The FIFA Ethics Committee As an Institution for Good

The FIFA Ethics Committee as an institution for good governance The right of publicity: recent developments in collegiate athletics in the USA South Africa: Draft Guide on the Taxation of Professional Sports Clubs and Players issued. A very promising starting point in the path of restoring clarity! Third party ownership of football players’ economic rights: introduction of the global ban against third party ownership as from 1 May 2015 Extending the duty of care beyond the immediate: the pressure is on! UK sports broadcasting rights: protecting and exploiting them New practice of the canton of Vaud on the taxation at source of artists, athletes and speakers performing in Switzerland Sports sponsorship agreements in Switzerland United Kingdom: Commentary and observations on “The Major Sporting Events (Income Tax Exemption) Regulations 2016” Challenging times for football’s transfer system India: ADR and sport

, 3Sept 16

Colofon Table of Contents

Managing Editor Vol. 7 No. 3 - September 2016 Dr Rijkele Betten

Consulting Editor Editorial ...... 4 Prof. Dr Ian S. Blackshaw

Coordinator Articles Erica Pasalbessy (MSc) Nolot P.O. Box 206 The FIFA Ethics Committee as an institution for good 5270 AE Sint-Michielsgestel governance The Netherlands by Dr. Thilo Pachmann & Oliver Schreier ...... 8 Tel.: +31 (0)625279308 Fax: +31 (0)735530004 The right of publicity: recent developments in collegiate E-mail: [email protected] athletics in the USA by Prof. Paul Anderson ...... 13 For further information on the activities of Nolot see: www.nolot.nl. South Africa: Draft Guide on the Taxation of Professional Sports Clubs and Players issued. A very promising starting ISSN nr.: 2211-0985 point in the path of restoring clarity! by Dr. Alara Efsun Yazıcıoğlu, LL.M...... 16 © Nolot BV 2016 All rights reserved. Third party ownership of football players’ economic rights: introduction of the global ban against third party ownership Preferred citation: GSLTR 2015/3, at page number(s) as from 1 May 2015 by Vassil Dimitrov ...... 21 Disclaimer Whilst every care has been taken in the production of this publi- Extending the duty of care beyond the immediate: the cation and its contents, the publisher and the authors of the arti- pressure is on! cles and reports cannot accept any legal liability whatsoever for by Genevieve Gordon ...... 25 any consequential or other loss arising therefrom incurred by any subscribers or other readers as a result of their relying on any UK sports broadcasting rights: protecting and exploiting information contained therein, which is not intended to constitute them any advice on any particular matter or subject but merely provide by Prof. Dr. Ian Blackshaw ...... 29 information of a general character. New practice of the canton of Vaud on the taxation at source of artists, athletes and speakers performing in Switzerland by Xavier Oberson ...... 34

Sports sponsorship agreements in Switzerland by Piere Turrettini ...... 37

United Kingdom: Commentary and observations on “The Major Sporting Events (Income Tax Exemption) Regulations 2016” by Jonathan Hawkes ...... 41

Challenging times for football’s transfer system by Jonathan Copping ...... 46

India: ADR and sport by Param Bhalerao ...... 50

With great pleasure we welcome readers to the September 2016 so-called “strategic roadmap for the future of the Olympic Move- edition (citation: GSLTR 2016/3) of our ground-breaking journal ment” – of reducing costs. and on-line database (www.gsltr.com): Global Sports Law and Taxation Reports (GSLTR). Another item of IOC news. On the eve of the Rio Olympics, the IOC elected eight new members, including the first India IOC The run-up to the Summer Olympic Games, with more than member, Nita Ambani. She is the owner of the Mumbai Indians’ 10,000 athletes competing in 28 sports from 207 countries, held IPL Franchise and the wife of India’s richest man, Mukesh Am- from 5 to 21 August 2016 in Rio de Janeiro, Brazil, the first time bani, the chairman of Reliance Industries. It is interesting to note ever in South America, apart from the usual concerns about the that the new IOC members did not include the new presidents of readiness of the venues and infrastructure, escalating costs and the IAAF, Sebastian Coe, and FIFA, Gianni Infantino. Normally, security, has been dominated by the state-sponsored doping of the IAAF and FIFA presidents are members of the IOC, as they Russian athletes as detailed in the McLaren Report into the scan- represent major international sports federations which are part of dal commissioned by the World Anti-Doping Agency (WADA). the Olympic Movement. It would appear that the IOC, by not appointing them, wished to distance themselves from the doping As a result of the findings of this Report, WADA called for a and corruption scandals in the IAAF and FIFA respectively! blanket ban to be imposed on the entire Russian Olympic Team. However, on 24 July 2016, the Executive Board of the Interna- Following the close of the Rio Olympics on 21 August 2016, the tional Olympic Committee (IOC), in the interests of justice for IOC launched its “Olympic Channel” where sports fans “can ex- individual athletes, directed that the international federations perience the Olympic Movement all year round”. For more infor- (IFs) of each individual sport should decide who was clean and, mation on programming and available platforms, access to which therefore, able to compete, and who was ineligible, according to is free, log onto www.olympicchannelservices.com. strict criteria laid down by the IOC, who reserved the right to review such decisions. Many commentators were of the view that Also, on 7 August 2016, the President of the IPC (International the IOC, in deciding to handle the scandal in this way, was abdi- Paralympic Committee) surprisingly announced that the whole of cating its responsibilities and bowing to political pressure from the Russian Paralympic Team had been banned from participat- Russia. However, in the opinion of GSLTR, the IOC decision was ing in the Rio Paralympic Games in September, saying that “the a fair one, respecting the rules of natural justice and, in particular, anti-doping system in Russia is broken, corrupted and entirely the right of an individual to be heard and put their case, and also compromised” and that the country had prioritised “medals over in line with the well-known legal principle that “it is better that a morals”. The Russian Paralympic Committee (RPC) appealed guilty person goes free and escapes justice rather than an innocent the decision to the Court of Arbitration for Sport (CAS), which one is wrongfully found guilty and penalised”. held an expedited hearing in Rio and rendered its decision on 23 August 2016, upholding the blanket ban, stating that it was not In following the process laid down by the IOC, the CAS Ad Hoc disproportionate. The CAS, however, issued the following rider Division (AHD) in Rio played an important role in dealing with to its decision: appeals from athletes banned from competing by their IFs. In fact, 16 out of the 28 cases registered with the CAS AHD during “In making its decision, the CAS Panel did consider the par- the Rio Olympics related to such appeals. Certain IFs actually ticular status of the RPC as a national governing body but did imposed blanket bans, on the basis of “collective responsibility”, not determine the existence of, or the extent of, any natural jus- including the IAAF (track and field) and the IWF (weightlifting). tice rights or personality rights afforded to individual athletes In the event, 271 Russian athletes (70% of the original Russian following the suspension of the RPC.” Olympic Team) were allowed to compete. The whole affair was exacerbated by a spat between the IOC and WADA, the former This seems, in effect, to bring the CAS decision in respect of the blaming the latter for the mess and calling upon WADA to tighten Russian Paralympic Team in line with the IOC decision on the up their doping controls and procedures! It will be interesting to Russian Olympic Team (see above). The RPC is expected to ap- see what changes are made by WADA to avoid doping scandals peal the CAS decision to the Swiss Federal Supreme Court. like the present one in the future! Another matter that should also be reported is the clearing of the Whilst on the subject of the 2016 Rio Summer Olympic Games, FIFA President, Gianni Infantino, by the Investigatory Chamber the IOC has approved five new sports to be included in the proof the FIFA Ethics Committee of any wrongdoing in relation to gramme for the Games to be held in Tokyo in 2020. They will add his expenses, recruitment and alleged sacking of whistle blowers. 18 events to the existing programme of 28 events and will involve According to a leaked FIFA internal memo, Infantino was being an additional 474 athletes and are: skateboarding; karate (surpris- investigated in relation to the following matters: ingly not already an Olympic sport); surfing; sports climbing; and baseball/softball, which was included in the 2008 Beijing Games. – that he left himself exposed to possible claims of conflict of Adding these sports, although designed to attract the youth to the interest by using private jets laid on by a World Cup bidding Olympics, seems to be a dumbing down of the Games and will country; add to the costs of staging them, which does not seem to be in line – filled senior posts without checking the eligibility of candidates with the general philosophy of the IOC Olympic Agenda 2020 – a for the roles concerned;

© Nolot September 2016 5 – billed FIFA for mattresses, flowers, a tuxedo, an exercise ma- two-year investigation into whether the sale of English Premier chine and personal laundry; and League TV rights restricted competition in a business/economic – demanded FIFA to hire an external driver, who then billed FIFA sense. This investigation had been prompted by a complaint by for driving Infantino’s family and advisers around whilst he Virgin Media that all 380 English Premiership games should be was abroad. shown on live TV, arguing that this would limit price increases for the benefit of consumers. The basis of this argument was that, The Ethics Committee found that there had not been any con- by limiting the number of matches, the League had inflated the flicts of interest; nor breaches of FIFA’s Ethics Code; and that the price that broadcasters had to pay and this cost was passed on to benefits enjoyed by Infantino were “not considered improper”. consumers. The Committee also held that Infantino’s “conduct with regard to his contract with FIFA, if at all, constituted internal compliance It will be recalled that the live domestic rights to the League for issues rather than an ethical matter”. According to the Oxford the three seasons 2016-2019 were sold for a record sum of £ Dictionary, ethics is a matter of “right and wrong in human con- 5.136 billion. duct”. So, what is the difference between “internal compliance” and ethics in the present context? This decision of the FIFA Eth- Ofcom stated that the League’s intention to increase the number ics Committee seems to be a “white wash” of Infantino’s case! of its live matches from 168 to 190 beginning with the 2019-2020 season and its own research into the views of match-going and Therefore, one may reasonably ask: has anything changed at TV-watching fans justified its decision to drop the investigation. FIFA with the election of its new President, who vowed to clean up FIFA? Or, in the immortal words of the late lamented Yogi For more information on this matter, please refer to the report Berra, the American professional major league baseball catcher, of 9 August 2016 on the GSLTR website (http://www.gsltr.com). manager and coach with the New York Yankees, who was also well known for his “yogi-isms”, is it a case of “déjà vu all over A final item on football: the twenty-three year-old France mid- again”? fielder, Paul Pogba re-signed for Manchester United during the summer “transfer window” for a world-record sum of £ 93.25 Corruption in FIFA is also the subject of a timely article by Thilo million! He left Manchester United in 2012 for Juventus for a fee Pachmann and Oliver Schreier, of Pachmann Attorneys, Zurich, of £ 1.5 million! Switzerland, entitled “The FIFA Ethics Committee as an institution for good governance” in which they reach the following In this issue, we feature an interesting article entitled “The right conclusions: of publicity: recent developments in collegiate athletics in the USA” by Prof. Paul Anderson of the National Sports Law Insti- “For the FIFA Ethics Committee to work properly, it must have tute of Marquette University Law School in the United States. Al- the unconditional support of the FIFA Council and must be en- though US collegiate athletics is big business, the amateur status couraged to investigate and take immediate action, if wrongdo- of student athletes generally prevents them from claiming com- ings are discovered. This consequently means that the Ethics pensation for the unauthorized use of their image rights. Committee, which is in charge of investigations, remains absolutely and unequivocally independent. We also include an article by Vassil Dimitrov, a Bulgarian sports lawyer, on the controversial rules which ban third party owner- Given the recent events revolving around the new President of ship of football players’ economic rights (TPOs). In his article FIFA, Gianni Infantino, it is yet unclear if this is truly the case Dimitrov discusses the pros and cons of TPO and points out or if FIFA will proceed to further dismantle and discourage that proponents of TPOs consider that they should be regulated the Ethics Committee. It would be a shame if Infantino would by FIFA rather than being banned by football governing bodies fall into the temptation of power. Properly working checks and worldwide. balances within an organization remains the basis for any good governance. The Ethics Committee was – as it has proved to Genevieve Gordon of Tactic Counsel Ltd contributes an article on be – a very valuable instrument for the FIFA governance, and the duty of care in sport, in which she calls for a higher standard needs to be upheld.” of care to be exercised by sports governing bodies in relation to their athletes. And, whilst on the subject of FIFA, it has been announced that the FIFA mass bribery trial is scheduled to begin in the USA in Octo- We also publish an article by Prof. Dr. Ian Blackshaw on the pro- ber or November 2017. The trial involves 42 individuals, including tection and exploitation of sports broadcasting rights in the UK. seven former football officials and an ex-marketing executive, and As he points out in the introduction to his article: US$ 200 million in bribes and kickbacks! Sepp Blatter, the former FIFA President, who is also involved in current proceedings in “Of the sports marketing mix, which includes sports sponsor- Switzerland relating to the infamous payment of CHF 2 million ship, merchandising, endorsement of products and services, that he made in 2011, whilst FIFA President, to Michel Platini, the and corporate hospitality, perhaps the most important and lu- former President of UEFA, has also announced that he is available crative one is the sale and exploitation around the world of to attend the US trial “to defend FIFA”! It has also been announced sports broadcasting rights, including new media rights, such that the former and controversial President of FIFA, João Havel- as internet streaming of sports events, all of which contribute ange, has died at the age of 100 on 16 August 2016! mega sums to many sports and sports events, including the Summer and Winter Olympic Games and the FIFA World Cup. One further news item on football. The UK media regulator, Indeed, it is fair to say that, without the sums generated by Ofcom, announced on 8 August 2016 that it was dropping its sports broadcasting, such major events – and, in fact, many

6 September 2016 © Nolot others – could not take place and consequently sport – and of Price Waterhouse Coopers, Istanbul, Turkey, on the Draft sports fans – would be the losers.” Guide on the Taxation of Professional Sports Clubs and Players recently issued by the South African Revenue Service. Her ver- The issue of legal ownership and who may exploit these rights un- dict on the Draft Guide: der UK law is quite complex, and Prof. Blackshaw explains in his article why this is so and how these matters may be managed, in “[...] the Draft Guide can be seen as a very promising starting practice, by the use of “back-to-back” and inter-related contracts, point, upon which an effective fight against the current lack of which, he points out, need to be very carefully drafted indeed. clarity may be built. South Africa seems to be, once more, the pioneer of a significant development in the sports’ field that Also in this issue, on the sports legal side, we feature an article has the potential of revolutionising the tax treatment of inter- on sports sponsorship agreements in Switzerland by Swiss lawyer national sports events.” Pierre Turrettini. Sports sponsorship is a very significant part of the sports marketing mix, as he mentions at the beginning of his We also include an article on “The Major Sporting Events (In- article: come Tax Exemption) Regulations 2016” by Jonathan Hawkes, Taxation Consultant, Brackman Chopra LLP, audit tax and busi- “After TV rights, sponsorship is nowadays the main source of ness advisory firm, London. revenues in the sports industry. According to reviews and fore- casts, there will be nearly a 5% growth in sponsorship spend- Finally, we publish an article by Xavier Oberson, a Swiss lawyer ing worldwide from US$ 57.5 billion in 2015 to US$ 60.2 bil- and also Professor of Swiss and International Tax Law at Geneva lion in 2016.” University in which he describes a new practice, in the canton of Vaud, of taxing at source artists, athletes and speakers performing And he goes on to say: in Switzerland. As he points out in his concluding remarks:

“Because sports are so popular, sponsoring companies tend to “It remains to be seen to what extent other cantonal admin- spend very generously on sponsorship in order to build their istrations in Switzerland will follow this new practice of the brand’s value around the success of an athlete, a team, a sports canton of Vaud.” organization or a competition. Bad publicity can, therefore, not be tolerated, which is why sponsoring companies should be As always, we would welcome and value our readers’ own con- very cautious when drafting a sponsorship agreement.” tributions in the form of articles and topical case notes and commentaries for our journal and also for posting on the GSLTR Football transfers are frequently in the sporting news, including dedicated website at www.gsltr.com. A number of you have re- the recent record resigning of Paul Pogba (mentioned above), and sponded to our invitation and added value to this useful resource, we publish an article by Jonathan Copping of the London law and we hope that many others will do the same, for, as they say, firm of Bolt Burdon on the FIFPro challenge to the FIFA Regula- “the more, the merrier”! tions on the Status and Transfer of Players. So, now read on and enjoy the September 2016 edition of GSLTR! We also include an article on ADR and sport in India by Param Bhalerao of Gujurat National Law University in which he de- Dr. Rijkele Betten (Managing Editor) scribes some recent developments. Prof. Dr. Ian S. Blackshaw (Consulting Editor)

On the sports tax side, we feature by Dr. Alara Esfun Yazıcıoğlu September 2016

Introduction ever is the role of the Ethics Committee tigatory chamber is in charge of prelimi- of FIFA in this constellation? The Ethics nary and investigation proceedings. The In the last few years, the Fédération Inter- Committee was originally established in chairman of the investigatory chamber of nationale de Football Association (FIFA) 2006, following corruption allegations the Ethics Committee has the right, upon has been linked to negative headlines re- against referees. It was then restructured receipt of a complaint or at his own dis- volving around the corruption scandal of with the overwhelming approval at the cretion and at any time, to decide to initi- their top managers and scandals involving FIFA Congress on 25 May 2012. Of the ate preliminary investigations if there is a the voting for the 2022 World Cup, TV three judicial bodies of FIFA, the Ethics prima facie case of a breach of the CoE.8 rights and World Cup tickets. Committee has undergone the deepest re- The investigatory chamber can, therefore, form to its composition and functioning.4 with full autonomy and without restric- Within FIFA, the Independent Ethics The powers given to the Ethics Commit- tion, investigate potential breaches of the Committee is entrusted with handling any tee were impressive and not comparable CoE committed by all officials and play- cases in conjunction with the FIFA Code to any other internal governance structure ers, as well as players’ agents.9 Regarding of Ethics (CoE) or any other FIFA rules known under Swiss law. In the wake of the the jurisdiction of the Ethics Committee, and regulations.2 During the summer of decision regarding Infantino and, taking it must be noted that this encompasses all 2016, just before the opening ceremony of into consideration the decisions of the re- cases arising from the application of the the Rio Summer Olympics, the eyes of the formed Ethics Committee of the last four CoE or any other FIFA rules and regula- football world were, once again, pointed years, it is time to give the FIFA Ethics tions and includes all persons bound by at the Ethics Committee of FIFA. Follow- Committee a report card. the CoE while performing their duties.10 ing the bold and surprising decision on Even people who are not performing their 8 October 2015 to provisionally ban the duties can be investigated, if the conduct acting FIFA President, Joseph S. Blatter, The function of the FIFA Ethics is likely to seriously damage the integrity, the UEFA President Michel Platini and the Committee image or reputation of FIFA. FIFA offi- FIFA Secretary General Jérôme Valcke, cials therefore – in theory at least – accept the Ethics Committee had to decide on the Just as a reminder, FIFA is an association being investigated by a voluntarily set up fate of the acting president of FIFA, Gi- governed by Swiss law, specifically by committee, even if there is no direct link anni Infantino. arts. 60 et seq. of the Swiss Civil Code between the behaviour which is being (SCC). The association is a corporate le- investigated and the actual work tasks.11 Infantino was elected into office on 26 gal entity, which is often used for large This obviously goes way beyond what is February 2016 and was supposed to wash international sports federations (e.g. the legally expected from associations in the FIFA clean of any lingering mistrust in the International Olympic Committee and realm of corporate governance and serves association and its management. Howev- UEFA)5 and which grants a great deal of to fulfil a preventive purpose.12 Given er, less than six months after having taken freedom regarding the organization of the the size and importance of FIFA, such a over the reins of FIFA, Infantino faced association. Apart from the mandatory judicial structure is essential to enable a charges of infringements against the CoE. provisions of law, the association can set proper functioning of the association and On 5 August 2016, the Ethics Commit- up their own articles of association, which a correct application of all the different tee, however, did not initiate proceedings serve as the main document governing the regulations by stakeholders. against Infantino and considered it clear organization and the functioning of the beforehand that he had not violated the association.6 In the case of FIFA, these Once an investigation has been opened, CoE. The decision of the Committee may are the FIFA Statutes, the edition of April the conduct of proceedings is taken over have exonerated the newly elected presi- 2016. According to these, the independ- by the chief of the investigation,13 who has dent of FIFA, but it stands in stark con- ent Ethics Committee is composed by two a free use of resources while conducting trast to its past decisions against high level chambers: the investigatory chamber and her/his investigation.14 At this stage, the employees of FIFA and is highly criticized the adjudicatory chamber. The proceed- investigatory chamber, furthermore, has by several legal experts, including Mark ings are governed by the FIFA CoE.7 the possibility to request the adjudicatory Pieth3, who openly stated to be appalled chamber to take provisional measures up and sad about the recent decision. To fully understand the legal mechanism to a maximum of 90 days, with the pos- of the Ethics Committee, the functioning sibility to extend by 45 days, to either pre- It seems FIFA may have trouble learning of the two chambers will be briefly illus- vent interference with the establishment from its mistakes in the past. What how- trated. The CoE provides that the inves- of the truth, or in cases in which a breach

8 September 2016 © Nolot of the CoE appears to have been commit- Another important instrument of the Eth- “offering and accepting of gifts and other ted.15 Finally, the chief of the investigation ics Committee is the right to issue imme- benefits” pursuant to art. 20 par. 1 CoE. produces a final report and informs the diate provisional measures for a maximum According to the adjudicatory chamber, parties to the investigation of the conclu- period of 135 days and it has the right to both Blatter and Platini furthermore vio- sion which was reached. The final report pronounce sanctions provided by the FIFA lated art. 19 par. 1, par. 2 and par. 3 CoE may contain recommendations for the Statutes themselves, the CoE and the FIFA (Conflict of interest), art. 15 CoE (Loyal- adjudicatory chamber regarding neces- Disciplinary Code. Testament to the self- ty) and art. 13 CoE (General rules of con- sary measures. The investigatory chamber proclaimed success of FIFA is the list of duct). After having heard the parties on even has the possibility, under certain con- milestones achieved by the Ethics Com- 17 and 18 December 2015, the adjudica- ditions, to reopen a case.16 mittee from 2012 till 2016.23 This list of tory chamber issued an eight-year ban for accolades includes: both Blatter and Platini and a fine of CHF Once the adjudicatory chamber receives 50,000 and 80,000 respectively. The ban the final report, it decides what steps to – the investigation proceedings and sub- was later reduced to six years by the Ap- take next. It may: sequent ban for life of Mohamed bin peal Committee, which found there to be Hammam on 17 December 2012; strong mitigating factors, which were not 1 return the report to the investigatory – the 63rd FIFA Congress in Mauritius in considered by the Ethics Committee. The chamber for amendment or comple- 2013, which led to the above mentioned decision was issued on 24 February 2016, tion17; reforms; just two days before the elections for the 2 adjudicate the matter, in which case the – various statements regarding the con- new FIFA President. party concerned is granted a right to be tinuous investigation, adjudication and heard18; reporting of the bidding process for the Platini, who had been the sure-fire suc- 3 undertake further investigations, where 2018 and 2022 FIFA World Cups24; cessor of Blatter as President of FIFA and the party concerned is also granted a – the proceedings against Joseph Blatter was hoping to execute his new office dur- right to be heard19’ and Michel Platini25; ing the much anticipated 2016 EURO Cup 4 close the case, if there is insufficient – the ban with immediate effect of Jérôme in France, was hell-bent to clear his name. evidence to proceed20. Valcke for 12 years; and Due to the judgement issued by the Ethics – the investigation and subsequent ban of Committee, this was not possible in time. If the case can be adjudicated, the cham- Wolfgang Niersbach, former President The ban finally led to Gianni Infantino be- ber, following a hearing and deliberations, of the German Football Association on ing elected as President of FIFA and, al- decides on the matter. In certain cases, the 25 July 2016. though Platini filed an appeal against the decision of the adjudicatory chamber may decision of the Appeal Committee before be appealed before the Appeal Commit- Interestingly, the Ethics Committee has the CAS on 2 March 2016, the Panel of tee. The decisions of the Appeal Commit- proven to be more strict than the Court the Court of Arbitration confirmed the tee can be subsequently appealed before of Arbitration for Sport in the past, which ban, but reduced the sanctions.27 After the Court of Arbitration for Sport (CAS) generally reduced the sanctions of the the CAS decision, Platini resigned from in Lausanne, Switzerland.21 Ethics Committee, even though it would UEFA and did not take part in an official also have the legal means to order harsher function at the EURO 2016 in his home The governance structure set up within sanctions.26 country, France. Blatter also challenged FIFA is, therefore, one to be envied among his six-year ban from football and had to associations, which do not usually imple- The case of Blatter/Platini serves as an ex- appear before the CAS in Lausanne on 25 ment such a comprehensive and complex ample of how the Ethics Committee can August 2016.28 It will be interesting to see judicial system. But how much bite does function to sanction even the President of how the CAS decides, given the precedent the Ethics Committee really have? the association and to cap his power. Even set by Platini. though this case has been thoroughly published in the media and heavily discussed This case should illustrate the judicial The Ethics Committee has teeth... among legal experts, it is worth summa- power and the oversight which the judi- rizing the key points of the procedure. On cial bodies, especially the Ethics Commit- The fact that the Ethics Committee is 8 October 2015, Blatter and Platini were tee, can have within FIFA. The Commit- firstly composed of two chambers and provisionally suspended for 90 days pend- tee can thus help clean the reputation of secondly can unilaterally decide to inves- ing formal investigation proceedings re- FIFA, which has been tainted in the last tigate cases within FIFA, are two essential garding a payment of CHF 2 million from few years. Sadly, even the Ethics Commit- reforms, which give the Ethics Committee FIFA to Platini in February 2011. After tee suffers from flaws. the necessary teeth to investigate wrong- concluding the investigation, the investi- doings within the organisation and sanc- gatory chamber filed its final report, which tion the respective persons accordingly. was sent to the adjudicatory chamber on …which are being pulled one by one or 20 November 2015, which subsequently have yet to appear Other key reforms include the revision of opened formal proceedings three days the FIFA CoE, the revised definitions of later. Blatter, as president of FIFA, had au- The Ethics Committee has a vast range of bribery and corruption, which coincide thorized the payment of CHF 2 million to sanctions, with which to influence, correct with those of the OECD standards and the Platini and the latter had received it. The or sanction the behaviour of FIFA offi- obligation to carry out integrity checks for payment did not have any legal basis in cials.29 At this point, it must be noted that key officials.22 the written agreement, which was signed the sanctions imposed by FIFA are not to by both parties, so this was found to be an be mistaken with the power exercised by

© Nolot September 2016 9 a public prosecutor or a national criminal will ultimately enjoy the fact that the first refusal to sign the contract specifying his court. The sanctions adopt a character World Cup will take place in Qatar, even employment relationship with FIFA; the which can be described as “punishment of if he was banned by FIFA. use of aircraft paid by Russia and Qatar; one private person by another” based on and accepting flights with a private jet the contractual or at least quasi-contractu- for a personal visit with Pope Francis in al acceptance of the FIFA Rules.30 Unlike The case of Gianni Infantino Rome. It is important to note that this last a national criminal proceeding, in which airplane was owned by a Russian oligarch everybody is subject to a criminal inves- Recent developments put into question and Gazprom-manager.39 The upcoming tigation, a person within FIFA must be the perceived independence and power FIFA World Cups will take place in Rus- bound by the CoE on the day the infringe- of the Ethics Committee. The members sia in 2018 and in Qatar in 2022 and FIFA ment is committed to be investigated by of the Ethics Committee were elected by has not yet decided on the FIFA contri- the Ethics Committee.31 This naturally the member associations of FIFA, at the butions to the respective countries. This limits the power to initiate investigations annual FIFA Congress. However, dur- is certainly an indication of a conflict of and procedures by the Ethics Committee. ing the last FIFA Congress in Mexico on interest worth investigating. The allega- 13 May 2016, a resolution proposed by tions against the FIFA President included A further issue, which has been brought Infantino was passed, which allows the the infraction of art. 13 (general rules of forward in the CAS decision regarding FIFA Council to dismiss members of the conduct); art. 15 (Loyalty); art. 19 (Con- Michel Platini, is that, even though the judicial bodies of FIFA and, therefore, flicts of interest); and art. 20 (Offering and payment of CHF 2 million was issued in also of the Ethics Committee. Domenico accepting gifts) of the FIFA CoE. 2011, the Ethics Committee acted only Scala36 severely criticised this resolution, after the Swiss prosecutor took action in stating that a fundamental pillar of gov- The Ethics Committee has, however, con- 2015.32 This clearly shows that even the ernance would be undermined if the mem- cluded the investigation and has complete- strongest governance apparatus does not bers of the judicial bodies are dependent ly exonerated the current FIFA President. work if the will is lacking to investigate on the FIFA Council.37 The Ethics Com- It was concluded that the flights did not certain circumstances. Surely FIFA is mittee would have to think twice before represent ethics violations and the benefits now faced with added pressure to enforce commencing an investigation regarding enjoyed were in no way improper.40 Re- their rules and regulations, especially their a FIFA Council member if the Council garding the flights from Russia and Qatar, CoE, and to avoid the mistakes made in would then have the power to dismiss the the Ethics Committee held that it is jus- the past, but there must be a conviction chief of investigation. Scala later resigned tified for important people like Putin and and certain tenacity within the judicial from his office as president of the FIFA the Emir to set their time-tables and carry bodies to investigate and sanction viola- Audit and Compliance Committee. the costs of this inconvenience. The questions of the CoE. This is especially true in tion remains, however, if the Ethics Com- cases in which the investigation concerns According to the former chairman of the mittee truly investigated the matter as an a member of the FIFA Council. FIFA Independent Governance Commit- independent entity, or if the first signs of tee, Mark Pieth, the reason for the conflict dismantling are already visible.41 Finally, the case which clearly illustrates between Scala and Infantino can be traced the weaknesses of the FIFA Ethics Com- back to the new contract of Infantino, mittee is that of Mohammed bin Hammam. which fixed his salary at around CHF 2 Conclusion Even though the Ethics Committee’s mile- million a year (while that of Blatter was stones list various accounts regarding the twice as much). Art. 13 par. 4 CoE, how- The reforms set in motion by the FIFA Qatari construction magnate,33 the story ever, clearly states that persons bound by Independent Governance Committee and of Mohammed bin Hammam and FIFA is the CoE may not abuse their position in other actors, which strive to build up and ultimately one of failure. The FIFA Eth- any way, especially to take advantage of secure the independence and proper func- ics Committee issued a ban for life for Bin their position for private gains. The ac- tioning of the judicial bodies, has yielded Hammam on 18 August 2011, which was tions of Infantino could also be interpreted an impressive success in the past. The confirmed by the Appeal Committee. Bin as an infraction of art. 19 par. 2 CoE, as FIFA Ethics Committee has proved that Hammam then appealed the decision be- Infantino did not avoid a conflict of inter- it has the tools to investigate and sanction fore the CAS, which overturned the deci- est in this matter.38 Infantino has, through severe violations of the FIFA Code of Eth- sion of the FIFA Appeal Committee. This, the amendment of the Statutes, proceeded ics and is still engaged in doing so. Even even though it specifically stated that is to irrevocably weaken the position of the though the introduction of such a power- was more than likely that Bin Hammam Ethics Committee. The fact that Infan- ful Ethics Committee was an experiment was the source of the monies used for buy- tino almost singlehandedly installed Ms. to improve the governance of FIFA, it ing votes.34 It may be true, that Bin Ham- Fatma Samoura as FIFA Secretary Gen- proved to be essential for good govern- mam later received his second life ban and eral, further demonstrates the power that ance within the association and especially resigned from all his positions in football, he wields within FIFA. Sadly, the Ethics important, considering the string of con- but the FIFA judicial bodies have yet to Committee, which has achieved a consid- troversies surrounding FIFA. discover the actual facts surrounding the erable success, is being dismantled. vote of the 2022 World Cup and the deci- For the FIFA Ethics Committee to work sion to hold the World Cup in Qatar still The actions of Infantino led to an in- properly, it must have the unconditional stands.35 Despite the efforts of the Ethics vestigation being initiated by the Ethics support of the FIFA Council and must be Committee and other Committees within Committee. Infantino was facing various encouraged to investigate and take imme- FIFA, it was not possible to shed light on allegations, which included excessive diate action, if wrongdoings are discov- the matter and Mohammed bin Hammam charges of FIFA for personal expenses; his ered. This consequently means that the

10 September 2016 © Nolot Ethics Committee, which is in charge of tino, it is yet unclear if this is truly the case ganization remains the basis for any good investigations, remains absolutely and un- or if FIFA will proceed to further disman- governance. The Ethics Committee was – equivocally independent. tle and discourage the Ethics Committee. as it has proved to be – a very valuable It would be a shame if Infantino would instrument for the FIFA governance, and Given the recent events revolving around fall into the temptation of power. Properly needs to be upheld. the new President of FIFA, Gianni Infan- working checks and balances within an or-

1 Dr. Thilo Pachmann and Oliver Schreier of Pach- 11 So even if the plane ride from Gianni Infantino 5 September 2014, 24 September 2014, 13 No- mann Attorneys at Law, Switzerland. They can to Rome with a private jet had allegedly taken vember 2014, 18 November 2014, 19 December be reached at [email protected] place solely in a personal context and not while 2014 and 24 February 2015. and [email protected]. performing his duties, the Ethics Committee 25 The ban was later reduced by the FIFA Appeal 2 Art. 27 par. 1 of the FIFA Code of Ethics (2002 would still have had the authority to investigate Committee to six years and by the CAS to four edition). that incident. The only condition is, that this years. 3 Professor Mark Pieth is a renowned profes- action has to be likely to seriously damage the 26 So called “de novo” rule pursuant to art. 57 CAS sor of Criminal Law and Criminology at the integrity, image or reputation of FIFA. In the Code. University of Basel, Switzerland, and chaired the wake of the multitude of negative headlines, this 27 The ban for Platini was shortened from six to Independent Governance Committee, which was can certainly be viewed as a given. four years and the fine was reduced from CHF in charge of FIFA’s governance reform process, 12 See further Omar Ongaro and Marc Cavaliero, 80,000 to CHF 60,000. The Panel found, that which took place from 2011 to 2013. He also “Dispute Resolution at the Fédération Interna- the Ethics and Appeal Committees had wrongly drew up a report regarding FIFA: “Governing tionale de Football Association and its Judicial sanctioned Platini for the violation of art. 13 FIFA, Concept Paper and Report”, 19 September Bodies” in: Michele Colucci and Karen L. Jones, and 15 CoE. These articles represent general 2011, which sets up recommendations, several European Sports Law and Policy Bulletin, Inter- rules, which are not applied if a violation of the of which were implemented by FIFA. See FIFA, national and Comparative Sports Justice, p. 100 articles 19 and 20 CoE (special rules) has been “The Reform Process – Chronology”, available et seq. According to Ongaro and Cavaliero, the established. See Media Release of the CAS, at www.fifa.com/governance/news/y=2016/m=1/ scope of action of the judicial bodies of FIFA is “Football – FIFA, The Court of Arbitration for news=the-reform-process-chronology-2756734. immense and covers a number of different situa- Sport (CAS) Lowers the suspension of Michel html (accessed on 15 August 2016). tions. Platini to 4 years”, available at www.tas-cas.org/ 4 Art. 52 par. 1 FIFA Statutes (April 2016 edition). 13 The chief of the investigation can be the chair- fileadmin/user_upload/Media_release_4474_fi- The other two Committees of the judicial body man of the investigatory chamber or any member nal_eng.pdf (accessed on 15 August 2016). are the Disciplinary Committee and the Appeal of the chamber (art. 65 CoE). 28 “Sepp Blatter to challenge six-year ban from Committee (art. 61 par. 1 FIFA CoE and art. 62 14 The primary means of investigation are written football at Cas on 25 August”, in: The Guardian, par. 3 FIFA CoE). See also Omar Ongaro and inquiries and written or oral questioning of 8 July 2016, available at www.theguardian.com/ Marc Cavaliero, “Dispute Resolution at the parties and witnesses. However, any further football/2016/jul/08/sepp-blater-to-challenge-six- Fédération Internationale de Football Association investigative measure relevant to the case may year-ban-from-football-at-court-of-arbitration- and its Judicial Bodies” in: Michele Colucci and be used and even third parties may be engaged to for-sport-25-august-fifa (accessed on 15 August Karen L. Jones, European Sports Law and Policy fulfil investigative duties. In case a person bound 2016). Bulletin, International and Comparative Sports by the CoE fails to cooperate in establishing the 29 Art. 6 CoE states that the following sanctions Justice, p. 102. facts, disciplinary measures can be imposed (art. can be applied: warning; reprimand; fine; return 5 See i.e. art. 1 of the UEFA Statutes (2014 edi- 66 par. 1, par. 3 and par. 4 CoE). of awards; match suspension; ban from dress- tion). 15 Art. 83 par. 1 and art. 85 par. 1 CoE. This was ing rooms and/or substitutes’ bench; ban on 6 Art. 63 par. 1 and par. 2 SCC. the case with Joseph Blatter and Michel Platini. entering a stadium; ban on taking part in any 7 Art. 54 par. 1 FIFA Statutes (April 2016 edition). 16 The chamber may decide this unilaterally or as a football-related activity and social work, The 8 Art. 61 par. 1 CoE and art. 62 par. 3 CoE. In this result of a request (art. 82 par. 1 and par. 2 CoE). Ethics Committee may also pronounce sanctions respect it is not even necessary that grounds for 17 Art. 69 par. 3 CoE. described in the FIFA Disciplinary Code and the the initiation of investigation proceedings must 18 The right to be heard includes the right to FIFA Statutes (art. 5 CoE). be given and it is not possible to contest the deci- respond to the investigation report (art. 70 par. 2 30 Omar Ongaro and Marc Cavaliero, “Dispute sion to initiate proceedings (art. 61 par. 1 CoE CoE); the right of admission of further evidence, Resolution at the Fédération Internationale de and art. 62 par. 3 CoE). See further Omar Ongaro if presented in a substantiated motion (art. 70 Football Association and its Judicial Bodies” in: and Marc Cavaliero, “Dispute Resolution at the par. 2 CoE); and the right of hearing the oral Michele Colucci and Karen L. Jones, European Fédération Internationale de Football Association statements, whereby this requires a reasoned Sports Law and Policy Bulletin, International and its Judicial Bodies” in: Michele Colucci and request (art. 74 par. 2 CoE). and Comparative Sports Justice, p. 100. Karen L. Jones, European Sports Law and Policy 19 See preceding footnote. 31 A precondition therefore is that the person is Bulletin, International and Comparative Sports 20 Art. 69 par. 2 CoE. considered an official or a player according to Justice, p. 110 et seq. 21 Arts. 76-81 CoE. the definitions in the FIFA Statutes (April 2016 9 Art. 2 CoE. The CoE focuses on general conduct 22 See FIFA, “The Reform Process – Chronology”, edition). Any board member (including the mem- within association football that has little or no available at www.fifa.com/governance/news/ bers of the Council), committee member, referee connection with action on the field of play (art. y=2016/m=1/news=the-reform-process-chro- and assistant referee, coach, trainer and any other 1 CoE). Conduct with a connection with action nology-2756734.html (accessed on 15 August person responsible for technical, medical and on the field of play is mainly governed by the 2016). administrative matters in FIFA, a confederation, FIFA Disciplinary Code (art. 2 FIFA Disciplinary 23 See FIFA, “Ethics Committee milestones a member association, a league or a club as well Code, 2011 Edition). (2012-2016)”, available at http://resources. as all other persons obliged to comply with the 10 Art. 27 par. 1 and par. 2 CoE. Art. 2 FIFA Stat- fifa.com/mm/document/affederation/commit- FIFA Statutes (except players and intermediar- utes (April 2016 edition) states that the persons tees/02/74/19/72/fifaethicscommitteemile- ies) are considered as officials. Furthermore, any covered by the CoE are all officials and players stones_en_11082016_neutral.pdf (accessed on football player licensed by an association is also as well as match and players’ agents who are 15 August 2016). considered bound. bound by the CoE on the day the infringement is 24 The relevant statements were made on 8 October 32 See Media Release of the CAS, “Football – committed. 2013, 2 June 2014, 11 June 2014, 21 July 2014, FIFA, The Court of Arbitration for Sport (CAS)

© Nolot September 2016 11 Lowers the suspension of Michel Platini to 4 In the meantime, Infantino has confirmed Qatar in an independent and purposeful manner. This years”, available at www.tas-cas.org/fileadmin/ as the location for the 2022 FIFA World Cup. certainly seems to be the case. user_upload/Media_release_4474_final_eng.pdf 36 Mr. Scala was the former president of the FIFA 39 See Arthur Rutishauser, “Showdown bei der (accessed on 15 August 2016). Audit and Compliance Committee and was a FIFA”, in: Sonntagszeitung, available at www. 33 See FIFA, “Ethics Committee milestones strong supporter of the new reforms introduced sonntagszeitung.ch/read/sz_17_07_2016/ (2012-2016)”, available at http://resources. in FIFA. wirtschaft/Showdown-bei-der-Fifa-69087 (ac- fifa.com/mm/document/affederation/commit- 37 Prof. Dr. Ian Blackshaw, “FIFA: Independent cessed on 15 August 2016). tees/02/74/19/72/fifaethicscommitteemile- audit committee president resigns”, available 40 “Fifa president Gianni Infantino cleared of stones_en_11082016_neutral.pdf (accessed on at www.sportsandtaxation.com/2016/05/fifa- possible ethics violations”, in: The Guardian, 5 15 August 2016). independent-audit-committee-president-resigns August 2016, available at www.theguardian.com/ 34 See the decision of the Court of Arbitration for (accessed on 15 August 2016). football/2016/aug/05/gianni-infantino-cleared- Sport, CAS 2011/A/2625 Mohamed bin Ham- 38 According to art. 19 par. 2 CoE, conflicts of ethics-violations-fifa (accessed on 15 August mam v. FIFA, recital 195, p. 52 et seq. interests arise if a person has, or appears to have, 2016). 35 This, despite allegations of slave labour and private or personal interests that detract from 41 See remarks on the Infantino case in this month’s bribery charges and the extreme climate in Qatar. their ability to perform their duties with integrity Editorial.

12 September 2016 © Nolot The right of publicity: recent developments in collegiate athletics in the USA by Prof. Paul Anderson1

Introduction The purpose of this article is not to enter Still, many believe that student athletes into the debate about whether these par- are exploited, and should receive more Collegiate athletics in the United States is ticular2student athletes should receive compensation for their participation in big business. In 2016, the National Colle- more compensation for their athletic par- collegiate athletics. While the focus in giate Athletic Association (NCAA) signed ticipation; instead, it will focus on new much of the literature is on antitrust and a deal with CBS/Turner through 2032 ex- claims, in particular, claims for violations other claims brought against compensa- tending their original 14 year US$ 10.8 of the right of publicity. tion restrictions, new challenges have been billion deal an additional 8 years for US$ brought against restrictions on athlete’s 8.8 billion. Although virtually all of this Initially, it bears noting that, while student ability to exploit their name and likeness money goes back to collegiate conferences athletes at major colleges in the United for their financial benefit. Although these and member schools, critics and the gen- States can seemingly only receive com- claims are related to compensation, they eral public often see things very different- pensation in the form of their athletic focus on completely separate legal rights; ly. They see that colleges who make it to scholarship, the value of that scholarship in this case, the right of publicity. the Final Four of the (NCAA) men’s basis often misunderstood. NCAA rules now ketball tournament can expect to receive allow student athletes to receive scholar- an US$ 8-9 million payout and schools, ship aid up to the cost of attendance at the The right of publicity: definition and who participate in the College Football school they attend. This cost is established case law Playoff (revenues that are not received or by the particular university and includes controlled by the NCAA), can expect to tuition, room and board, fees and other In American jurisprudence, the right of receive upwards of US$ 6 million from expenses that some academic scholarships publicity is the right of any person to their conference. They also see that top would not include. For example, at Mar- control the commercial use of his or her collegiate coaches, like Alabama football quette University, the expected undergrad- identity. This right does not arise under coach Nick Saban, make upwards of US$ uate cost for tuition and fees is approxi- federal law; instead, more than 30 states 7 million a year, and Kentucky basketball mately US$ 37,000, while the full cost of have recognized the right by common law coach, John Calipari, receives almost US$ attendance is US$ 51,000. or included it in their state statutes. The 6.5 million per year. Within this climate right of publicity protects the individual of money, many perceive that collegiate In addition, many groups have estimated by giving that person a right to control and athletes, particularly male student athletes the actual value of the benefits that student profit from the use of their name and other in football and basketball, do not receive athletes receive above the scholarship, characteristics of their identity (i.e. their their fair share, as NCAA rules limit the benefits from special tutoring, travel and nickname, likeness, portrait, performance amount of compensation that they can re- meals, coaching and other services that (under certain circumstances), biographi- ceive in exchange for their participation in other students do not receive. For exam- cal facts, symbolic representations, etc.) collegiate sport. ple, the University of Wisconsin Madison from commercial misappropriation. maintains a normal tuition cost of about US$ 10,000 for instate residents, matched The right is not absolute. For example, by a US$ 25,000 cost of attendance. How- an athlete cannot use this right to prevent ever, according to the Athletic and Aca- his name or picture from appearing in 1 Director Sports Law Program and National demic Spending Database maintained by the newspaper. Newspaper reproductions Sports Law Institute Marquette University Law School, United States. the Knight Commission on Intercollegi- of this type are protected as free speech 2 For years, courts have noted that student athletes ate Athletics, the University of Wisconsin under the First Amendment to the US who receive athletic scholarships are already spent US$ 152,000 on each student athlete Constitution. In addition, although most compensated for their participation, mainly in related to their athletic participation, and of the cases protect celebrities, including the workers compensation context. 3 US$ 273,000 per each football player as athletes, the right of publicity extends to Knight Commission on Intercollegiate Athletics, 3 Athletic & Academic Spending Database for of 2014. These numbers are bound to be everyone. NCAA Division I, available at http://spendingda- much higher for 2016. tabase.knightcommission.org/fbs/big-ten. A key case that set the stage for the crea-

© Nolot September 2016 13 tion of the right of publicity involved Da- right in the publicity value of his photo- law imposing restrictions on the content of vid O’Brien, a famous football player in graph, i.e., the right to grant the exclusive such games, the holding supporting First the 1930s at Texas Christian University privilege of publishing his picture”.6 This Amendment protection for these games (TCU), and then as a professional with the right then provided the players with a right seemed to pave the way for video game Philadelphia Eagles. O’Brien sued Pabst to grant a company the exclusive right to manufacturers to be insulated from law- Brewing Company for using his photo on publish their picture. suits over their content. Pabst’s 1939 beer advertising calendar, because he was active in a group urging In another important case in 1979, foot- Soon after this decision, one of the first teens not to drink and had refused oppor- ball star Elroy “Crazylegs” Hirsch sued courts to analyze a collegiate athlete’s tunities to endorse beer.4 The Fifth Cir- a company that marketed a moisturizing right of publicity claim was the United cuit Court dismissed his claim, because shaving gel for women, under the name States Court of Appeals for the Third Cir- it found that he could not be harmed by of “Crazylegs”, without asking Hirsch for cuit in Hart v. Elec. Arts Inc.11 Ryan Hart more publicity; however, the dissent said permission.7 A well-known college and was a quarterback at Rutgers University. the time was ripe to recognize a legal professional football player, Hirsch was He sued EA Sports claiming that its use claim for the uncompensated use of the known by the nickname “Crazylegs” at of his likeness and biographical informa- identity of a professional athlete to help least since the 1940s. As courts would do tion in the NCAA Football video game sell a product. in other jurisdictions, the Wisconsin court was a violation of his right of publicity. for the first time recognized a cause of ac- EA argued that, because users of the video Twelve years later, the phrase was coined tion for the right of publicity, finding that game could create their own avatars and in 1953 in a case involving parties within recognizing the value in one’s name (or create their own individual player, the use the sports industry, Haelan Laboratories, nickname) “is supported by public policy of Hart and other player’s information was Inc. v. Topps Chewing Gum, Inc.5 Haelan considerations, such as the interest in transformative and so protected by the Laboratories entered into a contract with controlling the effect on one’s reputation First Amendment. Remanding the case for certain baseball players that provided of commercial uses of one’s personality further proceedings, the court disagreed, Haelan with the exclusive right to use the and the prevention of unjust enrichment of finding that the games at issue did not players’ photographs on baseball cards those who appropriate the publicity value significantly alter the player’s identifiable sold in packets of gum; in other words, the of another’s identity”.8 characteristics within the game, and so players agreed not to grant any other gum Hart’s claim for a potential right of public- manufacturer the right to use their pic- Although well established at the profes- ity continued. tures. Topps Chewing Gum then entered sional sports level, a potential cause of ac- into a similar agreement with the players, tion for the right of publicity for collegiate Two months later, in July 2013, the Unit- who allowed it to use their pictures on its athletes is less clear. Until the past decade, ed States Court of Appeals for the Ninth own cards. Haelan sued Topps, claiming no courts had attempted to resolve the is- Circuit reached two decisions related to that it illegally induced the players into sue of whether collegiate athletes might the use of athletes’ names and likenesses breaching their contracts with Haelan. be able to bring a cause of action claim- within video games. In the first decision, The case focused on what rights the playing a violation of the right of publicity. former professional football player Jim ers had in their own identity and picture The recent focus on the right of publicity Brown, brought a false endorsement claim and whether they could actually assign perhaps stems from the famous antitrust against EA Sports, arguing that its use of these rights. For the first time, the court litigation against the NCAA by former his likeness within the Madden NFL series recognized a property right in the public- UCLA basketball start Ed O’Bannon. His of football games misled consumers into ity value of an individual’s identity, as it initial lawsuit back in 2009, coupled with thinking that he endorsed or was in some found that “in addition to and independent litigation initiated by former Arizona State other way a sponsor of the video game.12 of that right of privacy [...] a man has a quarterback Sam Keller, involved both an- The court disagreed and followed the Su- titrust and right of publicity claims.9 The preme Court finding in this case that “the antitrust dispute has continued into 2016 Madden NFL video games are entitled to as part of the O’Bannon litigation, but the the same First Amendment protection as 13 4 O’Brien v. Pabst Sales, Co., 124 F.2d 167 (5th right of publicity portion of the dispute great literature, plays, or books” and so Cir. 1941). took another path. Brown’s claims were dismissed. 5 Haelan Laboratories, Inc. v. Topps Chewing Gum, Inc., 202 F.2d 866 (2nd Cir. 1953). 6 The initial right of publicity litigation At this point, it seemed possible that video Id. at 868. within collegiate athletics related to the games received such strong protection un- 7 Hirsch v. S.C. Johnson & Son, Inc., 90 Wis.2d 379 (Wis. 1979). use of players’ names and likenesses der the First Amendment that any claims 8 Id. at 391. within video games. In 2011, the Supreme about a violation of rights associated with 9 Keller v. Electronic Arts, Inc., Cv-09-1967 (N. Court of the United States held that, in them might fail. However, on the same D. Cal. 2009); O’Bannon v. NCAA, CV 09-3329 general, video games are protected by the day as the Brown decision, the Ninth Cir- (N.D. Cal. 2009). First Amendment because they “commu- cuit reached a decision in the litigation 10 Brown v. Entertainment Merchants Ass’n, 131 S.Ct. 2729, 2733 (2011). nicate ideas – and even social messages brought by collegiate athletes. 11 Hart v. Elec. Arts. Inc., 717 F.3d 141 (3rd Cir. – through many familiar literary devices 2013), cert. denied, 135 S. Ct. 43 (2014). (such as characters, dialogue, plot, and Sam Keller led a lawsuit that sued the 12 Brown v. Elec. Arts, Inc., 724 F.3d 1235 (9th Cir. music) and through features distinctive to NCAA and EA Sports, claiming that 2013). the medium (such as the player’s interac- the use of his image and likeness in the 13 Id. at 1247. 10 14 Keller v. Electronic Arts, Inc., 724 F.3d 1268 (9th tion with the virtual world)”. Although NCAA Football video game violated his Cir. 2013). the Brown court overturned a California right of publicity.14 Acknowledging that

14 September 2016 © Nolot video games are protected under the First works, and licensors, claiming that their amateurism, which states that “[s]tudent- Amendment, and similar to the Third Cir- various uses of these players’ likenesses athletes shall be amateurs in an intercolle- cuit in Hart, the court found that the game and images violated their right of public- giate sport, and their participation should did not allow a user to transform the play- ity under Tennessee law.16 Although the be motivated primarily by education and er in any way necessary for constitutional court recognized that Tennessee does have by the physical, mental and social benefits protection, instead the player was engag- a statutory right of publicity, it would not to be derived”.19 This principle then is but- ing in the same activity for which they are support the players’ claims for a right of tressed by NCAA rules that limit compen- known in real life – playing football. The publicity in sports’ broadcasts. Important sation that student-athletes can receive, context is realistic in that the game de- to its analysis was the fact that “under now expanded to scholarship aid up to the picts actual football stadiums, and Keller NCAA rules, other than the requirement full cost of attendance at most universities. is represented in the game as the starting that an athlete be a student, there can be This notion of amateurism, of course, is quarterback at Arizona State, exactly what no more basic eligibility rule for amateur- not grounded in any sense of being unpaid he was in real life. Therefore, the court re- ism than that the athlete not be paid for labor as, even though the scholarship that jected EA Sports claim that its use of Kel- playing his or her sport”.17 Because the they receive has been found to be a form ler and other players’ images and likeness- athletes claimed that the harm they suf- of pay in the workers compensation arena, es in the video game were protected by the fered was related to their inability to be student athletes have not been found to be First Amendment. A year later, EA Sports paid for the use of their image or likeness, employees by any court; instead, NCAA settled the lawsuit paying the players US$ the court found they could not have suf- and conference rules limit the types of pay 40 million; and the NCAA similarly set- fered harm here because collegiate ath- student athletes can receive beyond the tled for US$ 20 million. The NCAA has letes cannot be paid. athletic scholarship and financial aid. since ended any relationship with EA Sports creating videogames for NCAA The final case involving the right of pub- As far back as 1984, the United States competitions; as a result, the extent of the licity and collegiate athletes came down Supreme Court noted that “[i]n order to right of publicity that current players may at the end of the summer in 2015. In this preserve the character and quality of the possess in this context remains to be seen. case, a former college football player from product of college sports, “athletes must the University of Texas at El Paso (UTEP) not be paid”.”20 Since then, virtually every Outside of the video game context, in the sued an online photo store that hosted court has drawn on this Supreme Court past two years, collegiate athletes have pictures of UTEP student athletes, claim- language and upheld NCAA restrictions brought claims for violations of their right ing that its sale of pictures of him vio- on athletes receiving compensation; most of publicity in other contexts. In the spring lated his right of publicity.18 Finding that recently, in cases involving antitrust chal- of 2015, members of Catholic Univer- Lightbourne signed a student athlete im- lenges to scholarship limitations,21 and sity’s basketball team sued a media com- age authorization form each year that he minimum wage claims brought by student pany that stored and licensed photographs played, and that signing this form was not athletes.22 of collegiate athletes and competitions mandatory or a condition on whether he online.15 The NCAA owned the copyright would be allowed to participate in athlet- In fact, even within the O’Bannon v. in all of the photographs hosted on the ics, the court dismissed his right of public- NCAA antitrust litigation (mentioned website. As a result, the court found that ity claim. above) amateurism has been upheld. Al- the Copyright Act preempted the plain- though the district court initially struck tiff’s presumed right of publicity claims, down NCAA rules limiting scholarship because they could not show any use of Conclusion aid to student athletes (rules that actually their likenesses beyond the sale of the no longer exist), and the appellate court copyrighted works. Overall, the courts have been consistent found that such NCAA rules should be and found that student athletes do not pos- subject to antitrust scrutiny, the appellate A few months later, in the summer of sess a right of publicity in photographs court also admonished the district court 2015, former football and basketball play- (Maloney & Lightbourne), or broadcasts for creating a way to pay student athletes ers sued various athletic conferences, net- (Marshall), the litigation over the use of noting that “not paying student-athletes is images and likenesses in videogames was precisely what makes them amateurs”.23 settled, and the actual video games have long since been discontinued. In fact, the Perhaps then it is not surprising that the 15 Maloney v. T3Media, Inc., 94 F.Supp.3d 1128 specific NCAA rules litigated over in most Marshall court grounded its decision find- (C.D. Cal. 2015). 16 Marshall v. ESPN Inc., 111 F.Supp.3d 815 (M.D. of these cases no longer exist within the ing that student athletes do not possess a Tenn. 2015). NCAA manual. Whether a future student right of publicity within the same ama- 17 Id. at 834. athlete will again seek to bring similar teurism framework. As all of these courts 18 Lightbourne v. Printroom Inc., 122 F. Supp.3d right of publicity claims remains to be have recognized, if student athletes can 942 (C.D. Cal. 2015). seen; however, such claimants, and law- someday receive payment directly related 19 NCAA, 2015-2016 NCAA Division I Manual, art. 2, 2.9. yers who might seek to champion their to their athletic participation and perfor- 20 National Collegiate Athletic Ass’n v. Board of cause, should be careful, as courts con- mance above and beyond the scholarship Regents, 468 U.S. 85, 102 (1984). tinue to uphold the NCAA’s version of aid they already receive, the amateur mod- 21 Agnew v. NCAA, 683 F.3d 328 (7th Cir. 2012). collegiate athletics characterized by the el, that is the foundation of NCAA colle- 22 Berger v. NCAA, 2016 U.S. Dist. Lexis 18194, amateur student-athletes who participate. giate athletics within the United States, 26 Wage & Hour Cas. 2d (BNA) 38 (Dist. Ind. 2016). will crumble. 23 O’Bannon v. NCAA, 802 F.3d 1049, 1076 (9th What is known as the NCAA’s amateur- Cir. 2016). ism defense is based in its principle of

A very promising starting point in the path of restoring clarity! by Dr. Alara Efsun Yazıcıoğlu, LL.M.1

Introduction clubs residing in South Africa. The tax cellular phones and computers); pension implications for non-resident professional fund contributions, retirement annuity On 27 May 2016, the South African Rev- sports clubs and sportspersons are de- fund contributions and other deductions enue Service (SARS) published a Draft scribed in an extremely concise manner.8 for players (like agents’ commissions). Guide on the Taxation of Professional Sports Clubs and Players (the Draft The Draft Guide also briefly describes the Guide)2 and invited the interested parties Sports clubs and sportspersons residing implications of Skills Development Levy to submit their comments on it until 30 in South Africa (SDL); Unemployment Insurance Fund December 2016.3 (UIF) contributions; and donations re- Regarding professional sports clubs, the ceived by clubs and sportspersons. SARS expressly underlined that the Draft Draft Guide examines, by means of de- Guide is merely a “general guide”, i.e. it tailed explanations and illustrative exam- cannot be considered as an “official pub- ples, income tax and VAT implications Non-resident sports clubs and sportsper- lication”4, a “practice generally prevail- of the following receipts and accruals: sons ing”5 or a “binding general ruling”6. The transfer fees; sign-on fees; sponsorships Draft Guide should, therefore, be consid- (including sponsorships in kind); prizes; As already mentioned, tax implications ered as a brief summary of the applicable ticket sales; sale of merchandise and other for non-resident sports clubs and sport- legislation. sundry items; insurance premiums (relat- spersons are summarized in a highly brief ing to, for example, sportspersons, train- manner. The section10 of the Draft Guide This article aims to describe how the Draft ing kits, equipment and facilities) paid by relating to taxation of non-residents main- Guide may be transformed into a revolu- clubs; and fringe benefits that clubs may ly concentrates on the taxation of sport- tionary tool for taxation purposes. To this provide to their players with (such as resi- spersons. Only very general VAT infor- end, first the contents of the Draft Guide dential accommodation and use of a club- mation is provided with regard to sports are described. Then, a suggestion regard- owned vehicle). clubs. ing the issues covered by the Draft Guide is made. Finally, the main reasons for Concerning professional sportspersons, The explanations made by the Draft Guide which such an amendment would consti- the Draft Guide analyses taxation modali- can be summarized as follows. tute an important milestone in taxation of ties of the following receipts and accruals: international sports events are laid out. player salaries and other remuneration; – Non-resident sportspersons are subject transfer fees; player signing-on fees; im- to a 15% withholding tax on their gross age rights payments; sponsorships; prizes income11 derived from any “specified The contents of the Draft Guide (either received directly or indirectly9); in- activity”12. The tax is a final tax, which demnification payments; bonus payments; must be withheld and remitted to SARS The Draft Guide elucidates income tax income derived from benefit matches; al- by any South African resident who is li- and value added tax (VAT) aspects of the lowances; advances and reimbursements able to pay a non resident sportsperson. South African tax system with regard to (namely travelling allowance, reimburse- – Sportspersons who are employees of a different types of income generated by ments and accommodation); fringe ben- resident South African employer and professional7 sports clubs and sportsper- efits (such as medical expenses, uniforms, sportspersons who are physically pre- sons. It mainly focuses on players and transfer costs and personal use of business sent in South Africa for more than 183

16 September 2016 © Nolot days in aggregate in any 12-month pe- Lack of clarity, which translates into un- World Cup; and the final game of the riod commencing or ending during the certainty from a taxpayer’s point of view, UEFA Champions League, are considered year of assessment are not subject to constitutes one of the most significant to be “mega” events in the literature. withholding tax. challenges in the taxation of international – VAT registration threshold is currently sports events field. Unlike other taxpay- Other events that are distinguishable from R 1 million. Non-resident sports clubs ers, taxpayers participating in an interna- the majority of sports events by exactly and independent sportspersons must tional sports event cannot rely on clearly the same criteria are considered as “large register for VAT purposes only if they established and precise tax rules. This sec- scale” events. As it can be deduced, there carry on the enterprise activity continu- tion of the article briefly summarises the is a fine line between large scale and mega ously or regularly – wholly or partly – in reasons supporting this observation. sporting events. Although the former is South Africa. Sportspersons employed considered to be less significant than the by a sports club are not under the obli- Two different categories of international latter, this general assumption is subject to gation to register for VAT. sports events should be distinguished for controversy.19 This aspect will not be de- – For more information, the Office of the purposes of this analysis: veloped further, since it is not relevant for Non-Resident Entertainers and Sport- the purposes of this article. spersons may be contacted. 1 sports events benefitting from specific tax exemption regulations (the so called Despite benefitting from specific tax ex- “mega” or “large-scale” sporting events, emption regulations, large scale and mega The suggestion such as the Olympic Games and the sporting events are still prone to a signifi- FIFA World Cup); and cant lack of clarity in the area of taxation In its current version, the Draft Guide 2 sports events that do not benefit from for two main reasons: provides minimum information on tax such exemptions. rules and regulations applicable to non 1 lack of international practice; and residents. If the same level of details and 2 lack of national practice. precision as the explanations provided International sports events benefitting for resident sports clubs and sportsper- from specific tax exemption regulations No effort to develop a certain international sons may also be reached for non resident standard on tax exemption regulations has sports clubs and sportspersons, the Draft Specific tax exemption regulations are been made so far. Accordingly, there is not Guide may transform itself into a truly ex- enacted for one unique event by the Host a generally recognized model or practice ceptional tool. State14. They provide for tax exemptions on that matter. As a natural result, although (income tax, VAT and customs and excise tax exemption regulations may have some A further step that may be taken is the duties) applicable to non resident taxpay- similar traits, they vary to a great extent publication of a general explanatory guide ers deriving income from the international from country to country and respectively on the domestic tax law rules applicable sports event concerned. The obligation to from sports event to sports event. This, in to all non-resident taxpayers deriving in- enact such Regulations is imposed upon turn, causes a lack of international prac- come from international sports events tak- the Host State by the Host State Contract, tice on which taxpayers deriving income ing place in the South African territory. As respectively the Host City Contract, which from international sports events can rely a matter of fact, a large number of taxpay- is a non negotiable contract signed be- upon. From a taxpayer’s point of view, ers (such as rights holders of the sports tween the Host State and the rights holder each new event requires a new informa- events13, broadcasters and hospitality proof the sports event at the end of the bid- tion gathering process on regulations that viders) are remunerated for the services ding process15. have never been applied before.20 rendered/rights granted during an international sports event. Despite the fact that Exemption regulations are generally Lack of national practice presents itself in the income obtained by non resident sport- enacted for large scale and mega sport- regard to: spersons and sports clubs receives the al- ing events.16 As indicated by its name, a most exclusive attention of academicians, “mega” sporting event is a large or great 1 the very existence of exemption regula- problems caused by the current tax rules sporting event.17 While a clear cut defi- tions; and and regulations are far from being limited nition of mega sporting events does not 2 the interpretation and modalities of the to these two categories of taxpayers. exist; as per the literature, such events application of exemption regulations. may be distinguished from other sporting If adopted, such explanatory guides will events by means of the following cumula- First, it may not be certain whether a Host have the merit of clarifying the tax treat- tive criteria: State will effectively enact specific tax ex- ment that a taxpayer taking part in an in- emptions. Since the exemptions are one ternational sports event (as a sportsperson 1 number of participating athletes; off, like the sports event itself; in some or as another professional) will be subject 2 attendance at the event; cases, it may even be unclear whether the to, and thereby will be extremely useful in 3 television viewership of the event; same sports event taking place in the same practice. 4 the international significance of the country a couple of years later will benefit event; and (v) from similar tax exemptions or not. This, 5 the long term consequences for the cit- for example, was the case of the 2013 Rationale behind the suggestion ies that stage the short term event.18 UEFA Champions League final that took place at the Wembley Stadium in Lon- Lack of clarity: the main problem of tax- Only three events, namely the Olympic don two years after another Champions ation of international sports events Games (summer and winter); the FIFA League final21 that was held at the same

© Nolot September 2016 17 stadium and which benefited from tax the 2010 FIFA World Cup. Income earned sionals, which will inevitably give rise to exemptions. In fact, the right to host the by “members of a team” during the World a considerable financial burden. 2013 UEFA Champions League final was Cup was not tax exempt.23 Although sport- granted to the United Kingdom by UEFA spersons clearly fell in the scope of this More importantly, not being able directly without a prior negotiation regarding tax notion, tax treatment of technical staff to receive information from the competent exemptions. No specific problems arose in (such as coaches, medical staff, trainers authorities of the Host State and to check that particular case, as the United King- etc.) remained rather unclear.24 the applicable tax legislation personally dom government finally enacted a simi- – when needed – constitutes a significant lar exemption to the one granted in 2011, psychological concern, especially due to even if it was not legally obliged to do so. International sports events that do not one of the main principles of law: “[i]gno- benefit from specific tax exemption regu- rantia iuris neminem excusat”30. Comparable situations are likely to occur lations on a frequent basis, as each specific tax regulation provides for one off exemptions, A similar level of uncertainty25 also ex- Well-established national practices: a the exact scope of which is determined on ists for international sports events that do viable solution the basis of negotiations conducted with not benefit from specific tax exemptions. the sport’s governing body concerned In cases where no specific tax exemption The current lack of clarity may be over- (i.e. the rights holder of the event). For regulations are enacted, the ordinary tax come effectively by well established na- instance, the same State may grant a tax regime, as provided by the domestic law tional practices. Instituting a solution on exemption for non resident sportspersons of the Host State, applies. Even though an international level, which is acceptable for one sports event and may not do so for there is a large network of double tax by all States that may potentially host an another similar event held in its territory; treaties26, which are commonly based on international sports event in the future, simply because of the fact that such an the OECD Model Convention27, the Host may be extremely laborious. More impor- obligation was not contained in the Host State’s national legislation and the inter- tantly, the adoption of such a solution and State contract, respectively the Host City pretation of the applicable double tax its implementation in all relevant States contract, signed for the latter event. Sub- treaty’s provisions by that State play a key may take several decades, especially consequently, persons envisaging to engage role in the taxation of the income derived sidering that there is not a current discus- in professional activities related to inter- by the taxpayers concerned. sion on an international level on this point. national sports events may not rely on established national practices on the very This implies that taxpayers are subject to By enacting a variety of instruments on a existence of tax exemptions. domestic laws and regulations, diverging domestic level, States may eliminate the from country to country. In other words, lack of clarity, to a great extent, for the Second, in cases where specific tax ex- they are taxed in accordance with national purposes of the international sports events emption regulations are effectively enact- tax law rules of the Host State(s) that they they will be hosting. These instruments ed, their exact scope cannot be precisely cannot possibly be aware of. Although the will produce two main effects: determined until the taxation occurs. same obstacle is present for all taxpayers Despite the fact that governments give embarking on a professional activity in a 1 they will constitute the basis of a nation- guarantees to organizing sports’ govern- foreign State, the problem is much more al practice that will be built gradually; ing bodies and amend their domestic laws acute for taxpayers deriving income from and accordingly, the ambit of the exemptions international sports events, since the ac- 2 they will allow all interested parties to depends heavily on the local authorities’ tivity is short term and the taxpayers con- be informed of the tax consequences of interpretation and the domestic law of the cerned, generally, participate in a number their professional activities linked to an State concerned. Moreover, since the rel- of events per year. international sports event taking place evant regulations are specifically prepared in a particular State. for a particular event, it is, once again, im- This lack of clarity translates into an ex- possible to rely on a developed national tremely cumbersome procedure (both on a It is clear that, to produce that second ef- practice on the interpretation and modali- financial and on a psychological level) for fect, all instruments should be accessible ties of application of such regulations. the taxpayers generating income from in- and comprehendible by the taxpayers. This ternational sports events on a regular basis implies that all such documents should be The uncertainty linked to the interpreta- (i.e. taxpayers who participate in a number published in English and made available tion and modalities of application of tax of events annually). online. Also, a written language that is exemption regulations is mostly due to understandable by the taxpayers must be vague rules enacted by Host States. For In order to ensure to be compliant with used in their redaction. In other words, example, China’s tax exemption rule for the applicable rules in each different Host technical jargon needs to be avoided. athletes participating in the 2008 Beijing State, the taxpayers should seek assis- Olympics consisted of one sentence: “[t] tance from local tax professionals.28 To The suggested instruments are the follow- he income of reward in the 29th Olym- render this service, a tax professional ac- ing: pic Games and other matches of athletes tive in the Residence State29 generally has shall be exempt from individual income to have recourse to a tax professional of 1 general explanatory report on the rel- tax according to existing laws and regu- the Host State, since the knowledge of the evant domestic tax law rules; lations”.22 Another ambiguous regulation Host State(s)’s domestic law(s) is a pre- 2 “International Sports Events Tax Ex- example can be found in regulations en- requisite. This implies that the taxpayer emptions Act” and “International Sports acted by South Africa for the purposes of needs to consult with several tax profes- Events Taxation Act”.

18 September 2016 © Nolot The instruments concerned may be adopt- States that prefer to provide tax exemp- certainly render the State in question more ed in an alternative or cumulative manner, tions for all or some of the international attractive for sports’ governing bodies or- depending on the tax policy followed by sports events that will be held in their ter- ganising their events. the State concerned. ritory, may enact “International Sports Events Tax Exemptions Acts” (Exemption As a matter of fact, adoption of an Exemp- Act).31 The Exemption Act will be application Act and a Taxation Act will increase Explanatory reports, a promising starting ble to all international sports events falling not only the clarity in this particular field point within its scope of application32 and taking of international tax law, but also the ap- place in the territory of the State in ques- peal of the States concerned as Host States Explanatory reports elucidating the tax tion. For example, the scope of the Ex- of international sports events. The impor- rules and regulations of the Host State that emption Act concerned may be limited to tance of such instruments may be dem- are applicable to non resident taxpayers mega sporting events hosted by the State onstrated by an example from the same (like the South African Draft Guide with concerned. Temporal scope of application country (South Africa) on a different legal the suggested amendment), would consti- of an Exemption Act is of the utmost im- aspect of international sports events: pro- tute a milestone in the path of restoring portance. To ensure that the desired effect tection of trademarks. South Africa is the clarity by means of well established na- can be produced, the application of such first country to have created special rights tional practices. Acts should not be limited in time. that can be invoked for any “major sports event”.35 Alec Erwin (the South African Such an endeavour will allow all inter- The enactment of an Exemption Act will Trade and Industry Minister at the time ested parties to be able to get the informa- eliminate the lack of national practice re- when the Merchandise Marks Amend- tion – directly and online – regarding the garding the very existence of specific tax ment Act was voted36) stated that the Act tax treatment of their professional activi- exemption regulations. As a matter of fact, concerned was “vital” to protect South ties in the Host State. Thereupon, both the once the Exemption Act is adopted, both Africa’s small but growing position in the financial and the psychological burden on the sports events and the categories of tax- world sports’ and entertainment market.37 the taxpayers would be eliminated – to a payers entitled to benefit from tax exemp- The Amendment Act can indeed be seen great extent. tions will be established with certainty. as one of the factors that persuaded FIFA Concerning the interpretation and mo- to award the 2010 FIFA World Cup to To fulfill that purpose, explanatory reports dalities of exemption regulations, a steady South Africa.38 should cover all categories of taxpayers national practice will form over the years. concerned. A great number of non resident To speed up that process, an Exemption taxpayers are deriving income from an in- Act may be accompanied with guidelines, Conclusion ternational sports event. Rights holders, explanatory reports or similar documents, event managers, architects and construc- providing further guidance. The South African Draft Guide may pave tion companies, broadcasters, subcontrac- the way for the restoration of clarity in tors, sportspersons, entertainers, referees, Taxation of the international sports events the field of taxation of international sports technical sports staff, employees of the that are not covered by an Exemption events. Undoubtedly, the current version event organizers are merely some exam- Act33 may be regulated by an “Interna- of the Draft Guide is far from constituting ples. To eliminate the uncertainty regard- tional Sports Events Taxation Act” (Taxa- one of the instruments suggested in this ing the tax treatment, Explanatory Reports tion Act) encompassing all relevant tax article. However, should the Draft Guide should cover tax rules and regulations ap- law aspects of international sports events be extended to encompass a detailed infor- plicable to all these different groups. taking place in the territory of the State mation on taxation of non resident sports concerned. A Taxation Act will have the clubs and sportspersons, it may form a Also, explanatory reports should contain merit of compiling all the relevant rules “beta version”39 of explanatory reports, detailed rules and explanations compris- and regulations that may be applied to non developed in the previous section of this ing all relevant aspects of the national tax resident taxpayers. Despite being akin to article. law. The part of the South African Draft Explanatory Guides developed above, a Guide on resident sports clubs and sport- Taxation Act will constitute a more bind- It is possible, therefore, to state that the spersons constitutes a great illustration of ing instrument. They may also allow the Draft Guide can be seen as a very prom- the level of precision required. Host State to revisit its rules and regula- ising starting point, upon which an effec- tions during the enactment process. Like tive fight against the current lack of clarity an Exemption Act, a Taxation Act may may be built. South Africa seems to be, One further step to restore clarity: “In- be accompanied with guidelines or other once more, the pioneer of a significant de- ternational Sports Events Tax Exemptions similar documents for further guidance. velopment in the sports’ field that has the Acts” and “International Sports Events potential of revolutionising the tax treat- Taxation Acts” While enacting an Exemption Act or a ment of international sports events. Taxation Act, it would be highly benefi- Explanatory reports are a promising start- cial for the State concerned to attenuate However, this remains to be seen, when ing point. However, steps, again on a na- heavy tax burdens as well as excessive ad- the final version of the Draft Guide is pub- tional level, that may further eliminate the ministrative burdens34 – if any – as much lished, which is likely to be in 2017! lack of clarity do exist. Host States may as possible. It is an established fact that opt for enacting “International Sports both types of burden represent a serious Events Tax Exemptions Acts” and/or “In- obstacle for international sports events. ternational Sports Events Taxation Acts”. Eliminating them, to a certain extent, will

© Nolot September 2016 19 1 PwC Turkey. The author may be contacted at “What is a mega sporting event?”, in: Wolf- sions by Residence States or a specific clause [email protected]. gang Maennig and Andrew Zimbalist (eds), added in Exemption Acts of Host States, which 2 The Draft Guide is available online at www. International Handbook on the Economics of provides for a source taxation in cases where the sars.gov.za/AllDocs/LegalDoclib/Drafts/ Mega Sporting Events (Edward Elgar Publishing domestic law of the taxpayer’s Residence State LAPD-LPrep-Draft-2016-43%20-%20Draft%20 Limited, 2012), p. 9. also exempts the income concerned. Guide%20on%20the%20Taxation%20of%20 18 Ibid, p. 9-12. 32 International sports events falling within the Professional%20Sports%20Clubs%20and%20 19 For more information on this point, see Dennis scope of application of the Act concerned may Players.pdf (accessed on 15 August 2016). Coates, “Not so mega events”, in: Wolfgang be: 3 Comments may be submitted by e-mail to poli- Maennig and Andrew Zimbalist (eds), Inter- 1 enumerated in an exhaustive manner in the [email protected]. national Handbook on the Economics of Mega Act; 4 An official publication is defined as “[…] a bind- Sporting Events (Edward Elgar Publishing 2 determined by means of a number of criteria ing general ruling, interpretation note, practice Limited, 2012), p. 401ff. that are enumerated in the Act and submitted note or public notice issued by a senior SARS 20 An exception to this general assumption can be to the approval of the competent authority as official or the Commissioner” in (Chapter 1) Sec- seen in the Regulations enacted for the 2011 and designated in the Act; or tion 1 of Tax Administration Act 28 of 2011. 2013 London UEFA Champions League finals. 3 determined by a combination of the first two 5 A practice generally prevailing is defined as However, as a general rule, mega sporting events methods. “[…] a practice set out in an official publica- do not take place twice in the same country in 33 This may be due to the fact that: tion regarding the application or interpretation such a short time frame. Accordingly, this exam- 1 the scope of application of the Exemption Act of a tax Act” in (Chapter 2) Section 5 (1) of Tax ple should remain as a rare occurrence. is limited to some events; or Administration Act 28 of 2011. 21 The 2011 Champions League final. 2 the State concerned does not provide any tax 6 A binding general ruling is defined as “[…] a 22 Circular of State Administration of Taxation and exemptions to international sports events (and written statement issued by a senior SARS offi- General Administration of Customs on Issues thereby an Exemption Act is not adopted at cial under section 89 regarding the interpretation Relating to 29th Olympics Taxation Policy, CS all). of a tax Act or the application of a tax Act to the [2003] No. 10, Clause 2 (3). 34 Extra administrative burdens incumbent upon stated facts and circumstances” in (Chapter 7) 23 § 9 (2) of the Schedule I of South African Rev- non residents constitute a frequent practice that Section 75 of Tax Administration Act 28 of 2011. enue Laws Amendment Act No. 20, 2006. is usually justified by States’ need to exercise 7 The Draft Guide explicitly excludes amateur 24 For more information on this point, see Craig effective fiscal control over taxpayers. (For more players and clubs from its scope (the Draft West, The Taxation of International (non-resi- information on this point, see Martina Aigner, Guide, Preface, p. i). dent) Sportspersons in South Africa (University “Administrative Burdens for Non-Resident 8 Approximately one page out of 59 pages refers of Capetown, 2009), p. 41. Artistes and Sportsmen in the light of Non to non-resident sports clubs and sportspersons. 25 Again from a taxpayer point of view. discrimination Clauses”, in: Walter Loukota 9 The Draft Guide distinguishes between two types 26 Double tax treaty can be defined as an agreement and Markus Stefaner (eds), Taxation of Artistes of indirect accruals: between two (or more) countries for the avoid- and Sportsmen in International Tax Law (Linde 1 the prize is paid to the club for its benefit but is ance of double taxation. Verlag, 2007), p. 420). subsequently distributed to the player(s); and 27 OECD Model Tax Convention on Income and on 35 The rights were adopted with The Merchandise 2 the prize is paid to the club for the benefit of Capital is the most frequently used Model Treaty. Marks Amendment Act 2002 (Alex Kelham, the player(s) (the Draft Guide, p. 33). 28 Although the taxpayers may opt for researching “Tackling Ambush Marketing of the Olympic 10 Section 10 (the Draft Guide, p. 58-59). the applicable tax law provisions themselves, Games and Paralympic Games – London 2012: 11 See page 2 of the Draft Guide regarding gross this will reveal to be a rather difficult and risky A Case Study, in: Adam Lewis and Jonathan income. strategy. Taylor (eds), Sport: Law and Practice, 2nd edi- 12 “Specified activity” is defined as any“ personal 29 Residence State can be defined as the State of tion (Tottel Publishing, 2008), p. 1396). activity exercised in the Republic or to be exer- which the taxpayer is a resident for tax purposes 36 More specifically, November 2002. cised by a person as an entertainer or sportsper- as per the applicable domestic legislation. 37 Simon Gardiner John O’Leary, RogerWelch, son, whether alone or with any other person or 30 Can be translated as: “[i]gnorance of the law Simon Boyes and Urvasi Naidoo, Sports Law, persons” in the South African legislation (the affords no excuse”. 4th edition (Routledge, 2012), p. 340. Draft Guide, p. 58). 31 It must be underlined that the adoption of such 38 Kelham, op. cit. in footnote 35, p. 1396. 13 Rights holders of sports events are generally an Act will not result in an overall tax exemption 39 Beta version can be defined as an early version sports governing bodies (mainly federations and of the income concerned per se. In fact, the tax- of a project that contains most of the main fea- confederations). payers covered by the personal scope of applica- tures, but is not yet complete. The Draft Guide 14 Host State can be defined as the State in the terri- tion of an Exemption Act will still be subject to will constitute such a version since its personal tory of which an international sports event takes tax in their Residence State, in accordance with scope of application is limited to resident sports place. the applicable domestic law of this latter State. clubs and sportspersons. On the other hand, the 15 Bidding process can be defined as the procedure It must however be noted that an overall tax personal scope of application of explanatory put in place by the rights holder of the event to exemption may occur in cases where the income reports as suggested by this article comprises all choose the Host State. concerned is also tax exempt in the Residence non resident taxpayers deriving an income from 16 Large scale and mega sporting events are interna- State, as per the applicable national law. Such an international sports event. tional sports events by definition. an outcome is highly undesirable and may be 17 Wolfgang Maennig and Andrew Zimbalist, prevented either by adoption of relevant provi-

20 September 2016 © Nolot Third party ownership of football players’ economic rights

Introduction of the global ban against third party ownership as from 1 May 2015 by Vassil Dimitrov1

Introduction not only be individual businessmen, but player’s consent the contract rights to also football agencies, sports-management another club in exchange for a given Third party ownership of players’ eco- agencies, investment funds, or other com- sum of money or other consideration, nomic rights (“TPO”) has been the subject panies with interests in acquiring the eco- and those contract rights are the so- of many discussions over recent years. nomic rights of players. The most recent called “economic rights to the perfor- The controversial practice, which can be revision of the Regulations on the Status mances of a player”.” described as a legal agreement in which a and Transfer of Players (RSTP)3 includes third party (other than the player himself a specific provision, which defines a “third The arbitration panel indicated that the or his club) provides the club with finan- party” as “a party other than the two clubs transactions regarding economic rights of cial resources in order to obtain a percent- transferring a player from one to the other, players are only possible under the con- age of the player’s future transfer fees, is or any previous club, with which the play- dition that the player has a valid contract seen by many as a transaction which is er has been registered”. It is important to with a club. Even though this decision does “against the spirit of the game”. The term note that third party ownership should not not concern directly the subject on third “future transfer fee” corresponds to the be confused, under any circumstances, party ownership of these economic rights, sum which will be paid by a football club with co-ownership in which two football it certainly explains important terms on for the signing of a player, who is still un- clubs jointly own the rights of a player, al- the issue. Furthermore, the panel clarified der contract with another club. though the player can only be registered to important questions regarding the nature play for one of these clubs. of the so called “federative rights”. TPO as a practice in modern football originated from the separation between play- The CAS panel was against the idea that er’s registration – his “federative rights” Court of Arbitration for Sport “federative rights” could be used to de- (often referred as the right of transfer), scribe a situation in which a club is in a which arise only with the existence of an One particular arbitral award from the position to bind and control the player’s employment relationship between club Court of Arbitration for Sport (CAS) ju- employment status and behaviour without and player, and the “economic rights” de- risprudence answers many questions the explicit consent of the player, solely rived from the federative rights. Economic regarding the definition of players’ eco- on the basis of the federation’s regula- rights represent the financial value of the nomic rights, which are seen as different tions. CAS holds the view that: federative rights. Only economic rights from the right of registration of a specific are subject to TPO.2 player to be part of the squad of a football “sports rules of this kind are contrary to club.4 According to the arbitration panel, universal basic principles of labour law The investors in TPO agreements could the “player’s economic rights” should be and are thus unenforceable on grounds legally distinguished from the “registra- of public policy. In other terms, in the tion” of the player.5 The registration of a Panel’s view, the player’s consent is al- player: ways indispensable whenever clubs ef- 1 Sports Lawyer, Sofia, Bulgaria. fect transactions involving his employ- 2 KPMG, Project Third Party Ownership, August “serves the administrative purpose of ment and/or his transfer”.6 2013, p. 11. 3 FIFA Regulations on the Status and Transfer of certifying him within the federative sys- Players 2015. tem that solely that club is entitled to In another CAS award, the arbitration 4 CAS 2004/A/635 RCD Espanyol de Barcelona field that player during a given period”, panel decided that the existence of a TPO SAD v. Club Atlético Velez Sarsfield. agreement or any other internal agreement 5 Ibid., Merits – Para 28. whereas: with a third party does not constitute a rea- 6 Ibid., Merits – Para 32. 7 CAS 2008/A/1482 Genoa Cricket and Football son for the transfer agreement to be con- 7 Club S.p.A. v. Club Deportivo Maldonado – Mer- “a club holding an employment considered invalid. its Para 30. tract with a player may assign with the

© Nolot September 2016 21 FIFA national associations, which are obliged MSI in cooperation with other companies. to include them without any modifica- Subsequently, the players were transferred Third party ownership has been debated tion in their regulations. For instance, the to the English club West Ham United F.C., at various levels within the football com- Bulgarian Football Union (BFU) included where they played an important role in the munity. FIFA has organised meetings at a word for word translation of art. 18bis club’s successful fight for survival in the the international level, which took place in its regulations. Some national football English Premier League during the 2006- under the direction of bodies, such as associations, such as the English Football 2007 season. West Ham United F.C was the Football Committee, the Committee Association, the French Football Federa- fined £ 5.5 million for breach of the regu- for Club Football and the Players’ Status tion and the Polish Football Association, lations against third party influence. Shef- Committee. At the 64th FIFA Congress, had rules explicitly against third party in- field United F.C., who suffered relegation the Chairman of the Dispute Resolution vestment in players’ economic rights even due to Tevez’ goal against Manchester Chamber, Geoff Thompson, presented the before FIFA took any steps to address this United on the final day of the season, were delegates with an update regarding FIFA’s matter worldwide.8 compensated with £ 20 million by West intentions to address TPO on the basis of Ham United. Joorabchian was involved sound understanding of its characteristics FIFA aimed to collect further information in several other high profile TPO deals re- and the review of all possible options for regarding the existing practices among garding players, such as Jô and Ramirez future regulatory approach. football clubs across the world and also (whose player rights were shared between to compare the approach of national as- Joorabchian and his business partner Pini Art. 18bis of the FIFA Regulations on the sociations towards third party influence Zahavi). While under contract with San- Status and Transfer of Players (RSTP) and TPO. To achieve this goal, FIFA sent tos, 5% of Neymar Jr.’s economic rights prohibits a practice closely connected a questionnaire, together with Circular let- were purchased by a company called TEI- with TPO, but different in nature. The pro- ter No. 1335.9 The survey was performed SA in December 2010. vision states that: by the International Centre for Sports Studies (CIES). The football associations Another source of information about the “no club shall enter into a contract of Norway, Croatia and Panama, which scale of TPO agreements is the Annual which enables the counter club/counter were the only ones to keep an official reg- Reports of FC Porto, which contain infor- clubs, and vice versa, or any third party ister for all TPO agreements at the time, mation about the status of the club’s play- to acquire the ability to influence in em- reported back that 20%, 12% and 0.01% ers. In 2009, FC Porto only owned 100% ployment and transfer-related matters of their respective registered players were of the economic rights of five members of its independence, its policies or the per- part of TPO contracts. The Danish as- their 27 playing squad, whereas in June formance of its teams.” sociation stated that between 15 and 20 2011, the club owned 100% of just three players were involved in TPO of their players’ economic rights from the 19 they This article bans the “third party influ- economic rights, while the Japanese asso- had registered.11 In 2007, the Portuguese ence” which could be explained as any ciation claimed that only Brazilian players club paid £ 4 million from Anderson’s kind of contract-originated interference were under such deals within the country. transfer fee to agent Jorge Mendes for his which would result in an entity that oper- share in Anderson’s economic rights when ates outside the structures of football to FIFA obtained information from another the player was transferred to Manchester affect the decision making of a club or study by the CIES Football Observatory, United FC. prevent such club from pursuing its own which reports that 15% of the interviewed interests regarding the transfer of players. players’ agents in the big five European In 2013, a TPO survey commissioned by Clubs that allow such third party influence football markets (England, Spain, Italy, the European Clubs Association (ECA) are subject to sanctions imposed by FIFA’s Germany and France) owned shares of was made by KPMG.12 The survey provid- Disciplinary Committee. Art. 18bis does players’ economic rights during their pro- ed information about the state of the TPO not forbid the actual purchase of players’ fessional careers as agents.10 These figures market across Europe and Latin America. economic rights, but prevents third parties were unexpected at the time, because the The report presents a detailed overview from exerting control over the transfer and majority of experts believed that TPO of the most common types of TPO agree- employment policy of football clubs. agreements were common only within ments – the financial agreement – in which the South American market. Several well- a club sells part of the economic rights of a It is important to consider that the provi- known agents, such as Mino Raiola, Juan specific player for a fixed sum. The other sions of art. 18bis, in accordance with art. Figer, Pini Zahavi and Jorge Mendes, have type of TPO is the investment agreement 1 para. 3.a. of the RSTP, are binding on reported that they had an influential role in in which, during the acquisition of a play- the market of acquiring players’ economic er by his new club, an investor purchases rights. part of his economic rights. Although the investor shares the risk with the football 8 EPFL Sports Law Bulletin No. 10, 2012, p. 26. Perhaps one of the most famous TPO club, it is common practice that the third 9 Circular letter No. 1335, FIFA mandated a second survey with Circular letter No. 1373 about cases involved Argentine players Carlos party requires a minimum return of invest- the economic aspects of TPO. Tevez and Javier Mascherano. In 2004, ment regardless of whether the player was 10 CIES Football Observatory, Football agents in Kia Joorabchian purchased a 51% control- actually transferred elsewhere during the the biggest five European football markets – An ling stake in the Brazilian club Corinthians term of the TPO contract. empirical research report, February 2012, p. 77. using his company Media Sports Invest- 11 EPFL Sports Law Bulletin No. 10, 2012, p. 28, 46. ments (MSI). Joorabchian later registered The data shows that the estimated market 12 KPMG, Project Third Party Ownership, August both Argentine players with the club, share of players under TPO in Portugal is 2013, p. 5. whose economic rights were owned by between 24.6% and 30% of the total value

22 September 2016 © Nolot of players in the country.13 It is interest- The Bulgarian legislation contains various Conclusion ing to note that the market share of players provisions regarding rights of eligibility under TPO agreements in Eastern Europe and also about transfer rights. The Law Despite the controversial nature of TPO, is bigger than Portugal and Spain’s com- for the Physical Education and Sport15 the football authorities in Portugal and bined estimated market shares. Eastern governs the eligibility to participate in or- Spain voiced strong disapproval in view European players, who signed TPO deals, ganised professional sports competitions of the potential prohibition of TPO. The represent between 40% and 50% of the in Bulgaria. Art. 35b defines the eligibil- Spanish Football League shares the opin- total market value in these countries’ top ity to play as “the combination of the ath- ion that TPO generates significant external divisions; whereas these figures in Spain lete’s right to participate in the training funding for clubs, which could not other- vary between 5.1% and 8%. There is a and competition activity of a sports club, wise afford the services of high class play- general upward trend in the TPO agree- and related to this participation rights”. ers, in order to be competitive against the ments in countries from the Eastern Euro- The eligibility to play for the club may be richest clubs in the world. The Spanish and pean region, namely Bosnia-Herzegovina, transferred to another club or loaned for Portuguese football associations express Croatia, Macedonia, Serbia, Albania, Bul- temporal usage by another club, but only the view that the financial stability of their garia, Romania, Hungary, Slovenia and with the consent of the player. Art. 11.5 of member clubs is of high importance and Montenegro. The reasons for this increase the Implementing regulation of the Law third party investments could only benefit could be explained with the difficult fi- for Physical Education and Sport states the situation of the clubs, which will share nancial situation among clubs from these that the players are entitled to play only both the risk and the reward of any spe- countries in recent years. for the club they are registered with. cific transfer agreement with another business partner. In view of this continuous increase of TPO Bulgarian law describes another important deals, it is understandable that the Bulgar- category of rights, namely transfer rights. The defenders of TPO also argue that the ian Football Union and the Serbian Foot- According to art. 35c, transfer rights are limitation and prohibition of TPO could ball Union, along with the English FA and “the combination of the right to negotiate possibly breach rules established by Eu- the French Football Federation, expressed a change of club affiliation of an athlete ropean competition law. The proponents strong opinion against TPO in their re- and the right to get a transfer price”. The of TPO believe that the practice should spective responses to the CIES survey, transfer rights are owned only by the club be regulated by FIFA rather than be- mandated by FIFA with Circular No.1335, in which a player is under an employ- ing banned by football governing bodies and wanted TPO to be prohibited in the ment contract. As far as the theory goes, worldwide. regulations of all FIFA members. the combination of “the right to eligibility” and “the transfer rights” represent the Prominent opponents of TPO agreements “federative rights” of a player. Economic include UEFA and also the International Bulgaria rights are linked to federative rights, and Federation of Professional Footballers can be defined as the expected financial (FIFPro). FIFPro argues that the draw- Although no TPO contracts are publically revenue derived from the federative bond backs of the TPO system far outweigh available in Bulgaria at the present time, between club and player. Players’ eco- any benefits for the clubs and the players. in 2014 several media sources and inter- nomic rights do not have a separate legal The risk of jeopardising the integrity of views with the President of PFC Levski definition under Bulgarian law. football is the main point of FIFPro’s dis- Sofia suggested that the club had sold the approval of TPO. The scenario in which economic rights of Garry Rodrigues to The BFU governs the right of eligibility the same investor owns shares of players’ an investment fund called Promoesport, and the transfer rights in its regulations. economic rights, who compete against which works in close connection with Art. 3 of BFU Regulations on the Status each other in the same competition, is not Gimnàstic de Tarragona. According to the of Football Players16 corresponds with the to be underestimated. The public percep- Spanish media, Promoesport transferred definition given in art. 35b of the Law of tion of football competitions in which the the player from Gimnàstic to Elche CF on Physical Education and Sport. Art. 6 states viewers doubt the sporting legitimacy of loan, with a buy-out clause, but retained that the rights of eligibility are valid only the results on the basis of internal and pri- 30% of his economic rights upon future for the current football season or a specific vate TPO agreements could be damaging transfer.14 part of it. The registration governed by to football across the globe. Furthermore, the BFU is the act, which constitutes the part of the revenue generated by players’ right of eligibility for a player to represent transfers will be drawn away from the 13 The market value is based on research by the a specific football club – art. 7. Art. 11 of football industry and will give substantial German website www.transfermarkt.de and con- the BFU’s Contract and Players’ Transfer leverage to companies outside football. cerns players who are under contract with clubs Regulations17 gives the same notion of This could be detrimental for the financial of the top division of their respective countries. the term “transfer rights” like the Law of situation of clubs in the long run. They 14 www.elchediario.com/display.aspx?id=13013, Physical Education and Sport. As stated will become dependent on the power of accessed on 4 May 2016. 15 Official English translation of the Law is above, art. 12 of these BFU regulations third parties. published on the site of the Ministry of Physical presents an exact translation of art. 18bis Education and Sport: http://mpes.government.bg/ RSTP, which prohibits the third party in- Another reason in favour of the ban Pages/Documents/Law/default.aspx, accessed on fluence in football. Any violation is pun- against TPO could be seen in the attempt 4 May 2016. ishable in accordance with BFU’s Disci- by FIFA to preserve contractual stabil- 16 BFU Regulations on the Status of Football Play- ers, September 2015. plinary Regulations. ity in football. Footballers should not be 17 BFU Contract and Players’ Transfer Regulations, forced to breach their contracts or to agree June 2014. to a transfer just because an investor wants

© Nolot September 2016 23 to profit from their move to another club The new rule came into force on 1 May breaching the new rules regarding TPO. within a specific time period. 2015, and is binding on all national asso- Brazilian club Santos FC; Spanish side ciations. RSTP allows a transition period Sevilla FC; Sint-Truidense V.V. from Bel- After reviewing the data collected from for existing TPO agreements. They will gium; and Netherlands’ club F.C. Twente, two separate surveys on the subject of remain valid until their respective expira- were fined CHF 75,000, CHF 55,000, TPO, FIFA subsequently decided to im- tion dates. However, their renewal is pro- CHF 60,000 and CHF 185,000, respec- pose a worldwide ban against TPO. FIFA hibited according to art. 18ter. Any TPO tively19. The violations were connected informed all national associations with contracts, which were signed between with third party influence and also failing Circular letter No. 1464 that TPO will no 1 January 2015 and 30 April 2015, shall to declare relevant information about ex- longer be allowed and there will be a spe- have limited duration, namely a maxi- isting TPO deals to be recorded in FIFA’s cific article 18ter in RSTP. Art. 18bis will mum of one year. FIFA’s approach to- Transfer Matching System (art. 18ter para continue to govern third party influence. wards the gradual removal of TPO from 5). football was commended by the European The new provision of art. 18ter states that: Parliament in a declaration of November Perhaps the most worrying issue about 2015.18 TPO is the prospect of clubs and investors “No club or player shall enter into an finding new ways to bypass the FIFA reg- agreement with a third party whereby a All football clubs are obliged to disclose ulations. The case with third parties ob- third party is being entitled to partici- in full all their existing TPO agreements taining shares in low division clubs (like pate, either in full or in part, in compen- until April 2015, including details about Promoesport in Gimnàstic de Tarragona) sation payable in relation to the future the third parties involved in them. Belgian in order to purchase economic rights of transfer of a player from one club to an- club FC Seraing was one of the first to players using the club and immediately other, or is being assigned any rights in get punished in accordance with the new transferring the players to another club is relation to a future transfer or transfer provision in September 2015. In recent a practice which should be investigated compensation.” months, several clubs were found guilty closely in view of the new rules against by FIFA’s Disciplinary Committee for third party ownership.

18 European Parliament, Written declaration 0066/2015 submitted under Rule 136 of the Rules of Procedure on the ban on third-party ownership of players in European sport, 11 November 2015. 19 www.fifa.com/governance/news/y=2016/m=3/ news=several-clubs-sanctioned-for-breach-of- third-party-influence-third-par-2772984.html, accessed on 5 May 2016.

24 September 2016 © Nolot Extending the duty of care beyond the immediate: the pressure is on! by Genevieve Gordon1

Introduction The concept of the duty of care is one law- through both public and private channels. yers and the legally trained know well. In More can be made of the general legal its simplest form, the legal principle of a The case of Jolley v. London Borough of principle of “duty of care” within sport. duty of care is encapsulated in the tort of Sutton [2000]2 is an appropriate starting Stakeholders within the sports industry negligence. point for the duty of care being extended place such demands on athletes, at vary- where children are involved. ing levels of their careers, that the legal The basis of the tort of negligence is a profession should be prepared to redefine claim that the defendant failed to observe Two 14-year-old boys were injured on and adjust the well-trodden path of the the necessary standard of care owed to the an abandoned boat on Council land. The duty of care and extend its welfare con- claimant and that this negligent act caused boat should have been removed two years cept to within sport preparation for transi- the claimant’s injuries. The victim can previously. The Court of Appeal held tion. then claim for compensation for the inju- that there was no liability, since the cir- ries suffered as a result of the negligence cumstances in which the injuries had oc- Participation in sport and recreation al- where a duty of care is recognised by the curred were unforeseeable; however, the ways involves some level of risk that is court. then House of Lords overturned this de- not necessarily physical in this day and cision and held that, as long as the boat age. There is no single sport situation The duty of care, in the traditional sense, created a foreseeable risk of injury, then where there is zero physical or men- has been written about by many eminent the precise circumstances in which the tal risk. The current viewing of the Rio academics, lawyers and others. However, injury occurred were not material in im- Olympics is proof of this statement. All what if we take that duty and extend it to posing liability. Of course, we know now the athletes, without exception, put their consider athletes from a post-sport point through case law and legislation, if a child hearts and souls into their sport and trying of view. What if we place a duty on sports is known to have a learning difficulty or is to win a medal. Some are used to the lime- organisations and governing bodies to known to have a medical condition, which light and others are propelled into it, albeit consider the welfare of athletes during makes them more vulnerable, the duty of temporarily, by their wonderful achieve- their sporting life? care owed increases once again. ments and individual successes. But how do they cope with the undulating pressure If an individual brings a legal action, the of their chosen pathway; what is in place courts apply the following criteria to de- The duty of care in a sporting context to help these athletes, those we, as a na- termine if an organization, or indeed an tion, so gallantly pin our hopes on and so individual, would be held responsible: A duty of care can manifest itself in a legal readily tut-tut when they do not perform duty to ensure safety whereby there is a to our expectations, let alone their own? – reasonable foreseeability of injury or strict definition. This principle has mani- harm; fested itself in the world of sport. The purpose of this article is to examine, – proximity; in introductory form, what a duty of care – fair, just and reasonable to impose a The courts in Condon v. Basi3 and Cald- entails and to provide some considerations duty of care. well v. Maguire4 held that the breach of the for the sporting community to ponder. duty of care should be determined objec- Whilst the claimant would have to show: tively. By many, this is viewed as the common sense position.5 All participants must The legal principle – they were owed a duty of care; be deemed to consent to playing the same – the defendant breached the duty; game according to the same standard of – the plaintiff suffered damage as a result care. An objectively determined standard of the breach. allows all participants to play the game according to the same playing and legal 1 Of Tactic Counsel Ltd. Within this well-trodden principle, it is rules, based on the group’s expectations of 2 3 All ER 409. well established that the duty of care owed what is acceptable conduct in the particu- 3 [1985] 1 WLR 866. 4 [2001] EWCA Civ 1054. is higher when children and young people lar sport that is being played. For example, 5 S. Gardiner and others, Sports Law, 3rd edition are involved in an incident, which has un- those who play rugby accept that a high (Cavendish Publishing Limited, 2006). doubtedly impacted on the sports offerings tackle is dangerous and, subsequently,

© Nolot September 2016 25 World Rugby added the dangerous tackle tween how to get an employee, keep an – transition welfare ; rule6 in February 2011. Implementing this employee, and invest in an employee to – non-sport opportunity awareness; rule, World Rugby stated that referees and the extent that they return. – exit pathway programme. citing commissioners should make their decision based on an objective assessment According to Rebecca Lowe, human re- considering the whole tackle. sources manager at Electric Word Plc Responsible support (2014), the company which owns Sports A duty of care does not need to stop on Business International, places great im- Do we have a duty of care over psycho- the pitch, the stadium or risk, immediately portance on giving staff the ability to logical stress? Psychological stress is de- associated to primary and secondary vic- change job and company, with the hope fined as a relationship between person and tims. In essence, a duty of care means that that they will return because they realise environment that taxes their resources and a sports body needs to take such reason- how well Electric Word looks after their endangers their well-being. Perhaps the able measures in the circumstances to en- employees. Now that is not the suggestion more pertinent question should therefore sure individuals will be safe to participate for athletes – to change sports and come be: do national governing bodies contrib- in an activity to which they are invited or back to a sport that treats them nicely. It ute to a situation of psychological stress permitted to participate. If there is a for- is merely the idea that the custodians of for athletes? mal relationship, such as a club and a club sport consider the welfare of their athletes member, a duty of care so exists. with a more business-centric application Sports governing bodies, clubs and as- of duty of care where there is an under- sociations may find there is an onus on Traditionally, a legal duty of care amounts standing that a contented employee is a them to have support networks available to risk and the overriding question is: have worthwhile employee. to at-risk athletes.8 From an employment those involved taken reasonable steps to law perspective, employers have a duty prevent foreseeable risk? The moral duty of care is more correctly a to their employees and must ensure that responsibility for safety and welfare. The suitable steps are taken to minimise work Since Caldwell, the concept of playing sports industry, or more specifically the place stress wherever possible and sport culture is now applied, although there are sports’ governing bodies, have a responsi- should not be any different. two distinct theories of liability. Either bility to all athletes, regardless of age and you apply the theory that sport should not whether they are acting “in loco parentis”. Stress and depression is obviously not be treated differently to any other activity; confined to the sporting industry; how- or you can take the view that this standard Can we tackle the concept of additional ever, high profile cases like that of Freddie is simply too high, too easily breached and care by imposing reasonable measures? Flintoff, the ex-England cricketer, and the thus too inhibiting when playing sport.7 Indeed, is it appropriate for sporting bod- plight of Ricky Hatton, the boxer, do help Reckless disregard is perhaps a better ies with responsibility to have reasonable highlight the associated problems. Know- standard, which has also been considered measures imposed upon them beyond ing athletes are struggling with more than in a number of cases in judging participa- childhood care? physical pain gives clubs and governing tor violence. bodies the opportunity to review their The Child Protection in Sport Unit has practices and procedures to see what more established the Standards for Safeguard- can be done. Fashionable obligations ing and Protecting Children and Young People in Sport (2003) to identify what a Younger athletes are potentially more at The more fashionable concept for a duty sports organisation should reasonably un- risk of pressure-related illness although of care centres around the moral duty to dertake in relation to child protection. this does not discount mature athletes. An ensure welfare to athletes and it is this that element of the blame for added pressure holds the pivotal point for discussion in The Standards require sports organisations could lie at the door of our hyper-con- this article. (national governing bodies and county nected society. Recent research suggests it sports partnerships) to have in place: may be occurring at a younger age too with Do we extend the notion of a duty of care young people taking the time to manipu- from a moral standpoint? This is true – child protection policies; late their social media feeds to show false when you consider that some firms are – procedures and systems; “likes” and “favourites”. Round the clock voted to be the best in the world to work – prevention; media attention and the ever-increasing for consistently by employees. In today’s – codes of practice and behaviour; commercialism of sport, often driven by employee competitive world, it is impor- – equity; national governing bodies to bring more tant for organisations to differentiate be- – communication; money into their sport, only serve to add – education and training; to the pressure of being an athlete in the – access to advice and support; modern era. 6 Law 10.4(e). – implementation plan. 7 See A. Felix, “The Standard of Care in Sport”, Earlier in 2013, a study at the University in: Sport and the Law Journal 32 (1996). If we were to extend the original meas- of Leeds looked at 167 junior football 8 Ashley Wootton, “Stress in sport - is enough be- ures in line with the definition of integrity players in eight academies and centres ing done to help athletes?” (Sportspro mediacom, and the fashion to be ethically and mor- of excellence across England. The study 4 December 2013), available at www.sport- spromedia.com/guest_blog/stress_in_sport_is_ ally sound, we could add, again in simple concluded that up to a quarter occasion- enough_being_done_to_help_athletes, accessed form: ally reported “burnout” while one per cent 15 August 2016. admitted burnout was happening on a reg-

26 September 2016 © Nolot ular basis. The author of the research said riod, but, in situ, so supporting the life of cusses the nature of identity in athletes the stress of trying to meet extreme ex- the athlete during the time they are active and the relationship between the growth of pectations of coaches, team members and rather than just picking up the mantle once an identity past athlete status. Hickey and parents meant that these young footballers the athlete has decided to retire? Beyond Kelly identify through the AFL’s study were at risk of burnout before school leav- transition consideration should be given to “Getting the Balance Right: professional- ing age. For the benefit of elite sport, Dr. whether the issues faced by the retired ath- ism, performance, prudentialism and play- Andrew Hill’s study9 did identify that athlete can be traced back to their sport and stations in the life of AFL footballers” letes with high levels of self-perfectionism governing body, meaning that sport has that professional athletes need to create a were “significantly less vulnerable”. contributed to an illness giving rise to a professional identity that has many facets causal link of sorts? including: Pressures that are autonomous to sport include competition from other players; It is important that we do not expect na- “[...] emerging ideas that a professional pressures from managers; coaches and un- tional governing bodies to act over and leads a balanced life, and has a prudent doubtedly owners; long tours away from above an appropriate extension of duty of orientation to the future, to life after home; a need to balance home life with care and, therefore, detract from their fun- football. Second the idea that this “pro- work life; fan expectation; performance damental purpose of being the custodians fessional identity” is not natural, and stress; and, of course, the stress and pres- of their sport. The purpose is not to expose must be developed through a range of sure athletes place on themselves to be the the NGBs and other stakeholders to oner- “professional development” activities very best. ous obligations. The purpose is to suggest (a common link to all other “profes- an opportunity to promote external inde- sions”).”13 A number of high profile athletes have at- pendent opportunities within an athlete’s tested to the stress of staying at the top of career to aid them in, arguably, their most their game, achieving great things and the difficult time of competitive sport, retire- Consideration of variance determined continuing expectation and intrusion into ment. by standard their post-sport lives. The Scandinavian sports model10 alludes The normal application of the duty of care to the fact that sport can consider the lon- in sport has been confused when consid- Transition gevity of an athlete, rather than the sup- ering the variable standard of care in dif- position that age is a barrier to sport, in- ferent standards for different leagues since What can the law do for athletes that want ferring, therefore, that sport needs to be Condon where it was concluded that a to speak out prior to retirement whilst they more youth-centric and thus in line with higher degree of care was required of a are still an asset to their sport? policies that protect children, young and player in a first division or national league vulnerable adults. game than of a player in a local league Should a duty of care extend to transi- football match. Undoubtedly, this would tion because of the autonomous nature of The dual careers discussion, along with have led to a variable difference in the law sport? Do we have a situation within sport the recent Integrity Guidelines for Direc- (see Nettleship v. Weston14). Concern was where this principle should be extended to tors and Leaders of Sporting Organisa- abated in Elliot v. Saunders and Liverpool consider athletes and their transition pe- tions eloquently expresses the view of FC15 where it was determined that all par- the EU Commission and other countries ticipants ought to be judged by the same to provide educational opportunities to basic standard of the ordinary, reasonably young sports people. competent participant in the particular ac- 9 Dr. A. Hill, “Perfectionism and Burnout in Junior Soccer Players: A Test of the 2 x 2 Model tivity. of Dispositional Perfectionism”, in: Journal of Although not relating to the subject being Sport and Exercise Psychology, 2013, 35 (1), deliberated, a case that has identified and Are these decisions, therefore, applicable available at www.humankinetics.com/acucus- highlighted the process of a young foot- to the notion of an extension? tom/sitename/Documents/DocumentItem/03_ baller’s thoughts on education is Hamed Hill_JSEP_2012_0094_18-29.pdf, accessed 31 11 August 2016. v. Mills & Tottenham Hotspur FC. At Is it acceptable, say, to consider that ath- 10 The aim of providing a duty of care to athletes paragraph 18: letes should receive more assistance once and sports participants at all levels of completion they are on an elite pathway? Is it accept- with the aim of ensuring that as many as possible “The Claimant was born on 19 Decem- able to impose a duty on national govern- play sport for as long as possible and in the most ber 1988. As a boy, his focus was more ing bodies that demands they set a portion supportive and safest of environments. 11 [2015] EWHC 298 (QB) Mr. Justice Hickinbot- on sport than on his academic studies of their funds aside to promote post-sport tom Approved Judgement. [...]” careers? How many companies outside of 12 Christopher Hickey and Peter Kelly, “Preparing sport really allocate considerable funds to to not to be a footballer: higher education and There is no doubt that the sports industry the well-being of their employees with a professional sport”, in: Sport, Education and So- has progressed beyond the YTS days of view to their life progression? Can we ex- ciety, 2008 13(4), p. 477-494, available at http:// dro.deakin.edu.au/eserv/DU:30018009/hickey- football in the 1980’s; however, there is a pect all sports custodians to be as forward preparingtobea-2008.pdf, accessed 31 August mark over how much resource is put into thinking as that of Electric Word Plc? 2016. the educational life of an athlete making 13 http://dro.deakin.edu.au/eserv/DU:30018009/ the opportunity of a dual career or post- hickey-preparingtobea-2008.pdf, accessed 31 sport retirement career more of an option. The turning tide August 2016. 14 [1976] 2 QB 691. 15 (1994) unreported. Hickey and Kelly’s paper of 200612 dis- Following on from the government sup-

© Nolot September 2016 27 port shown at London 2012 and contin- – leadership and decision–making; Ultimately, can we go right back to the ued support resulted in the 2015 release – membership; beginning and take the rather generalised of the UK government’s “Sporting Fu- – independence of thought; approach of the neighbour principle?16 ture: A New Strategy for an Active Na- – diversity; Instead of sports participants taking all tion Report”. This report has combined – culture. reasonable care, the sports stakehold- the requirements for health and well-beers should take all reasonable care, from ing, increased participation in sport and Duty of care could easily be drafted into a subjective standpoint, to avoid caus- strengthening the nations sporting perfor- the notion of integrity. After all, it makes ing foreseeable injury, or perhaps better mance and shows signs of progression. ethical and moral sense to support and phrased as harm, to the foreseeable co- care for those that you benefit from. If the participants, the athletes. Further, it was announced this year that outcome is favourable to athletes, the now UK sports bodies and organisations wish- well-publicised Department of Culture, The identified lacunae have an opportu- ing to receive funding will have to adhere Media and Sport’s Duty of Care Review nity of being corrected with an extension to a new Code of Governance to help en- being led by the Paralympic athlete, Bar- to the principle of the duty of care and can, sure that the highest levels of transparency, oness Tanni-Grey Thompson, we should efficiently and effectively, sustain athletes ethical standards and leadership are pre- see some maneuverability in the realms of throughout their careers and beyond if, sent across sport in the United Kingdom. conscious support for athletes during their and only if, appropriate policies are put careers and in preparation for transition in place by national governing bodies and As a result of the publicly-funded sports and eventual retirement. truly independent organisations to provide sector, it is deemed appropriate that stake- support to athletes in these often stressful holders can see what is expected and there One of the aims of the review is to estab- positions. is a higher level of accountability from lish a duty of care to athletes and partici- governing bodies in a number of key ar- pants in line with the moral duty of care Policies should focus on the notion of be- eas. discussed above. It remains to be seen ing mentally fit and the responsibility of how much of the review will focus on sports stakeholders to conscientiously sup- The main elements in the charter that will career and the purported life-after-career port and protect the health and well-being form the basis of this Code are: support. of athletes for the long term; of which an athlete and their sport can be proud! – transparency; But, where will this truly leave athletes in – tntegrity; a transitional or established period of their – financial probity; careers?

16 [1932] AC 562.

28 September 2016 © Nolot UK sports broadcasting rights: protecting and exploiting them by Prof. Dr. Ian Blackshaw1

Introductory remarks pany, IMG (International Management “In many ways, the rise of new platforms Group); and in Europe, by Horst Dassler, for the dissemination of media products Sport is now big business globally, ac- of the German sports goods manufacturer and the inevitable rise of sport as the counting for more than 3% of world trade. Adidas, through his Swiss company ISL global media property it now is have And, in the European Union (EU), with a (International Sport Leisure and Culture), been intertwined. Just as the forma- population of 508 million, the sports in- which he founded. Sadly, neither of these tion of the FA Premier League and the dustry is now worth 3.7% of the combined pioneers is alive today to see the extent to rise of satellite pay television through GNP of the existing 28 (soon to be 27 af- which sports marketing has grown and en- BSkyB seemed inextricably linked, so ter UK recently voted to leave) member joy the full fruits of their work. when new platforms, such as the pro- states. There is, therefore, a lot to play liferation of digital television channels for, from both a sporting and a financial Of the sports marketing mix, which in- or the exploitation for broadcast or point of view. Indeed, as the former UK cludes sports sponsorship, merchandising, quasi broadcast purposes of internet Sports Minister, Richard Caborn, who endorsement of products and services, and and mobile telephony platforms, come initiated the EU “White Paper” on Sport corporate hospitality, perhaps the most to the fore, their usual test bed in terms during the UK Presidency of the EU in the important and lucrative one is the sale and of content is in sport. It seems that only second half of 2005, has pointed out: “[t] exploitation around the world of sports sport has the pulling power nationally he commercialisation of sport, especially broadcasting rights, including new media and internationally to justify the sort of football, has moved at a pace that no one rights, such as internet streaming of sports investments needed to bring new media could have envisaged”. And, it may be events, all of which contribute mega sums platforms to market, and maybe sport added, continues to do so! Sport is now a to many sports and sports events, includ- is alone considered sufficiently popular product in its own right. ing the Summer and Winter Olympic for the uptake by new customers proper- Games and the FIFA World Cup. Indeed, ly to reflect the potential of the medium The rise of sport as a global industry is it is fair to say that, without the sums gen- rather count simply as a commentary on largely the result over the years of the erated by sports broadcasting, such major the first content offered through it.”5 marketing of sports, sports persons and events – and, in fact, many others – could events, originally in the United States of not take place and consequently sport – For example, the English FA Premier America (USA), and subsequently in Eu- and sports fans – would be the losers.2 League – the world’s most popular and rope and elsewhere. This has led to the most financially successful football league establishment of a world-wide discrete – have recently sold their UK live rights to sports marketing industry, due to the vi- The importance of sports broadcasting their matches for the three seasons begin- sion and pioneering work of Mark Mc- rights ning in 2016 for a record sum of £ 5.136 Cormack in the USA, through his com- billion. With the sale of additional rights, In this respect, the commercialisation of including new media and overseas rights, sports broadcasting rights may be con- the total sum involved is some £ 8.3 bil- sidered as the “oxygen of sport”. There lion. Again, the lion’s share of these rights 1 International sports lawyer, academic, author and is a symbiotic relationship between sport has been sold to the satellite broadcaster, member of CAS. He may be contacted by e-mail and TV broadcasting. Indeed, according BSkyB, to be shown as part of its Sky at [email protected]. 2 See Ian Blackshaw, Sports Marketing Agree- to David Griffith-Jones, QC: “This mar- Sports package on a subscription basis. ments: Legal, Fiscal and Practical Aspects riage between sport and television is one BSkyB is owned by the Australian media (TMC Asser Press, The Hague, The Netherlands made in heaven.”3 And according to Rich- magnate, Rupert Murdoch, through his 2012). ard Parrish: “The broadcasting sector and group News International, who, inciden- 3 D. Griffith-Jones, Law and the Business of Sport sport have [...] revolutionised each other.”4 tally, considers “sports as a battering ram (Butterworth and Co, London 1997), at p. 289. 4 Richard Parrish, Sports law and policy in the And the significance of new technology – and a lead offering” in all his pay televi- European Union (Manchester University Press, especially broadband and quicker access sion operations around the world.6 In oth- Manchester and New York 2003). to the internet – in the development and er words, as a means to selling other Sky 5 Richard Verow, Clive Lawrence and Peter financial importance of sports broadcast- pay-tv packages. McCormick, Sports Business, Second Edition ing rights cannot be over emphasised as (Jordan Publishing Limited, Bristol 2005) at p. 321. Richard Verow, Clive Lawrence and Peter It is interesting to note that BSkyB has 6 Address at the AGM of News Corporation on 15 McCormick rightly point out: held the live rights to broadcast Premier- October 1996 in Adelaide, Australia. ship football in England since 1992. Ac-

© Nolot September 2016 29 cording to Peter Scudamore, the Chief The English Football League has signed considered by the UK courts. In any case, Executive of the English Premier League, several broadcast rights deals with Sky it is taken to be and accepted as the law in these rights are now more valuable and Sports and Channel 5 to show its major England. “[...] for the first time these are platform- competitions. neutral rights available for exploitation In the Australian case, the first defendant on wider technology”. These broadcast It may be added that the exploitation of owned the land near Victoria Park race- rights fees are very impressive and there broadcasting rights in football has become course. He erected an elevated platform will be even more TV money for the twen- so valuable and important that many lead- on his land from which he could view ty English Premier League football clubs ing football clubs, such as the English club not only the horse races, but also Victoria to share amongst themselves accordingly. Manchester United, operate their own tele- Park’s notice boards which displayed all vision channels for the benefit of their fans the data and other information relating to It should also be mentioned that, on 6 No- and also their commercial sponsors, made the races. The second defendant broadcast vember 2015, it was announced that Sky, possible with the advent of digital TV. radio commentaries on the races and de- the UK pay-tv broadcaster, has secured scriptions of what could be viewed from additional TV rights to the English FA The International Olympic Committee the first defendant’s platform. The owner Premier League. For the three seasons, (IOC), for instance, has sold the broad- of the racecourse sought an injunction 2016-2017 to 2018-2019, Sky has been cast rights for the 2008 Beijing Summer against the broadcasts on the grounds that granted the near-live extended TV high- Olympic Games, the 2012 London Olym- the defendants’ actions deterred would-be lights of association football’s most popu- pic Games and the 2016 Brazil Summer spectators from attending with a conse- lar and lucrative league. Games for stratospheric sums too!7 In fact, quent loss of gate money. In the judge- the TV rights money for the 2016 Games ment at first instance, the Judge held that : Under the new deal, Sky will be able to through world-wide deals made by the show extended highlights of 212 Premier IOC with broadcasters has increased by “The defendant does no wrong to the League matches that are not shown live 52%. For example, the American chan- plaintiff by looking at what takes place on television and, for the first time, fans nel NBC has paid some US$ 7.65 billion on the plaintiff’s land. Further, he does will also be able to view these highlights for the three Olympic Games cycles until no wrong to the plaintiff by describing on demand. In other words, on “catch-up”. 2032. TV rights now account for 70% of to other persons, to as wide an audience the income generated by the Olympics.8 as he can obtain, what takes place on The new deal is in addition to Sky’s new- And the upward trend in the sale of broad- the plaintiff’s ground.” ly-acquired mobile “clips” from all 380 cast rights for major world sports events, Premier League matches, as well as the such as the FIFA World Cup, seems un- On appeal, the Court stated : live rights they already hold to 126 match- stoppable. es. These live rights are shared with BT “It has been argued by the expenditure Sport. Among the legal issues to be addressed of money the plaintiff has created a when dealing with sports broadcasting spectacle and that it therefore has what No figure has been disclosed for these Sky rights is their ownership and protection is described as a quasi-property in the new TV rights! and also their commercial exploitation. spectacle which the law will protect. This article will look at the position on The vagueness of this proposition is ap- This has been hailed by Sky Sports man- these matters in the United Kingdom, in- parent on its face. What it really means aging director, Barnet Francis, as pro- cluding the impact of EU competition law. is that there is some prinicple (apart viding fans with more ways of watching from contract or confidential relation- extended highlights of the League on TV. ship) which prevents people in some cir- But, the question has to be asked whether, Ownership and protection of sports cumstances from opening their eyes and from a competition law point of view, too broadcasting rights in the UK seeing something and then describing much sports broadcasting power is being what they see. The court has not been concentrated into too few hands! Broadcasting rights take many forms, live, referred to any authority in English law delayed, highlights, clips and radio; and it which supports that general contention has been well said that their ownership is a that if a person chooses to organise an vexed question and one that is not capable entertainment or do anything else which 7 In 2016, the IOC launched its own television of a brief or simple answer.9 other persons are able to see, he has a channel, the IOC Olympic Channel, which offers Olympic sports twenty-four hours a day, aimed right to obtain from the court an order at reaching the widest possible audience. Broad- There is no statutory definition of broad- that they shall not describe to anybody cast sponsorships and advertising opportunities casting rights; neither is there any English what they see [...] the mere fact that will be offered first to the IOC’s “Worldwide Court decision dealing with the matter. damage results to a plaintiff from such Partners”. a description cannot be relied upon 8 See www.totalsportek.com/money/olympics- 2016-tv-rights-deals-worldwide-increased-52, However, there is an Australian High as a cause of action. I find difficulty in posted on 31 March 2016. Court decision, namely, Victoria Park attaching any precise meaning to the 9 See the chapter on the United Kingdom by Racing and Recreation Grounds Company phrase “property in a spectacle”. A Adrian Barr-Smith in: Ian Blackshaw, Steve Ltd v. Taylor and others10, on the subject, “spectacle” cannot be “owned” in any Cornelius and Robert Siekmann (editors), TV albeit that it concerns radio and not TV sense of that word.” Rights and Sport – Legal Aspects (TMC Asser Press, The Hague, The Netherlands 2009), at p-p. broadcasts. This decision is of persua- 549-550. sive authority in the United Kingdom and Likewise, in line with the Victoria Park 10 [1937] 58 CLR 479, HC of Australia. could be relied on if the matter were to be case, aerial photography of a landowner’s

30 September 2016 © Nolot property by another is not prohibited by ways, basically, such as the control of the cast and use, as well as authorise or law.11 As the Judge stated in this case: venue rights and restrictions on spectators. broadcast and use, by picture, sound The “broadcasting rights” are created and or other carriers of any kind (includ- “There is no law against taking a pho- reinforced by the law of contract. The fact ing data carriers which have yet to be tograph, and the mere taking of a photo- that these rights are the creature of con- developed), matches which come within graph cannot turn an act which is not a tract means that they can be devolved by their jurisdiction, either live or record- trespass into the plaintiff’s airspace into contract. So, for example, the owner of a ed, in whole or as excerpts.”15 one that is a trespass.” stadium/arena who licenses the use of it to the promoter/organiser of the sporting There are similar claims made in the On the other hand, in the USA, another event for that purpose may grant to the Olympic Charter, which provides in art. 7 common law jurisdiction, quasi-proprie- latter “the exclusive broadcasting rights”, (2) as follows: tary rights in sporting events are legally defined as the right to film and record pic- recognised in accordance with the doc- tures and sound of the event and to trans- “The Olympic Games are the exclu- trine of “commercial misappropriation”.12 mit live signals or recordings of the same. sive property of the IOC which owns The owner of the stadium/arena may also all rights relating thereto, in particular, Notwithstanding the above general legal expressly agree not to broadcast the event and without limitation, all rights relat- principles, it can be argued that the own- and/or, if he retains the control of access ing to (i) the organisation, exploitation ership of sports broadcasting rights may or ticket sales, may agree to restrict spec- and marketing of the Olympic Games, vest in some or all of the venue owner, the tators from broadcasting the event. (ii) authorizing the capture of still and “home” team, the “away” team or the com- moving images of the Olympic Games petition/event organiser. In other words, But what is the legal position of the partic- for use by the media, (iii) registration of broadcasting rights are controlled by the ipants in sporting events, the players and audio-visual recordings of the Olympic party holding “the keys of the door”. officials, and also the spectators who at- Games, and (iv) the broadcasting, trans- tend them? Players do not enjoy “perform- mission, retransmission, reproduction, However, see the case of British Broad- ers’ rights” under section 180 of the UK display, dissemination, making avail- casting Corporation v. Talksport Ltd13. In Copyright Designs and Patents Act 1988. able or otherwise communicating to the that case, the BBC sought an injunction Most players and officials are employed. public, by any means now known or to be to restrain a rival broadcaster talkSPORT In many such cases, their contracts of em- developed in the future, works or signals from creating an audio commentary de- ployment will require them to play in tel- embodying audio-visual registrations or rived from viewing pictures of the EURO evised events and will provide that such recordings of the Olympic Games.” 2000 football championship in Belgium performances and/or public training may on television. In order to appear more au- be filmed and televised as their employers And also in the FIFA Statutes, which pro- thentic, the radio commentary included may agree. In addition, players and offi- vides in art. 74 as follows: some stock crowd noise and the BBC ar- cials may be required to give certain inter- gued that talkSPORT was, therefore, pass- views. Spectators also agree to be filmed “1FIFA, its Members and the Confed- ing off its “live broadcast” from Belgium. by attending the event, expressly under erations are the original owners of all Although the BBC was accredited by the conditions stipulated in their tickets or im- of the rights emanating from competi- organiser to make the exclusive live ra- pliedly by attending an event knowing in tions and other events coming under dio broadcast from the event, it failed to advance that it is being televised. As such, their respective jurisdiction, without persuade the court that it was entitled to neither players, officials nor spectators any restrictions as to content, time, an injunction or that the activities of talk- may be able to claim any broadcast rights place and law. These rights include, SPORT were tortious or otherwise intrin- in the sports event concerned. among others, every kind of financial sically unlawful. This case illustrates that, rights, audiovisual and radio record- on occasions, even controlling the “keys As Adrian Barr-Smith points out, the ing, reproduction and broadcasting of the door” will not alone guarantee ex- ownership of sports broadcasting rights is rights, multimedia rights, marketing clusivity in the absence of a legally rec- more complicated where teams or clubs and promotional rights and incor- ognised property right in the event itself. are participating in a league or other com- poreal rights such as emblems and petition.14 In such cases, it may be argued rights arising under copyright law. The event organiser and/or the promoter that the goodwill in the sports event is clearly owns the event, but ownership owned by the organiser, either alone or 2 The Executive Committee shall decide per se does not extend to the broadcast- jointly with the participating teams. In how and to what extent these rights ing rights, unless underpinned in various view of the decision in the Victoria Park are utilised and draw up special reg- case, it does not follow that the owner of ulations to this end. The Executive the event concerned automatically owns Committee shall alone decide wheth- the broadcasting rights. er these rights shall be utilised exclu- 11 See Bernstein of Leigh (Baron) v. Skyviews and General Ltd [1997] 2 All ER 902. sively, or jointly with a third party or 12 Pittsburg Athletic Co et al. v. KQV Broadcasting This is an issue faced by the international entirely through a third party.” Co. [1937] 24 F. Supp. 490. sports bodies. For example, to clarify the 13 [2000] TLR 401. position, UEFA has included the follow- Further, art. 75 of the Statutes provides as 14 See Ian Blackshaw, Steve Cornelius and Robert ing provision in its Statutes : follows: Siekmann (editors), TV Rights and Sport – Legal Aspects (TMC Asser Press, The Hague, The Netherlands 2009), p. 554. “UEFA and the member associations “1 FIFA, its Members and the Confed- 15 Art. 48.1. shall have the exclusive rights to broad- erations are exclusively responsible

© Nolot September 2016 31 for authorising the distribution of claimed that the exclusive agreement be- commitments on the process by which the image and sound and other data car- tween those parties amounted to a restric- League sells its broadcast rights (“unbun- riers of football matches and events tion on the supply of services under the dling” of them and tendering), the League coming under their respective juris- Restrictive Trade Practices Act 1976 (the also undertook, in addition to the six live diction, without any restrictions as to RTP Act) and was, therefore, contrary to audiovisual packages mentioned above, to content, time, place and technical and the public interest. The DGFT argued that provide certain rights packages as follows: legal aspects. the collective sale by the Premier League of their broadcasting rights constituted a – two technologically neutral “near live” 2 The Executive Committee shall issue cartel, which would not be acceptable in packages of 121 matches each, compris- special regulations to this end.” any other industry. In response, the Pre- ing those matches not shown live each mier League contended that individual season, to be broadcast a matter of hours sales of broadcasting rights by clubs after the ends of those matches; Commercial exploitation of sports would be contrary to the interests of foot- – a near-live package to be exploited broadcasting rights in the UK ball and would lead to chaos and aversely on the internet comprising clips of all affect club competitions. The Restrictive matches played, to be made available Introductory Trade Practices Court found that collec- from midnight on the day of the relevant tive selling of broadcasting rights by the game; Generally speaking, sports broadcasting Premier League was not contrary to the – a “mobile clips” package containing rights are sold on a collective basis and public interest, because the clubs would short extracts of all matches played; this raises legal issue at the national and lose income; there would also be reduced – a number of radio rights packages; the European levels. competition between broadcasters; and the – a highlights package for exploitation on Premier League would not be able to di- free-to-air television. Whilst the legal treatment of sports TV vide television revenues equally between rights varies from country to country, in the member clubs in order to preserve the The League has also agreed to allow its the European Union there is some degree competitive balance.16 member clubs to exploit certain television, of harmonisation. This is the consequence internet and mobile rights on a “deferred of the inexorable rise of EU competition basis”. In other words, after a time hold- law generally and its particular applica- EU back which is deemed sufficient to protect tion to the sporting world, which has pro- the value of the equivalent centrally-sold duced something of an overarching, uni- The Premier League’s broadcasting rights package. fying and harmonising factor in the field were subsequently the subject of an in- of sports broadcasting in those countries, vestigation by the European Commission Although the Commission regards the which are members of the EU or the EEA into the collective manner in which the collective selling of broadcast rights as (the European Economic Area), in which League sold these rights to the competi- anti-competitive, the Commission accepts the EU competition rules generally apply. tion following a notification made to the that such selling can provide benefits to But it should be noted generally that, in European Commission in June 2002 by consumers, media operators and the clubs the brave new world of Europe, there is a the League of certain of its broadcasting themselves in so far as it is necessary to growing move towards competition issues agreements with BSkyB. The Commis- ensure that income from the sale of the in the EU being handled by the national sion decided that it could not grant an ex- media rights is redistributed in a way that competition authorities in preference to emption and issued a “Statement of Ob- maintains a competitive balance between those at the EU level pursuant to the so- jections” in December 2002, setting out teams and thus promotes an interesting called “subsidiarity” principle, whereby the Commission’s competition concerns. competition. However, the Commission matters, wherever possible, are handled at Although the League disagreed with the must be convinced that the benefits from the local rather than at the European level. majority of the Commission’s findings, collective selling of the rights outweigh both sides recognised the value of reach- the negative effects on competition, par- ing a settlement of the case. This was ticularly in the broadcast markets in which UK reached in March 2006, when the Com- the rights are exploited. mission announced that it had received In July 1999, the Director General of Fair from the League a package of “commit- Trading (DGFT) brought a case against ments” thus allowing the Commission to European Champions League the English FA Premier League, BSkyB close its file on the case.17 Amongst others, and the BBC. In that case, the DGFT that no single buyer, whether acting alone The leading 2003 Decision of the Com- or in concert with others, can acquire more mission involving the collective selling of than five of the six live television rights’ the broadcasting rights to the UEFA Euro- packages. The League also undertook to pean Champions League18, which has been 16 See An Agreement between the FA Premier League and BSkyB [2000] EMLR 78. ensure that its live audio-visual packages used as kind of “template” in subsequent 17 These commitments were made under art. 9 of would be “technologically neutral” re- sports broadcasting cases at the national Regulation 1/2003/EC, by which parties to a garding the “platforms” on which those level, and also the unresolved legal ques- competition investigation could make bind- rights could be exploited. In other words, tions regarding the matter of the so-called ing concessions satisfying the Commission’s any broadcaster, whether involved in tel- “organisational solidarity” in sport – con- competition concerns, but without the necessity of a decision on the legality or otherwise of the evision, television over the internet, mo- sidered to be legally and politically sensi- parties’ behaviour. bile or any other technology, could bid tive – are of crucial importance and wor- 18 Dec. 2003/778. OJ 2003 L 291/25-55. for and win these rights. In addition to the thy of further critical analysis and study.

32 September 2016 © Nolot Following this Decision, the Commission “Brexit” Concluding remarks requires the following conditions to be satisfied: A word or two on a recent important de- Sports broadcasting and media rights have velopment, commonly known as “Brexitˮ, been well described as being “the oxygen – an open tender; follows. of sport”. – an “unbundling” of the offer allowing more than a single buyer; On 23 June 2016, in an “in-out” referen- Indeed, without the mega sums paid by – no excessive exclusivity (a term of three dum, the United Kingdom in a shock re- broadcasters for these rights, major inter- years being regarded as a general norm); sult voted to leave the European Union. national sporting events could not be or- and Under art. 50 of the EU Treaty, once the ganised and held, much to the disappoint- – no automatic renewal (regarded as a UK officially notifies the Commission of ment of athletes and fans alike. disguised extension of the term of the this decision, there will be a minimum pe- exclusivity).19 riod of two years for the UK to negotiate The issue of legal ownership and who the terms of its withdrawal from the EU. may exploit these rights is, to some extent, The Commission’s aims in relation to problematic, but is overcome by the use opening up competition within the single Depending upon the new relationship be- of “back-to-back” and inter-related con- EU market in the field of sports broadcast- tween the UK and the EU, even if the UK tracts, which need to be very carefully ing rights may be summarised in the fol- does not agree to abide by the EU com- drafted. lowing remarks made, in the context of the petition rules in the future, which, in the 2005 Commission Decision in the German opinion of the author of this article, seems In fact, precision is the name of the game Bundesliga case,20 by the EU Competition unlikely as the UK wishes to maintain in all cases.24 Commissioner, Neelie Kroes,21: a trading relationship with the EU, the competition law principles under the UK The subject of sports broadcasting and “The decision benefits both football fans Competition Act of 1998 are modelled on media rights not only provides interesting and the game. Fans benefit from new those of the EU as enshrined in art. 101 but also challenging work for sports law- products and greater choice. Leagues and 102 of the EU Treaty.23 Thus, as far yers and “Brexit” will add another dimen- and clubs benefit from the increased as the commercialisation and regulation of sion to the process! coverage of their games. Readily avail- sports broadcasting and media rights unable premium content such as top foot- der competition law, as discussed in this ball boosts innovation and growth in article, are concerned, the basic EU legal the media and information technology position will remain the same in the UK sectors. Moreover, open markets and following its eventual withdrawal from access to content are an essential safe- the EU. In fact, EU competition law is cru- guard against media concentration.”22 cially important to the interpretation and application of the UK competition rules.

19 Speech entitled ‘Commercialising Sport: Understanding the TV Rights Debate’ delivered in Barcelona by Herbert Ungerer, of the EU Competition Directorate General, on 2 October, 2003, in which, inter alia, Ungerer argued that “there must be a clear separation between sports regulation and the commercialisation of sport.” And added: “TV is of high significance for football clubs, 30-70% of football clubs’ revenue come from TV, and this explains why sometimes our efforts [the Commission] to bring joint selling into line with Competition law requirements meet a certain anxiety – even bitterness – on the side of some leagues, and are initially misunderstood.” 20 OJ 2004 C 299/13. 21 COMP/C.2/37.214. 22 IP/05/62, 19 January, 2005. 23 See chapters I and II respectively of the UK Competition Act 1998. 24 See further on this subject chapters 13 and 14 on “Sports TV Agreements” and “Sports New Media Rights Agreements” respectively at p. 285-378 (both inclusive) of Sports Marketing Agreements: Legal, Fiscal and Practical Aspects (TMC Asser Press, The Hague, The Netherlands 2012).

Introductory remarks between the income and performance (in link according to art. 5 par. 1 let. a LIFD). particular, in the case of sponsoring or This kind of tax is in accordance with dou- Switzerland levies, since decades, a with- merchandising, etc.); and also the system ble tax treaties (namely art. 15 and 17 of holding tax at source on artists, athletes of a computation of the tax.2 OECD Model Tax Convention on Income and speakers performing in Switzerland. and on Capital). The tax is levied both at the federal and It is interesting to describe, in a short sum- cantonal levels and is aimed at organisers mary, the recent new practice of the canton The withholding tax provided at art. 92 of shows and demonstrations. of Vaud in an administrative Circular on par. 1 LIFD does not appear from the pre- the withholding tax dated December 2013 cise wording of this provision, but from In general, the Swiss rules follow the re- (the “Circular”), which aimed at organiz- the systematic interpretation of the law. gime of art. 17 of the OECD Model Tax ers of shows and demonstrations partici- Convention on Income and on Capital. pating in the organization of such events Art. 92 par. 4 LIFD makes the organiser in the canton of Vaud’s territory in which of the event in Switzerland jointly liable In practice, the costs of the performance artists, athletes and speakers (“AAS”), for the tax payment. This could lead one are deductible, but the precise amount of with no domicile in Switzerland, perform. to think that the tax should mainly be paid these costs is subject to controversy. How- Indeed, in this new Circular, the admin- by the AAS. ever, contrary to the OECD model, the tax istration of the canton of Vaud suggests is also levied on speakers and, therefore, a new method of computation of the tax However, this is a false interpretation, as this rule is not applicable when there is a which could be quite interesting in prac- the law provides a withholding tax col- double taxation treaty based on the OECD tice and, in a way, outsourcing the com- lected from the debtor of the income, the Model Tax Convention on Income and on putation and exact determination of the employer4. The tax subject, namely the Capital with the residence country of the net performance income to the organiser person who is obliged by the law to pay speaker. The taxation at source on artists of the event, taking account notably of the a certain tax, in this case, the AAS, is dif- and athletes has always raised some spe- development of the business in this area. ferent from the one who ultimately bears cific issues, such as the definition of art- This is particularly the case for artists the tax. ists and athletes; the amount of deduct- which are under contract with a big music ible costs for the performance; the link organiser. The difficulty of this distinction and the important number of participants in an This article will, therefore, give a short de- event made the adoption of the Circular scription of the essential elements of this necessary. 1 Attorney-at-Law and Professor at the University new practice. of Geneva. The author wishes to thank Federico Abrar who has helped in the preparation of this It should be noted that the Circular is an article. administrative order, which is not to be 2 See among others D. Molenaar, The Taxation Essential elements considered as a rule of law, but as a rule of International Performing Artistes (IBFD, of interpretation that does not bind the Amsterdam 2005); K. Tetlak, Taxation of Inter- Preliminary remarks judge5. In addition, the Circular is valid national Sportsmen (IBFD, Amsterdam 2014). 3 RS 642.11; Loi fédérale du 14 décembre 1990 under federal and cantonal law, provided sur l’impôt fédéral direct, “LIFDˮ. The Circular is based on art. 92 par. 1 of that the canton of Vaud has a legal pro- 4 X. Oberson, Problèmes récents posés par the Federal law on direct federal tax (here- vision similar to the federal one, namely l’imposition des artistes et sportifs non-résidents after “LIFD”)3. According to this legal art. 139 of the direct tax of the canton of (Mélanges Ryser, 2005), p. 167ss. provision, AAS that are domiciled outside Vaud6. 5 T. Tanquerel, Manuel de droit administratif (2011), p. 111, § 335. Switzerland must pay a tax on their per- 6 RS 642.11; hereafter “LI/VD”. sonal income in Switzerland (economic

34 September 2016 © Nolot Circular, method A: method B: numbers 8.2 to 8.3.7 organizer – AAS organizer – production company – AAS

taxable benefit Benefit directly paid to the AAS by Attested salary paid to the the organizer. AAS.

remarks Not all benefits are subject to the TAAS. No difficulties: the taxable benefit appears on an benefits subject benefits not individual loan certificate to the TAAS subject to the submitted by the production TAAS company.

– benefits in kind – availability of the – artist fees and infrastructures indemnities linked to the event – salaries and bonuses – copyright fees, – payments credited to royalties, etc. third parties (namely AAS representative/ manager).

tax deductions Acquisition costs are deductible. No admitted tax deductions. Rate of 20% of the gross benefits subject to TAAS. Not less than CHF 800 per artist and per contract. Higher effective costs admitted if proved.

average daily income In order to establish the tax rate, the average daily income must first be determined. This income corresponds to the AAS net taxable benefits, divided into the number of days of performance on the territory of the canton de Vaud. One day is considered as 24 hours.

If incomes are awarded to a group If incomes are awarded to of artists, the average daily income a group of artists, no shall be divided into the number of supplementary division involved persons. needs to be made, as the loan certificate provided by the production company is an individual document.

tax rate (including federal, 10% for average daily incomes up to CHF 200. cantonal and communal 15% for average daily incomes up to CHF 1,000. direct taxes) 20% for average daily incomes up to CHF 3,000. 25% for average daily incomes higher than CHF 3,000.

Table 1. Methods of calculation of TAAS.

Aim and legal basis of 19 October 1993 on withholding tax in shows, demonstrations, events and in the frame of the direct federal tax7, art. other productions of an artistic, theatri- The Circular aims at clearing the situation 139 LI/VD and art. 11 of cantonal regula- cal, musical or athletic nature. of the withholding tax on AAS (“TAAS”) tion of 2 December 2002 on withholding and, by doing so, to answer questions such tax8. People who do not entertain the public or as who is the tax subject; who has to pay who do not appear in front of the public the tax; to what extent; etc. The aim of the are not considered as an AAS. tax is to ensure its collection. Definition of AAS (Circular, p. 6, number 5) The Circular is based on double tax trea- Definition of an organiser (Circular, p. ties, art. 92 LIFD, art. 7 on the ordinance An AAS is: 6, number 6)

– a Swiss or foreign person; An organiser is a natural or legal person 7 RS 642.118.2; “OIS“. – who is a foreign resident; thanks to whom the event took place. 8 RS 641.11.1; “RIS/VD“. – who participates in the canton of Vaud

© Nolot September 2016 35 It should be noted that the organizer could (method A in table 1); In particular, it opens the possibility to be different from the third person who or- 2 the organiser buys a show to a produc- transfer to the music organiser, under ganised the activities of the AAS (namely tion company (method B in table 1). which an artist is under contract, the re- the representative or the manager of the sponsibility to compute precisely the as- AAS). sessments and the net amount of income Documents to be completed by the or- which will then be attributed to the artist. ganiser (Circular, p. 12 f., number 9) This system allows to take into account, Tax obligations of the organiser (Circu- effectively, the cost that can be attribut- lar, p. 6, number 7) The organiser must complete two state- able to the performance. ments: The AAS and the representative/manager Other classical issues, such as characteri- are responsible for the collection and the – a recapitulative list, aimed at tax author- sation issues (sponsoring, merchandising), payment of the tax. The organiser is joint- ities; and of course, remain open, but more clarifica- ly responsible. – an individual statement, aimed at every tion can be found under the recent OECD single involved AAS. Commentary on art. 17 of the OECD mod- In practice, the representative/manager el double taxation convention. and the organiser levy the withholding It should only be added that a commission tax; pay the tax to the tax administration; of 3% is offered to the organiser if he pays It remains to be seen to what extent other submit a recapitulative list to the tax ad- the tax within a period of 30 days after the cantonal administrations in Switzerland ministration; and submit to the AAS an event (Circular, p. 12, number 9.2). If the will follow this new practice of the canton individual assignment concerning the tax. tax is paid afterwards, no commission is of Vaud. offered and default interests are charged.

Calculation of the TAAS (Circular, p. 7 f., number 8) Concluding remarks

Two methods of calculation are possible: This new practice of the canton of Vaud has the advantage of taking into account 1 the AAS (or its representative/manager) the major developments in the area of negotiates directly with the organiser sport and music.

Introductory remarks with a view to promoting their own hibits the advertising of tobacco products name, their own trade mark or their on television and radio.8 With all of this After TV rights, sponsorship is nowadays own image.ˮ said, it should be stressed that the broad- the main source of revenues in the sports casting of sporting events sponsored by industry. According to reviews and fore- The Swiss Supreme Court also developed an alcohol or tobacco brand, in general, casts, there will be nearly a 5% growth its definition which, to a certain extent, should not be concerned by the above in sponsorship spending worldwide from mimics the one quoted above3. regulations.9 US$ 57.5 billion in 2015 to US$ 60.2 billion in 2016.2 Because sports are so As opposed to sale or service contracts for Finally, we also have to deal with the well- popular, sponsoring companies tend to instance, Swiss law does not specifically known issue of “ambush marketing”. The spend very generously on sponsorship in regulate sponsorship agreements. It is thus AUC can help a sponsor of an important order to build their brand’s value around generally recognised that a sponsorship competition taking place in Switzerland the success of an athlete, a team, a sports agreement is an unnamed and mixed du- fight “ambush marketing” activities. Ac- organization or a competition. Bad public- ration contract sui generis.4 This means cording to art. 3 let. a AUC, giving inaccu- ity can, therefore, not be tolerated, which that such a contract may include elements rate or fallacious information about itself, is why sponsoring companies should be of differents contracts, like the license its company or its products constitutes an very cautious when drafting a sponsorship contract, the employment contract or the unfair practice. Anyone found guilty of agreement. service contract.5 Like any contract sui such a practice may be given a custodial generis, it is not an easy task to determine sentence up to three years or fined a mon- As of today, many international sports which rules of law apply to the provisions etary penalty.10 organisations and athletes, notably tennis of the agreement, so such analysis must, and golf players and Formula 1 drivers, therefore, be made on a case by case basis. are based in Switzerland and, therefore, Obligations of the sponsoree Swiss law will often apply to their sports sponsorship agreements. Consequently, General limitations In a relationship between a sponsor and understanding how Swiss law can influ- a sponsoree, the latter will usually have ence a contract can help foreign interna- Before dealing with the content of a spon- more obligations than the former. This is tional sponsors and their lawyers better sorship agreement, it is important to dis- primarly because the sponsor and spon- protect themselves under a sponsorship cuss the general limitations a sponsorship soree’s images become closely tied and agreement. This article is thus directed at company may face when sponsoring an widely noticeable in such an agreement. non-Swiss lawyers and will give an over- athlete or sports organization. In particu- Thus, for the sponsor’s interests, the spon- view of the Swiss legal framework on the lar, specific regulations to take into ac- soree cannot act in contradiction with the main issues of sports sponsorship agree- count in Switzerland include the Federal values of the sponsor. Generally, the ob- ments, including general limitations, ob- Act on Alcohol (“AAˮ), the Ordinance for ligations of the sponsoree will often be ligations of the parties, termination of the tobacco products and products containing seen as very burdensome (especially for agreement and damages. tobacco substitutes intended to be smoked an athlete) but they are fundamental and (“OTˮ), the Federal Act on Radio and necessary for the sponsor. Television (“ARTˮ) and the Federal Act Definition and legal nature of the against Unfair Competition (“AUCˮ). As a practical application, we will here sponsorship agreement take the example of a sponsored athlete; For example, the AA bans the advertising but it must be kept in mind that most of the Sponsorship is not defined in the Swiss of distilled beverages at places of sport below obligations may also be applicable Code of Obligations (SCO), which gov- and sporting events as well as on the ra- to sponsorship agreements with teams or erns contract law in Switzerland; however dio and television6. When dealing with a sports organisations. it is defined in the Federal Act on Radio tobacco company, one should know that and Television (art. 2 letter o) as follows: there is a ban on the advertising of tobacco products, especially when directed at Posting of the brand on clothes, material “[S]ponsorship means the participation young people aged under 18 years old, in or social networks of a natural or legal person in the direct particular, during sporting events that age or indirect financing of a programme, group typically visits.7 The ART also pro- The main obligation of a sponsored ath-

© Nolot September 2016 37 lete will usually be to post the brand of the fall within the scope of the licence agree- should be allowed to terminate the agree- sponsoring company on their clothes and/ ment.18 Like the sponsorship agreement, ment for just cause, sometimes even if the or material (provided by the company or the licence agreement is not regulated sponsorship agreement does not contain a not).11 Sponsors request such an obligation by Swiss law and is considered as an un- specific clause in this regard.27 when the athlete is practising their pro- named sui generis duration contract. Thus, fessional sport or even sometimes when the legal provisions of the lease agreement they appear in public events.12 Today, an and the agricultural lease20 as well as the Public relations and communication athlete may also be requested to promote general provisions on contract law in the the brand on their different social medias’ SCO21 will generally be applicable to a The athlete may be asked to participate profile with text, pictures or videos with a dispute related to this obligation.22 with the sponsoring company’s public specific timing and to act responsibly on relations department during, or outside their social medias’ profile. of, competitions.28 This is a typical obli- Obligations to compete and observe the gation, which usually helps a sponsoring In any case, the requirements of the spon- sporting rules company to gain recognition and a better sor (where the brand appears, when, how reputation if the athlete is famous. In this many times, etc.) must be precisely speci- The obligations to compete and observe context, the sponsoree will be asked to act fied in the sponsorship agreement. This the sporting rules are fundamental for the in an exemplary manner and to promote will avoid any misunderstandings or dis- sponsor. This is because the sponsoring the interests of the sponsoring company. putes in this regard. company principally builds its brand’s This, of course, implies not to criticise value through the sponsoree’s regular the sponsor and its products and may also Some Swiss authors are of the opinion participation in competitions. As a con- mean that the conduct of the sponsoree that this kind of obligation shall be treated sequence, the sponsoree will be asked to outside of competition must be ethical or as the agricultural lease.13 An agricultural train appropriately and do his or her best moral. lease is a contract whereby the lessor un- to participate in as many important com- dertakes to grant the lessee the use of a petitions as possible.23 In principle, these obligations fall under productive object or the right to the ben- the application of the service contract29 efit of its fruits or proceeds in exchange In this context, the sponsor may want to which requires diligence and fidelity – but for rent.14 Relating this idea to sponsor- add a clause prohibiting the athlete to not a specific result – from the sponso- ship contracts, the sponsoree (i.e. the les- practise certain types of activities or sports ree.30 A sponsoring company could, how- sor) grants the sponsor the right to appear creating a danger like off-piste skiing, div- ever, not impose too many obligations on, and benefit from, a space visible to a ing or horse riding, in order to ensure the on the sponsoree for fear of violating the large audience (i.e. clothes, social network participation of the sponsoree in compe- sponsoree’s legal personality.31 profile, etc.). titions.24 This kind of obligation could be considered illegal, as it may violate the If this theory is retained, the rules of war- legal personality of the sponsoree granted Obligations of the sponsor ranty for defects should be applicable by by art. 27 of the Swiss Civil Code (SCC). analogy in case of violation of the specific As an example, the Court of Arbitration The principal obligation of the sponsor is obligations dealt with here by the sponso- for Sport, based in Lausanne, decided long to compensate the sponsoree. This very ree.15 The sponsoring company could then, ago that a sponsorship agreement could often arises through a financial contribu- under certain conditions, request damages not prohibit the sponsoree to practise an- tion but, in some circumstances, a sponsor or a proportionate reduction of the fees other sport (in this case bobsleighing) as will also support the sponsoree by provid- paid to the sponsoree because the produc- long as it does not harm the sponsor.25 ing him with equipment and sports gear tive object has defects (for instance, the This principle was also recognised by the (for free or as a loan), logistical support sponsor’s brand is not visible on TV due Swiss Federal Supreme Court for employ- or various other services (e.g. accommo- to the sponsoree’s mistakes).16 ees in general.26 Therefore, the advice here dation). is to be careful when drafting sponsorship agreements not to restrict the athlete’s While the sponsoree would like to receive Image rights freedom unnecessarily. the compensation immediately after signing the sponsorship agreement, the spon- The sponsoring company will always be Finally, it goes without saying that the sor will try to impose regular payments interested in acquiring the right to use the sponsored athlete must comply with all until the expiry of the contract, or even name, the image, the signature or any oth- sporting rules, including the World Anti- after its termination, in order to ensure er sign of distinction (“image rightsˮ) of Doping Code. Nowadays though, on top that the sponsoree complies with all the the athlete.17 However, such use is rarely of requiring compliance with sporting reg- contractual obligations until the end of the unlimited; in practice, the sponsoree will ulations, the sponsor may also request the relationship. want to restrict the use of the image rights sponsoree not to be involed in any crimi- to specific territories while the sponsor nal activity. The reasoning is quite clear: As part of this give and take, the sponso- will try to restrict the sponsoree from con- a doping offence or criminal conduct can ree will also make sure that he or she is cluding similar sponsorship agreements be very prejudicial for the image of both rewarded appropriately for good sport- with direct or indirect competitors (exclu- parties. Therefore, because of the severe ing performances during the length of the sivity clause). negative effect such actions can have on agreement. a sponsor, in case of non-compliance with Such details about image rights generally this important obligation, the sponsor Last but not least, it is important for both

38 September 2016 © Nolot parties that any tax issues regarding pay- the duration, the harder for a party to gal provisions of the SCO may be perti- ments are discussed and written in the justify just cause)37. nent)47, which would allow the claimant agreement. Under Swiss law, the value to request the performance of the agreed added tax is not always due. It depends on For instance, doping, serious breaches obligations plus damages for the delay, for the existence of services of the sponsoree of the duty of diligence and fidelity, or a damages only due to the default, or for the in favor of the sponsor or not; the value breach of the non-competition clause, may cancellation of the contract48. added tax is due when concrete services give reasons for the non-defaulting party are made by the sponsoree32 and, there- to terminate the agreement before its ex- Even though the fault of the defaulting fore, the sponsoree has to take this into piry.38 Just cause can obviously also be party is presumed,49 the claimant will consideration when negotiating the com- attributed to an objective reason, such as need to show evidence of the claimed pensation. the death of the sponsored athlete or the damages.50 This task may be very difficult cancellation of a competition. 39 for a sponsor dissatisfied with the off-the- field misconduct of a sponsored athlete. A Termination That being said, and because the sponsor- sponsor would indeed have to show the ship agreement is a sui generis contract, decrease of its sales and the specific link The sponsorship agreement is, in princi- a court may not always apply the above- between such decrease and the conduct of ple, a duration contract.33 The parties may mentioned rules and instead, choose to ap- the sponsoree. If possible, a sponsor must, decide to provide an automatic extension ply the specific legal provisions of a simi- therefore, better provide clear mechanisms under certain circumstances (for instance, lar type of contract, such as an agency or of indemnifications (with monetary fines) specific sporting performance by an ath- simple partnership contract.40 in the contract for the bad performance of lete) or an option granting to one of the the sponsoree. parties the ability to extend the agreement, One can see that, when the agreement is but, in general, the parties know in ad- silent on the termination issue, the situa- The last type of action a party can take for vance when the contract will expire and tion is not clear whether just cause exists the non-performance of the contract by the the contract is meant to last. and circumstances will, therefore, be ex- other party is to terminate the agreement. amined carefully by the party who wants The termination would have an effect ex Careful parties will agree in the contract to terminate the agreement before taking tunc, which means that the non-defaulting the circumstances allowing a termination action too quickly. party can refuse the services promised and of the relationship before the expiry of the be reimbursed what that party has already contract. Such circumstances could be, for Finally, a party may also terminate the paid.51 In addition, the non-defaulting instance, the continous bad performance sponsorship agreement if the other party party may claim damages for the lapse of or serious injury of an athlete or some spe- is in default of performing a specific con- the contract.52 The general idea is to place cific immoral behavior of one party. tractual obligation.41 For a party to justly the non-defaulting party in a situation as if terminate the contract, the obligation must the contract never existed (negative dam- That said, sponsorship agreements may be not have been performed yet without valid ages). silent on this issue. Under Swiss law, this reasons42 and must have been due based does not preclude a party from terminating on a time limit agreed upon by the parties This mechanism is not similar to the ter- the agreement with immediate effect in or set by one party.43 If so, the non-default- mination for just cause mentioned in the particular situations. Swiss jurisprudence ing party is entitled to set a last appropri- section “Terminationˮ above. Indeed, such indeed recognizes the termination of du- ate time limit for subsequent performance termination has an effect ex nunc, which is ration contracts with immediate effect be- or to request the court to set such time lim- to say that the past contractual relationship cause of the existence of “circumstances it.44 If the performance has still not been would not be affected, only the future.53 In making that the continuation of the con- rendered by the end of that time limit45 or this case, damages may also be due to the tractual relationship cannot be reason- under the circumstances described in art. non-defaulting party, depending on the ex- ably required in the light of the principle 108 SCO,46 the non-defaulting party can istence or not of fault by the other party.54 of good faithˮ34, meaning that such agree- terminate the agreement. In the case of a fault, the non-defaulting ments can be terminated at any time for party will be put in the situation as if the just cause.35 contract was duly performed (positive Damages damages).55 Again, proving damages will The particular circumstances of the situ- not be easy for the non-defaulting party. ation will then need to be examined ob- A party (often the sponsor) may not be sat- jectively, in order to determine if the pur- isfied with the other party’s performance pose of the contract can still be performed of the contract. In such a case and espe- Concluding remarks and if the relationship of trust has disap- cially if the trust between them is broken, peared.36 Key aspects to consider under the dissatisfied party may want to take As indicated in my introductory remarks, this analysis are : action to obtain specific performance or sports sponsorship is nowadays an impor- damages, if any. As a last resort, the dis- tant business and great tool of advertising 1 the importance of the personal element satisfied party could decide to terminate for companies. The more important it be- (intuitu personae); the agreement. comes, the more necessary it seems to in- 2 the existence of a particular trust rela- volve well-informed lawyers for drafting tionship arising from common interests; In the event of non-performance or bad and negotiating a sponsorship agreement. and performance of the contract, art. 97 ff. 3 the duration of the contract (the shorter SCO could apply (except where other le- As we have seen, Swiss law does not regu-

© Nolot September 2016 39 late specifically sports sponsorship agree- is rare and cannot help the parties very their clients. Providing specific answers ments and Swiss jurisprudence is deficient much. in the agreement to situations, like the on the subject. Sponsors and athletes or recent doping and FIFA scandals, will be sports organisatons have both a better Parties have, therefore, a lot of freedom a “mustˮ for parties who will not regret, interest to submit their dispute to (confi- to design sponsorship agreements cover- when the issue arises, having hired a law- dential) arbitration or to settle it. This is ing their special needs. For lawyers, this yer for drafting the corresponding agree- certainly the reason why jurisprudence is an opportunity to design “state of the ment. concerning sports sponsorship agreements art” agreements protecting the interests of

1 Swiss lawyer, e-mail [email protected]. 8 Art. 10 par. 1 let. a ART. It is to be noted that a 32 Arnaud Cywie, TVA et sponsoring (2014), p. 28 2 www.sponsorship.com/iegsr/2016/01/05/New- more restrictive legislation on tobacco products ff.. Year-To-Be-One-Of-Growth.aspx and www. will be voted by the Swiss Parliament by the end 33 Zen-Ruffinen, p. 326, N 952. ecofoot.fr/croissance-marche-sponsoring-555. of 2016. The entry into force of the new act is 34 ATF 92 II 299, par. 3b. 3 Swiss Federal decision dated 8 May 2006 estimated in 2018 (www.bag.admin.ch/themen/ 35 Netzle, p. 62; Hauser, p. 312; Rapp, p. 197 and (2A.166/2005): “[A] company practices spon- drogen/00041/14741/index.html?lang=fr). 199; Engel, p. 56 ff. and 242 ff.; Henry Peter, sorship when it pays money, grants benefits in 9 Zen-Ruffinen, p. 319, N 927. Le sponsoring sportif, Chapitres choisis du droit cash or other advantages in kind to promote 10 Art. 23 AUC. du sport, Etudes et recherches du GISS (1993), the activity of persons, groups or organization 11 Zen-Ruffinen, p. 321, N 930. p.140. in the fields of sport, culture, social activities, 12 Zen-Ruffinen, p. 321, N 931. 36 Peter, in: Recueil de contrats commerciaux, p. ecology or other fields of equal importance from 13 Hauser, p. 266-267 ; RAPP, p. 149. 819. a socio-political point of view, while pursuing at 14 Art. 275 SCO. 37 Zen-Ruffinen, p. 335-336, N 982. the same time marketing objectives and public 15 Henry Peter, in: Recueil de contrats commer- 38 Zen-Ruffinen, p. 336, N 983. relations in its own interest. In this context, the ciaux, Sylvain Marchand, Christine Chappuis, 39 Netzle, p. 71; Zen-Ruffinen, p. 336-337, N 984. sponsor contribution is not a gift but represents Laurent Hirsch (2013), p. 814. 40 Zen-Ruffinen, p. 332-333, N 975; Peter, in: the counterperformance corresponding to the 16 Art. 259a par. 1 and 288 par. 1 SCO. Recueil de contrats commerciaux, p. 819. performance made by the person rewarded in the 17 Zen-Ruffinen, p. 321, N 934. 41 Zen-Ruffinen, p. 338, N 989. form of advertising and image, for instance by 18 Netzle, p. 136. 42 Art. 82, 83 and 91 SCO. naming the sponsor in a list of sponsors.ˮ 19 Pierre Tercier and Pascal G. Favre, Les contrats 43 Art. 102 SCO. 4 Stephan Netzle, “Der Sportler – Subjekt oder Ob- spéciaux (2009), p. 1198, N 7961; ATF 92 II 299 44 Art. 107 par. 1 SCO. jekt? Überlegungen zur Verwendung des Sports par. 3a. 45 Art. 107 par. 2 SCO. in der Werbungˮ, in: Revue de droit suisse, 2006, 20 See the section “Posting of the brand on clothes, 46 According to art. 108 SCO, no time limit need be p. 62; Thomas Hauser, Der Sponsoring-Vertrag material or social networksˮ above. set : im schweizerischen Recht, p. 281 ff.; Jean-Marc 21 See the section “Damagesˮ below. 1 where it is evident from the conduct of the party Rapp, “Quelques aspects juridiques du sponsor- 22 Tercier and Favre, p. 1198, N 7961 and p. 1205, that a time limit would serve no purpose ; ing en droit suisseˮ, in: Revue suisse du droit des N 7994 ff.; Thomas Probst, “Le contrat de 2 where performance has become pointless to the affaires, 1991, p. 199. licenceˮ, in: La pratique contractuelle 3, Sympo- creditor as a result of the debitor’s default, or 5 Patrick Vogler, in: Prinzipien des Vertragsrechts, sium en droit des contrats (2012), p. 122; art. 97 3 where the contract makes it clear that the parties Peter Böhringer, Roger Müller, Peter Münch and ff. SCO. intended that performance take place at or Alex Waltenspühl (2015), p. 235-236; Christoph 23 Peter, in: Recueil de contrats commerciaux, p. before a precise point in time. Müller, Contrats de droit suisse, PdS – Précis de 813. 47 See for instance the section “Posting of the brand droit Stämpfli (2012), p. 658 ; Piermarco Zen- 24 Madalina Diaconu, Droit économique et sport, on clothes, material or social networksˮ above.. Ruffinen, Droit du Sport (2002), p. 315, N 917; Aspects suisses et internationaux (2015), p. 84. 48 Art. 107 par. 2 SCO; Zen-Ruffinen, p. 329, N Court of Arbitration for Sport, 91/45 W. / X. SA, 25 Arbitrage TAS 91/45 W. / X. SA, Award dated 31 965. award dated 31 March 1992. March 1992, par. 34. 49 Art. 97 SCO. 6 Art. 42b par. 3 let. a and d AA and Art. 10 par. 26 ATF 122 II 268 par. 3. 50 Art. 8 SCC. 1 let. b ART. We should point out that it relates 27 Peter, in: Recueil de contrats commerciaux, p. 51 Art. 109 par. 1 SCO; Zen-Ruffinen, p. 339, N only to ethyl alcohol and does in general not 814. 991. affect beers and wines (art. 2 par. 1 and 2 AA), 28 Zen-Ruffinen, p. 321, N 933. 52 Art. 109 par. 2 SCO. which seems obvious considering the large 29 Art. 394 ff. SCO. 53 Zen-Ruffinen, p. 334, N 978. number of beer companies sponsoring sporting 30 Art. 398 par. 2 SCO ; Peter, in: Recueil de con- 54 Zen-Ruffinen, p. 337, N 986. events. trats commerciaux, p. 815. 55 Zen-Ruffinen, p. 337, N 987. 7 Art. 18 OT. 31 Art. 27 SCC ; Hauser, p. 135 ff. ; Philipp Engel, Sponsoring im Sport, Vertragsrechtliche Aspekte, 2009, p. 213 ff..

40 September 2016 © Nolot United Kingdom: Commentary and observations on “The Major Sporting Events (Income Tax Exemption) Regulations 2016” by Jonathan Hawkes1

Introduction ships: the Independent Automotive After- World Athletics Championships. market Federation World Championships The Autumn Statement delivered by the (14 to 23 July 2017); and the International In terms of what is exempted from UK Chancellor of the Exchequer (UK Finance Paralympic Committee Athletics World tax, this is either any employment or trad- Minister) to Parliament on 25 November Championships (4 to 13 August 2017). ing income that arises in respect of “[...] 2015 included an announcement that the These periods of exemption are referred a London Anniversary Games activity [...] United Kingdom government would ex- to as the Games Period and the Champi- or [...]. a World Athletics Championships empt non-resident competitors in the 2016 onships Period respectively. activity”. These activities are further de- London Anniversary Games and the 2017 fined as actually competing at the event it- World Athletics Championships, which So for the 2016 London Anniversary self or “[...] any activity that is performed are also to be held in the United Kingdom. Games the tax exemption Games Period during the Games Period/the Champion- was 20 July to 25 July 2016 and for the ships Period the main purpose of which is It was further announced that 2016 would 2017 World Athletics Championships the to support or promote the London Anni- be the last year in respect of which an ex- tax exemption Championships Period will versary Games/either or both of the events emption will be granted to the London An- be 12 July 2017 to 15 August 2017. making up the World Athletics Champion- niversary Games. ships.”

Interestingly, and as appears to be increas- Exemptions The domestic tax legislation of the United ingly the case, the bidding process for Kingdom allows for the taxation of non- the 2017 World Athletics Championships The Major Sporting Events (Income Tax UK resident sportspeople, together with included a proviso that the granting of a Exemption) Regulations 2016 provide others in the entertainment industries, tax exemption would be a condition of the that the usual UK withholding tax rules such as pop music performers and actors, UK’s bid for the Championships. requiring the payer, who makes a payment in regard to their activities that are per- to the sportsperson, to withhold 20% of formed in the UK. This is in accordance Following on from this announcement, the gross payment are dis-applied in re- with and broadly follows art. 17 of the The Major Sporting Events (Income spect of any UK income that is subject to OECD Model. Tax Exemption) Regulations 2016 were the tax exemption. passed, coming into force on 19 July The UK’s double taxation agreements 2016. These Regulations provide that for The exempting legislation is set out in the similarly contain the familiar artistes and both events UK tax will not be charged same terms for both events and the ex- athletes article that allow for the State, in and there will be a tax exemption avail- emption only applies to a duly accredited which the sporting activity is performed, able from two days before until two days competitor, i.e. a competitor accredited to to still levy tax on the non-resident and after each of the London Anniversary compete by an appropriate athletics body which dis-applies the usual tax exemp- Games (22 to 23 July 2016) and the 2017 as detailed in the legislation or by an offi- tions that are contained in the business World Athletics Championships. There are cial event organiser. The competitor must profits and employment articles. two events which make up the Champion- be non-UK resident for the appropriate UK tax year; being the year ended 5 April In the case of employees, the UK taxing 2017 (2016-2017) for the 2016 London provisions are in Section 27 of the In- 1 Taxation Consultant, Brackman Chopra LLP, Anniversary Games; and the year ended come Tax (Earnings and Pensions) Act Audit Tax and Business Advisory Firm, London. 5 April 2018 (2017-1818) for the 2017 2003. For self-employment income, the

© Nolot September 2016 41 enabling legislation is in Sections 13 and were not coming to the UK, because of the ganisation. Some UK sporting events are 14 of the Income Tax (Trading and Other perceived adverse UK taxation regime of so prestigious and established that a tax Income) Act 2005. non-UK resident sportspersons. break to encourage the participation of overseas sportspersons is not necessary. Section 13 introduces a requirement that a There are a number of examples of this. In Allied to this, the event is linked to a UK “relevant activity” is performed in the UK 2010, Wembley Stadium was unsuccessful venue and so the risk of the event being and, if it is not otherwise the case, a fiction in its bid to stage the Champions League held elsewhere in the world rather than the is imposed that the sportsperson is to be Final, as it was unable to provide assur- UK does not exist. The Wimbledon Lawn treated for UK tax purposes as carrying on ances of an income tax concession for the Tennis Championships are one such obvi- a trade in the UK. It does not matter who players of the finalists, this being a UEFA ous example. the payment or transfer is made to, as Sec- requirement. The same year, Usain Bolt tion 13 effectively deems it to be made to elected not to run in the Diamond League Legislation and regulations were effected the sportsperson. event in London and, in 2012, Rafael Na- in the UK as long ago as 1987 to impose dal chose not to play at Queen’s Club and the requirement of a tax withholding upon Section 14 allows for regulations to be explicitly gave the reason as being the tax persons making payments to non-resident passed, which can make provision gener- he suffered on his endorsements income. sportspeople and entertainers. The In- ally for giving effect to Section 13. This come Tax (Entertainers and Sportsmen) section also allows for regulations to be UK tax policy in this area of exempting Regulations 1987 – Statutory Instrument passed which can, inter alia, provide for certain UK sporting events from UK taxa- 1987/530 – are still in force and make it the deduction of expenses. Such regulation was formalised in the Finance Act a requirement for the “payer” to deduct tions can furthermore provide that any li- 2014. Section 48 of that Act providing tax at the basic rate (currently 20%) from ability to UK income tax that would other- that: payments that are made to non-UK resi- wise arise is not to arise. dent sportspeople. The payer provides the “Where a major sporting event is to be sportsperson with a Tax Deduction Certifi- Legislation governing withholding taxes held in the United Kingdom, the Treas- cate showing the gross payment and the in respect of non-UK resident entertainers ury may make regulations providing for UK tax deducted and accounts to the UK is in Sections 965 to 970 of the Income exemption from income tax and corpo- tax authorities, HM Revenue and Customs Tax Act 2007 and, again, provides for reg- ration tax in relation to the event.” (HMRC), via quarterly returns detailing ulations to be made, which can effectively payments made and tax deducted, with the negate or override the basic requirement As the Explanatory Notes to the Finance tax deducted being paid over to HMRC. imposed upon a payer to deduct basic rate Bill clarified: tax (20%) from the gross sum paid to the Readers will appreciate that the withhold- sportsperson. “The Government’s policy is to grant ing tax deduction system introduced in certain tax exemptions for sporting 1987 is a mechanism for collection of tax, Thus, it will be apparent that the UK tax events if the event is: but it is important to appreciate that the tax legislation has always contained a “built withheld by the payer does not equate to in” mechanism allowing for regulations, – world-class, the final UK tax liability of the non-resi- such as The Major Sporting Events (In- – internationally mobile, and dent sportsperson. come Tax Exemption) Regulations 2016, – where exemption by the host country to be passed on an ad hoc, as and when is a requirement of a bid to host the Whilst the HMRC announcement in re- they were required, basis. event.” spect of The Major Sporting Events (In- come Tax Exemption) Regulations 2016 The passing of such regulations had be- In addition to this, tax exemptions in re- advised that “[...] visiting entertainers come increasingly common in respect of spect of the London Anniversary Games and sportspeople are required to pay any athletics and, as previously noted, in the for years up to 2016 were considered ap- further tax due to HMRC via the Self-As- case of the 2017 World Athletics Cham- propriate to preserve the legacy of the sessment system. They can also request re- pionships, guaranteeing a tax exemption 2012 London Olympic and Paralympic payments of tax this way, should too much was a requirement of the bidding process Games. have been withheld [...]” it is not the case that the UK had to undertake in order to that filing a UK Tax Return under the self- secure the award of the Championships. The legislative mechanism for such tax assessment system is not the only mecha- exemptions has also been made simpler nism that is available to the non-resident Whilst it is only speculation on the part of with an exemption no longer needing to sportsperson, in order to establish their the author of this article, it is interesting to be a part of the annual Finance Bill and UK taxation liability and to enable the note that it is only certain major sporting Finance Act. Instead, it is now possible for correct amount of UK tax to be paid. events, such as the 2012 London Olympics a tax exemption to be passed by regula- or the Champions League Finals of 2011 tion at any time, but still with the require- When the UK introduced the system of and 2013, which had historically attracted ment that any such exempting regulating withholding tax on payments made to these ad hoc UK tax exemptions. UK tax be placed before and approved by the UK non-resident sportspeople and entertainers policies in this area would appear to have Parliament. and passed the 1987 Regulations, these been developed on a reactive basis with provided for the non-resident to make an tax exemptions being granted as a reaction Government policy seems to have been application to (now) HMRC seeking tax to to, and as a result of a growing realisation a pragmatic reaction to the commercial be deducted on a reduced basis rather than of, the fact that events or star performers realities of global sports and their or- 20% of the gross payment. It will be ap-

42 September 2016 © Nolot preciated that, whilst UK tax rates are pro- tors in both performance days and training A relevant performance day is any day gressive and rise to 45% for income over days. on which you: £ 150,000, the withholding rate of 20% is on the gross payment made to the non-res- HMRC’s published guidance now pro- – take part in a competition ident sportsperson and takes no account of vides that: – practise your given sport in public expenses incurred by the non-resident. (for example a tennis player practis- “You will be taxed on a fair proportion ing on an open court where the public To deal with these applications a special- of your earnings from worldwide activi- can watch) ist unit was established which still oper- ties based on time spent in the UK. A – undertake a public event for your ates today, the Foreign Entertainers Unit share of endorsement or sponsorship in- sponsors (for example taking part in (FEU) of HMRC. Further details of FEU come, for example is chargeable to UK a photo session wearing or using your and including the mechanism for making tax. Exactly how much of your income sponsor’s kit) applications for tax to be deducted on a re- you are liable to pay UK tax on will duced basis are available on the UK Gov- depend on the precise wording of the Definition of relevant training days ernment website at www.gov.uk/guidance/ contract and how much time you spend (RTD) pay-tax-in-the-uk-as-a-foreign-performer. performing and training in the UK. The calculation you use must be approved A relevant training day is any day on However, and as this published guidance by HMRC and supported by evidence. which you spend 3 or more hours in makes clear, it may be the case that the physical sporting or training activ- non-resident sportsperson will have un- HMRC recommends using either the ity, which contributes towards perfor- certain UK earnings. This could be, for Relevant Performance Days (RPD) or mance of your sport. Training must in- example, because the ultimate payment Relevant Performance and Training clude physical activity and each session that will be made to the sportsperson will Days (RPTD) method. If you use a dif- should last 1 hour or more to count to- be dependent upon the outcome of a per- ferent method of calculation, provide wards the 3 hour requirement. A train- formance, for example, their final position your reasons for using the alternative ing session may be: in a tournament. In such a case, it may not method and supporting evidence. be possible for a Reduced Tax Payment – directly practising the sport you are Application to be made. Using RPD to calculate the amount of endorsed for endorsement income liable for UK tax – an activity designed to maintain gen- It is important to appreciate that the in- eral fitness (for example spending creasing perception of the UK as an “un- 1 Add together all RPD worldwide and time in a gym or other general fitness friendly” tax jurisdiction did not arise as in the UK. training such as road running or jog- a reaction to the existence of a withhold- 2 Divide UK RPD by worldwide RPD. ging) ing tax, as this is present in most major 3 Multiply your income from endorse- jurisdictions where sportspeople compete, ment by the result. Do not include time spent: but rather the Inland Revenue/HMRC’s views as to what could be included within Using RPTD to calculate the amount – travelling when no training is done the ambit of UK taxation and what income of endorsement income liable for UK – injured when training is not possible was covered by the 1987 Regulations. tax – resting or on holiday – doing non-physical training, such as The FEU considered that UK’s position 1 Add together all relevant training and sports psychology or physiotherapy should be that the UK claims taxing rights performance days (RPTD) worldwide over an element of sponsorship and simi- and in the UK (UK RPTD) Supporting evidence lar non-performance/success related in- 2 Divide UK RPTD by worldwide come, i.e. income other than appearance RPTD Provide records, completed at the time, money and prize money paid by the event 3 Multiply your income from endorse- that clearly identify the type, length and organizer or promoter in respect of the ment by the result place where the training or competition event in the UK and based on the sport- took place, such as copies of: spersons actual participation in the event. Definition of relevant performance days (RPD) – competition agreements A simplistic formula was developed that – training diaries taxed such “indirect” income on a day Activity in private will not be counted – practise and competition schedules count formula and HMRC published as a performance day but it may be a – a daily log of training guidance to this effect. The amount of any training day. – other daily records” sponsorship or endorsement income that is liable to UK tax is calculated using a Activity in public will not be counted as See HMRC website at www.gov.uk/guid- ratio of UK performance days to world- a training day but it may be a perfor- ance/pay-tax-in-the-uk-as-a-foreign-per- wide performance days. mance day. former.

This calculation has now been finessed A day on which you compete and train Notwithstanding this later finessing, the and it is now possible for the sportsperson can only be counted once and will al- “day count” approach highlights the nub to adopt the above performance days’ ba- ways be regarded as a performance day. of the problem and explains the issue from sis or, as an alternative, a basis which fac- the standpoint of the sportsperson. This is,

© Nolot September 2016 43 in particular, true for the sporting super- As Lord Scott of Foscote stated in his Conclusion stars who, as readers will be aware, can judgement in the House of Lords: earn significant sums from promotional It is against this background that the UK and sponsorship income far in excess of “To imply into [the withholding tax leg- has gradually shifted its position in regard their sports-related “performance” earn- islation] a limitation by reference to the to the taxation of non-resident sportsper- ings. For these superstars, and following foreign status of the payer would, in my sons appearing in the UK. As noted above, the position for all sportspersons that was opinion, be impermissible. The whole this was initially by way of various ad hoc adopted by the FEU, the more days the point of [the withholding tax legisla- tax exemptions passed on an “as and when sportsperson spent in the UK, the greater tion] is to subject foreign entertainers required” basis and which culminated in a the percentage of their total endorsement or sportsmen to a charge to tax on prof- formulated and cohesive policy as set out and sponsorship income that would be its on gains obtained in connection with in the 2014 Finance Act. subject to UK taxation. their commercial activities in the United Kingdom. Payments to foreign compa- What remains to be seen is how the FEU The position adopted by HMRC was not nies controlled by them are to be treated will interpret The Major Sporting Events universally accepted and was eventu- as payments to them. The infrequent or (Income Tax Exemption) Regulations ally challenged by the tennis player An- sporadic nature of their commercial 2016. dre Agassi. The appeals that Agassi made activities and presence in the United related to the 1998-1999 UK tax year (6 Kingdom and the difficulty of collecting It will be noted, and as detailed earlier in April 1998 to 5 April 1999) and concerned from them the [UK] tax on their profits this article, that the UK tax exemptions sponsorship payments received by Agassi’s and gains from those activities was one are given for a defined period of time US corporation and that were paid by two of the reasons why the new collection and in respect of actually competing at sporting equipment goods manufacturers, regime was introduced under the 1988 the event itself or “[...] any activity that Nike Inc. and Head Sport AG. The litiga- Act. To read into the statutory provisions is performed during the Games Period/the tion progressed to the highest Court in the a limitation preventing the collection Championships Period the main purpose UK (then) the House of Lords and, follow- regime from applying where the payer of which is to support or promote the Lon- ing a Hearing Date of 23 March 2006, a de- is a foreign entity with no UK presence don Anniversary Games/either or both of cision was given by Their Lordships on 17 and thereby relieving the foreign enter- the events making up the World Athletics May 2006 (Agassi v. Robinson (Her Majes- tainer/sportsman from the charge to tax Championships.” ty’s Inspector of Taxes) [2006] UKHL 23). cannot, in my opinion, possibly be justified on the basis of a presumed legisla- On a simple reading, it could be suggested Whilst a great deal of commentary in the tive intention. I would hold that on the that, as these Regulations explicitly ex- professional press at the time of the Agassi true construction of these sections the clude Section 966 of the Income Tax Act litigation spilled over into the poplar press, territorial limitation cannot be implied 2007 (the UK withholding tax provisions), in this writer’s opinion, it all rather missed and that the statutory language should then all income will be excluded from UK the point. In their decision in the Agassi be given its natural meaning.” taxation. However, it is here that the pos- case, the highest UK Court (as was the sible interpretation of HMRC FEU will House of Lords at that time, now the Su- This then was, if you will excuse the pun, need to be considered. It is suggested that, preme Court) determined that the UK with- the real game changer. The fact that, re- whilst any income relating to an appear- holding tax rules applied where a payment gardless of the residence status of the en- ance at the Games or the Championships was made by a non-UK resident entity, in tities entering into sponsorship and other should not be subject to UK tax, this is not the Agassi case, Nike and Head, to a non- agreements with the sportsperson/their because of the exclusion of withholding UK resident entity; Agassi Enterprises Inc. corporate vehicle, such income was tax- tax. It will be appreciated that withhold- able in the UK on the sportsperson per- ing tax is simply a mechanism imposed This decision overturned the arguments sonally meant that suddenly the UK tax on a payer to collect tax, but it does not put forward on behalf of Agassi; and that “take” was much higher. necessarily reflect or equate to the UK tax had been successful in the lower Courts; liability of the sportspersons themselves. that there was a presumption of territori- Allied to this there was a further problem ality implicit in all UK tax law. This was that personal UK tax rates were, in some Instead, it is considered that there is a dif- held by the House of Lords not to be the cases, significantly higher at (recently) ferent analysis as to why sportspersons case and it was decided that the appropri- 50% and now 45% than taxes that were should not suffer UK tax on any income ate UK legislation was not restricted to charged in other jurisdictions. Even if the arising during either the Games period or UK resident payers only. The fact that the sportsperson were based in their domestic the Championships period. payers of sponsorship and endorsement jurisdiction, and were not resident in a tax fees (Nike and Head) were non-UK resi- haven, then UK taxes could still represent In this analysis, and here an element of dent and that they were making payments a real cost of competing in the UK. This circularity has to be accepted, as a start- to a non-resident (Agassi Enterprises) did is because UK tax suffered at (say) 50% ing point, sportspersons will have to have not matter. They were still obliged to de- or 45% might exceed domestic taxes im- been physically present in the UK in order duct income tax from the payments that posed on the same income with any un- to be competing etc. in the Games or the they made to Agassi Enterprises Inc. and, relieved surplus UK tax potentially una- Championships. If they were not physi- as a non-resident sportsman, Agassi was vailable as a foreign tax credit against the cally present, then any sponsorship or en- obliged to report these sums on his UK sportsperson’s “home” tax filing. dorsement or similar income arising dur- Tax Return and suffer personal UK in- ing that time could not fall within the UK come tax. tax net, because, and as has been set out

44 September 2016 © Nolot above, UK taxation only arises by virtue pionships activity, then all of the income Therefore, it is considered that all income of the sportsperson having a UK perfor- of the deemed UK trade of the sportsper- of non-UK sportspersons of whatever mance or training day. Thus taxable UK son that arises during the Games or the nature which arises during either of the income relating to sponsorship etc. can Championships period must surely be Games Period or the Championships Pe- only arise due to sportspersons perform- considered as “[...] any income arising riod clearly and demonstrably only arises ing either a Games activity or a Champi- from the activity [...].” as a direct consequence of their participa- onships activity in the UK. tion in the Games or the Championships. Putting it another way, if sportspersons The Major Sporting Events (Income Tax were not physically present in the UK, It is for this reason that it is suggested that Exemption) Regulations 2016 refer to the and they are only going to have been in the sportspersons who compete in either or performance of an activity and “any in- UK to compete in or promote the Games/ both of the Games and the Championships come arising from the activity.” Given that Championships, then their sponsorship or will enjoy an exemption from UK tax; and the UK legislation imposes a fiction that endorsement or similar income would not, not only on their appearance fees, prize the non-resident sportsperson is engaged indeed could not, be considered as UK in- monies etc., but also on their sponsorship in a UK trade, then this trade is only in come. This is for the simple fact that, if or endorsement or similar income for the existence when they are physically in the non-UK sportspersons remain outside the Games Period and the Championships Pe- UK. UK, then they cannot be considered, dur- riod respectively. ing that period of time when they remain That being the case, if the reason for the non-UK resident, as undertaking their sportsperson being physically present in deemed UK trade. the UK is to perform a Games or a Cham-

Introduction Section IV of the RSTP is titled “Main- less than ten per cent of the official match- tenance of contractual stability between es in which the club has been involved. The value of the agreements transferring professionals and clubs” and specifically There is rather a sizeable caveat, which the services of footballers between clubs deals with terminating contracts, includ- is, that players may only exercise their has increased season upon season. In Au- ing the restrictions on terminating con- right in accordance with art. 15, within gust 2016, the transfer of French midfield- tracts and the consequences for terminat- 15 days following the last official match er Paul Pogba from Italian club Juventus ing a contract in certain circumstances. of the season of the club with which they to English club Manchester United for fee are registered. One of the key problems of £ 89 million (€ 105 million) became Art. 14 of the RSTP states that: with art. 15 is, that players may have to a new world record. The ever increas- wait close to a whole year before being ing size of transfer agreements is down “A contract may be terminated by either able to terminate their contracts for sport- to the vast swathes of money that flows party without consequences of any kind ing cause, during which time the player’s into football from the sale of broadcasting (either payment of compensation or im- development could be hindered and op- rights, commercial sponsorship deals and position of sporting sanctions) where portunities to move to other clubs could ticket sales. there is just cause.” pass by. Another issue is that clubs change their managers with ever more increasing However, at the very heart of the football FIFA’s rules and regulations do not define frequency. It is possible that a player, who industry is the fact that football clubs trade exactly what “just cause” is; however, may have played under a previous manag- and train players with a view to perform- they do state that each Association (the er, would find himself not playing under a ing well enough in competitive matches, governing body of football within a par- new manager and be forced to wait a sub- in order to be able to maintain a viable ticular country or territory), shall include stantial period of time before unilaterally business. FIFA’s Regulations on the Status in its own regulations appropriate means terminating their contract. and Transfer of Players (“RSTP”) provide to protect contractual stability, paying due the regulatory basis for the transfer market respect to mandatory national law and col- Art. 16 of the RSTP states that a contract and, in turn, set out regulations as to how lective bargaining agreements. cannot be unilaterally terminated during players and clubs can terminate a player’s the course of a season. Whilst this pro- contract. In England and Wales, there is no statu- vides some degree of certainty to the pro- tory definition of the term “just cause”, fessional in terms of a guaranteed salary, The purpose of this article is to analyse although employers are required to ter- it also presents difficulties for the player both the RSTP and the EU competition minate a contract in accordance with one in the event that they wished to move be- law complaint lodged by FIFPro (the of the five statutory reasons for dismissal; tween leagues that run at different times global players’ union) at the EU Commis- otherwise, they risk the possibility of a of the year. It is also arguably a breach of sion. When football transfers take place, claim for unfair dismissal being brought EU competition law, as discussed further they are determined on the economic val- against them in accordance with the Em- below. ue of the player’s labour and do not take ployment Rights Act 1996. into account the human being involved in Art. 17 of the RSTP is a key article that the transfer. This can be particularly trou- By way of good practice, the contract needs a detailed review. Art. 17 covers the blesome to footballers when they wish to between the player and the club should consequences of terminating a contract terminate a contract. expressly set out the circumstances that without just cause. would be giving rise to the contract being terminated for “just cause” reasons. In Where a party terminates a contract with- The RSTP practical terms, art. 14 is likely to give the out just cause, that party shall pay com- club more protection than the player. pensation. The compensation shall be So what exactly do the current RSTP calculated by considering “the law of state? Art. 15 of the RSTP covers terminating the county concerned, the specificity of contracts in accordance with a sporting sport, and any other objective criteria”. It cause. Broadly, the article allows a player goes on to further state that consideration 1 Solicitor, Bolt Burdon Law Firm, London, where to terminate their contract prematurely on should also be given to the remuneration he specialises in sports law and dispute resolu- the ground of sporting cause, if the player and other benefits due to the player under tion. has, in the course of a season, appeared in the existing contract and/or the new con-

46 September 2016 © Nolot tract; the time remaining on the existing or six months. If the player is an estab- Two days later, Matuzalem signed a three contract up to a maximum of five years; lished member of the representative team year contract with Spanish side, Real the fees and expenses paid or incurred by of the association they are eligible to rep- Zaragoza. Shakhtar commenced proceed- the former club (amortised over the terms resent, then the player can compete for the ings with the FIFA Dispute Resolution of the contract); and whether the contract representative team, if that team is playing Chamber (“DRC”), the adjudicative body falls within a protected period. Particular- in a final competition of an international that deals with both arbitration and dispute ly interesting is that, in the event that the tournament. resolution issues, before an independent professional is required to pay compensa- chairman. Shakhtar sought the sum of € tion, both the professional and the new Consequently, the player cannot play in 25 million, being the buy-out clause in club shall be jointly and severally liable any “friendlies” for the representative Matuzalem’s contract. Matuzalem and for its payment. team and it must also be taken into con- Real Zaragoza disputed the claim and sideration the actual prospect of a player stated that the correct compensation was The protected period is defined in the being selected by the representative team, the sum of € 3.2 million. It is notewor- RSTP as” if say, for example, the player had not thy that throughout the proceedings, both played in a competitive match for three Matuzalem and Real Zaragoza acknowl- “a period of three entire seasons or months. The greater difficulty posed to a edged that Shakhtar were due some com- three years, whichever comes first, fol- player by art. 17(3) is that a four or six pensation, therefore rendering the whole lowing the entry into force of a contract, month restriction from playing in official proceedings to be based on the issue of where such contract is concluded prior matches, is likely to lead to the player be- quantum rather than liability. FIFA did not to the 28th birthday of the profession- ing unable to earn an income to meet the award Shakhtar the value of the buyout al, or two entire seasons or two years, compensation payment. clause and instead ordered that Matuzalem whichever comes first, following the en- and Real Zaragoza pay compensation of € try into force of a contract, where such Art. 17(4) sets out the sporting sanc- 6.8 million plus interest at 5% from July contract is concluded after the 28th tions that shall be imposed on clubs that 2007. The figure was comprised of € 3.2 birthday of the professional”. not only breach a contract during a pro- million in non-amortized purchase costs; tected period, but also induce a breach of € 2.4 million relating to the outstanding Save for the very top of the professional contract during the protected period. The value of the playing contract; and € 1.2 game where long term contracts are en- RSTP state that there is a presumption million in respect of sporting and com- tered into, the vast majority of contracts that any club, which signs a player after mercial losses. will be within the protected period. The that player has terminated their contract protected period is also reset when a con- without just cause, has induced the profes- Shakhtar appealed the DRC’s decision to tract is renewed, extending the period of sional to commit the breach. The club has the Court of Arbitration for Sport (“CAS”). the previous contract, between the club to provide evidence to the contrary. The Shakhtar’s appeal was based on the con- and the professional. sporting sanction imposed on the club is a tractual buy-out clause of € 25 million. In ban on registering any new players, either Matuzalem’s and Real Zaragoza’s joint Making the new club jointly and severally nationally or internationally, for two entire answer, they sought that the compensation liable for the payment of the compensa- and consecutive registration periods. payable ought to be fixed at € 2,363,760, tion could be particularly troublesome for or alternatively, if CAS rejected that argu- the player. It has the ability to lead to sce- ment, the correct level of compensation narios where the new club cannot sign the Matuzalem case should be € 3.2 million. player because of the potential to be jointly and severally liable for compensation to The case of Matuzalem Francelino da CAS ruled that a buy-out clause in a play- the previous club. This would be particu- Silva (“Matuzalem”) highlights the rigid- er’s contract is not determinative of the larly pertinent where the new club did not ness with art. 17 of the RSTP. On 26 June amount the player should pay to the club have the same resources as the old club. 2004, Ukrainian side, Shakhtar Donetsk in the event that the player unilaterally For instance, if the player was playing (“Shakhtar”), paid the Italian side, Brescia, terminates the employment contract and abroad in a lucrative league, but wanted to € 8 million for Matuzalem, who signed a also that the inclusion of a buy-out clause move to a club in a league closer to their five-year contract with Shakhtar in the moves away from the quantification of home and, in willing to move to closer to process. The contract ran from 1 July 2004 compensation in accordance with the fac- home, would end up accepting a contract to 1 July 2009. The transfer fee at the time tors set out in art. 17. Nevertheless, CAS on significantly reduced terms. was a record for Ukrainian football. Matu- ordered Matuzalem and Real Zaragoza to zalem went on to become the captain of pay an increased sum of € 11.8 million In addition to being required to pay com- Shakhtar and was voted their player of the plus interest at 5% from July 2007. To ar- pensation, sporting sanctions can also be season for the 2006 -2007 season. rive at the figure it did, CAS calculated imposed on the player for breaching the that SS Lazio, the Italian club, who loaned contract during the protected period. Art. On 2 July 2007 (the day after the end of Matuzalem from Real Zaragoza in July 17 (3) states that the player shall be sub- the protected period), Matuzalem notified 2007, had an option to buy clause inserted ject to a four-month restriction on playing Shakhtar that he was unilaterally termi- into the contract, for a value of € 13 mil- in official matches and, where there are nating his contract. Shakhtar disputed that lion plus VAT (or € 14 million plus VAT aggravating circumstances, the restriction Matuzalem could unilaterally terminate if SS Lazio reached the UEFA Champions shall last six months. The restrictions shall his contract in the circumstances that he League in the 2008-2009 season). CAS only last during the playing season, so the did and notified him that they deemed his also added the yearly wages that Matu- off season doesn’t count towards the four employment contract still to be in force. zalem would have earned at SS Lazio

© Nolot September 2016 47 over the three year contract to arrive at a football activities. The FIFA decision was most certainly not going to be in a finan- figure of € 21,336,800. Dividing that fig- appealed by both the player and the club to cial position to pay the level of compensa- ure by three (i.e. the number of seasons), CAS and was rejected by CAS. tion awarded. The subsequent imposition CAS determined, would show the value of a worldwide ban against a player for of Matuzalem’s services on a yearly basis Finally, and in an unprecedented move failing to pay such compensation is com- – € 7,112,267. CAS did a similar calcula- for a footballer, Matuzalem appealed the pletely at odds with assisting the player to tion on the basis that SS Lazio didn’t take second CAS decision to the Swiss Federal pay the financial damages. up the option agreement and Matuzalem Supreme Court (“Supreme Court”). In ac- stayed at Real Zaragoza, i.e. total value of cordance with art. 190(2)(e) of the Swiss Another issue with the calculation of dam- € 19,640,000, equating to a yearly value Private International Law Act (“PILA”) ages in accordance with a unilateral ter- of € 6,546,667. an arbitral award may be set aside in the mination of art. 17 is that, in working out event that it is incompatible with Swiss compensation, only the market value of CAS acknowledged that Matuzalem only public policy. After a long run of legal the player is taken into consideration. The had two years left on his Shakhtar con- defeats, Matuzalem eventually came out player’s economic value, derived from tract and therefore the value of his ser- on the winning side, when the Supreme their current or future footballing ability, vices were worth between € 13,093,334 Court ruled that the decision of a sporting as traded and sought after on the football (Real Zaragoza) and € 14,224,534 (SS organisation must be line with the funda- transfer market, is taken into account, but Lazio). CAS deducted the sum of € 2.4 mental values of Switzerland. Whilst the the player as a human being is not taken million (representing what Shakhtar Supreme Court acknowledged that an into account. Although the player may be would have been contractually obliged individual can restrict his own rights by remunerated reasonably well, their ability to pay Matuzalem for the remainder of entering into a contract (or more perti- to pay compensation equivalent to the size his contract) and deducted the amount of nently in this case entering into a contract of their market value is likely to be slim. salary that Shakhtar saved. CAS arrived that incorporates statutes of a sporting as- at an interim value of the services of be- sociation), the restriction of rights cannot tween € 10,693,334 (Real Zaragoza) and be so excessive that it annuls that person’s FIFPro’s EU competition law € 11,824,534 (SS Lazio). CAS took the economic freedom. In deciding whether a complaint mean figure € 11,258,934 and added an restriction of rights is so excessive that it additional indemnity of € 600,000 to re- annuls that person’s economic freedom, Having analysed the RSTP and provided flect that Matuzalem unilaterally terminat- the Supreme Court stated that, if the fate an example of tangible consequences of ed his contract shortly before the start of of one of the parties to the contract is left the RSTP, through studying the case of the season, he was the captain of Shakhtar to the discretion of the other party, or if Matuzalem, the next question to pose is, and had in the previous season been voted it eliminates economic freedom entirely what EU competition law does FIFPro’s the best player. The € 600,000 equated to or to an extent that the contracting party’s complaint state that the RSTP fails to six months of Matuzalem’s salary whilst livelihood is threatened, then the restric- comply with? at Shakhtar. tion is excessive. The Supreme Court ruled that the worldwide ban of Matuzalem for Well, the answer is art. 101 and 102 of the It is important to note that the sum ordered an unlimited period of time because of an Treaty on the Functioning of the European to be paid was approximately ten times inability to pay sum of money that was Union (“TFEU”). Art. 101 broadly pro- Matuzalem’s annual salary. The earning ten times his annual wage was in breach hibits agreements, decisions or concerted potential of a footballer can in certain cir- of substantive public policy. The Supreme practices that prevent, restrict or distort cumstances be attributed to a very short Court, therefore, set aside the second CAS competition within the internal market, period of time. It is difficult to think of decision; however, it should be noted that and, in particular, that have the effect of many other professions where an employ- the first CAS decision relating to the pay- limiting or controlling production, mar- ee would be required (and could afford) ment of € 11,858,934 was not set aside. kets, technical development or invest- to pay their former employer ten times ment. their former salary in compensation. It is Using the Matuzalem case as an example, appreciated that in nearly all professions FIFPro have stated that the application of Art. 102 prohibits the abuse of a dominant an employee’s labour contract is not trad- the so-called principle of “expectation in- position, including any abuse that directly ed as a commodity, as occurs in football, terest” in order to calculate the compensa- or indirectly imposes unfair trading condi- but the gargantuan compensation payment tion that is payable where a party termi- tions. was unlikely to be able to be met by an nates a contract in accordance of art. 17 individual. is a major problem. The issue is that the It is difficult to argue against the fact that party unilaterally terminating the contract FIFA is in a dominant position in relation The player and the club could not afford will be required to compensate the other to football, as there is no other govern- to pay the order of CAS and the order was party by putting them in the same position ing body involved in football that has the appealed to the Swiss Federal Supreme as if the contract had been performed in same power to implement the laws and Court. The appeal was unsuccessful. full. This is how fundamental contractual rules of the game of football. law principles work, in relation to breach As neither the player nor the club had of contract, However, in circumstances On the issue of whether by virtue of the paid the CAS order, Shakhtar commenced where the party unilaterally terminating RSTP, FIFA have prevented, restricted or disciplinary proceedings through FIFA the contract is essentially the economic distorted competition within the Member against the player and the club. On 31 Au- value of the original contract, by way of States of the EU, there is a substantial gust 2010, the player was banned from all their footballing ability, that party is al- argument to say that the RSTP have, be-

48 September 2016 © Nolot cause art. 17 limits the ability of football- Another example of how the RSTP is ar- Conclusion ers to unilaterally terminate their contracts guably in breach of the art. 101 and 102 and, therefore, provides clubs with the is to look at an elite club with exceptional The European Commission has yet to re- option of limiting markets, technical de- resources. In such circumstances, there is lease its decision on FIFPro’s complaint velopment and sources of supply. Should the potential for that club to acquire high and it will be particularly interesting to a player unilaterally terminate their con- numbers of players. However, only eleven see exactly how the Commission will deal tract, then, in accordance with art. 17(1), players can play for a club at any one time with it! the player and new club would be jointly and, therefore, if the club refuses to sell liable for any compensation. That is likely the player (because it may want to retain The introduction of the RSTP was with to limit the player’s potential new clubs the player with a view to playing them in the aim of creating contractual stability to only those that can afford to pay sub- the future), the player is then left in the sit- between players and clubs; however, it is stantial compensation. If a player wanted uation of facing the consequences of pay- clear that it is an unbalanced system that to unilaterally terminate their contract, to ing compensation and a sporting sanction places the clubs in stronger positions than move closer to home (whether that be in – further limiting technical development. the players, which is arguably not in com- the same or a different country) then, if pliance with art. 101 and 102 of the TFEU. the new club closer to the player’s home As a result of the football transfer system, was not financially well off, they would a player’s labour becomes a commodity, There are a number of solutions for mak- make a decision not to sign the player. meaning that only certain clubs have the ing the transfer system more balanced and That would limit the player’s freedom to ability to purchase elite players. Such a flexible for players; these include reduc- move between clubs and it is arguable that system restricts competition in the mar- ing the fees spent on the transfer of players this is in breach of both art. 101 and 102 ket to a small number of clubs and has the and the maximum length of a contract. of TFEU. knock on effect of increasing the value of all players, because the clubs that cannot Should transfer fees be reduced or abol- The imposition of a sporting sanction for purchase the elite players have a smaller ished, it would create more freedom for a unilateral breach of contract within the labour market available to them. It is hard players; increase competition between all protected period of the RSTP, (as set out to see how such a system is not in breach the clubs; and, hopefully, improve the en- in art. 17(3)) is also arguably in breach of of art. 101. joyment of football for the fans. art. 101, as it has the effect of preventing technical development of the player and can limit the availability of players.

Introductory remarks parties. Dr. AR. Lakshmanan, a former forum of dispute resolution in sports was Supreme Court Judge and former Law realized in the case of four athletes, Ash- In 2011, under the directions of the In- Commission chairman, was appointed as wini A.C., Sini Jose, Priyanka Panwar ternational Olympic Committee, the In- the Chairman, and the other members in- and Tiana Mary Thomas. These athletes, dian Olympic Association established cluded M.R. Culla and retired judges, Jus- who represented India at the Common- the Indian Court of Arbitration for Sport tices R.S. Sodhi, B.A. Khan, Usha Mehra, wealth Games and the Asian Games were (“ICAS”). This was a major positive step Lokeshwar Prasad and S.N. Sapra.2 In ac- suspended for a period of one year by the in the jurisprudence of sports disputes in cordance with the Indian Olympic Asso- National Anti-Doping Disciplinary Panel India. ciation, the ICAS was to resolve all sports (“NAADP”) for steroid violations in De- disputes arising in India. The disputes cember 2011.5 During the appeal before The ICAS was to be composed of eight were to be resolved in accordance with NAADP, the World Anti-Doping Agency panelists, who would adjudicate on the the rules and regulations of the Court of (“WADA”) cited several rulings of the disputes that were referred to it by the Arbitration for Sport (CAS) in Lausanne, CAS, while arguing for a more stringent Switzerland. punishment.6 Further, in case of an unsat- isfactory ruling, either party can appeal to 1 Gujarat National Law University, Ahmedabad, Although Dr. AR Lakshmanan gave his CAS.7 Thus, it is seen in practice that CAS India. consent to head the panel, there is no clar- is being approached at an appeal stage 2 J. Venkatesan, “Justice Lakshmanan to head In- ity as to whether the body was properly when the dissatisfied party has exhausted dian Court of Sports Arbitration”, in: The Hindu, 8 5 August 2011, available at www.thehindu.com/ established and is functional. There is no remedies available at the national level. sport/justice-lakshmanan-to-head-indian-court- information regarding any hearings con- of-sports-arbitration/article2322855.ece, accessed ducted by the ICAS. Besides the general- 2 September 2016.. ized statement of following the rules and Enforcement in India of foreign 3 Booz Allen & Hamilton Inc. v. SBI Home Finance regulations of the CAS, there is no proper arbitral awards Ltd. (2011) 5 SCC 532. 4 Prof. Mrinal Satish, “Fight against Fixing: formulation of rules and regulations for Spot-Fixing and the Indian Penal Code”, in: India. This is essential, as unlike the In- The enforceability of foreign arbitral Gamechanger India, 21 June 2013, available at dian Olympic Association has claimed, awards, such as those of CAS, has recent- www.cricketcountry.com/articles/fight-against-fix- the ICAS cannot have automatic territo- ly undergone positive developments with ing-in-cricket-2-of-2-spot-fixing-and-the-indian- rial jurisdiction over all matters arising in the Arbitration and Conciliation Amend- penal-code-28176, accessed 2 September 2016. 5 K.P. Mohan, “Athletes’ lawyer rebuts WADA’s India. Disputes relating to matters, such as ment Act, 2015. Part I of this Act is now contentions”, available at www.thehindu.com/to- doping in sport, cannot be adjudicated on not applicable to foreign seated arbitra- dayspaper/tp-sports/article2921779.ece, accessed by the ICAS in India, as the same come tions. Prior to the amendment, Part I of the 2 September 2016. under the exclusive jurisdiction of the Na- Arbitration and Conciliation Act allowed 6 “WADA appeal another setback for four quarter tional Anti-Doping Authority (NADA) of national courts in India to claim jurisdic- milers”, in: India Today, available at http:// indiatoday.intoday.in/story/wada-appealanother- India. Besides, criminal matters cannot be tion over challenges to a foreign award 3 setback-for-four-quarter-milers/1/172803.html, submitted to arbitration. Hence, the issue and allow courts to make findings under accessed 2 September 2016. of arbitrability of match fixing and spot its own legal system as to illegality of the 7 “WADA seeks two-year ban on Ashwini & Co.“, fixing in sports, where convictions are at- underlying contract, the extent of such il- in: Times of India, avaialable at http://timesofindia. tempted under Section 415 (cheating) of legality and whether it can be enforced un- indiatimes.com/sports/moresports/others/WADA- 4 9 seeks-two-year-ban-on-Ashwini-Co-/article- the Indian Penal Code. der the legal regime of the country. show/11815497.cms, accessed 2 September 2016. 8 Devyani Jain, “Judicial Trend Of Intervention The non-functioning of the panel is clear- Now, a single application for enforcement In Sports Arbitration And Its Future In India”, ly seen from the fact that a recent dispute of a foreign arbitral award would undergo in: Indian Journal of Arbitration Law, Volume I, involving an Indian swimmer was not re- a two-stage process. In the first stage, the Issue I. 9 Koji Takahashi, “Arbitral & Judicial Decisions: ferred to the ICAS, but to the Alternative enforceability of the award, having regard Jurisdiction to Set Aside A Foreign Arbitral Hearing Centre (“AHC”) of the CAS in to the requirements of the Act (New York Award, In Particular An Award Based On An Abu Dhabi. Convention of 1958), would be deter- Illegal Contract: A Reflection On The Indian mined. Foreign arbitral awards, if valid, Supreme Court’s Decision In Venture Global are treated on a par with a decree passed Engineering”, 19 AM. REV. INT’L ARB. 173, available at www1.doshisha.ac.jp/~tradelaw/ CAS by an Indian civil court and they are en- PublishedWorks/SettingAsideForeignAward.pdf, forceable by Indian courts having jurisdic- accessed 2 September 2016. Recently, the relevance of CAS as a global tion, as if the decree had been passed by

50 September 2016 © Nolot such courts.10 Once the court decides that judge-chairperson), the Secretary of the by including deemed consent and the EU the foreign award is enforceable, it shall Department of Sports, the President of TTIP proposal, as well as agreements with proceed to take further steps for execu- the National Olympic Committee (or his Vietnam and Canada, have followed suit.12 tion of the same, the process of which is nominee), shall provide a list of recom- identical to the process of execution of a mendations to the Central Government for Similarly, in the present case of the Tribu- domestic award.11 the selection of the Tribunal. nal in India, the Selection Committee of the Tribunal can be considered similar to The Bill places a bar on the jurisdiction an institution that is nominating the arbi- Other sports ADR possibilities in India of the Tribunal in certain cases. There is trators. Thus, if the parties had the freedom a bar in matters or disputes over which to opt for proceedings under the Tribunal In addition to the current scenario, certain the Court for Arbitration of Sport (CAS) via an agreement, the same would qualify steps for the alternative resolution of dis- has exclusive jurisdiction. This includes as an arbitration. However, a closer look putes arising in sport have been proposed events organized by international federa- reveals that the parties do not have any ac- in India. The first is through the Draft tions, such as the Olympic Games, Com- tual freedom to opt for proceedings under National Sports Development Bill, 2013 monwealth Games, Asian Games. This the Tribunal via an agreement. The ag- (“Bill”). This Bill has not yet been enact- has been done in order to prevent a con- grieved party does not really have a choice ed; however, it suggests a good model for flict between the jurisdiction of the CAS for the forum, as the Bill provides for a bar resolution of sports disputes. and the Tribunal, which can unnecessarily on the jurisdiction of civil courts to enter- prolong proceedings and make them more tain any suit which the Appellate Tribunal The Bill has been formulated to provide expensive. Another bar on the jurisdiction has the power to determine.13 Hence, it for the promotion and development of of the Tribunal is in disputes related to is proposed as the main forum for sports sports and welfare measures for sport- doping. The anti-doping panels constitut- disputes rather than an alternative forum spersons, promotion of ethical practices ed by the National Doping Agency already for arbitration. Thus, whether the Tribunal in sport, including elimination of doping has exclusive jurisdiction in this regard. qualifies as a forum for alternative dispute practices, fraud of age and sexual harass- resolution, is a question that shall be an- ment of women in sport, constituting and However, an important issue that arises swered only when the Bill is passed after establishing bodies to deal with sports dis- with respect to the Tribunal is that the par- any necessary amendments. putes, ethics, elections and athletes repre- ties to the dispute do not have the power to sentation and for matters connected there- select the adjudicators. Thus, the question with or incidental thereto. arises is this process an alternative gov- Cricket disputes ernmental forum, or can this process still The Bill envisages the establishment of qualify as an arbitration? It depends on the The Lodha Committee Report provides a Sport Dispute Settlement and Appel- answer to the following question: is con- a detailed proposal for the formation of late Tribunal (“Tribunal”). The Central sent of the parties to the process more im- a body, regulations, functioning, for the Government is empowered to establish portant to the qualification of “arbitration” resolution of cricket-related disputes. an Appellate Sports Tribunal and can pre- than the option for a party (here the inves- scribe the composition of the Tribunal and tor) to nominate the decision-makers? The Lodha Committee Report proposes its benches; the selection of the members the formation of an ombudsman for the of the Tribunal; the jurisdictional limits We can find an answer to this by analyzing resolution of disputes arising in relation to of the Tribunal; and other administra- the European Union Commission Propos- cricket and the Board of Cricket Control tive matters with respect to the Tribunal. al for the creation of an “Investment Court India (BCCI). The ombudsman shall be A Selection Committee, consisting of the System”. appointed each year at the annual general Chief Justice of India (or his nominee meeting of the BCCI. With the intention Art. 1(2) of the New York Convention of making the ombudsman an independ- specifically envisages the role of arbitral ent body that resolves disputes fairly, the 10 Section 49, Arbitration and Conciliation Amend- institutions in the nomination of arbitra- committee has directed that the ombuds- ment Act, 2015. tors. In 2010-2011, some arbitrators sug- man shall be a retired judge of the Su- 11 Nishith Desai Associates, “International Com- gested that institutions, and no longer preme Court or a retired Chief Justice of mercial Arbitration: Law and Recent Develop- parties to a dispute, nominate arbitrators. a High Court. The ombudsman’s appoint- ments in India”, March 2016, avaialble at http:// In this context, it was stated that no right ment is valid for one year, after which the www.nishithdesai.com/fileadmin/user_upload/ pdfs/Research%20Papers/International_Com- exists to name one’s arbitrator. The Iran- ombudsman may be re-elected. The same mercial_Arbitration.pdf, accessed 2 September US Claims Tribunal appears to provide a person may serve as ombudsman for a 2016. precedent as well. Investors did not nomi- maximum of three terms. This is to ensure 12 Céline Lévesque, “The European Union nate the decision-makers, called “judges”, complete independence in the process of Commission Proposal for the Creation of an but the process relied on the UNCITRAL the resolution of disputes. “Investment Court System”: The Q and A that the Commission Won’t Be Issuing”, 6 April arbitration rules. Inconsistent decisions 2016, Kluwer Arbitration Blog, available at were rendered early on, namely in The The ombudsman has jurisdiction over dis- http://kluwerarbitrationblog.com/2016/04/06/ Netherlands and the USA, regarding the putes of the following nature: the-european-union-commission-proposal-for- issue of whether the Tribunal’s decisions the-creation-of-an-investment-court-system-the- could be enforced under the New York q-and-a-that-the-commission-wont-be-issuing, accessed 2 September 2016. Convention, because of the lack of “an Member, association and franchisee 13 Section 32, Draft National Sports Development agreement in writing”. However, invest- disputes Bill 2013. ment treaties have resolved this obstacle

© Nolot September 2016 51 The BCCI and its members play a crucial lation of rules and regulations. However, at stadiums, may be brought before the role in the governance of the cricketing the matter is not automatically received by ombudsman in the form of a complaint. zones in various States, the Indian Pre- the ombudsman. A complaint may first be This is an important power given to the mier League and its franchisees (teams, filed with the Apex Council, or the Apex ombudsman, as it takes away a substan- such as Rising Pune Supergiants, Mumbai Council may take suo moto cognizance tial amount of small-cause disputes that Indians) and the Cricket Players’ Asso- of such misconduct or breach by its own would normally fall under the jurisdiction ciations. Any disputes arising between or motion. Such cognizance may be taken of the civil courts. It is an important and among the BCCI, its members, or the vari- even on the basis of any report that has one of the most substantial steps forward ous bodies it governs, shall fall under the published the news of the misconduct or towards development of alternative dis- jurisdiction of the ombudsman. breach, and has been circulated. pute resolution in relation to cricket and sport in general. The disputes would automatically be re- Upon receiving the complaint, the Apex ferred to the ombudsman. The procedure Council has to refer it to the CEO of the The procedure for the adjudication of the followed would be submission of argu- BCCI within 48 (forty-eight) hours for a dispute is the same as that followed in ments by both the parties, followed by preliminary enquiry. It is the responsibil- case of breach or misconduct by others, as a hearing. Principles of natural justice ity of the CEO to call for explanations stated above under “Misconduct or breach would be the governing laws to be fol- from the accused persons. The CEO then by others”. It is concerning, however, that, lowed in the resolution of the dispute. The has to prepare a report and submit it back even in matters which are directly involv- ombudsman also has the power to conduct to the Apex Council. The time limit from ing the public, it is the BCCI bodies (Apex enquiries while adjudicating the dispute. the date of reference to the Apex Council Council, CEO) that are going to gather to the submission of the report back to the the relevant facts and evidence that may Apex Council is 15 (fifteen) days. Thus, be used to construct a prima facie case. It Detriment caused by member or admin- the CEO has a minimum of 13 (thirteen) is important to have complete independ- istrator days to conduct the enquiry and submit ence of all the bodies from the main body the report. for effective dispute resolution. The pub- Acts of any member or administrator of lic should be allowed to make their own the BCCI, which may be considered to be The Apex Council, after receiving the re- case before the ombudsman and submit all acts of indiscipline or misconduct, are to port, submits it to the ombudsman. The evidence directly, without the need for the be referred to the ombudsman. Such acts ombudsman then calls for all particulars middle bodies that process the disputes. also include those which may be detri- that may be necessary. The actual cogni- mental to the interests of the BCCI or the zance of the matter is taken by the om- The ombudsman is free to decide the place game of cricket, which may endanger the budsman who has the power to admit the of dispute resolution. The penalties that harmony or affect the reputation of BCCI, matter or drop the charges, depending on can be imposed by the ombudsman are and also neglect or refusal to comply with whether a prima facie case has been made. in accordance with those provided in the the rules and regulations of the BCCI. Thus, the job of the Apex Council and the “Regulation for Players, Team Officials, CEO is simply to collect relevant evidence Administrators, Managers and Match Of- A “show cause notice” is first issued by which may help the ombudsman to decide ficials of the BCCI”. the Apex Council to such accused mem- whether a prima facie case exists. bers on receipt of a complaint. The matter The decision of the ombudsman is final is not taken cognizance of suo moto. On If a prima facie case is found, the ombuds- and binding on the parties. Every decision receiving the notice, members are expect- man is to deal with the matter as expedi- comes into force as and when the same is ed to provide explanations for the accusa- tiously as possible. A reasonable opportu- pronounced and delivered by the ombuds- tions. If the Apex Council does not find the nity of hearing is provided to the parties. man. explanations to be satisfactory, the matter The parties are to make their submissions, is referred to the ombudsman. It is impor- on the basis of which the ombudsman is- All persons who are associated with the tant to note that the preliminary hearing to sues its order. If any party fails to appear BCCI, such as administrators, players, admit the matter is conducted by a body or make submissions, the ombudsman has match officials, team officials, selectors, that is part of the BCCI, and the dispute is the power to issue an ex parte order. if found guilty, shall be expelled by the resolved by the independent body. BCCI. Such persons will have to forfeit It is pertinent to note that, although the all their rights and privileges. They shall Upon referral to the ombudsman, the par- matter is being adjudicated by an inde- not be eligible to hold any position or of- ties are given an opportunity for a hearing, pendent body, the relevant evidence on the fice, or be a part of any committee in the after which the ombudsman issues an ap- basis of which a prima facie case may be BCCI, at any time in the future. However, propriate order. admitted is being collected by bodies that this rule is not applicable to members and are a part of the BCCI. Thus, the practical franchisees. Once expelled, the members and legal effectiveness of this is question- and franchisees may re-apply to the Board Misconduct or breach by others able. after the expiry of three years from the date of expulsion. This is subject to the This gives the ombudsman jurisdiction approval of three quarters of the BCCI over any player, umpire, team official, se- By the public against the BCCI General Body members that are present lector, or any person associated with the and voting. BCCI, who is found to have committed Any grievances by the public in relation any act of indiscipline, misconduct, vio- to ticketing facilities, access and facilities There is a provision for interim suspension

52 September 2016 © Nolot of the concerned member, player, admin- instance without recourse to a long-wind- In all sports disputes, it is important to istrator, match official, team official, any ed and expensive litigation process. How- realise that the career-span of most ath- other member associated with the BCCI, ever, steps had to be taken to bring such letes is extremely limited. Achievement when an inquiry is pending on receipt of a institutions into fruition. of sporting excellence holds primacy of complaint against them. The suspension is place for every athlete. Getting entangled granted by the Apex Council, and remains As the CAS has promoted the AHC in in the long-winded procedural court pro- in force until final adjudication of the mat- Abu Dhabi, which has been set up in as- cess would not serve any useful purpose ter. However, the suspension shall cease if sociation with the Judicial Department of for athletes. Therefore, time bound alter- the adjudication is not completed within Abu Dhabi, similar steps are required to native dispute resolution is one of the key six months of receiving the complaint. be taken to promote the Indian Court of mechanisms whereby sports disputes can Arbitration for Sport. It is believed that, be effectively resolved. if proper steps had been taken to promote Concluding remarks and further the cause of sports arbitration Thus, it is now necessary to implement the within India, then such a specialised tri- Bill, the Lodha Committee Report, and the In conclusion, we can say that, as a con- bunal would go a long way towards ef- ICAS immediately, for the benefit of the cept, the ICAS was a step towards devel- fectively and efficiently resolving sports alternative resolution of sports disputes in oping a niche area of law and efficiently disputes. India. resolving disputes at the earliest possible