deal with a tournament organiser, they determine the labelling may reveal to be quite successful and the organisational details relating to the tournaments, result in the legal recognition of the activity in such as how they are played and how teams are formed. question as a sport. The legal status of “sport” gives Simply put, they self‑regulate to a great extent. rise to a number of legal consequences, ranging from visa procedures to applicable tax rules, most of which These two issues were also underlined in the Communiqué are generally granting a beneficial treatment to the of the 7th Olympic Summit. With regard to violence, activity concerned as well as to its participants. the Communiqué indicates that “some egames are not compatible with the Olympic values [...]”.9 A more Legal status straightforward reference to the violence contained in Albeit its “rapidly grown industry” image, esport actually esports titles was made by the President of the IOC, Thomas began to develop in the 1940s and failed to be monetised Bach, who reportedly stated that “[i]f you have egames where for a non‑negligible time frame.15 In the last decade, three it’s about killing somebody, this cannot be brought into line events paved the way for the substantial development of the with our Olympic values […] [o]f course every combat sport esports sector: the release of StarCraft II in 2010, the release of has its origins in a real fight among people[,] [b]ut sport is League of Legends in 2009, and the launch of Twitch in 2011.16 the civilized expression about this”. 10 Regarding the lack of a clear organisational structure, the Communiqué of the StarCraft II created a considerable momentum in the 7th Olympic Summit underlines that the esports industry sector by raising the interest of gamers, and thereby is commercially driven and fragmented in nature due to the participation in esport.17 The release of League tough competition between commercial operators.11 of Legends and the development of a league system (League of Legends Championship Series) by Riot Games18 For these main reasons, esport is, rightly, not recognised brought stability, around which esports’ organisations as a sport by the IOC for the time being. It is, however, could build a sustainable business model, to the esports clear that esports competitions are highly similar to scene.19 Last, but not least, the online‑platform Twitch traditional sports competitions. There are two opposing made it possible not only for tournament organisers teams “playing” against each other in an “arena” in the but also for professional esports gamers to stream their presence of referees and an audience. Accordingly, in the content, and thereby to reach a significant audience. author’s opinion, it can be argued that esport constitutes an entertainment activity labelled as a “sport”. Nowadays, esport constitutes a solid source of revenue. According to the Newzoo’s Global eSports Market Report, Labelling a non‑sporting activity as a sport may reveal to the income generated by the esports sector (derived be extremely beneficial for the development of the activity from the sale of merchandise, ticketing, game publisher concerned, given the fact that sport is associated with fees, media rights, advertising and sponsorship) many positive characteristics (such as mental and physical health, proficiency, fair play and commitment), which will allow the activity to gain popularity and to have a 12 Hibai Lopez-Gonzalez and Mark D. Griffiths , “Understanding the convergence of online sports betting markets”, in: International Review “healthy” image. Such labelling is commonly referred to for the Sociology of Sport, Vol. 53, Issue 7, November 2018, p.8 (The as “sportification” that can be defined as “[…] the process of available version used by the author did not contain the page numbers of the journal.).

13 A very large video display screen, typically used in venues like sports stadiums.

14 Lopez-Gonzales/Griffiths, op. cit., footnote 12, p.8. 8 Scholz, op. cit., footnote 5, p. 5. 15 On this point see, for example, Scholz, op. cit., footnote 5, p. 18ff. 9 Communiqué of the 7th Olympic Summit, 8 December 2018, available at www.olympic.org/news/communique-of-the-7th-olympic-summit 16 Ibid., p. 30-31. (accessed 17 February 2020). 17 Ibid., p. 31. 10 www.bbc.com/news/newsbeat-45407667 (accessed 17 February 2020). 18 A video game developer based in the USA.

11 Communiqué of the 7th Olympic Summit, op. cit., footnote 9. 19 Ibid., p. 31-32.

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amounted to US$ 865 million in 2018.20 This number the gamers are exercising is “digital games”. It can, is expected to rise to US$ 1.79 million in 2022.21 therefore, be stated that esport seems to be assimilated to a traditional sport from a structural point of view. As in all sectors where substantial sums circulate, or are expected to circulate in the near future, the legal status From an income tax point of view of esport, as well as the professional gamers, constitutes By denying the applicability of the specific tax rate an important issue. Should esport be granted the legal applicable to sportspersons to licensed esports gamers, the status of “sport” and benefit from the specific treatments Istanbul Directorate of Tax Administration clearly held made available to support and encourage traditional sport, the view that esports gamers cannot be characterised or should it be seen as an entertainment activity? The as sportspersons for income tax purposes. Albeit current international tendency seems to be in line with the fact that the tax administration did not express the consideration that the IOC has made: while esport an opinion on the issue, the same line of reasoning is akin to a sporting activity, it cannot be considered to can be applied to the characterisation of esport as a constitute a sport under the current circumstances. sporting activity for income tax purposes in general.

Obviously, the fact that esport forms predominantly Special tax rate applicable to sportspersons “a sportified entertainment activity” does not preclude TITL, which follows a predominantly schedular approach, governments from applying similar (or the same) legal encompasses seven different types of income, which rules to both sports activities and to esport in certain include the category of “salaries”. The concept of “salary” areas, to the extent where it is deemed appropriate. The is defined in art. 61 para.1 TITL as benefits‑in‑kind granted general tendency of countries currently consists of allowing and amounts of money paid to workers exercising their esports federations, following the same structure as well activity under the direction of a specific workplace in as rules and regulations as other sports federations, to be consideration of their services. The article specifies that formed, but not granting esport a legal treatment that the denomination of the payment made (like bonus is identical, or similar, to traditional sporting activities payments) does not alter its legal classification. The article in the majority of other aspects. In the absence of any also clarifies, in paragraph 6, that the payments made to specific laws, or explanatory documents, like circulars, sportspersons by their employers, under different names whether esport may benefit from provisions applicable such as transfer fees, are to be considered as “salaries”. to sporting activities usually depends on a case‑by‑case basis interpretation made by the competent authorities. TITL opts for a progressive tax rate, varying between 15% For example, as a result of Riot Games’ efforts, the United and 40%.24 The amount of income necessary to reach the States Citizenship and Immigration Services recognised maximum rate currently is TRY 600,000 (approximatively League of Legends gamers as athletes for visa purposes.22 c 2,000).25 The law contains, however, a specific fixed rate This recognition does not, however, extend to all esports for salaries and payments assimilated to salaries accruing titles and a formal rule on this matter currently does to sportspersons in its provisional clause 72. As per the not exist. This entails, whether professional esports clause concerned, salaries and payments assimilated to gamers may be treated as a sportsperson or not for salaries made to sportspersons competing in leagues are immigration purposes, largely depends on a case-by- submitted to tax by means of a fixed rate of 20%26 for the case basis analysis made by the competent authorities. first division leagues, 10% for the second division leagues and 5% for other leagues. For sportspersons, who are not Legal status of esport in Turkey competing under the auspices of a league, the fixed tax rate is 5%. While the provisional clause is normally a sunset From a sports law point of view clause that will stay in force until 31 December 2023, it is An esports federation23 was established in Turkey likely to be extended after this date. As a matter of fact, a in April 2018 with the authorisation of the General sunset clause providing for a specific fixed rate applicable to Directorate of Sports of Turkey, which is the authority in sportspersons’ salaries and payments assimilated to salaries charge of sports‑related issues. The esports federation exists since 2003 and it has been extended, without any is treated as any other sports federation, i.e., it does not interruptions, for 2-year and 4-year periods since that year.27 have a different status. Esports gamers are granted “esports” licences issued by the General Directorate. Needless to state, the provisional clause has constantly been The licences indicate that the “sporting activity” that criticised, especially with regard to the rate applicable to

20 Newzoo, Global eSports Market Report, 2019, p. 24. 24 Art. 103 TITL.

21 Ibid. 25 In January 2020.

22 Bridget A.J. Whan Tong, “Comment: a new player has entered the 26 15% until 31 December 2019. game: immigration reform for eSports players”, in: 24 Jeffrey S. Moorad Sports Law Journal, 2017, p. 351. 27 It is important to note that a similar clause existed prior to 1999 as well. Murat Başaran Murat and Tezcan Atay, Spor faaliyetleriyle 23 Namely Türkiye E-Spor Federasyonu (Turkish Esports Federation) uğraşan kurumlar ile profesyonel futbol açısından spor ve sporcunun (TESFED). vergilendirilmesi ve vergi avantajları (Yaklaşım Yayınları 2003), p. 342-343.

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sportspersons competing in first division leagues. While, seemingly ever‑increasing sums in the sector contribute under the general rule, the rate applicable to their income to the idea that esport should be acknowledged as a sport, would be 40%, it has been 15% (i.e. the minimum rate regardless of the fact that it does not bear two of the applicable to other taxpayers) until 31 December 2019 and it typical characteristics of traditional sporting activities, is 20% as of 1 January 2020. Clearly, the tax relief is granted i.e. absence of violence and recognisable organisational in order to encourage sportspersons to compete under structure. For instance, in his book, Scholz argues that the auspices of Turkish teams. Whether such a policy is “[c]ompanies like McDonald’s, Mastercard, Mercedes- appropriate or not remains beyond the scope of this article. Benz, or DHL show that they are committed to the eSports industry and that legitimizes its self-governance”. 28 The ruling rendered by the tax administration In the ruling rendered in relation to a request made While most countries recognise the merits of this particular in October 2017 by a sports club that is active in point of view, which allows to narrow the gap between traditional sports but that also has an esports team, the legal classification and the perception of the general the Istanbul Directorate of Tax Administration public, the practice shows that they are not totally indicated that the provisional clause 72 applicable to convinced that esport should be treated like any other sportspersons cannot be applied to esports gamers. sporting activity. As a result, countries are opting for a “mixed approach”: they are establishing esports federations After briefly summarising the applicable rules to salaries to regulate this sportified entertainment activity that is and other payments considered as salaries accruing to akin to sport, and to safeguard the interests of different sportspersons, the tax administration defined the concept parties involved as much as possible, but they abstain from of “esport” as a general name given to multiplayer digital granting the legal status of sport to esport in other areas. games played by means of a computer, a console or a mobile platform. The administration held that, in the light of this This “mixed” approach naturally translates into legal definition, it is not possible to apply the specific tax rate uncertainty. Esports teams and gamers should constantly enacted for sportspersons to esports gamers. In other words, seek to understand whether they will be granted a certain the administration held the view that esports gamers treatment or not under the applicable laws. In some cases, cannot be characterised as sportspersons, and thereby the distinction may not yield any significant outcomes. esport cannot be legally recognised as a sport from a tax For example, under the OECD Model Tax Convention on law perspective. While the ruling did not concern VAT, Income and on Capital, it is rather straightforward that it can safely be argued that a similar line of reasoning professional gamers fall within the scope of application is highly likely to be followed by the administration. of art. 17, given the fact that, regardless of whether they can be characterised as sportspersons or not, they are, As is usually the case in most countries, Turkish tax rulings in any case, entertainers within the sense of the article do not have the authority of law and the interpretation concerned. In some other cases, however, the legal opted by the tax administration may be subject to characterisation as a sport may cause a non‑negligible modification in the future. This being stated, it is evident change in the treatment applicable to the interested that the administration currently holds the view that parties. For instance, an activity classified as a “sport” esport cannot be deemed as a sport for income tax purposes, may benefit from reduced rates or exemptions for VAT nothwithstanding being organised under the auspices purposes. In the same vein, a sports team or a sportsperson of a federation recognised by the General Directorate may be entitled to tax reliefs under domestic tax laws, of Sports of Turkey, just as other sports federations. as demonstrated by the provisional clause 72 TITL.

Conclusion: esport, halfway between a sport While the author of this article agrees with the and a regular entertainment activity observation that esport cannot be qualified as a sporting As exemplified by the Turkish tax administration’s ruling activity, at least under the current circumstances, such and the U.S. immigration practice, esport currently a non‑uniform treatment for legal purposes deprives constitutes an activity that is situated halfway between a the interested parties of their ability to assess with sporting activity and regular entertainment activity (i.e. certitude whether the activity they are exercising is not cultural). Esport is organised under a federation that granted the legal status of sport or not. Accordingly, is subject to same, or highly similar, rules and regulations the current approach provokes legal uncertainty. applicable to other (“traditional”) sports federations. It does not, however, enjoy a solid legal status of sport in other The principle of legal certainty, being one of the main areas. Its legal status may vary from discipline to discipline requirements of a state of law, a certain level of certainty or even within the same discipline. This “halfway” (at the very least by means of an explanatory report) approach causes a non‑negligible legal uncertainty. needs to be restored in a swift manner not only in the area of tax law but also in all other relevant areas. Whether esport can legally be qualified as a sport seems to have mostly been perceived by practitioners as a “purely academic” or “not adapted to real life” subject of discussion. The remarkable popularity of esport, the substantial number of fans that continues to grow and the 28 Scholz, op. cit., footnote 5, p. 76.

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Swimming: FINA v. International Swimming League A new tension between sport and competition law?

by rohit walavalkar1 to enter the market. This includes the third-party organisers, who are willing and wishing to enter the sporting market, backed with a heavy investment.

General introduction In response, the sporting organisers and sports governing Presently, the organisational market in sports, especially bodies often come up with new rules and obligations the European sports market, is facing a make-over that act as an obstacle for the third-party organisers. period. As in the past, when the traditional sports bodies This includes any licensing requirements before giving exclusively controlled the organisation and regulations any authorisation; or imposing severe sanctions on of their sports, along with hosting competitions, it is not athletes, coaches and officials for taking part or being the case anymore. Third-party organisers or competitors a part of any competition or league, that is not related have started entering the sport business speedily. These with the organisation. Moreover, posing a threat to third-party organisers are not holding themselves back national sporting organisations with sanctions, such as at all in organising alternative competitions, thereby banning them from world championships, Pan Pacific making it a new trend. This new trend is growing speedily, championships or Olympic events, if they support the as there is a lot of investment involved in it. There is third-party organisers has also been one of the severe money; there is exposure; there is consideration. ways of limiting or preventing market access.2

To date, the European sports market has seen a Definitely, this issue of legality of regulations for limiting pyramid structure in its organisation. However, or preventing the new third-party competitors from market this new trend has made way for untapped access has caught the attention of competition authorities investment prospects for many, along with an and this issue is now considered to be a priority in the opportunity to restructure the old sports model. sporting world, particularly in Europe and in the USA.

By implementing the new model, competitors Against that background, this article discusses how would fancy their chances of experiencing a the International Swimming Body, famously known new structured model of swimming: as Fédération Internationale de Natation (“FINA”), earlier opposed third-party entrants in the swimming – more media attention and exposure; world, by putting restrictions on the swimmers and – focus on equal rights and equal pay; the new entrants, and now successively is changing – new and innovative formats of competitions; and its approach towards such market restrictions. – additional sources of income in the form of lucrative deals and contracts. This article also discusses how FINA has managed to keep up its regulations with the anti-trust law during Every organisation wishes to maintain its stronghold the time when the organisation was facing legal and monopoly in the market in which they thrive. In actions and criticism from the media and swimmers attempting to achieve this monopolistic approach, from the international swimming fraternity. the sporting organisations or sports governing bodies often try to impose obstacles on anyone who tries

2 K. Pijetlovic, EU Sports Law and Breakaway Leagues in Football 1 Swimming Australia (www.swimming.org.au); e-mail: (Springer, 2015). [email protected].

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Introduction to the sport of swimming polo, which are applicable at the Olympic Games and When we think about water, we have different other world events related to swimming. Also, FINA aims opinions, different views, different insights. Some at hosting world competitions on a regular basis, before people look upon water as being necessary for our and after the Olympic Games. FINA also looks after the survival or for our existence. Whereas some consider anti-doping, corruption, safe sport side of swimming. water to be their enemy. Some consider water to be their friend. While some believe water to be Currently in 2019, FINA comprises 207 national unpredictable and wild. Water, if tried, is indefinable. member federations spread across five continents.

However, swimmers, who have been associated with water Some of the major objectives of FINA are: almost all of their lives, definitely cannot live without it. The smell of the chlorine is a swimmer’s best perfume. If – promoting and developing the sport of aquatics seen from a swimmer’s perspective, the swimming pool is in every possible manner in the entire world; a home to swimmers; the water is their best buddy; long – keeping the sport clean and safe, away hours of hard work is what defines passion for them. A from involvement of drugs; swimmer’s life basically revolves around their swimming – promoting participation in swimming around the world, and the pool in which they practice, day in and day out. regardless of age, gender, caste, community, or race; This might sound weird and look insane to an outsider – forming and abiding by the necessary rules and to the sport, looking at a swimmer staring at a black regulations, along with holding timely competitions line for hours, but the sport is much more than that. in swimming; open water swimming; diving; water polo; paralympics; synchronised swimming; From a swimmer’s perspective high diving; and masters’ swimming; Just like any other sport, swimmers begin training at – organising and conducting world championships an early age. From beginning as a leisure sport for fun every two years and other long and short and great body exercise, little do the kids know that course meets, in association with FINA; they would turn out to be professional swimmers in – encouraging the development of new and the future, representing their country on the world FINA approved facilities for swimming and stage. Athletes pick up swimming at a tender age; get providing the necessary support; and better at it with time; and soon get addicted to this – carrying out any such activity that FINA deems sport that they no longer wish to run away from. to promote the overall upliftment of the sport.

There is immense hard work and training that goes Introduction to the International Swimming into, when it comes to representing their clubs, League (“ISL”) their state, and finally their country at swimming Lately, FINA is facing a huge task that looks like a big competitions. People see the brighter side of the hurdle. Not long ago, Ukrainian billionaire and a huge athletes, winning medals at the Olympic Games, swimming fanatic, Konstantin Grigorishin, came Commonwealth Games, world championships, but up with the idea of launching a private swimming the real and bigger picture is something else. league, independent from FINA. This league was named the International Swimming League (ISL). These athletes, along with putting in immense hard work and training hours, go through a lot than one Drifting away from the usual long course and short can barely imagine. This includes small and long- course championships hosted by FINA, things in the term injuries; staying away from family and friends; swimming world are changing drastically in no time. wins; losses; and home sickness, mental and emotional The organisers of the League had decided to host sickness, to name but a few. Swimming remains a the inaugural season of the ISL last year, in October great sport. At a specific swim meeting, you might be 2019, in Europe, as well as in the United States. the best swimmer and at the very next one, you might finish at the bottom (figuratively not literally). The ISL boasts of significant prize money for swimmers winning their respective events. For the opening It is a sport truly of micro-seconds and fitness. season of the ISL this was estimated to be around US$ 20 million, out of which a whopping US$ 7 million Fédération Internationale de Natation (FINA) would comprise athletes and teams prize money. Fédération Internationale de Natation (FINA) is the world governing body of swimming. FINA was established In the inaugural season of the ISL, there will be eight on 19 July 1908 in London during the 1908 London teams: four from Europe and four from the USA. Olympic Games. FINA was established mainly by eight national federations, namely, Belgium, Finland, France, Not all swimmers representing teams from Europe and Germany, Great Britain, Hungary and Sweden. USA would be Europeans or Americans but would comprise swimmers from across the globe. Each team would FINA is responsible for producing, amending or eradicating comprise 24 swimmers – 12 male and 12 female – who would rules and laws related to swimming, diving and water compete in the short-course events and relays, thereby

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earning team points. Any athlete who has been previously Sherman Act, it is illegal for any organisation (including banned for doping or gambling would not be allowed to sporting entities) to sign a contract that puts a restriction participate in the League. There would be playoffs and on competition in the market, unless they sign anything finals, including prize money for individual and relay team that indispensably protects the integrity of the sport and events, as well as appearance fees for participating clubs. the governing bodies, and not being disproportionate in any way. Basically, this means that art. 101 of the TFEU Top names in the swimming fraternity, such as and Section 1 of the Sherman Act do not encourage any Katinka Hosszu, Adam Peaty, Sarah Sjöström, US unreasonable restraint of trade. Art. 102 of the TFEU swimming sensation Katie Ledecky, Nathan Adrian, and Section 2 of the Sherman Act forbid the abuse of a Lilly King, veteran swimmer Chad le Clos and Australian dominant market position; for example, a monopoly dolphins, including Cate Campbell, Kyle Chalmers, in the particular market, known in the jargon as the Bronte Campbell, Emma McKeon, Ariarne Titmus and relevant market. The article and section do not encourage Mitch Larkin, have signed up for the mega event. any form of dominance in the relevant market.

Swimming is considered to be an elite sport in Australia, However, there is a simple difference in the manner with Olympic and world champion swimmers being of anti-trust law systems and their manner of household names in the country. However, this is not the enforcement in Europe and in the USA. case with swimmers from other countries. Swimmers in other countries are recognized or remembered only once As per the European legal system, if there is a breach of the in four years, when they represent their country at the law by a certain party, there is a penalty cost of not more Summer Olympic Games; or probably when they achieve than 10% of the total turnover from the preceding financial something extraordinary on the international stage. year for every offence, along with periodic penalties of 5% of average daily turnover.3 However, in the United States, The mission and vision or goal of ISL is to change this as per the Sherman Act provisions, the penalties can be perception towards swimmers and swimming as a whole. as severe as imprisonment4 and the injured parties to the ISL wants its events to remain media-friendly and extend lawsuit are entitled to claim their “treble” damages5. its reach to worldwide audiences, thereby reaching out to a minimum of 100 million viewers in the next five years; gain Contradictory to this broad legal framework, the sports’ maximum sponsorships; develop the League in a manner governing bodies possess an exclusive controlling and whereby it is looked upon as a source of entertainment; work governing power to issue licenses and impose sanctions on developing fan engagements; and also merchandising. on its potential competitors in the sporting market. Furthermore, due to this, there is a conflict of interest Another primary goal of ISL is to advocate and promote that might result in restricting the competitiveness in the gender equality in the sport. It is common for the Australian market. Thus, it is necessary for the competition authorities swimming fans to see their female dolphin swimmers to scrutinize this issue of exercising regulatory powers, tasting regular success on the international stage. such as licensing, on third-party competitors by the Australia have produced numerous successful female governing body, that leads to restricting the competition in swimmers, including Stephanie Rice and Cate Campbell the relevant market. If this issue is scrutinised and if there and, recently, Ariarne Titmus, who have been the nation’s is a solution to this problem, restriction on competition greatest champions since a long time now – precisely would be no more and every organisation, including fifteen years or more. It is a fact that, since 2004, only third party organisers, who are new in the market, three men have been named as the Australian swimmer can carry on their business without any restriction. of the year. But again, this is only in Australia, and the story is different in different countries, such as the USA. According to the case law of the European Union Court of Justice (CJEU) and the European Union Commission, there As mentioned, ISL lays great emphasis on gender equality. are certain decisions, pertaining to competition laws, which Every team would have an equal number of male and female have established a few governing standards, which are swimmers in it, would receive equal prize money, and equal aligned with the above-mentioned conflict of interest issue. media consideration has made this League promising and exciting in many ways. Many leading female swimmers, including Katie Ledecky and Lilly King, have come out 3 European Commission, Fines for breaking EU Competition Law in support of this League, due to the equality factor. (November 2011), Available at https://ec.europa.eu/competition/cartels/ overview/factsheet_fines_en.pdf (accessed 15 February 2020). Applicability of the Anti-Trust Law in Europe and the USA 4 Section 2 of Sherman Act 1890, available at http://economics. fundamentalfinance.com/sherman-act.php (accessed 15 February 2020). As per art. 101 and 102 of the Treaty on the Functioning of the European Union (TFEU), Sections 1 and 2 5 Under Section 4 of the Clayton Antitrust Act 1914, treble damages of the Sherman Act of 1890 in the United States include three times the damages caused. The damage award includes prevent the same anti-competitive behaviour. the suit expenses and the attorney fee as well. See https://www. encyclopedia.com/history/united-states-and-canada/us-history/clayton- antitrust-act (accessed 15 February 2020). According to art. 101 of the TFEU and Section 1 of the

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– Firstly, in line with the Mecca-Medina rule with regard change.10 This is discouraging to the third-party competitors to the prior authorization system, this rule must in many aspects, thereby hampering investments in be integral and in proportion with the legitimate independent competitions and forcing the parties to ultimate goal, in accordance with the public’s interests engage in long-lasting and costly legal battles. By not and aligned with art. 101 and 102 of the TFEU.6 complying with the competition law, accountability, democracy and transparency, this behaviour from the – Secondly, in the case of MOTO.E, the CJEU believed that sports organisations is not a good and healthy sign of a rule that gives a legal person the authority to conduct good governance. This definitely has an impact on all sporting events and competitions by its competitors the stakeholders associated with the sports organisation in the market, without that power being made subject concerned. If all these principles are included by a sports’ to limitations, responsibilities and analysis, would be governing body and if they make optimum use of all considered unlawful under art. 102 and 106 of the TFEU.7 these principles, it would be a sign of good governance on their part. Also, there will be minimum legal challenges – Thirdly, in the Canal Satelite Digital case, the CJEU and legal battles which they might have to face. All this mentioned that, if a system of prior authorization is to would benefit the sports’ governing bodies a great deal. be made proportionate, it should, amongst all the things, be based on criteria that involves an objective and which The conflict between FINA and the is non-discriminatory. This needs to be done so that International Swimming League the organisation does not use its governing authority FINA manages six aquatic sports, including swimming11 in an arbitrary manner to benefit its own events.8 as the leading sport amongst all six. The introduction of the ISL has drawn attention from many elite swimmers. Also, the decision made by the European Commission This new league describes itself as “an initiative in in the recently-concluded International Skating Union the world of competitive swimming”. In these times of (“ISU”) case9 has established the fact that the international extensive media coverage and huge prize money, every federations have the authority to conduct and govern athlete wants to participate in such new leagues and their independent events via the prior authorisation experience them. There is scope for the swimmers to system, but only in so far as they do not breach any of witness and experience new and innovative formats the principles set by the CJEU in this line. For the first of competitive swimming, along with the swimmers time at the EU level, a decision to address directly the benefitting from receiving an alternative source of income sanctioning of the athletes and prior authorisation was and high media coverage and exposure. This would also considered, for regulating access to the international provide an opportunity for elite swimmers to sign many market. The most important norm that emerged from the lucrative sponsorship contracts in the near future.12 ISU case provided that disproportionate sanctions placed on athletes for participating in unlicensed competitions, can Konstantin Grigorishin, the founder of this exciting League, never be legal. What can be considered as a proportionate reckons that the International Olympic Committee (IOC) sanction is still a question that needs to be answered. and the several sports federations, including FINA, do not respect the athletes. Because FINA and other sports However, most of the sporting organisations still do federations have the monopoly in governing their sport not follow the ISU decision as a precedent and carry and the athletes who play the sports, the federations on their work in the same manner and with the same exploit the athletes, rather than considering them as their regulations as before. The rule book for matters pertaining premier partners. According to Konstantin Grigorishin, to competition has been altered post the ISU decision, the new league, ISL, is all about “putting the power back but not all sporting organisations have adapted to this into the hands of the athletes [and] supporting the right of the elite swimmers to make the living which they are entitled to, and to have a major say in the way their sport is run”. 6 David Meca-Medina and Igor Majcen v. Commission of the European Communities, European Court Reports 2006 I-06991, Case C-519/04, para. 42, available at https://eur-lex.europa.eu/legal-content/EN/ Also, the ISL founder believes that, although swimming TXT/?uri=CELEX%3A62004CJ0519 (accessed 15 February 2020). is considered to be one of the leading sports in the world to be practised, yet it has still not got the commercial 7 Motosykletistiki Omospondia Ellados NPID (MOTOE) v. Elliniko benefits that it deserves. Also, the attention which the sport Dimosio, European Court Reports 2008 I-04863, Case C-49/07, para. 51 and para. 52, available at https://eur-lex.europa.eu/legal-content/EN/ TXT/?uri=CELEX%3A62007CJ0049 (accessed 15 February 2020).

8 Canal Satélite Digital SL v. Adminstración General del Estado, and 10 Union Internationale Motonautique (UIM) Council is an exception: Distribuidora de Televisión Digital SA (DTS) (C-390/99) EU:C:2002:34, it is the only SGB to voluntarily suspend their rules on sanctioning of para 43, available at https://eur-lex.europa.eu/legal-content/EN/ officials and drivers in powerboating as a response to the ISU decision, TXT/?uri=CELEX%3A61999CJ0390 (accessed 15 February 2020). at UIM Council meeting on 21 March 2018 in Monaco.

9 European Commission, “CASE AT.40208 - International Skating 11 Other five aquatic sports which come under FINA as the governing Union’s Eligibility rules”, 8 December 2017, available at https://ec.europa. body are diving, synchronised swimming, open water swimming, high eu/competition/antitrust/cases/dec_docs/40208/40208_1384_5.pdf diving and water polo. (accessed 15 February 2020). 12 ISL website https://isl.global/about (accessed 15 February 2020).

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should get, apart from in the Olympics, is very little.13 of any such large league of this nature, there come the different roadblocks in the way. In the case of swimming, There are no regular seasons for the swimmers; no FINA has managed to restrict the formation of such FINA-organised development or high-performance a league, by placing several roadblocks in its way. programs; no opportunity of any welfare or social security. As compared to other athletes from other sports, In January 2019, FINA decided to withdraw its earlier swimmers’ salaries are much less, along with getting decision of suspending swimmers, who participated in the minimum or no media attention. The sponsorship ISL, and gave the swimmers a green light to participate deals which they sign are minimal as well. in this independent league. However, the condition set by FINA was that the old records broken, and new records set The whole idea of the ISL is to set up the League in a at this league by the participating swimmers would not be manner whereby it is a media-friendly league; hosting considered as recognized records. Due to such conditions set the competitions in different cities across the world; and by FINA, the ISL is not approved or sanctioned by FINA. This raising the bar of competitive swimming on the global also means that the “international competitions” as part of stage, thereby making the sport more entertaining to the ISL do not come under the FINA international calendar. a world audience. The ISL primary goal is to raise the League’s value by as much as US$ 100 million in the To back its stance, FINA mentioned the following rules as next five years, by establishing itself and attracting stated in its By-laws, General Regulations and Code of Ethics: maximum sponsors. The highlight of the ISL remains the fact that, whatever revenue is generated through the – By-Law 12.1: “Any international swimming competition League, the entire amount would be fairly distributed and shall be referred to as a swimming competition shared between all the stakeholders, which include the organised, sanctioned and conducted by FINA, swimmers, coaches, clubs, federations and the League.14 any Continental or Regional Organisation or any Member Federation in which other FINA recognised This new format for the swimming league was widely Federations, clubs or individuals participate.” appreciated and welcomed by the swimmers and the swimming organisations across the world, including the – By-Law 12.3: “All Continental and regional Organisations Ligue Européenne de Natation. A framework agreement and Members Federations shall seek approval too was signed between the sports organisations and from FINA for any International Competition Ligue Européenne de Natation on 4 May 2018.15 As per the to be organised or sanctioned by them.” original plan, the sporting body had planned to conduct its inaugural season of ISL in Italy in December 2018. However, – General Regulation 4.1: “No affiliated Member the plan did not go as decided and the League had to be shall have any kind of relationship with a called off, after FINA disapproved the League, calling it non-affiliated or suspended body.” “non-approvable”. 16 In its memorandum dated 5 June 2018, FINA made it clear to all its 209 member associations – Code of Ethics No.9: “No Official may be involved with that it does not recognize the ISL nor is it affiliated with any company association, firm or person whose activity is any of the “international competitions” hosted by it.17 inconsistent with the objectives or interest of FINA. (...)”18

A similar instance in elite level sport can be recalled from Art. 4 of the General Regulations was a significant reference, the past, when, in the 1970s, Kerry Packer World Series as far as FINA is concerned. It instituted an unswerving risk Cricket was introduced. However, with the introduction to the national swimming bodies as well as to the athletes from associating or participating in these competitions. Associating with the third-party organisers and/or 13 Ibid. participating in these “international competitions” would 14 Ibid. act as a breach of the general provision, thereby facing a four-year ban from all FINA organised competitions, 15 Mel Stewart, “International Swimming League Presents at the 2018 including the Olympics and the world championships. ASCA World Clinic”, in: SwimSwam, 8 September 2018, available at https:// swimswam.com/international-swimming-league-2018-event-to-launch- Before the memorandum was released, ISL worked with-2-1-million-in-prize-and-appearance-money-2 (accessed 15 February 2020) and para 65 of the Case 3:18-cv-07394 International Swimming closely with, and even received enormous backing League Ltd. v. Fédération Internationale de Natation, filed 12 July 2018 in from USA Swimming, in organising a swimming the US District Court, available at https://swimmingworld.azureedge. competition in the USA in December 2018. However, net/news/wp-content/uploads/2018/12/isl-lawsuit.pdf (accessed 15 after FINA published its by-laws and general rules and February 2020). regulations for member organisations, this partnership ceased immediately from the USA Swimming side. In 16 Ibid., paras 61 to 65. a letter dated 13 June 2018, USA Swimming withdrew 17 FINA memorandum to 209 member associations clarifying its backing to the ISL “even as a non-host or as a passive about absence of any affiliation with ISL, available at https:// www.fina.org/sites/default/files/fina_memorandum_to_all_fina_ members_-_05.06.2018-2.pdf (accessed 15 February 2020). 18 Ibid.

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participant”, by citing the reason of insufficient FINA to conduct the competition on 20-21 December 2018, whereas recognition to the ISL and its competitions. ISL further the short course world championships were to take place approached British Swimming for a partnership, but the from the 11 to 16 December. The “Energy for Swim” event result was the same: a rejection from British Swimming in Turin saw more than 50 international participants citing the same reason as that of USA Swimming.19 participating in the competition. FINA made a last-minute U-turn and decided to label the “Energy for Swim” event Also, FINA threatened the swimmers of suspending as an “international competition” citing that “it consisted them from any further participation in international of the majority of swimmer participants being international competitions, if they participated in the League. The ISL, swimmer participants and not from Italy”. 22 This last-minute along with a few elite swimmers, including Katinka reclassification made it mandatory for the event organisers Hosszu and Thomas Shields, did not hold back from to get a prior approval from FINA. However, this was filing a legal suit against FINA, under the anti-trust not possible as the application for approval needs to be law and holding them to be anti-competitive.20 submitted six months prior to the date of the event. Thus, it was very unlucky on the “Energy for Swim” organiser’s In August 2018, ISL approached FINA and disclosed all the part that they had to cancel the event in November details of the competition it planned to host, and reassured 2018, just one month prior to the date of the event.23 FINA that it will take note of all the necessary precautions of working through a national federation, thereby to seek At the same time, to overshadow the effects of its actions approval for the competition. In its reply, FINA stated that on the “Energy for Swim” event, FINA announced that it it was the duty of the host organisation, and not of the had increased its prize money for the athletes at the World third-party sponsors such as ISL, to seek approval from FINA Short Course Championships in Hangzhou in December prior to hosting any “international competition”, as stated 2018. This was FINA’s way of pleasing the already agitated in the FINA By-Law 12.3. However, in the following weeks, athletes/swimmers, on whom FINA is dependent to date. FINA considered to negotiate with ISL about the same. FINA asked for a sum of US$ 50 million from the ISL organising When ISL filed the anti-trust lawsuit, supported by committee for a period of ten years to conduct the ISL event. elite swimmers such as Katinka Hosszu and Thomas Not only money, FINA even asked for the transfer of event Shields, it rightly mentioned that a sudden rise in the ownership rights, as well as the FINA-naming rights, for the prize money at the Short Course World Championships event approval. As these terms were highly unacceptable, is a sufficient proof that even the danger of a new the negotiations did not go any further post October 2018.21 entrant in the market was enough for FINA to show the manner of anti-competitiveness which FINA In its attempt to dodge the “international competition” had adopted, causing harm to the swimmers, as status, which requires prior authorisation from well as supressing their rights and desires.24 FINA, ISL arranged for the event which the Italian Swimming Federation conducted and hosted as their With FINA having such an anti-competitive approach national-level competition on 20 and 21 December towards other market entrants and thereby supressing the 2018 in Turin. This event was known as “Energy for rights and desires of the swimmers, many leading male Swim” event. ISL decided to remain as a significant and female swimmers backed the thought of launching a participant in the event, as well as an investor. Professional Swimmers Association in December 2018. The primary motive of forming this Association was to support The invite for the event was expressed as “a the ISL event organisers and regulatory bodies, as well national competition where national and foreign as for supporting the athletes’ rights and their welfare. swimmers will participate on an individual basis and not representing member federations”. Since a considerable time now, the elite swimmers seem to be unhappy with FINA and the manner in which the The organisers of the “Energy for Swim” event made sure organisation handles the sport and looks after its athletes. that they did not clash their event dates with FINA’s World The swimmers are eager to try something new which Short Course Championships in Hangzhou in December would help them to earn big money in a short career span. 2018. Accordingly, the “Energy for Swim” organisers decided

22 Jared Anderson, “FINA rule interpretation could outlaw energy for 19 Paras 67-68 of the Case 3:18-cv-07394 International Swimming League swim meet”, in: SwimSwam, 2 November 2018, available at https:// Ltd. v. Fédération Internationale de Natation, filed 12 July 2018 in the US swimswam.com/fina-rule-interpretation-could-outlaw-energy-for-swim- District Court, available at https://swimmingworld.azureedge.net/news/ meet (accessed 15 February 2020). wp-content/uploads/2018/12/isl-lawsuit.pdf (accessed 15 February 2020). 23 Braden Keith, “Energy for Swim meet cancelled after negotiations 20 Class Action Complaint, “Shields et al. v. FINA”, filed on 12 July 2018, break down”, in: SwimSwam, 15 November 2018, available at https:// case no. 3:18-cv-07393, available at http://www.lieffcabraser.com/pdf/ swimswam.com/2018-energy-for-swim-meet-cancelled-after- FINA_Class_Action_Complaint.pdf (accessed 15 February 2020). negotiations-break-down (accessed 15 February 2020).

21 Paras 69-72, ISL v. FINA, available at https://swimmingworld. 24 Para. 16, ISL v. FINA, available at https://swimmingworld.azureedge. azureedge.net/news/wp-content/uploads/2018/12/isl-lawsuit.pdf net/news/wp-content/uploads/2018/12/isl-lawsuit.pdf (accessed 15 (accessed 15 February 2020). February 2020).

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In competition with the ISL, FINA recently launched the The petitioners also claimed that FINA illegally exercises Champion Swim Series, which is seen as a response to its dominance in disallowing third-party competitors/ the ISL. This swim series offers the swimmers with the outsiders from entering the market and expanding maximum prize money, to date, in swimming. Also, it covers the prospects of the sport, for the swimmers as well as the travel and living expenses of the travelling participants, the millions of fans across the world. Because of FINA’s along with providing the swimmers with appearance monopolistic approach, there has been a restriction on fees. The inaugural season of this series was held in China, the number of financial opportunities for the swimmers United States and Hungary in April and May of this year. and the businesses that might flourish. If the number of international competitions across the year are increased, it Legal proceedings in the U.S. District Court would directly help in expanding the business deals with Based on what happened in 2018, with FINA restricting sponsors, event organisers, broadcasters and licensees.28 the swimmers from participating in the third-party organised swim leagues, elite swimmers like Katinka Surprisingly, in both the complaints filed in the U.S. District Hosszu, Thomas Shields and Michael Andrew, decided Court, the petitioners, i.e. the swimmers and the ISL, cited to file separate and concurrent anti-trust lawsuits on the decision of the EU Commission in the ISU case, by stating behalf of themselves and all other swimmers, who were that similar reasoning was applicable in their cases as affected by this decision from FINA. These anti-trust well.29 ISU faced a similar factual story and cause of action; lawsuits were filed against FINA for violating Sections however, their jurisdiction was different. In the ISU case, 1 and 2 of the Sherman Act and Common Law in the U.S the uneven obligations imposed on the athletes for taking District Court in the Northern district of Carolina. part in a competition organised by rival market competitors, as well as for foreclosing the market insights for rival This choice of jurisdiction to file the lawsuit in the USA25 competitors by functioning in an arbitral, non-translucent was a cautious and a well-thought move. If someone is and uneven manner prior authorisation system, amounted proved guilty or convicted of infringement under Section to infringements of provisions of EU Competition Law. 1 or Section 2 of the Sherman Act, the consequences are huge. It could possibly impose a huge financial blow to The decision of these two complaints filed in the U.S. District FINA, whereas, the ISL and the affected swimmers would Court by the swimmers and ISL are still pending. In the receive three times the damages incurred by them. U.S. opinion of the author of this article, the outcome should District Courts have the power to award damages; whereas, and is expected to be in the petitioners’ (i.e. swimmers and on the contrary, the European Courts do not have the ISL) favour. Certainly, FINA’s latest actions speak about right to grant damages. Apart from charging FINA for the the power of the complaints which it currently faces. damages for violating the Sherman Act, the ISL and the affected swimmers also sought injunctive relief, under Change of heart: removal of obligations both lawsuits, thereby restraining FINA from any further and sanctions by FINA damages or violations of the Sherman Act. ISL also sought It looks like FINA has finally felt the pressure of relief for tortious interference with regard to economic the Court proceedings, lawsuits, media criticisms, relations and the swimmers sought relief for tortious swimmers’ criticisms, dissatisfaction amongst the interference with regard to contractual relations.26 swimming audience and unfavourability from the swimming community.30 Due to all of this, FINA has ISL and the swimmers both accused FINA for hurting the decided to alter its attitude towards rival market swimmers’ sentiments, controlling the dominance in the competitors, which includes new market entrants too. market and disallowing other interested parties to enter the industry market. They also accused FINA of extracting In January 2019, FINA’s communications team issued a and enjoying all the money earned and keeping it to press release stating that the international swimmers themselves, and not using it for the swimmers’ welfare.27 were at their will to participate in any competitions across the world, which are organised and conducted by 25 In conformity with Section 4 of the Sherman Act (Subject- FINA’s competitors. Also, the swimmers can participate matter jurisdiction) and Section 12 of Clayton Antitrust Act (personal in these “independent international competitions” jurisdiction). without facing any obligation or sanction.31

26 Case 3:18-cv-07394, ISL v. FINA, paras 128-150, available at https:// swimmingworld.azureedge.net/news/wp-content/uploads/2018/12/ 28 Refer to paragraph 3 in both the complaints. isl-lawsuit.pdf (accessed 15 February 2020) and Class Action Complaint, “Shields et al. v. FINA”, filed on 12 July 2018, case no. 3:18-cv-07393, paras 29 Refer to paragraph 6 in both the complaints. 137-160, available at www.lieffcabraser.com/pdf/FINA_Class_Action_ Complaint.pdf (accessed 15 February 2020). 30 “Swimmers hit world body FINA with California antitrust case”, in: New Zealand Herald, 9 December 2018, available at www.nzherald.co.nz/ 27 Case 3:18-cv-07394, ISL v. FINA, paras 43-46,available at https:// sport/news/article.cfm?c_id=4&objectid=12173734 (accessed 15 February swimmingworld.azureedge.net/news/wp-content/uploads/2018/12/ 2020). isl-lawsuit.pdf (accessed 15 February 2020) and Class Action Complaint, “Shields et al. v. FINA”, filed on 12 July 2018, case no. 3:18-cv-07393, paras 31 FINA Communications Department, “PR 1 – FINA meets with NFs on 48-51, available at www.lieffcabraser.com/pdf/FINA_Class_Action_ Athlete participation in international competitions”, available at www. Complaint.pdf (accessed 15 February 2020). fina.org/print/50461 (accessed 15 February 2020).

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The FINA press release reads as follows: Conclusion In the opinion of the author of this article, this is a “FINA acknowledges that swimmers are free to balanced and best method of regulating accessibility participate in competitions or events staged by to the relevant market. The projected alterations or independent organisers, namely entities which are changes appear to be proper to look after any issues or neither members of FINA nor related to it in any way. concerns regarding competition law, provided that the introduction of the licensing system is in conformity Any independent organisers which intend to have the results with the legal structure and requirements. and records of any competitions or events duly registered with and acknowledged by FINA shall cooperate with or seek Athletes will benefit from accessing the market, as they approval from FINA or from any relevant member federation, have the power to freely access the market potential. as the case may be, the approval procedure shall be set out Also, the new competitors and market entrants will in FINA By-laws BL 12, which will be entirely applicable.” find it easier and clearer by following a proper and balanced process for applying for a FINA license and Consequently, it is still mandatory for the independent thereby getting it. This license which will be issued event organisers to seek approval from FINA before staging by FINA would further help them stage international any international swimming competition. This approval competitions without any sanction or obligation. has to be obtained in the form of a license issued by FINA This would prove to be highly beneficial for them. as per the rules stated under art. 12 of the Memorandum and the By-laws of the organisation. If the license is not FINA’s change of attitude has been welcomed granted or if a prior approval is not sought, the records and by everyone who is involved in the sport of results of the competition would be considered to be null, swimming and is considered as a welcome change void and unrecorded by FINA by every means. However, in the professional swimming fraternity. FINA made it clear that swimmers participating in the competitions would not be considered as “unauthorised The fight for this decision was waged on numerous relations” in infringement of art. 4 of the FINA General fronts, rather than being characterised as the result of Regulations, and, thus, not subject to further sanctions.32 the application of principles of good governance.

32 Ibid.

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Basketball: Image rights agreements and guaranteed employment contracts

by vassil dimitrov1 club, which employs the player. Thus, the club owes the full sum corresponding to the salary from the main contract to the company. Concisely, the idea is that the club will transfer the sum to the company, which, in Introduction – nature and purpose of image turn, will send it to the player for his playing services. rights agreements in basketball In professional basketball, the norm is that the player and Such complicated schemes using image rights agreements the club sign a single employment contract that stipulates are used in order to allow the club to pay higher net all contractual obligations between the parties. In the salaries, provided that taxes and insurance are paid majority of contracts, the salary of the player is fully only on the lower salary amounts declared before the guaranteed by the club. In this manner, the professional national federation in the so called “league contract”. basketball players are protected in any eventuality, As a result, the professional basketball club evades including cases of poor performance on the basketball court, paying high amounts of taxes and insurance. injury or personal conflicts with the management of the club, which can lead to premature contractual termination. However, such image rights agreements can lead to extremely complicated legal disputes, However, some clubs use a different strategy when especially when the club fails to honour its dealing with the employment agreements of their part of the multi-way contractual bond. players. In principle, the main employment contract governs the obligations between the parties. Often, the The present article contains a detailed overview of the club and the player sign a separate employment contract legal challenges posed by these image rights agreements for registration purposes with the national basketball in relation to the jurisdiction of the Basketball Arbitral federation. These league contracts usually stipulate a salary, Tribunal (BAT) and how difficult the payment of salaries which is lower than the amount in the main contract. becomes when players agree to participate in this practice.

Separately, the player is persuaded by the club to sign BAT jurisdiction in cases with multiple an image rights agreement with an agency, which is contractual agreements between the parties independent from the club, but works in close cooperation The basketball clubs use image rights agreements with their with it. These agreements envision that the basketball players in two scenarios. The first one was already covered player assigns his image rights (broadly defined as rights and the aim of the club is usually tax relief and the ability to for the commercial use of his name, image, likeness afford the services of players of a higher calibre because of it. and other unequivocal identifiers) to a private agency in exchange for the same sum promised as salary in his In the other case, where the club does not seek tax main employment contract. Thus, the company becomes relief, the image rights agreements are used in an liable for the above-mentioned sum. At the same time, attempt to complicate the payment process and even the independent company reserves the right to transfer to bypass the traditional BAT arbitration agreements or sell the image rights of the player to third parties. contained in the majority of employment contracts.

In a final image rights agreement, the private company Typically, only the main employment contract contains the transfers back the image rights of the player to the standard BAT arbitration clause, whereas the secondary image rights agreements involving the player, the club and 1 Sports lawyer, Sofia, Bulgaria. Contact information: e-mail vassil@ third party do not include such BAT arbitration clauses. dimitrovsportslaw.com; website https://dimitrovsportslaw.com (accessed 16 February 2020). All contracts between the parties are without any doubt

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related to each other, but the important question is agreements and side agreements as to the mode and schedule how BAT sees such complicated arrangements in terms of payments, the Parties’ common intent under the Main of accepting jurisdiction to rule on any dispute. Agreement was that the Club itself was fully guaranteeing to the Player the payment of a total salary of […].”7 In the case FAT 0115/10, the club objected to the jurisdiction of the tribunal,2 with the arguments that Therefore, the BAT jurisprudence confirms the jurisdiction the image rights agreements were concluded after the of BAT in all cases in which a club is not honouring main employment contract and allegedly they were an employment contract with a player, despite the superseding the employment contract making the existence of additional image rights agreements. arbitration agreement contained there no longer valid. The image rights agreements, which lack BAT arbitration BAT confirmed its own jurisdiction regarding unpaid clauses, cannot void the original BAT arbitration agreement sums to the player with the following arguments: from the main contract. Such disputes related to images rights contracts are linked to the main agreement and “[…] even if the Player was deemed to be a party to the governed by the BAT clause contained within.8 Image Rights Contract, this would still not affect FAT’s jurisdiction over the claim for Image Payments in the Main How the image rights agreements affect the Player Contract. The reason is that the Main Player Contract obligations under guaranteed contracts and the Image Rights Contract are closely linked, with the As established previously, BAT retains jurisdiction for all Main Player Contract being the primary agreement.”3 claims related to outstanding payments under the main contract, irrespective of how many times the image rights Furthermore in para. 42 of the same of the players were transferred back and forth between award, the arbitrator concluded: the player, the third-party company and the club.

“It is important to bear in mind that FAT has jurisdiction This approach from the BAT ensures that the principle of regarding Scouting payments (see above paras 38 et seq.) legal certainty is honoured in all similar arbitration awards. as well as – undisputedly – on claims regarding salary payments under the Main Player Contract. Against this The only logical solution of such prima facie complicated background, the Arbitrator cannot accept the argument that issues is to award the full outstanding sum to the the Player has agreed to the jurisdiction of another arbitral player, when the dispute is decided on the merits. institution solely for one category of payments – the Image payments – arising from the Main Player Contract […]”4 The consensus reached by the BAT jurisprudence is that no subsequent image rights agreement can The arguments of the arbitrator are further supported alter the guaranteed nature of the employment by the Swiss Federal Tribunal, which upholds the contract between a player and a basketball club. legality of “arbitration agreements by reference5 and the predisposition of the Federal Tribunal to take into account the In the case BAT 0589/14, the player transferred his interconnection between different contracts when examining image rights to a third-party company, which sold the substantive validity of an arbitration agreement.”6 them back to the club, which employed the player for the sum of the outstanding salary debt. The Arbitrator in the case FAT 0105/10 held the same position: The major deciding factor in cases involving the transfer of image rights to third parties and back to “It is clear from those terms of contract that, irrespective the club is the true intention of the player and the club of any modalities that would be agreed upon in other stipulated in their initial employment contract.

2 FAT (FIBA Arbitral Tribunal) is the former name of BAT, which holds Below are the decisive arguments of the BAT arbitrator its current name since 2011. Throughout the article, the name FAT will be regarding the nature of guaranteed contracts in cases used only when citing awards rendered before the name change. of image rights transfer to a third party and subsequent transfer of the image rights back to the club: 3 FAT 0115/10, para. 41.

4 Ibid., para. 42. “In deciding if any salaries remain due to the Player by the Club for the […] season and, if so, in what amount, an 5 Ibid., para. 43; Decision of the Swiss Federal Tribunal of 16 October important preliminary issue to decide is whether or not the 2003, reported in ATF 129 III 727, 735 using the word “liberal” with Club may be deemed contractually liable to the Player for reference to ATF 121 III 38, 45 and the decisions 4P.126/2001 of 18 December 2001 reported in ASA Bulletin 2002, p. 482; 4C.40/2003 of 19 May 2003 at 4, reported in ASA Bulletin 2004, p. 344; see also decision 4P.230/2000 of 7 FAT 0105/10, para. 49, point 3. 7 February 2001 reported in ASA Bulletin 2001, p. 523. 8 This position is confirmed in the following awards, which upheld the 6 Ibid., para. 43; SFT Decision of 8 December 1999, reported in ASA BAT jurisdiction by relying on the same legal arguments: FAT 0105/10, Bulletin 2000, p. 546. paras. 41-50; BAT 0413/13, paras. 58-61; BAT 0589/14, paras. 38-46.

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the total amount of salary stipulated under the Employment parties are involved under the various agreements.”11 Agreement, […] or whether only third parties […] may be deemed contractually liable for that part of the Player’s total When the word “guaranteed” is used in the main compensation that was to be paid via the Player’s License contract, the true intention of the club is to guarantee Agreement and the Image Rights Agreements no. 1 and no. 2. that the player would receive all sums due under the employment contract net and without any tax deductions, The answer to the above question depends on the irrespective of whether the club or any related third parties interpretation of the Employment Agreement. would make those payments on behalf of the club.

In accordance with article 18 of the Swiss Code of Obligations In the absence of an unequivocal waiver of (“CO”), the interpretation of a contract must seek to determine the guaranteed clause, the player continues to the parties’ true intentions, as established by its wording and benefit from the full guaranteed nature of the any other relevant circumstances. This is sometimes referred contract as already agreed by the club. to as the “subjective” method of interpretation for contracts, as opposed to the so-called “objective” method, based on The BAT arbitrator in the case 0589/14 correctly reached what a reasonable person in similar circumstances could the conclusion that the player cannot be punished for and should have intended/understood, which is the method the non-performance of the obligations undertaken applicable if the parties’ true intent cannot be determined.”9 by the club and the third-party company. Since the result of the multi-way contractual bond – full Once the Arbitrator established that the subjective method payment of salaries – was not reached, the obligation of interpretation of the contractual agreements should be to settle the debt falls back to the basketball club. implemented, he concluded that the lack of performance by the club and the third party should be repaired by the club: In the quoted BAT arbitral award 0589/14, BAT summarised that: “In this case, the Arbitrator finds that although the Player’s Licence Agreement and the Image Rights Agreements no. “any amounts stipulated under the Image Rights 1 and no. 2 provided that part of the Player’s total salary Agreement no. 1 which were not received by the Player would in principle be paid via Lee Basketball and Dorchester, remain guaranteed and owed by the Club to the Player it is nevertheless clear from the wording of the Employment under the terms of the Employment Agreement.”12 Agreement that the Club undertook to guarantee that the entire salary […] would effectively be paid to the Player. These arguments are in conformity with the similar arbitration decisions rendered by BAT on previous In other words, there was a meeting of the minds between occasions.13 Any breach of obligations under the image the Player and the Club that the latter guaranteed to rights agreement is a breach of contract directly related to the Player that he would receive a total salary […] , the main contract, as confirmed by BAT award 0413/13.14 irrespective of whether Lee Basketball and/or Dorchester lived up to their contractual obligations.“10 Conclusions In summary, the Basketball Arbitral Tribunal (BAT) has Furthermore, the clubs, which use the image rights found the correct approach in solving the difficult issues agreement method and delay payments to players often cite surrounding multiple contractual agreements involving as a defence that the debt is waived by way of novation. image rights contracts between clubs, players and third parties. Whereas such contractual bonds serve mostly However, the BAT jurisprudence unanimously agreed a tax relief purpose for the clubs, they are often used that no novation is present if the player does not as an attempt by these basketball clubs to prevent the intentionally and explicitly waive the guaranteed players from bringing disputes before BAT and to alter the nature of the main employment contract: otherwise guaranteed nature of employment contracts.

“In this connection, the Arbitrator finds that the Club has However, by retaining the BAT jurisdiction for all claims the burden of proving the novation it is invoking, and related to the main employment contract, BAT has enabled that the mere signature of the Image Rights Agreement the players to get a fair process. Bringing claims against the no. 2 is insufficient to establish that any contractual debts third-party company in front of a court in a foreign country remaining under the Employment Agreement and/or the would have been an inconvenient alternative for the players. Image Rights Agreement no. 1 were novated or relinquished in any manner. The Club has adduced no evidence that such was the intention of the Player, and in particular that he intended to renounce the Club’s guarantee under 11 Ibid., para. 60. the Employment Agreement. In addition, not all the same 12 Ibid., para. 61. 9 BAT 0589/14, paras. 52-54. 13 FAT 0105/10; FAT 0115/10; BAT 0413/13. 10 Ibid., paras. 55-56. 14 BAT 0413/13, para. 59.

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In addition, the decisions regarding the merits of the disputes are in congruence with the principle of guaranteed contracts and pacta sunt servanda.

Any other outcome of such disputes would have put the basketball players in a very disadvantaged position, considering that their only goal was to collect what was guaranteed as payment from the clubs.

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by mario tenore1 and panagiotis c. roumeliotis2 jurisprudence5 to delineate and outline key tax aspects that may prospectively arise with a view to enhancing and disseminating the knowledge within. Introductory remarks Burden of proof Since the Bosman decision, the football industry has made As a preliminary comment, it is appropriate to make great strides forward. At the same time, it is undergoing reference to the principle of the burden of proof: an epoch-making regulatory reform. As in every business sector, there is a tax reality to be reckoned with and, “In CAS arbitration, and in accordance with Article 8 of the in modern football, the agreements concluded, be it Swiss Civil Code, any party wishing to prevail on a disputed transfer agreements or labor contracts, discernibly and issue must discharge its burden of proof, i.e. it must meet inherently encompass intricate tax aspects. Undeniably, the onus to substantiate its allegations and to affirmatively the applicable tax treatment plays a significant role with prove the facts on which it relies with respect to that issue. regard to the relocation of players and their career options. In other words, the party which asserts facts to support its rights has the burden of establishing them […]. The Code sets This present contribution focuses on the manner forth an adversarial system of arbitral justice, rather than the Court of Arbitration for Sport (“CAS”), the an inquisitorial one. Hence, if a party wishes to establish “central actor in international sports disputes and some fact and persuade the deciding body, it must actively in the development of international sports law”3, substantiate its allegations with convincing evidence.”6 deals with the interpretation of tax issues. The need for reference to the burden of proof is relevant CAS jurisprudence is diversified touching upon different in almost every case brought before the CAS. subject matters. Football, in particular, dominates, as 38% of all awards in the dataset are pertaining to football-related Let us assume that a player claims outstanding salaries disputes and primarily and overwhelmingly concern and the club rejects the claim. The club would then have employment contracts, player transfers and non-doping- to prove its claims that it has already (partially) paid the related disciplinary actions.4 Hence, at first glance, one alleged outstanding balance. Notably, if as it is in most cases, might question the relevance of tax with CAS jurisprudence. the remuneration indicated in the employment contract is However, tax issues cannot be obviated from as they are agreed to be considered a gross remuneration (see infra), the inherent and ingrained in employment relationships and club would have to prove that it had already paid part of the to any transaction triggering cross-border payments. amount by means of calculating, withholding and settling the corresponding tax due. The proof may be evidenced by Therefore, the authors undertake to delve into presenting the receipts/payment forms released from or the issues with fiscal nuances and intend to take stamped by the Tax Office that document the taxes paid by a more careful look into each one of them. Their the club on behalf of the player in the relevant fiscal year.7 principal objective is by screening through the CAS

1 Tax advisor at Maisto e Associati (Milan). He advises clients (sport teams, athletes and agents) in various areas, such as athletes’ transfers in 5 For the sake of parsimony, the facts of the examined cases will not be Italy and abroad, management and use of image rights and participation presented with accuracy; rather on a brief high-level basis. to international competitions. He is member of the International Tax Entertainment Group (ITEG). 6 CAS 2015/A/4206 Hapoel Beer Sheva FC v. Ibrahim Abdul Razak and CAS 2015/A/4209 Ibrahim Abdul Razak v. Hapoel Beer Sheva FC, award of 2 Senior tax advisor at KPMG Luxembourg. He is holding an LL.M. in 29 July 2016 [240]; CAS 2016/A/4875 Liaoning Football Club v. Erik Cosmin European and International Tax Law and an LL.M. in International Sports Bicfalvi, award of 15 May 2017 [6.11]; CAS 2014/A/3640 V. v. Football Club X., Law. award of 28 January 2015 [9.14]; CAS 2015/A/4046 Damian Lizio & Bolivar Club v. Al-Arabi SC, award of 10 November 2015 [89]; CAS 2013/A/3097 3 Johan Lindholm, The Court of Arbitration for Sport and Its Football Club Goverla v. Gibalyuk Mykola Mykolayovych, award of 10 Jurisprudence; an Empirical Enquiry into Lex Sportiva, ASSER International November 2014 [56]. Sports Law Series (ASSER Press 2019), Preface. 7 Dealt with in CAS 2010/A/2160 Crevna Zvezda v. Segundo Alejandro 4 Ibid., p. 41. Castillo Nazareno, award of 2 March 2011.

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Employment contract case whereby the contract provided that any payments As an introductory remark, the employment contract and were to be made “without any deduction”. In short, CAS its annexes (if any) represent the contractual framework has held that “without any deduction” is to be construed under which the player provides his services in favor as equivalent to “net” and vice versa.10 In particular: of the club. By virtue of the employment contract, and departing from the principle that “the employer’s payment “the proper interpretation of “net amount” is “without any obligation is his main obligation towards the employee”,8 deduction”, in the sense that the agreed net amount must the club pays a player’s fixed salary, directly correlated exactly correspond to the amount which is received in the with the on-field performance, whilst it may also provide creditor’s bank account or is anyway collected by the creditor. for additional variable components. More specifically, It is a common understanding in the practice of sports the payment obligation may encompass a wide range contracts – particularly in employment contracts between of payments with different nuances such as, and not clubs and footballers – that “net amount” refers to the final limited to, sign-on-fees, fixed bonuses/match bonuses, amount the creditor expects to receive in its bank account. rental allowances as well as any amount corresponding to Under this approach, all sorts of taxes, expenses and charges flight tickets agreed upon in the contract with a price tag/ due to the tax authorities or to other third parties (for example monetary value being contractually attached to them. the banks involved in the payment) in connection with the payment, whether recoverable or not by the creditor, are to As a matter of principle, tax aspects deriving from a be paid by the debtor on top of the agreed net amount.”11 contract are dealt with and governed by the applicable national tax legislation of the country/countries Should the contract expressly provide that the salary concerned. By the same token, CAS has made clear that it payable is to be considered as the net salary (after falls outside of its jurisdiction to decide what obligations income tax has been deducted), this would imply that (if any) the contracting parties might have under the all taxes resulting from the employment have to be domestic tax law vis-à-vis the Tax Authorities (“TA”).9 borne by the employer, i.e. the club. Conversely, a phrase to the effect that in the salary payable “tax is included”, Nature of the agreed amounts would result in the player’s salary being deemed as While it is incumbent upon the player/coach to pay the inclusive of taxes which, as a corollary, would entail the taxes and social security contributions on his salary, the player being liable to pay the income tax corresponding club usually deducts the respective amounts from the to his salary and other contract money (if any). salary through the withholding tax mechanism and remits them – on the player’s/coach’s behalf – to the relevant TA. Interpretive approaches What has the CAS ruled in cases whereby the agreement The regular salary, being the predominant did not make any explicit reference as to whether the constituent, is, essentially, composed of two parts: remuneration payable should be considered as net or gross?

– the net amount; and There appears to be quite a few and non- – the part corresponding to the taxes that would congruent interpretive issues. need to be levied and paid to the pertinent TA. – In a case (CAS 2015/A/3947) dealing with three bonus In this regard, the way the relevant contractual clause installments agreed in the employment contract, has been drafted should give the right indication, so as to the CAS used the contra proferentem principle and determine the exact amount the player/coach is entitled to concluded that since the club is the author of the (i.e. compensation on a net or gross basis). The notions “net” said agreement, it should have mentioned that the and “gross” are usually referred to as simple and instant amounts due were to be considered as gross/net.12 as a light flare but, in truth, they may evoke a series of Presumably, and in the absence of such reference, controversial issues which trigger potential labor disputes. the player “could have in good faith thought that such amount was to be considered as a net amount and that Definition of “net amount” and implications his good faith should be preserved.”13 In addition, the The CAS jurisprudence has provided an interpretation Panel highlighted that it is rather usual practice that of the “net amount”, which is extraordinarily broad, in a 10 CAS 2006/A/1018 C.A. River Plate v. Hamburger S.V., award of 8 CAS 2006/A/1180 Galatasaray SK v. Frank Ribéry & Olympique 10 November 2006; CAS 2012/A/2806 SC Corinthians Paulista v. de Marseille, award of 24 April 2007 [26]; CAS 2017/A/5242 Esteghlal Panathinaikos FC, award of 17 December 2012 [75]. Football Club v. Pero Pejic, award of 16 April 2018 [69]; CAS 2013/A/3398 FC Petrolul Ploiesti v. Aleksandar Stojmorovic, award of 23 June 2014 [57]; 11 CAS 2012/A/2806 SC Corinthians Paulista v. Panathinaikos FC, award of CAS 2009/A/1997 &1998, Akranes Football Club v. Vjekoslav Svadjumovic 17 December 2012 [72 & 75]. and Dario Cingel, award of 9 August 2010 [36]; CAS 2013/A/3165 FC Volyn v. Issa Ndoye, award of 14 January 2014 [79]; CAS 2017/A/5111 Debreceni 12 CAS 2015/A/3947 KAS Eupen v. Ibrahima Sory Camara, award of 14 Vasutas Sport Club v. Nenad Novakovic, award of 16 January 2018 [102]. November 2016.

9 CAS 2017/A/5111 Debreceni Vasutas Sport Club (DVSC) v. Nenad 13 CAS 2015/A/3947 KAS Eupen v. Ibrahima Sory Camara, award of 14 Novakovic, award of 16 January 2018 [142]. November 2016 [72].

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a bonus payment is expressed in its net amount and 2016/A/4699 and the authors wish to refer to it verbatim: concluded towards the net nature of the amount. “It follows from the willful separation between conditional – In a case (CAS 2016/A/4699)14 where the player’s compensation which shall be net and unconditional remuneration was segregated between unconditional compensation for which no taxation issues were addressed, compensation not expressly being defined whether net that one cannot draw the conclusion that the Parties or gross and conditional compensation expressly stated intended to agree on net payments for each type of to be paid net, the issue lay precisely on whether the compensation. Rather the Parties’ intention to isolate unconditional remuneration had to be paid net to the the types of compensation from each other suggests that player. First and foremost, the CAS made an attempt different types of compensation underlie different types to apply an interpretation based on the wording (i.e. of taxation. This also follows a contrario from the fact ad litteram interpretation)15 as to identify the true and that a specific regulation agreed upon by the Parties – i.e. mutually agreed intention of the parties. However, the fact of net payments – would be meaningless, if the this attempt was not successful due to the lack of a same regulation was desired for the unregulated type wording. Notwithstanding, the Panel concluded that of compensation as well. If this would have been the in “the absence of an explicit statement to the effect that intention, the Parties would have specifically included – the unconditional compensation is to be paid net to the quod non – the unconditional compensation as well.”20 player is not sufficient to conclude that this should be construed to mean that it was the intention of the Parties In a nutshell, the Panel alleged that the wording of the to state this amount as a gross amount.” Therefore, the agreement was clear and unambiguous and added that: Panel deployed thereafter an objective interpretation16 basing itself on the wording of the relevant contracts, the “the wording of the clause is clear with regard to net payments content of the relevant adduced e-mail17 correspondence, being solely applied to conditional compensation. In the principle of good faith and the overall context and contrast, the lack of such a provision regarding unconditional circumstances of the case. As a result it concluded that, payments speaks for itself. As there is no uncertainty in based on the facts, the player could bona fide have a the wording, one cannot assume a contractual loophole legitimate expectation to also receive the stipulated which would bring up a possible need to interpretation amount related to the unconditional compensation under the principle of in dubio contra stipulatorem21.”22 net albeit not explicitly stated in the agreement.18 It is noteworthy that the Panel referred to the – In another case (CAS 2016/A/4731)19, in which the CAS 2016/A/4699 award, attributing the different payment arrangements were identical to those of conclusion to the different facts of the case. CAS 2016/A/4699, the Panel’s findings were rather incongruous. The Panel contradicts the decision in CAS A club’s duty to cover players’ actual expenses, such as monthly rent allowances, logically refers to net amounts.23 14 CAS 2016/A/4699 Mubarak Wakaso v. FC Rubin Kazan, award of 13 The characterisation of such allowances, as fringe January 2017 [7.4-7.18]. benefits, falls within the notion of taxable income, which is subject to personal income tax under the applicable 15 The literal interpretation of a provision, in principle, has primacy over tax law. In addition, the club’s internal regulations as other methods of interpretation. well as the employment contract, shall be used as the 16 The parties’ declarations and actions shall be understood by the starting point to assess whether a club may deduct a 24 Panel in the way the other party could and, in good faith, should have percentage of this amount for income tax purposes. understood them (analyzed in CAS 2016/A/4699 and CAS 2016/A/4731). Hence, it would be advisable to formulate in a clear 17 For reference: “the Sole Arbitrator finds sufficient grounds for assuming that the Parties agreed, prior to signing the Suspension Agreement, that the Club, as confirmed in this e-mail, accepted to pay 20 CAS 2016/A/4731 Marko Livaja v. FC Rubin Kazan, award of 26 June 2017 unconditional compensation in the amount of EUR 381,250 net to the Player [69-70]. for the duration of the loan period (September 2015 - May 2016)” [7.15]. 21 According to Swiss law, in the case of ambiguity, the principle in dubio 18 CAS 2016/A/4699 Mubarak Wakaso v. FC Rubin Kazan, award of 13 contra stipulatorem shall apply whereby an unfavourable interpretation January 2017 [7.18]: of any clause against the author has to be adopted, as he had the power “Notwithstanding that the Suspension Agreement does not explicitly state when drafting the clause to make the meaning plain (extracted from CAS that the unconditional compensation is to be paid net, the Sole Arbitrator 2013/A/3237 Bratislav Ristic v. FK Olimpic Sarajevo, award of 14 March 2014 finds that the Player – inter alia in view of the Club’s statement in the mail [55]). forwarded on 30 August 2015 and in view of the fact that all payments from the Club to the Player had so far been made net, which has also been 22 CAS 2016/A/4731 Marko Livaja v. FC Rubin Kazan, award of 26 June 2017 proved during these proceedings by the production of written witness [76]. statements given by representatives of the Club – could in good faith have a legitimate expectation that the unconditional compensation was to be 23 CAS 2015/A/4217 Zamalek FC v. Ricardo Alves Fernandes, award of 20 paid net from the Club.” September 2016 [78].

19 CAS 2016/A/4731 Marko Livaja v. FC Rubin Kazan, award of 26 June 2017 24 CAS 2015/A/4217 Zamalek FC v. Ricardo Alves Fernandes, award of 20 [58-92]. September 2016 [78].

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manner the clauses relating to the player’s remuneration be limited to taxes related to the employment income, as to reflect the net value of such allowances and avoid including taxes that the club is required to withhold or instances whereby the club would assert being entitled to deduct, and taxes that the player is required to pay directly. deduct personal income tax from the taxable amount. The gross-up agreement should, therefore, be drafted Gross-up agreements in such a way that it shows the effects also after the Gross-up agreements are very often concluded in the termination of the employment agreement, in which framework of an international transfer/move of a case it should take into account the fact that the player/ football player/coach. Whether or not such agreements coach (more likely than not) takes up tax residence in are separate from or integrated in the employment another jurisdiction that may apply higher tax rates.27 contract depends on the national sport regulations. There are cases in which the player obtains a deferred remuneration several years after the player ceases to be In Italy, for example, employment contracts of football tax resident in the state where the club is established. players must indicate a gross remuneration so, should the parties intend to concur on a net remuneration Contractual termination and termination clauses basis, they must enter into a separate agreement. It is usual for clubs and players/coaches to conclude In Portugal, domestic law dictates that the proper termination agreements or insert termination clauses in calculation of remuneration payable to players/ the employment contract to define the conditions under coaches should be based upon the gross figure.25 which the agreement may be terminated for consideration. As a rule of thumb, neither under Swiss law, nor under the The employment contract may foresee that any payment FIFA Regulations, are there mandatory rules that prevent made by the club to the player/coach must be made parties to a contract from agreeing on the termination in the full (net) amount, i.e. free of any deductions for of the same, subject, of course, to not being terminated income taxes and/or other charges. In order to ensure in an abusive fashion or agreed under duress.28 that the player/coach would receive the net amounts prescribed, a separate agreement may be entered into It is common in CAS jurisprudence that, when the that would regulate the modalities of the grossing-up nature (gross/net) of the agreed amount payable in (i.e. taking into account the applicable tax rate along consideration for the triggering of the clause is not with any other applicable charges) to ensure that expressly defined, agreement on gross amounts may be remuneration after tax consists of the agreed net amount. presumed by the Panel based on the pertinent national law. Interestingly, the Panel may base its decision It is important to define the scope of the gross-up on circumstantial evidence, observing, for instance, agreement which, in addition to taxes, could be extended whether the installments stipulated in the contract to other charges, such as health insurance, social security constitute round figures29 and whether the payment contributions26 or even administrative penalties, which sheets make reference to the fact that tax and social- might be charged to the player in the case of a tax audit (e.g. security costs must be deducted at source by the club.30 regarding the alleged existence of a taxable fringe benefit). With regard to the scope, it is recommended to include both Another issue that might be raised is a termination current taxes and future taxes, which can be introduced clause which encompasses a gross-up agreement. In in the following years. The scope of the agreement can one case (CAS 2006/O/105531) it was prescribed that, if the club terminated the contract prematurely, it 25 This was addressed in CAS 2008/A/1464 Futebol Clube do Porto v. J. would have to pay the coach all the (net) salaries/ and CAS 2008/A/1467 J. v. Futebol Clube do Porto, award of 3 December bonuses pending at the date of termination, taking 2008 [34]. into consideration “the assumed tax residence of the coach at the moment of termination”. CAS held that: 26 CAS 2014/A/3854 AFC Astra v. Nikola Michellini & Fédération Internationale de Football Association (FIFA), award of 27 August 201510. With regard to the monthly net amount due to the player, Clause III, lit. (i) “The overall intent is clear: the contractual amounts of the contract specifies that the club “has the obligation to pay only the income tax”: “109. With respect to the amount allegedly deducted by the Club for fiscal 27 This issue was dealt in the CAS 2006/O/1055 Del Bosque, Grande, charges, the Sole Arbitrator observes that while, on the one hand, Clause II.1 Miñano Espín & Jiménez v. Besiktas, award of 9 February 2007. (a) of the Contract establishes that only the income tax was to be borne by the Club, thus assuming the possibility that, in theory, the Player was meant 28 CAS 2007/A/1258 Aris F.C. v. Sergio da Silva de Souza Junior, award of 23 to bear other additional charges, on the other hand the Appellant failed October 2007 [7-8]. to prove that it was allowed to deduct those amounts from the Player’s salaries. In addition, the wording in Clause V of the Contract (“the player 29 In CAS 2007/A/1258, the mere fact that the installments did not shall receive 4.000 euros netto monthly”) quite contrasts with the alleged constitute round figures insinuated their gross character. right of the Club to deduct any amount from the Player’s remuneration. Moreover, it was not demonstrated that the amount of EUR 3,392.55 was 30 CAS 2007/A/1258 Aris F.C. v. Sergio da Silva de Souza Junior, award of 23 actually deducted from the Player’s salaries and paid by the Club, since the October 2007 [38]. documentation already submitted during the FIFA proceedings does not constitute sufficient and valid evidence thereof, as correctly established by 31 CAS 2006/O/1055 Del Bosque, Grande, Miñano Espín & Jiménez v. the Appealed Decision.” Besiktas, award of 9 February 2007.

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were to represent “net” amounts, i.e. amounts after that the player breached the contract prematurely within application of the personal income tax rate”, the context of art. 17 FIFA Regulations on the Status and Transfer of Players (“RSTP”), the calculation of the while: cost-saving by the club due to such incident took into consideration the terms of the contract (in the context of “the reference to the moment of termination assumes that deducting them from the compensable damage head). the compensation would have been paid immediately. Hence, if the player is entitled to a salary net of taxes This could have raised problems of interpretation in (vs. gross salary), then, in order to determine the actual case of delay in payment, if the tax residence of the amount effectively saved by the club, the CAS would be claimants had changed since the date of termination.”32 grossing up the stipulated monthly installments with the applicable tax rate, subject to the assumed tax residency.37 In another case (CAS 2015/A/4055) parallels may be drawn with regard to the termination clause that read as follows: Conclusions The analysis of the CAS jurisprudence highlights that “[...] if the club decides to terminate this contract unilaterally employment matters inherently contain tax issues which, [...] shall pay the player all the salaries and bonuses [...] in case of dispute, may be subject to the CAS assessment. the amount of salaries resulting from the anticipated termination of this contract shall not be under the figure It is agreed that CAS jurisprudence considers that that results from subtracting from 1.700.000 EUR net, the fiscal obligations under the applicable domestic tax net amount paid by the club for salary, excluding bonuses. law vis-à-vis the tax authorities are to be determined The amount to be paid resulting from the anticipated by the latter and fall outside the CAS’s competence. termination shall be paid taken into consideration the tax The basis for the tax liability is the remuneration as residence of the player at the moment of termination [...]”33 depicted in the employment contract. In particular, the payment of the salary is agreed inter partes as a net In that case the player was found to have terminated the or gross amount, subject to the domestic tax law. contract with “just cause”34 and, thus, was entitled to a grossed-up compensation. Under the foregoing quoted The authors are aware of the fact that the devil is in the clause, the net payment was explicitly agreed upon, while detail and thus, in light of the incongruent approach the last alinea contained a gross-up agreement (i.e. taxes adopted by CAS, recommend the use of caution in the to be added on the total sum owed).35 CAS held that: formulation of tax clauses and that they should be drafted in a clear and unambiguous manner in order to “in calculating damages for loss of earnings, the so-called avoid any uncertainty related to their interpretation. gross-wage method is to be used, i.e. loss is calculated based on the injured party’s loss of gross earnings”.36 The present analysis has also addressed the drafting of gross-up agreements under which any payment from Even if the agreement did not set forth the relevant the club to the player/coach must be made in the full tax rate for the purpose of the gross-up obligation, amount, i.e. free of any deduction concerning income taxes the decision assumed tax residency of the player and/or other charges. The drafting of such agreements and, therefore, the applicable tax rate. requires local tax expertise in the state where the player is transferred, in order to ensure that the scope of the Conversely, in a couple of cases where it was adjudicated agreement is properly identified and that it displays its effects after the termination of the employment agreement 32 CAS 2006/O/1055 Del Bosque, Grande, Miñano Espín & Jiménez v. and regardless of changes in personal circumstances. Besiktas, award of 9 February 2007 [69 and 72]. Reference is also made to contractual termination clauses 33 CAS 2015/A/4055 Victor Javier Anino Bermdez v. Club Elazignspor encompassing a gross-up agreement. In that regard, when Kulubu [10]. the nature of the amount payable is not expressly defined, 34 According to the 2006 FIFA Commentary “the other party to the the overall context of the agreement will play a decisive contract, who is responsible for and at the origin of the termination of role in the conclusion of the nature of the amount. It is the contract, is liable to pay compensation for damages suffered as a consequence of the early termination of the contract”. In other words, a termination of the contract with valid reasons by one party automatically 37 CAS 2009/A/1865-1857 Club X. v. A [195]; CAS 2010/A/2145, 2146 implies the breach of said contract by the counterparty (see CAS & 2147 CAS 2010/A/2145 Sevilla FC SAD v. Udinese Calcio S.p.A. and 2012/A/2910 Club Eskisehirspor v. Kris Boyd, award of 23 April 2013 [66]; CAS2010/A/2146 Morgan De Sanctis v. Udinese Calcio S.p.A. and CAS CAS 2014/A/3822 Dacia SRL v. Rohan Ricketts, award of 29 December 2016 2010/A/2147 Udinese Calcio S.p.A. v. Morgan De Sanctis & Sevilla FC SAD, [94] and CAS 2013/A/3210 Yonathan David Rodriguez Auyanet v. Club award of 28 February 2011 [87]. Pandurii Lignitul, award of 19 March 2014 [8.2]). “In this case, keeping the consistent approach (see for example the grossing up in the CAS 2009/A/1856 and 1857 decision, at paras 196 and 197) of 35 The regulations governing the tax aspects were not explicitly laid looking at the gross sums (as tax rates differ from country to country and, down. more basically, in any playing contract, the club’s obligation is to pay the whole contract sum, and the tax liability is the player’s; for convenience 36 CAS 2015/A/4055 Victor Javier Anino Bermdez v. Club Elazignspor and usually as a result of tax legislation, the club deduct the tax at source Kulubu [150]. and pay it on the player’s behalf to the government).”

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noteworthy that the mere fact that the amount does not constitute a round figure would insinuate its gross nature. In addition, in cases of contractual breach perpetrated by the club and the existence of a gross-up agreement, the authors subscribe to the view that such agreement should provide for the taking into consideration of the tax residence of the player/coach at the moment the payment is effected. In turn, in the event of breach committed by the club, the salary eventually saved by the club would be deducted from the compensatable damage basis and the grossing-up or not would depend on whether the salary payable is net or gross.

Lastly, even if the issues of a potential case might be closely similar to the issues of the foregoing awards, the reasoning laid down in the past does not, by any means, constitute a binding precedent. The legal analysis displayed before will not necessarily be followed by and abided by a panel as, in CAS jurisprudence, there is no principle of binding precedent (“stare decisis” or “collateral estoppel”).38 A CAS panel, in principle, might end up deciding differently from a previous panel. However, it must grant to previous CAS awards a substantial precedential value and it is up to the party advocating a jurisprudential change to submit persuasive arguments to that effect.39

38 CAS 2015/A/4368 Mikhail Danilyuk v. Football Union of Russia (RFU) & Football Club Shinnik, award of 11 July 2016 [9]; CAS 2016/A/4602 Football Association of Serbia v. Union des Associations Européennes de Football (UEFA), award of 24 January 2017 [119].

39 CAS 2008/A/1545 Andrea Anderson, LaTasha Colander Clark, Jearl Miles-Clark, Torri Edwards, Chryste Gaines, Monique Hennagan, Passion Richardson v. International Olympic Committee (IOC), award of 16 July 2010 [52-55]; CAS 2004/A/628 International Association of Athletic Federations v. USA Track and Field and Jerome Young, award of 28 June 2004 [73]; CAS 2012/A/2972 Matti Helminen v. Royale Ligue Vélocipédique Belge (RLVB), award of 23 July 2013 [51].

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Football: Assignment of image rights and the Xabi Alonso case

by mariana díaz-moro paraja1 a contract in which a person (the assignor) authorises a third party (the assignee) to be able to economically exploit the image for a given period, normally in exchange for financial compensation, exclusively or in a shared manner, Introduction for specific uses and purposes and for certain means. Sport and in particular, football is a great industry. However, not everything is sport, games and goals, as Taking the above into consideration, it is not only football clubs and professional football players have developed players, but also basketball players, tennis players and very valuable rights from their images and names. professional athletes in general and even artists who Both are increasingly becoming a brand, which can may split their income. This income is mainly derived be assigned or licensed for commercial exploitation from two different sources, from employment contracts purposes, and in the end, these rights have the ability and from image-right exploitation contracts. In addition, to generate greater income than the sport itself. it is possible to assign rights to exploit the image rights to a – related or not – company for a more organised This has an undoubted fiscal impact, which must be and professional management and exploitation of such taken into consideration by sport lawyers. Tax advice rights. With this structuring in mind, it may be possible is necessary, given that the circumstances of each case to reduce the applicable taxation by allocating the image are different as are the consequences. In the field of rights to a company located in a low-tax jurisdiction. professional football players, attention should be paid not only to the contractual conditions, but also to the It is well known that tax authorities, not just in Spain, personal conditions and the reality behind them, taking pursue and review all types of artificial structures into account the applicable legislation in different whose sole purpose is to avoid taxes. Specifically, with jurisdictions. All this is in a global world where legal and professional football players, these types of structures tax treatment is not uniform, where there are tax measures have been particularly persecuted. In this regard, there that seek to encourage certain activities, but sometimes must be an adequate reason to pay for exploitation of an they are not accompanied by adequate legal certainty. image right apart from the payments by the corresponding club arising from the sport contract; additionally, Background when image rights are assigned to an intermediary Nowadays, one of the most controversial issues in the company – even more so when said company is related field of sports law is the taxation of professional football to the player – said assignment must be real, defensible players’ image rights and their exploitation through and in accordance with the arm’s length principle.2 related parties. The cases of Lionel Messi and Cristiano Ronaldo are known in Spain regarding the taxation of their Back in the 90s, with the boom in television revenue and image rights, but many other football players have had the growing popularity of professional players, many problems with this issue, such as Xabi Alonso. However, football players and clubs were audited by the Spanish the outcome of the latter has been, for now, different Tax Authorities who considered that the amounts paid from the previous ones as will be discussed below. to companies managing football players’ image rights qualified as salaries, and applied the corresponding On a general basis, under Spanish law, image rights penalties. The reasoning behind this was that these have two aspects: on the one hand, a negative aspect companies did not have real economic activity and characterised by the right to privacy and the exclusion of third parties, and on the other, a positive aspect materialised in the right to economically exploit the image. In addition, 2 The arm’s length principle is found in art. 9 of the OECD Model Tax Convention: “[When] conditions are made or imposed between [...] two the possible assignment of image rights is regulated by [associated] enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one 1 Lawyer, Gómez-Acebo & Pombo Abogados, Madrid, Spain. E-mail: of the enterprises, but, by reason of those conditions, have not so accrued, [email protected]. may be included in the profits of that enterprise and taxed accordingly.”

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that the image right assignments were simulated. In this context, the Provincial Court of Madrid3 has In any case, not all image rights assignments were recently acquitted a football player of several criminal simulated, and it is not always possible to conclude that offences against the Public Treasury derived from a company does not have real economic activity (lack the transfer of the exploitation of his image rights of substance) when this concept should be understood to a company located in a low-tax territory. as a lack of material or human means necessary to perform business activity on a case-by-case basis. The Xabi Alonso case Xabi Alonso, who has been tried for three criminal offences Taking the above into consideration and presumably against the Public Treasury – for alleged tax fraud that seeking adequate legal certainty, certain legal regulations state prosecutors said he had committed between 2010 were introduced in Spain by means of Law 13/1996 of 30 and 2012 – is a unique case in a long list of football players December 1996 on tax, administrative and social order accused of tax fraud in Spain, as he refused to cut a deal measures, which specifically regulates the tax treatment with the Spanish Tax Authorities and decided to go to trial. of image rights. These regulations sought to limit abusive For instance, Cristiano Ronaldo4 admitted to tax fraud practices established with professional athletes and artists, and agreed to pay a c 18.8 million fine after striking a and specifically delimited the tax treatment on image rights deal with Spanish prosecutors and the Tax Authorities in with three rules that may be summarised as follows: return for a 23-month suspended prison sentence. Spurs’ boss Jose Mourinho5 also accepted a deal with the Spanish 1 the qualification of image rights as income Authorities that involved him paying a fine of nearly c 2 from movable capital, in general; million and admitting to tax fraud to spare prison time. 2 the establishment of a special tax withholding rate, applicable to income derived from image The Provincial Court of Madrid, in its Judgement no. right exploitation payments; and 672/2019 of 25 November 2019 acquitted Xabi Alonso of 3 the establishment of an exploitation of image the criminal offences against the Public Treasury he rights regime through companies, applicable if was charged with, in relation with the assignment of amounts paid by clubs do not exceed 15% of the total his image rights to a company located in Madeira. This satisfied both for this concept and for the athlete’s acquittal was also extended to his tax advisor and the employment contract (the so-called “85/15 rule”). company’s administrator, both accused as accessories.

Nevertheless, the use of image right arrangements has According to the judgement, the facts were as follows: on not been a peaceful issue in Spain. The Tax Authorities 1 January 2009 when Xabi Alonso was still a player for have continued to audit these structures and in many Liverpool, he entered into an image rights agreement with cases, as detailed in the media, consider tax evasion to a well-known sportswear brand. However, on 1 August have taken place. In addition, any defrauded amount of 2009, only five days before he signed for Real Madrid, more than € 120,000 per tax and fiscal year is considered the player signed a contract with an entity located in a criminal offence. The Authorities have approached Madeira under which Xabi Alonso assigned the commercial the matter from two different perspectives: and advertising exploitation of his image rights to it. Subsequently, he informed the sportswear brand that – as a related-party transaction: given that the exploitation this Portuguese company would be subrogated from that of image rights through companies is possible and legally time in the rights and obligations that bound the player recognised, should these companies be related to the to the brand. The assignment contract was signed for a football players, any transaction between the latter and five-year period and in exchange for c 5 million, due from the companies should be valued at their normal value or the signing date, although finally paid in successive years, market value, pursuant to the arm’s length principle; and as Xabi Alonso did not request immediate payment from – by the way of simulation: by proving that the image the company. Likewise, the c 5 million consideration was right assignment to the company does not exist. based on an estimation of the revenue that the football player would obtain during the term of the contract, as To summarise and by challenging the structures in reasonably proved through an expert report issued by which football players assigned their image rights to a professional firm that took into account the proposed foreign companies with no real activity, located in low-tax contract with Real Madrid, as well as the existing contract jurisdictions or tax havens and in which in some cases the with the already mentioned sportswear brand. taxpayer tried to obscure ownership of the shares, the Tax Authorities, through the simulation concept consider the existence of tax evasion that may qualify as a criminal offense against the Public Treasury. Notwithstanding 3 Audiencia Provincial de Madrid – Sentencia no. 672/2019. the foregoing, and although it would appear that all 4 See https://www.reuters.com/article/us-soccer-taxation-ronaldo/ football players in this situation are criminally liable, ronaldo-accepts-fine-for-tax-evasion-avoids-jail-idUSKCN1PG0R2 the reality is that image right assignments are legally (accessed 16 February 2020). recognised and their use by companies is defensible. 5 See https://www.telegraph.co.uk/football/2019/02/05/ josemourinho-pays-19m-fine-escapes-jail-term-spanish-tax-fraud/ (accessed 16 February 2020).

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As regards the Madeira company, it is important to amount was much lower than the anticipated yield note that the entity was incorporated before 2001, so it that could be obtained from the contract. Furthermore, was subject to a special tax regime that granted total the consideration neither was paid at the time of tax relief until 2012; a 4% rate which was applicable in the assignment, nor was a payment schedule set. 2012; and a 5% rate applicable between 2013 and 2020. In addition, this company was initially owned by a The Court, although aware of the unusual structure used Panamanian entity – which acquired it from two entities in the case at hand for the purposes of legally reducing located in the British Virgin Islands –, but on 16 December the taxation applicable to the football player, led to the 2009, a few months after the assignment, the player conclusion that Xabi Alonso could not be found criminally ended up acquiring the company for c 5,000 in order to liable, nor could the two accessories accused, for the guarantee the collection of the credit he held against it. existence of the said tax structuring. Moreover, the Court insisted that for a criminal offence to be considered to have Taking into consideration the above, the state’s attorney and occurred, it is essential that the assignment be qualified as the prosecution understood that the assignment of image simulated, since the absolute simulation is the premise on rights by the football player to the Portuguese company which arguments submitted by the prosecution are based. was not real, but was simulated and executed with the sole purpose of enabling the player to avoid taxation in In this regard and after analysing each of the circumstances Spain. In other words, the discussion was about the reality surrounding this case, the Court concluded that there of the assignment of the image rights to the company was no simulation in accordance with the following. located in Madeira since, according to the prosecutor and the representative of the state administration, the 1 The fact that the Portuguese company lacks assignment was purely fictitious, simulated and created material or human means is not as relevant as exclusively to avoid the payment of the corresponding alleged, not only because in this type of industry Spanish taxes. In this regard, it is important to note that the is it common to outsource – as in the case at hand legal concept of simulation has its origin in civil law and – but because a complex framework or resources has been developed by the jurisprudence differentiating to manage an activity like the exploitation of between two degrees: absolute and relative. However image rights of a player whose performance gives and for tax purposes, this legal concept encompasses him a high media profile are not necessary. both figures because what will be subject to taxation is the taxable event actually carried out by the parties. 2 Xabi Alonso did not take part in the negotiation Therefore, in order for simulation to be considered to have of the contracts related to the exploitation of his occurred, there is a condition of sine qua non that the image rights, beyond signing the corresponding assignment is qualified as false, fictitious or non-existent. contracts or providing his consent – also by signing Otherwise, if the assignment had been based on a true case, – to carry out the purpose of each of them. it would have been considered lawful for tax purposes. 3 It has been proven that the Portuguese company The arguments in favour of this thesis, considering the was in charge of issuing the invoices and collecting existence of simulation for tax purposes, and put forward the amounts derived therefrom. This company also by the prosecutor and the State’s attorney were as follows. significantly increased its turnover derived from the assignment of image rights, something that enables it to 1 There is no justification for assigning the image rights maximise its equity and make alternative investments to a company without an infrastructure in exchange for in the normal development of its activity. Specifically, nothing, as the company cannot fulfil the contract due the expert report provided by the defence of Xabi Alonso to the lack of powers it had. The company used to follow shows that the company had invested in collective the instructions submitted by the football player’s agent. investment funds, equity investment funds, bond investment funds and diversified investment funds. 2 The purpose of the assignment contract was none other than the use of a company – which had already been 4 The consideration established in exchange for the image incorporated through a set of complex acts –which rights assignment – c 5 million – was not arbitrary was a beneficiary of a no or low-tax fiscal regime. or capricious, but based on a valuation report dated 1 August 2009, which took into account the contract 3 The company played the role of a mere formal proposal from Real Madrid and the aforementioned instrument for payments, since the football player, agreement with a sportswear brand, and was duly acting on his own behalf and with the help of the other valued in accordance with the market value. two individuals accused, exploited his image rights. 5 The acquisition of the Portuguese company by Xabi 4 The assignment was made without any guarantee Alonso in December 2009 did nothing more than to for payment and the assignee –the company– had no guarantee the collection of the credit derived from resources to pay the c 5 million consideration agreed the previously formalised image rights assignment. upon. In addition, this consideration was qualified as insufficient, illogical and unreasonable, since the In view of the foregoing, the Court concluded that what is

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truly decisive is that the Portuguese company was actually the assignee of the football player’s image rights and that it actively participated in its exploitation, so that it was not merely an instrument of payment used as a way to avoid paying taxes. In addition, it states that other circumstances such as the type of company to which the rights were transferred, the applicable tax regime derived from its location, and who the stakeholders of the company should not determine the simulation of the contract agreement.

Therefore, simulation was ruled out by the Court in the case at hand, and pursuant to art. 92 of the Personal Income Tax Law – in force at that moment –, considering that it was correct to exclude the income received for the assignment of image rights from the players individual taxable income (as such rights were allocated to a company). In this regard, the court decided to acquit the three defendants of any wrongdoing in this case.

Finally, it should be noted that the prosecutor’s office has already appealed this judgement on the grounds of “lack of rationality of the factual motivation based on the evidence disclosed during the oral proceedings and the consistency among them”. Therefore, we will have to wait in order to know whether this Court decision is confirmed by the hearing, in a case whose most relevant differences with respect to other similar cases may be the fact that the assignment of the image rights has not involved any entity residing in a tax heaven – but an EU company whose special tax regime had been authorised in the framework of the European Union –, that all facts and circumstances were properly documented and evidenced, and that the assignment complied with the arm’s length principle – an issue that has been duly proven with the corresponding valuation report, dated at that moment and which seems not to have been able to be proven otherwise by the authorities. All the above appears to be the main circumstances taken into consideration by the Court, which firmly concluded that there was no tax evasion or criminal offence.

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Taxation of artists and sportspersons in Portugal

Sun, sand and bright lights

by serena cabrita neto, dinis tracana and indoor soccer player in the world), also left the country joão rodrigues1 during this period. In addition, this migration was not countered by a simultaneous attraction of foreign athletes.

The underlying reason for these results is that the Introduction Portuguese government’s efforts targeted highly Portugal was one of the European countries more qualified people in a more intellectual sense, not severely affected by the 2008 mortgage subprime crisis, focusing (and perhaps missing out on a golden leading to an ever-increasing public debt and historical opportunity) to attract bright young players or unemployment rates. The economic downturn led to an established star athletes in their field of expertise. overall loss of purchasing power and, consequently, to a significant brain-drain. The effects of this migration were Throughout this article, the authors will provide a felt not only at the level of highly qualified employees, critical analysis of the different regimes introduced but also in the artistic field and the ability to retain and in Portugal in the last decade to attract artists and acquire particularly skilled sportspersons in Portugal. entertainers, or artistic productions, as well as the (lack of) regimes targeting sportspersons. To this end, the Faced with this difficult challenge, successive governments article will be structured by firstly looking into the have sought to create a more favourable environment regimes applicable to individuals and, subsequently, to welcome the return of those who left, as well as considering the regimes applicable to companies. to attract highly skilled individuals in all areas of expertise. The result? In less than a decade, Portugal Regimes applicable to individuals has managed to almost entirely recover the number The following sections outline the tax regimes applicable of immigrants inhabiting the Portuguese territory. to individuals which may, directly or indirectly, apply to artists, entertainers and sportspersons. During this period, Portugal reinvented itself and became a hub for upcoming and thriving start-ups and freelancers, Non-Habitual Resident regime particularly in the digital technology service sector, The Portuguese Non-Habitual Resident (“NHR”) becoming a source of inspiration for artists and entertainers. tax regime was introduced in 2009 and it was Naturally, some of the incentives created by the Portuguese the first measure to attract inbound highly government played a role in this inbound movement. skilled and/or high net worth individuals.

Unfortunately, the Portuguese government’s efforts In order to benefit from this regime an individual needs were not as successful in the case of sportspersons. to become a Portuguese tax resident2 and he/she must not have been taxed as a resident of Portugal for the five During the past decade, Portugal saw prominent football years prior to becoming a Portuguese tax resident. From players such as André Silva and Eder Militão (from FC Porto), a domestic perspective, the individual will qualify as Bernardo Silva and João Félix (from SL Benfica) or Rui Patrício a Portuguese resident taxpayer and therefore should and Bruno Fernandes (from Sporting CP) leaving the country. benefit from the Portuguese tax treaty network.

Athletes from other sports, such as Ricardinho (the best The benefits of the NHR regime are available to the individual for a period of 10 (ten) consecutive years from the year of his/her registration as tax resident in the 1 Serena Cabrita Neto (head of the Tax Department and of the PLMJ Italian Desk), Dinis Tracana (Senior Associate) and João Rodrigues (Associate) are tax lawyers at PLMJ. The opinions of the authors are 2 Individuals are deemed Portuguese resident whenever: personal and should not be construed as reflecting the views of PLMJ 1 they spend more than 183 days per year in Portuguese territory, of a year or any other institution. The authors may be contacted, respectively, at in the country; or [email protected], [email protected] and joao.rodrigues@plmj. 2 by holding during the said period a dwelling that implies an intention of pt. setting up a permanent residence.

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Portuguese territory. The regime provides specific tax rates From a Portuguese tax perspective, the Return Program applicable to qualifying individuals for income sourced in provides for a 50% income exemption on employment and Portugal derived from employment or self-employment. self-employment income, applicable for a period of five years. The tax regime is only applicable to individuals who: Under the standard tax regime, similar income derived by Portuguese tax resident individuals is 1 become Portuguese tax residents in FY 2019 or FY 2020; subject to progressive rates (up to 48% on income 2 have not been tax residents of Portugal in the three exceeding c 80,000) plus solidarity surcharges years prior to their return to Portugal; and (up to 5% on income exceeding c 250,000). 3 were tax residents of Portugal at some point in time prior to 31 December 2015. Depending on the nature of the individual’s income, a more favourable set of rules may, however, apply Note that this regime may not apply simultaneously with under the NHR regime. The regime provides for a the NHR regime. Accordingly, immigrants would need 20% flat rate over Portuguese sourced employment to choose to apply only one of the regimes (or neither). and self-employment income from high added value activities (as defined by Ministerial Order 12/2010, as Although the Return Program was not designed to amended). The flat rate is applicable to income derived specifically target artists or sportspeople, in practice, there from activities of “creative artists and performing arts” have been cases where individuals with this profile have but do not cover the activities of sportspersons. returned to Portugal and benefited from this regime.3

Furthermore, a Personal Income Tax exemption Tax incentive for intellectual property applies to foreign sourced employment income, Portuguese tax law also provides for a tax benefit applicable provided that it is effectively taxed in the source to income derived from certain intellectual property. country, and foreign sourced self-employment income This regime does not have the purpose of attracting provided that the income may be taxed at source immigration but merely aims to create a (rather small) and is derived from high added value activities. incentive for literary, artistic and scientific creation.

Artists and sportspersons may also benefit According to this regime, a 50% income exemption from a Personal Income Tax exemption on applies over income derived from literary, artistic and foreign sourced royalties provided that: scientific property, including income from the sale of single works of art. For this regime to apply, the 1 the income may be taxed at source under the recipient of the income must be the original owner provisions of a Convention for the Avoidance of of the property and the income derived therefrom Double Taxation (“CDT”) which is in place; or should be aggregated with other categories of income 2 if no CDT is in place, the income would be for tax purposes (i.e. subject to progressive rates). taxable at source according to the provisions of the OECD Model Tax Convention. Furthermore, the benefit is limited to a threshold of c 10,000, i.e. the maximum amount of income exempt This exemption is subject to the condition that the income from taxation may not exceed the amount of c 10,000. is not sourced in a blacklisted jurisdiction and is not deemed Portuguese sourced income under domestic law. In principle, there are no obstacles to applying this regime together with the NHR or the Return Program. However, Note that these exemptions (with the exception of it is not clear how these regimes would interplay when employment income) do not require effective taxation applied together – in particular the Return Program – since in the source country, being sufficient that the source it would lead to double partial income exemptions. country has taxing rights over such income. Preliminary conclusions The “Return Program” Despite not having one particular regime targeting Under the motto “It’s time to come back home”, the entertainers or artists, the different tax regimes Portuguese government introduced the so-called provided under Portuguese tax law have succeeded “Return Program” in 2019. This program has the in attracting a significant number of entertainers purpose of supporting emigrants, as well as their and artists to the Portuguese territory. descendants and other relatives, to return to the Portuguese territory and to take advantage of the In this regard, the Portuguese NHR regime has been opportunities nowadays available in Portugal. particularly effective. According to the information reported in several media outlets, entertainers, artists and The Return Program provides for several measures various celebrities such as John Malkovich, Monica Bellucci, ranging from a more favourable tax regime to financial support to returning emigrants to credit 3 Such was the case of football player Pepe, a Portuguese international, lines to support business investments and the who returned to play in Portugal after having represented Real Madrid and Beşiktaş. creation of new businesses in Portuguese territory.

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Michael Fassbender, Christian Louboutin, Christophe In the authors’ view, this was a completely missed Sauvat, Madonna, Eric Cantona, Giovanna Antonelli, Paolla opportunity for Portugal to attract talented, top athletes Oliveira, Garrett MacNamara, amongst others, have moved at a time when the political environment in Portugal was to Portugal and have benefited from the NHR regime. open to these types of regimes. Recent studies5 very clearly demonstrate the true cost that Portuguese clubs bear, in The Portuguese NHR is, indeed, quite flexible, allowing order to attract talent from abroad, when compared to artists and entertainers to benefit from a flat 20% tax other countries, which might explain the recent lack of rate on certain income, potentially reduced to 0% if it competitiveness of Portuguese teams in many sports, qualifies as foreign sourced self-employment income. from football, to handball, basketball and others. Considering the much higher progressive rates typically applied to this type of income, the NHR may position the A very recent and successful example of a country seizing artist/entertainer to have a lower effective tax rate. the opportunity to attract sportspersons is Spain, which attracted top athletes from every area of sport with the so- Furthermore, royalty income may also be exempt from called “Beckham Law”. The Beckham Law was introduced Personal Income Tax in Portugal to the extent that it in 2005 and provided for an elective regime according to may be taxed at source according to the provisions which athletes immigrating to Spain could opt to be taxed of the applicable CDT. On this point, we would like to as non-residents for a period of five years. As a result of point that, although Portugal is a member of the OECD, the application of this regime, those athletes were only Portugal’s tax treaty policy deviates from the provisions taxed on Spanish sourced income and benefited from a of the OECD Model Convention with regard to the reduced 24% rate (rather than the standard 43% rate). taxation of royalties solely by the state of residence. Other countries have followed the Spanish example (which In other words, all the CDTs entered into by Portugal, which revoked the Beckham Law in 2010) and now specific regimes are currently in force (78 CDTs), provide for source taxation may be found in countries as Italy6 or Turkey. The outcome of royalty income (although subject to reduced rates). is that the gap in the ability to attract top talent between This means that royalty income derived from, at least, Portugal and these other jurisdictions continues to increase. all those jurisdictions would automatically qualify for a Personal Income Tax exemption under the NHR regime. The narrow scope of the Return Program does not seem sufficient to reduce the competitive gap between Portugal The CDTs entered into by Portugal provide a limitation on and these other jurisdictions. While there have been a the source state’s right to tax royalty income. These provide few examples of sportspersons returning to Portugal a set of tax rates ranging from 5% to 15%. Accordingly, and benefiting from the Return Program, it is clear that the worst-case scenario for an individual qualifying as attracting sportspersons or artists is not the purpose of the NHR is to have royalty income taxed at an effective rate regime and, therefore, has had limited effect in this respect. of 15%, whereas the best scenario would be a 0% rate, if the source jurisdiction elects not to tax the income. Finally, the tax incentive related to intellectual property income has also proved to be insufficient to make a The combination of the two features of this regime have real difference in attracting artists or entertainers. been particularly interesting for artists and entertainers, which may also have access to more favourable taxation Regimes applicable to companies on other types of income – dividend income and pension In addition to the regimes applicable to individuals income may also benefit from Personal Income Tax mentioned above, Portugal has also been exemptions in Portugal. In addition, Portugal does not apply attempting to create regimes to attract artistic wealth and gift taxes, as well as inheritance taxes, which is production into the Portuguese territory. a relevant factor for individuals preparing their succession. Incentives for the movie industry Unfortunately, the Portuguese NHR regime does not provide In 2017, Portugal attempted to position itself as a for reduced tax rates or exemptions for income derived from prime jurisdiction for film production by introducing the activities of sportspersons. In addition, for Portuguese a tax regime in which certain tax deductions for tax purposes the benefit of the Personal Income Tax exemption on foreign-sourced royalties is not necessarily 5 According to the The European Champions Report 2017, prepared straightforward. Portuguese case-law has determined by KPMG, a Turkish football club needs to disburse “only” € 1.19 million that income from image rights falls within the scope of for an athlete to reach the net salary of € 1 million, whereas Portuguese art. 7 (Business Profits) of CDTs4 – which means that there clubs would be faced with a cost of € 2.46 million. The main difference would be no source taxation and therefore no exemption between these two jurisdictions is the tax benefits available to inwards players, which have allowed Turkish clubs to attract renowned players would be applicable in Portugal under the NHR regime. such as Valbuena, Gael Clichy, Alvaro Negredo or Roberto Soldado.

6 We understand that a new tax regime has been recently introduced 4 See, for instance, Centro de Arbitragem Administrativa [Arbitration in Italy. From 1 January 2020, a partial exemption may apply on Court, (CAAD)], 15 June 2018, Case 597/2017-T. This is also the position of employment, self-employment and similar types of income derived by the Portuguese Tax Authorities – see Circular Letter 17/2011, 19 May 2011. inbound workers (not limited to sportspersons or artists).

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expenses borne in qualifying film productions, Other film making incentives ranging from 20% to 25%, were granted. The Portuguese Corporate Income Tax Code provides for a quite unusual penalty tax on certain expenses (so-called Such tax regime failed to gain momentum and tributação autónoma).8 These expenses include costs Portugal was not able to effectively compete with other relating to the acquisition, leasing, insurance and other European countries, such as Spain, Hungary or Cyprus.7 expenses incurred with light passenger vehicles and light For this reason, Portugal decided to change course good vehicles (which are not electric). The penalty tax rate and opted for an alternative cash rebate regime. ranges from 10% to 35% depending on the acquisition cost.

For the purposes of this regime, the Fund for the Support Since this penalty tax could represent a significant of Tourism, Film and Audiovisual Production was additional cost to film productions, the Portuguese Tax created with the purpose of incentivising cinema and Benefits Statute provides for an exemption applicable to audiovisual production and to attract the shooting any productions carried out with the support of Fund for of international films in the Portuguese territory. the Support of Tourism, Film and Audiovisual Productions.

The regime provides for a cash rebate corresponding to 25% Preliminary conclusions of qualifying expenses in the Portuguese territory. The Despite being in place for a relatively short period rebate is increased to 30% whenever, amongst other criteria, of time, the cash rebate mechanism has seemingly expenses are incurred in areas with low population density strengthened Portugal’s position as a hub to or are incurred with disabled actors and technicians. attract international filming productions.

The cash rebate is only available for film productions with Under the umbrella of the above-mentioned cash rebate a minimum eligible expenditure in Portugal of c 500,000. regime, Portugal was able to land the shooting of Terry This amount is reduced to c 250,000 if the production is a Gilliam’s The Man Who Killed Don Quixote, starring documentary or if it does not involve filming. Regardless Jonathan Price and Adam Driver. Furthermore, there of the minimum amount of expenses, the maximum cash have been reports that several Bollywood productions are rebate available per project may not exceed c 4 million. eyeing Portugal as a prime shooting location as well.

Naturally, the application of this regime requires This regime also positions Portugal to take better accreditation by the Portuguese Cinema and Audiovisual advantage of the fact that it is a party to nine bilateral Institute (Instituto do Cinema e do Audiovisual Português – film co-production treaties.9 Furthermore, Portugal ICA). The accreditation procedure is split into two stages: is a party to the Council of Europe Convention on Film Co-production and a signatory party of the 1 a provisional accreditation, to be granted Ibero-American Co-production Agreement.10 prior to expenses being incurred; and 2 a final accreditation to be carried out once From a tax perspective, it is fair to say that there are few the activities have been completed. incentives to establish local operations in the cinematic and audio-visual production area. Nonetheless, the recent The Portuguese regime has demonstrated itself to experience with the cash rebate regime has demonstrated be competitive with regard to the ability to attract that other types of incentives may indeed be more effective. cinematographic companies, since the cash rebates are paid out at a faster rate than tax credits, which can Final conclusions only be set-off against taxable profits. In addition, no As discussed throughout this article, it seems clear that minimum shoot days are required to obtain eligibility. Portugal does not have a single regime designed to attract artists, entertainers and sportspersons. Nonetheless, the Portuguese NHR regime, and the broad network of CDTs currently in place, have positioned Portugal as a prime location for artists and entertainers.

7 Spain provides for a special regime applicable to film productions In addition to the tax incentives applicable to individuals, in the Spanish territory, according to which a tax credit corresponding to 15% of qualifying expenses is granted. The amount of the credit Portugal has managed recently to create a cash rebate is increased to 40% of the qualifying expenses whenever the film production takes place in the Canary Islands. For the regime to apply, 8 Although disguised under the Corporate Income Tax umbrella, this the film productions shall spend at least c 1 million within the Spanish penalty tax applies over certain expenses regardless of whether the territory. company is in a profit or loss position. This type of rules is quite rare and In Hungary, a tax regime is available which allows companies to achieve may be found in only a few countries, such as Angola. effective net tax savings up to 2.25% of financial support granted to film production and certain sports. 9 These treaties have been signed with France, Germany, Italy, Spain, Recently, Cyprus joined the battle for foreign filmmakers, offering a cash Angola, Brazil, Cape Verde, Mozambique and Sao Tome and Principe. rebate of up to 35% on qualifying spending for films, TV series, animation, etc. The qualifying expenses must reach at least c 200,000 for films or 10 Other parties to this agreement include Brazil, Colombia, Costa Rica, c 100,000 for TV projects. Spain, Nicaragua, Panama, Paraguay, Uruguay, Argentina, Bolivia, Cuba, Chile, Mexico, Peru and Venezuela.

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regime to incentivise cinematographic and audiovisual productions in the Portuguese territory. Despite a limited lifetime, the regime has proved to be competitive and effective in attracting international productions into Portugal. The lack of specific tax regimes has, therefore, not created an unmovable obstacle for larger international productions to film in and enjoy the great conditions that Portugal has to offer.

Unfortunately, the same success has not been reached in the case of sportspersons, who are often subject to significantly higher effective Personal Income Tax rates in Portugal. In the authors’ view, in the past decade, Portugal has lost a major opportunity to attract top talent – since the applicable tax regime is significantly less competitive when compared with countries such as Italy, Turkey or Spain.

However, it is never too late to revamp the current tax system and maximize the trendy vibe which Portugal has been enjoying in the past few years to attract top sportspersons as well!

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Why Ivey v. Genting Casinos (UK) Ltd may have implications for sporting competition

Just how marginal can gains be?

(tDCS) or “neuro-doping”3, to Lasik eye surgery and by kris lines1 titanium joints (“surgical doping”).4 The fairness of hypoxic training environments and therapeutic use exemptions have similarly been debated at length.5

Introduction This article will focus on the use of these loopholes The case of Ivey v. Genting Casinos (UK) Ltd and the fuzzier areas around the edges of the rules. concerned the use of a specialist technique to gain an advantage in a card game. Professional sport is an industry of very precise margins. Indeed, given that 1/100th of a second can While ultimately this technique was held by the UK often represent the difference between success and Supreme Court to be cheating, much of the subsequent failure, it should come as no surprise that anything focus on the case has been on comments (obiter that can enhance performance is keenly studied. dicta) in the later part of the judgment regarding the overruling of the Ghosh test for dishonesty.2 One mantra, popularised by Sir Dave Brailsford, during To a certain extent, this has overshadowed the his time as performance director of British Cycling, was narrower conclusions on cheating at cards. the quest for “marginal gains”. This phrase was intended to represent the cumulative improvements that could This article will suggest that there are problems with result from small incremental changes to all areas of the applying this definition of cheating in practice, and, sporting environment (psychology, physiology, ergonomic in particular, will discuss what implications this design, even hand-washing hygiene), not just the athletic might have for enhancing sporting performance. performance itself. Put even more simply, Brailsford aimed that if two equally matched athletes were competing, It is all about the margins these marginal gains should tip the balance in favour of The thorny question of whether a sporting performance the team who used them. Whether this is ethical (rather gain is legitimate is a topic that has perennially vexed than strictly legal), however, is a very different question! regulators. While it is comparatively easy to identify the clear red lines representing illegitimate methods (e.g. Perhaps unsurprisingly, this concept has not met with prohibited drugs, corruption, contravention of regulations), universal acclaim. Examples abound in sport of areas what is less clear is whether behaviour around the edges where imprecision in the rules have created, if not of these rules should be considered equally unfair. outright cheating, certainly conduct which amounts to gamesmanship. Similar philosophies also exist For example, there are a range of activities not explicitly within card games. For example, some players might prohibited by the World Anti-Doping Agency (WADA) wear non-reflective dark glasses, noise-cancelling which still have the potential to improve human headphones, or employ psychologists to help them performance: from transcranial direct current stimulation 3 Zhiqiang Zhu, Junhong Zhou, Brad Manor, Xi Wang, Weijie Fu and Yu Liu, “Commentary: “Brain-Doping,” Is It a Real Threat?”, in: Frontiers in Physiology, 5 December 2019, available at www.frontiersin.org/ articles/10.3389/fphys.2019.01489/full (accessed 16 Febryary 2020).

4 R.M. Rodenberg and Herlanda L. Hampton, “Surgical doping: A policy 1 Senior Lecturer, Aston University Business School, Birmingham, loophole?”, in: International Journal of Sport Policy and Politics (2013) 5(1), United Kingdom. E-mail: [email protected]. p. 145.

2 See for example, The Baroness Hale of Richmond, “Dishonesty”, in: 5 Carlton Kirby with Robbie Broughton, Magic spanner: The world of Common Law World Review 5 (2018) 48 (1-2). cycling according to Carlton Kirby (Bloomsbury Publishing, 2019).

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eliminate nervous tics. There is also a school of It is within this context that Phil Ivey’s thought, colloquially termed “advantage play”, that case (below) should be viewed. operates at the fuzzier edge of the rules. An interesting 9 description of this can be seen on the 888 Casino blog: The Ivey case The case itself stems from August 2012, when Ivey and “Advantage play is the act of legally exploiting procedural a colleague, Ms Cheung Yin Sun, won £ 7.7 million at or structural weaknesses in some aspect of casino games or Crockfords Club in London, playing Punto Banco – a operations in a way that generates an edge over the casino. variant of Baccarat.10 Subsequently, in a post-action [... Advantage players] look for casinos that misunderstand review, the casino realised that Ivey had engaged in or have incorrectly implemented the rules of new games. edge-sorting and refused to honour his winnings. The They seek out dealers who are error prone. They manipulate case concerns whether that decision was lawful. the elements of games to create situations where errors are more likely to occur. They disassemble automatic What is unusual about this case is that the facts were not shufflers and exploit the most subtle of weaknesses. disputed – Ivey was clear that he had employed what he They find casinos that use cards with minor defects in honestly believed to be a lawful tactic, innocently facilitated their designs and exploit these irregularities [...]”6 by an unwitting croupier at the casino. By contrast, Crockfords argued (successfully) that Ivey’s conduct It is this latter method, also called “edge’sorting”, that inherently changed the game from one of pure chance formed the crux of the Supreme Court case (described to one where the outcome was predetermined – thereby below) between Phil Ivey and Crockfords Casino in London.7 either changing the game or breaking an implied term that Edge-sorting occurs where minute imperfections in the no cheating would occur. The Courts unanimously held printing of the card backs could be used to code a card as that this was the latter. While technically, the mechanics having either edge A or B, depending on which way it was and playing rules of Punto Banco had been followed; facing in the deck. For example, if a deck had a full pattern what differed is that the claimant received additional to the very edge of the card (with no white border), it may knowledge as to the identity of the cards.11 It is the reasoning be that, in some locations, the pattern displayed may be behind this conclusion that this article criticises. incomplete (for example, two tiny lines on the bottom- left edge instead of a full shape). Once this imperfection The starting point for this criticism must be the High is identified, it is possible to differentiate cards from each Court Judgment, during the course of which, Mr Justice other. Indeed, magicians have been using this technique Mitting made four key findings (later adopted by for centuries to identify when a single card is entered both the Court of Appeal, and the Supreme Court): (reversed) into a deck, it is then possible to identify the specific card chosen by an audience member, by its 1 that the claimant knew, or had a good idea, whether rotational asymmetry – either bottom-left or top-right. the cards were 7, 8 or 9. (This was explicitly contrasted with counting cards, which could give a “legitimate Edge-sorting in a card game goes one step further and advantage” towards the end of the shoe); applies a binary code (edge A/B) to a range of cards 2 Ivey and Sun socially engineering the croupier to depending on whether they appear reversed, or not. This facilitate this technique. (This was explicitly contrasted is particularly applicable to games of chance, such as with passively taking advantage of a casino error); Baccarat, where the winning player is the one closest 3 that the claimant knew that neither the croupier nor to a particular score. By giving each of the cards this the casino realised the consequences of the deception; “high”/“low” code, depending on the card’s value,8 it 4 that it was immaterial that the casino is possible to identify them within the deck, thereby could have protected itself [against edge- materially influencing betting success. The technique sorting] by simple measures.12 relies, however, on three key assumptions: that only certain cards (7,8,9s) should be allowed to be reversed These conclusions can be summarised as determinations within the deck, they will stay reversed, and that on the mechanics of the game itself, and the active the deck (or shoe) will be reused more than once. rather than passive nature of the claimant’s deception. Both of these conclusions are potentially problematic.

6 Eliot Jacobson, “An Introduction to Advanced Advantage Play”, in: 888 Casino Blog, 6 December 2013, available at www.888casino.com/blog/ advantage-play/an-introduction-to-advanced-advantage-play (accessed 17 February 2020). 9 Ivey v. Genting Casinos (UK) Ltd t/a Crockfords [2017] UKSC 67.

7 A US case with very similar facts (also involving Ivey and Cheung) has 10 In Punto Banco, players bet as to whether the player (punto), or been brought by Borgata Hotel & Casino Group; however, at the time of House/banker (banco)’s hand is closest to the score of 9. writing, this litigation is still ongoing. 11 Ivey v. Genting Casinos UK Limited t/t Crockfords Club [2014] EWHC 8 High value cards are 7, 8 and 9. Knowledge of these cards will change 3394 (QB), [34] (Mitting J). the probability of winning by approximately 6.5%: Ivey v. Genting Casinos UK Limited t/a Crockfords Club [2014] EWHC 3394 (QB), [12] (Mitting J). 12 Ibid., [50-51] (Mitting J).

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Games of luck? game of pure chance would amount to cheating.22 It was material to the Supreme Court that Punto Banco was akin to predicting whether a I believe that Arden LJ’s conclusion is incorrect and coin toss would result in heads or tails: represents bad law. Indeed, it is difficult to reconcile her logic that an innate skill precludes cheating, yet it could “[...] It is an essential element of Punto Banco that simultaneously amount to cheating if a reasonable person the game is one of pure chance, with cards delivered would say that this has a dramatic effect on the odds in entirely at random and unknowable by the punters the game.23 Arden LJ’s conclusion also necessarily blurs or the house. What Mr Ivey did was to stage a carefully what is being regulated – the game, or the type of player? planned and executed sting [...].”13 (emphasis added) What makes an exploit illegitimate? For the average member of the public, this may indeed be Although the Supreme Court acknowledged the true. Wong, however, perceptively makes the point that fuzziness of advantage play, it declined to clarify where differentiating a “pure” game of chance, from a “mixed” these boundaries lay, beyond that the action would game (involving both chance and skill) is vastly ambiguous normally be both deliberate and objectively improper: and an unnecessary complication for the law. In particular, Wong gives the example of “Monty Hall’s Problem”:14 “[...] there is an inevitable truth that there will be room for debate at the fringes as to what does and does not constitute “Suppose you’re on a game show, and you’re given the choice cheating. To label an activity “advantage play”, as Mr of three doors: Behind one door is a car; behind the others, Ivey and others did, is of no help at all. It asks, rather than goats. You pick a door, say No.1, and the host, who knows answers, the question whether it is legitimate or cheating. what’s behind the doors, opens another door, say No.3, which It would be very unwise to attempt a definition of cheating. has a goat. He then says to you, “Do you want to pick door No doubt its essentials normally involve a deliberate (and No. 2?” Is it to your advantage to switch your choice?”15 not an accidental) act designed to gain an advantage in the play which is objectively improper, given the nature, parameters and rules (formal or informal) of the game under While on the face of it, this probability problem should examination. The question in the present case, however, does involve pure chance, in actual fact, a correct mathematical not depend on the near impossible task of formulating a solution exists that would double the successful odds definition of cheating, but on whether cheating necessarily of winning the car. Similarly, if Ivey had been card- requires dishonesty as one of its legal elements.”24 counting,16 shuffle-tracking,17 hole-carding,18 or utilising any other memory technique,19 he would gain an One alternative approach that could add much-needed advantage,20 particularly towards the end of the shoe. clarity as to what should be considered improper was However, adopting the logic of Lady Justice Arden in suggested by the U.S. gaming lawyer, Anthony Cabot. the Court of Appeal judgment, if a player possessed Cabot’s solution was to break the advantage play spectrum any innate skills that would give them an advantage into five categories along a continuum of lawfulness:25 over the average player,21 any use of these skills in a 1 using superior play within the rules of the game (e.g. counting cards in Blackjack); 2 using superior play in analysing factors outside the rules of the game (e.g. an analysis of statistical probabilities); 13 Ivey v. Genting Casinos (UK) Ltd t/a Crockfords [2017] UKSC 67, [50] 3 taking advantage of the casino’s (Lord Hughes). mistakes (e.g. hole_carding);26 4 acquiring knowledge not available to other players; and 14 As summarised by Gill (2011) 65 Statistica Neerlandica 58.

15 Siu Yin (Clive) Wong, “Cheating in Court” (2017) LQR 203, 206. 22 Ivey v. Genting Casinos UK Limited t/a Crockfords Club [2016] EWCA Civ 1093, [90’91] (Arden LJ). 16 Keeping a tally, or count, of how many high and low value cards are left in the deck. 23 Ibid., [91] (Arden LJ).

17 Tracking the order of cards, or groupings of cards, as the deck is 24 Ivey v. Genting Casinos (UK) Ltd t/a Crockfords [2017] UKSC 67, [47] shuffled. (Lord Hughes).

18 Glimpsing a card because the dealer has lifted the edge too high 25 A Cabot et al., “Crimes and Advantage Play”, in: A Cabot and N. during the deal. Pindell (eds.), Regulating Land-Based Casinos (UNLV Gamig Press, 2014) 364’365; See also: K. Schweitzer, “Living on the Edge, Sorting out the 19 Memorising the order of the entire deck, shoe, or certain sequences. Rules: Advantage Play Cuts the Risk of Losing Money in a Casino, And Puts Players at Risk of Incurring Legal Action”, in: UNLV Gaming Journal (2016) 20 This was indeed accepted by Mitting J as a “legitimate advantage” in 6, p. 324, 327. the High Court – Ivey v`. Genting Casinos UK Limited t/a Crockfords Club [2014] EWHC 3394 (QB), [50](1) (Mitting J). 26 Importantly, this glimpse should be with the naked eye, and not aided by any externally added reflective surface, such as sunglasses or a metal 21 Whether memory, mathematical or simply keen eyes. cigarette lighter.

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5 altering the randomness of the game (e.g. substituting might not, may or may not be another example.”31 or marking cards, or sabotaging equipment). It is here that I struggle to differentiate between cause What is interesting about applying this spectrum to edge- and effect. Why, if it was legitimate to manipulate an sorting is that, not only does the technique not fit neatly into innocent croupier to rotate cards as a “quirky superstition”, any single category, but also that Ivey’s success depended does this behaviour only become unacceptable once the on the perfect alignment of multiple elements.27 Edge- effect of the rotation is apparent? A tackle in football sorting and card-counting might both rely on an expert is either acceptable or not based on the tackle itself, skill, however, while card-ounting is concerned with the rather than any subsequent injury? Similarly, although faces of cards (part of the gameplay), edge-sorting “concerns Arden LJ argued that Ivey had materially asymmetric the tangential elements that are not supposed to have any information, drawing parallels between this and insider gameplay impact or importance [...]”.28 For example, the dealing,32 the card-sorting was transparent and available casino’s own playing environment (their card design and for all players, including the banker, to make use of. Any the automatic shuffling machine) were counter-intuitively asymmetry was, therefore, in skill, and the ability to subverted to enable, rather than prevent this technique. process this information, rather than to access it?33

This is reminiscent of the double diffuser scandal in This raises an interesting thought-experiment as to what Formula 1 during the 2009 season, when three teams would have happened if an innocent third party stumbled exploited a loophole in the aerodynamics regulations across the game mid-shoe and was allowed to join the to gain an advantage. Ultimately, though, the FIA Court betting. If partway through the game, the new player of Appeal adopted a legalistic interpretation and held realised that edge-sorting had occurred, but that they had that, while the design was not in the spirit of the rules, played no part in its creation or maintenance (other than it did not breach any specific technical regulations.29 staying silent), would their bets be considered legitimate (as a passive recipient of an advantage), while Ivey and All three Courts in Ivey’s case, were also at pains to hold that Sun’s (as active creators) would be illegitimate? Lord liability accrued because Ivey did not just take advantage Justice Tomlinson may be ethically correct in saying: of the casino’s mistakes, but rather actively created them through the requested reorientation of the cards: “neither player nor banker should have this knowledge because possession of it enables the punter to place bets on “It may be that it would not be cheating if a player spotted something other than the outcome of pure chance.”34 that some cards had a detectably different back from others, and took advantage of that observation, but Mr But, this analysis flounders for the reasons Ivey did much more than observe; he took positive steps discussed earlier, because of the difficulty to fix the deck. That in a game which depends on random in identifying games of pure chance. delivery of unknown cards, is inevitably cheating [...].“30 Ultimately, though, what makes the Court’s reasoning The problem with this conclusion is that it seems to particularly problematic is that Crockfords made the be treading a very fine line to hold that only some decision to naively and deliberately vary their own protocols but not all aspects of the deception were illegitimate. in order to appease a high-value client. The fact that the Indeed, the Courts endorsed Ivey and Sun’s faux- casino tolerated these variations, no doubt with the intent to superstitious behaviour as legitimate gamesmanship: facilitate a bigger loss for Ivey, is surely more suggestive of the maxims “caveat emptor”, or of “having cakes and eating “Sometimes the game admits of a level of legitimate them”, rather than of painting the casino as an innocent deception. The unorthodox lead or discard at bridge victim? When Crockfords did reimplement their protocols, is designed to give the opponent a misleading Ivey and Sun left. Applied to sport, this is a salutary impression of one’s hand, but it is part of the game lesson of the dangers of varying established international and not cheating. Pretending to be stupid at the technical regulations to attract high-profile athletes. poker table, so that one’s opponent does not take one seriously, and takes risks which he otherwise 31 Ivey v. Genting Casinos (UK) Ltd t/a Crockfords [2017] UKSC 67, [46] (Lord Hughes); JT Smith also draws analogies with the play-action pass in football, or the “Marshall Swindle” in chess, in “Cheater’s Justice: Judicial Recourse for Victims of Gaming Fraud”, in: UNLV Gaming Law Journal (2017), p. 61, 68.

27 N24, Schweitzer, p. 310. 32 Ivey v. Genting Casinos UK Limited t/a Crockfords Club [2016] EWCA Civ 1093, [45] & [89] (Arden LJ). 28 Ibid., Schweitzer, p. 311. 33 A point also made by Siu Yin (Clive) Wong in “Cheating in Court” 29 FIA Court of Appeal Decision ICA 5’7 (2009), 14 April 2009. (2017) LQR 203, 207.

30 Ivey v. Genting Casinos (UK) Ltd t/a Crockfords [2017] UKSC 67, [50] 34 Ivey v. Genting Casinos UK Limited t/a Crockfords Club [2016] EWCA Civ (Lord Hughes). 1093, [107] (Tomlinson LJ).

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Can I keep the shoe(s)? Of particular note, however, were World Athletics’ On 31 January 2020, World Athletics issued an amendment conclusions on how the loopholes affected the spirit of sport: to its technical regulations governing competition shoes.35 This document represents the latest salvo “If people want to run a marathon in Vaporflys or in the technological arms race between equipment any other shoe, it’s not our job to stop them, but if manufacturers and governing bodies of sport.36 you want a ratified record, then you are classified as elite and have to abide by the rules.”38 Essentially, the new regulations implement three key changes: This is a pragmatic solution to balancing integrity with participation, although it runs contrary 1 from 30 April 2020, any shoe used in competition to Crockfords (and the Courts) argument that must have been previously available on the open every gambler should be treated the same. market for a period of at least four months; 2 the sole must be no thicker than 40 mm; and Conclusions 3 the shoe must not contain more than one Where there are regulations, there will always be loopholes. rigid embedded plate or blade. What this article shows is that, more often than not, three This is important because, in recent years, there have key factors help shape the legitimacy of an exploit: been suggestions that shoes such as the Nike Vaporfly may give a performance advantage of 4-5% by improving – the open and transparent nature of the intervention; running economy.37 So how does this World Athletics – its capacity for universal application; and decision reconcile with the judgment in Ivey? – perhaps most importantly though, the more passive an advantage is, the more likely it is to be acceptable. At its core, the question for regulators was whether the performance advantage was such that it changed the nature of the competition for athletes. This is similar to the conclusions by the Courts on whether Punto Banco was a game of chance. When World Athletics determined that the energy recycling advantage gained was passive (below 40 mm) or being actively performed by the shoe (above this limit), this again is similar to the earlier discussion in Ivey. Finally, the concerns about whether athlete restrictions in accessing certain prototype shoes was contrary to the value of universality, is also similar to the earlier debate about asymmetrical information.

35 World Athletics, Technical Rules (Amended on 31 January 2020), Book C2.1: Shoes 5.2, available at www.worldathletics.org/download/ download?filename=1a53ca10-7f30-46e4-83fe-e7ff5fda2c60. pdf&urlslug=C2.1%20-%20Technical%20Rules%20(amended%20on%20 31%20January%202020) (accessed 17 February 2020). See also Press Release, available at www.worldathletics.org/news/press’releases/ modified’rules’shoes (accessed 17 February 2020).

36 See also the Lugano Charter (Union Cycliste Internationale (UCI), 1996), and the Dubai Charter (FINA, 2009).

37 Cathal Dennehy, “Nike Vaporfly Shoes Avoid Complete Ban By World Athletics”, in: Runner’s World (31 January 2020), available at www. runnersworld.com/news/a30721631/nike-vaporfly-ban (accessed 17 February 2020). 38 Ibid.

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by athena constantinou1 the financial chance to do more testing days and races in 2016 and 2017. Then, I got an invitation to enter a Russian leading Team for two full seasons in the SMP Formula 4 NEZ Championship. At that Championship, I achieved my The following interview with Vladimiros Tziortzis appeared best results at the Moscow Raceway, in 2017, where I stood on 1 September 2019 in the Money Smart Athlete Blog2. on the podium for all of the 3 races of the particular race weekend (two 3rd and one 2nd place) and by the end of 1 Discuss the transition from amateur driving to the year I had been chosen as the Best Spirit Driver for the professionalism. Describe in brief your weekly/monthly 2017 racing season. In 2018, I had the chance to move on routine as a professional race driver, the challenges to Formula Renault Eurocup 2.0. I was very satisfied with faced and the sacrifices required in your personal my results, as I only had 6 days to learn the car before the life and the life away from your home country. season started (on March 2018) and some other drivers learned the car months ago (from the December of 2017). To begin with, from the age of 2-3, I remember my father taking me on rallies, in Cyprus. At the age of 5, he asked Now, how about my routine? I can say that my weekly me if I wanted to go with him to a racing track in Larnaca routine is quite busy. First of all, I am training every day to watch a friend of his there with a Go Kart. Without for around one and a half hours. At the same time, I am any doubt, I said yes. After that beautiful experience, his studying Business Administration at Frederick University next question was if I wanted to get one too. I could not in Nicosia. At this point, I would like to thank my teachers answer anything but yes! A month later, as an amateur, and the whole team for their big support. They are like a I find myself at GSP’s Stadium Parking, learning how the big family and they are next to you whenever you need throttle and the brake work. After learning the pedals, them. On the weekdays, when I have some more free my father brought me to the racing track in Larnaca to time, I go and work at my father’s Automotive Garage. start completing laps by myself. As a child, I was not tall When it’s possible, on Saturdays I spend some hours at enough to see over the steering wheel, so my father put the Daytona Raceway with my Go Kart, preparing myself some pillows on the racing chair to reach the pedals. for the upcoming Formula 3 tests or races. I usually spend my Sundays training out, running 5 km each time. After unlimited hours of practising every weekend, I won the Pancyprian Karting Championship for 7 years in a row, Furthermore, the challenges until today were so much, in different categories. My first races abroad, were in Athens, with the biggest one the financial (and not only) support, Patra and Thessaloniki with the Mini WTP Category. Then I but all those challenges brought me to where I am today. represented Cyprus for 3 years at the International Rok Cup I accepted them and I am much stronger and ready to face Finals in Lonato, Italy, with my best result in 2008, being the future. When you decide to be a professional athlete/ 13th amongst around 120 from all over the world. But also, racing driver, you have to accept all the challenges that you 2011 was a promising year for me when I again qualified are going to face, even if they were the toughest of your life. for the Grand Final. My starting place was 4th, but, after In my personal life, I can say that I am a bit tough with a hit from the back, I finished the race in 17th place. myself, my everyday trainings and my outings. As I am training quite many hours per week, having my From that time, my family and I, decided to move on into a studies and my job at the same time, I have to sacrifice new chapter – the Single Seaters (Formula cars). After some my outings. You can see that my outings are limited, tests with Formula Renault 2.0 and Formula Euro Open in as I go out with my friends three times maximum per Valencia and Silverstone, I completed my first races with month, because sometimes I prefer to spend my free Formula Masters Russia, a championship with Formula 3 time resting at home, next to the sea or on car trips cars in Russia, with impressive results, but I didn’t have with my family. In that way, I am getting myself ready for the new week or for the new tests and races.

1 Managing Director, APC Sports Consulting, Nicosia, Cyprus. When it’s time for a test or a race, I have to travel abroad and leave my country for a while (usually around 7 2 http://moneysmartathlete.com (accessed 17 February 2020). 62 march 2020 © nolot

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to 14 days). It’s not the best thing, especially the first Motorsport was always a little strange sport. This year few times, but this is something you get used to over you are racing, the next you are not. This doesn’t mean time. This could make you stronger as you are doing that you are not good enough. For example, if a sponsor everything on your own. Sometimes, I have to leave, decides for many reasons not to support you, then then return for a few days and leave again, but this is this could cost your whole racing year. Unfortunately, not weird for me at all. Maybe at some point in my life, searching for Sponsors in our days is very difficult, regarding my racing schedules, I need to leave Cyprus even for Motorsport Events. For some reason, most of for a short period, but this is the life of an athlete and the sponsors out there are next to Football and not for you must sacrifice many things to achieve your goals! other interesting sports. This is so bad for the future, as many professional athletes tend to disappear day by day, 2 How does your support network (your team) help you because they are sacrificing their whole life to achieve the in terms of financial sustainability and success? best for themselves, but they don’t have any support.

My Management Team (Tziortzis Management Team), is Motorsport couldn’t ensure my financial future. After helping me a lot. At this time, I want to say big thanks to I completed my school years successfully with very them for being next to me so far. This year, we included good grades, I took a diploma in Global College, in some new members, who bring all their positive vibes into Automotive Engineering, and now I have two years the team, which is the most important. I am spending some more to finish my Business Administration studies at hours of the week to help them to prepare some articles or Frederick University. So, all these could secure my future. proposals and I leave the rest of the work to them because I know many athletes that are only focused on their I trust them, and they are doing everything right. This sport, but, as I already said, in Motorsport every year is is the busiest period for us, as we are searching for new different. Today you are on top, but the next day you are partners and we are preparing everything for a successful at the bottom, a rare situation if you are professional, 2020, which seems to be a really promising year. Companies but sometimes it depends on the support you have. that are interested to know more about our 2020 plans and about all the details on how they can get involved, 4 What do you do in terms of building are welcome to contact us through my website which is your personal image and brand? mentioned below, or through my Social Media accounts. Every athlete in our days must build their personal image Now, let’s talk about my racing team. So far, I am not and brand as it is very important. This is the first thing in the same team every year, as most of the drivers Sponsors see to decide if they are going to support you. because the budgets to participate are changing. So, with my Management Team, we have Press Releases Also, some of the sponsors could decide for you before and after each race and Press Conferences during the not to race in Europe but in Asia. Then, you have year with my Sponsors and Supporters referring to them. to make a decision and change team again. Moreover, during all my races the logos of my Sponsors are on the car, so millions of people can see them during Another question that most people have is: “Do you get the race weekends. A live example was from the last race paid, for doing what you love? “ The answer is always year in Monaco-Monte Carlo, where we were together with shocking when I tell them that I am not getting paid, but Formula 1 Grand Prix. Millions of people were watching I only pay for it. I know, it may sound weird, but to reach the races from other buildings. Others came from abroad payment you must be in Formula 2, but again it depends with their yachts. This is not an everyday experience and on your agreement. On the other hand, in Formula 1, all the I can say that it was the best experience of my life so far. drivers are getting paid. So, you can get paid by entering a race or a championship such as “LeMans Series” or other Meanwhile, my Management Team is always working endurance races where you participate with a racing car. hard with professionalism for my Social Media, as it is an It’s not such a big thing the fact that I am not getting important chapter for an athlete. Also, a good personal paid because the experiences I gain all these years have image and brand building is necessary. Many athletes out completed me and made me much stronger for the future. there are real talents with massive results, but because of their “weak” personal image and brand, they are getting At this point, I would like to say a big thanks to the negative answers from the Sponsors. In my opinion, a people who are next to me during the current year: Sponsor in our days is looking for both of them on an Athlete.

– o my Sponsors: Televantos Used Trucks Ltd, Holiday 5 What advice would you give to young inspiring athletes Tours, Eneos Motor Oil, A. Tziortzis Car Service Ltd; of any sport in reference to their prospect sport career? – but also, to my Supporters: Social Media Management, Daytona Raceway, Frederick University, Sana Hiltonia, I will focus on the challenges every athlete is facing and the Youtube Channel called – Свои Люди вои Люди. every day during their careers, even if people don’t know about them. As I already said, every challenge you face 3 How do you prepare for your life after sports? makes you stronger for the future if you want to be a What are the elements already in place to professional athlete. A professional athlete must train help you secure your financial future? hard, bring results, overcome any challenges that he/her

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faces and keep moving with higher and better results. An elite sport’s career takes a lot of hard work: a strict training schedule; strenuous and consistent My advice to them is: Never give up no matter what practice; and, foremost, personal sacrifice. challenges you face, even if somebody close to you disappoints you, if you get injured before/during/ The challenges faced by elite athletes in individual sports after a competition, or if you bring bad results during are many: financial difficulties; parental and social your competitions. This is the difference between pressure; combining sport with school when young and the professional athlete and the amateur athlete. A at the beginning of their careers; constantly adapting Professional athlete should always keep one thing to new environments; coping with the demands of in mind: dedication, hard work and results. being the best in their sport and winning at all costs.

Thank you very much for giving me the The end of an elite athlete’s sports career entails opportunity to be your guest of the current significant changes in many areas of an athlete’s life month and share my story with you. and the athlete needs to prepare for and be ready to cope with such changes, especially the financial ones. You can find the latest updates from my races on the official website www.vladimirostziortzis.info. Fortunately, an elite athlete acquires a number of valuable skills during his/her sporting years, which, Comments by Athena Constantinou if applied properly, can help them to build an equally The following comments and remarks may be drawn successful and satisfying life for an elite athlete after from the above interview and demonstrate what is at his/her sporting career finally comes to an end. stake financially and also the personal sacrifices that need to be made in pursuing a successful career as an To be successful, preparation, persistence and elite sportsperson and securing the future afterwards. planning ahead is the name of the game throughout and beyond an elite athlete’s sporting career! The life of an elite athlete in individual sports can be a very lonely one: long practice hours; extensive travelling around the globe; not much time to spend with family or cultivate friendships; and so the list goes on.

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