“Show me (less of) the Money!” The proposed football agent reforms
Without question, the ‘flavour of the month’ news item in the world of football right now is UEFA’s decision to hand Manchester City a two-year ban from European club competition and a fine of €30 million. The result of Manchester City’s subsequent appeal to the Court of Arbitration for Sport, whichever way it goes, is likely to have a significant bearing on the future of the sport’s financial regulation and governance structures. However, there is one other intriguing story that could yet result in an altogether different legal battle.
This time, the matter involves FIFA (football’s world governing body) and the trade organisation that represents football agents in England, the Association of Football Agents ("AFA"). After years of agents being able to charge football players and clubs an unrestricted amount for their services (to represent players in contract negotiations and facilitate transfer deals between clubs), FIFA is now proposing to introduce a ‘hard’ cap on agents’ commissions. Rather than analysing the legalities, this article will focus on the regulatory background and consider why football agents are challenging FIFA’s key reform proposal.
In 2014, FIFA decided to partially de-regulate the football agents industry. At that time, one of its key justifications was that only a small number of international transfers were conducted by licensed agents. This supported FIFA’s view that agency representation should rather be a matter for the client – that players and clubs, ultimately, should have a greater degree of discretion in selecting the person they want to represent them. Accordingly, FIFA removed the licensing requirement and instead prescribed a minimum set of regulations for agents to follow and for each national association to incorporate as part of their own regulations. This new regime coined the term ‘intermediaries’ as an alternative for ‘agents’, with FIFA’s Regulations on Working with Intermediaries duly implemented by the English FA’s own identically-named set of regulations. Within its regulations, FIFA suggests recommended (and therefore discretionary) rates of commission depending on which party the agent represents.
FIFA most likely did this in an attempt to improve transparency and to reduce the amount of money ‘disappearing’ from the game. The idea was to delegate responsibility to the national associations, for them to monitor agents’ compliance with the regulations and to have appropriate procedures in place to deal with non-compliance.
Why does FIFA want to reform the current system?
In its press release last month, FIFA highlighted its aim to protect the integrity of football and eliminate (or at least reduce) the abusive and excessive practices that it considers to exist in football. For example, it is concerned by the increased number of agents operating in football. To provide a domestic illustration, at the time of de-licensing in 2015 the number of agents registered with the FA was around 770. Based on the FA’s last published list of FA Registered Intermediaries (at 17 February 2020), there are now 2,278 individual registered intermediaries.
In the same press release, FIFA also drew reference to the increasing amounts of money paid to agents, noting that in 2019 agents earned in total US $653.9m, which equates to four times the amount earned in 2015. This, combined with the increasing number of agents, has led FIFA to acknowledge that the current framework has not improved transparency and reduced agents’ fees in the way it envisaged in 2014. Consequently, FIFA’s Football Stakeholders Committee entered into an investigation and consultation process to identify a series of measures that would improve the existing position, as part of a wider ongoing process to reform the transfer system. The Committee announced the intended reforms in September 2019. The FIFA Council subsequently approved them in October, with implementation anticipated to take place during 2021.
What are the intended reforms?
FIFA intends to re-introduce a mandatory licensing system for agents. This would require agents to be suitably qualified and undertake further education and/or professional development courses in order to retain that qualification. FIFA also intend to install a dispute resolution system and a dedicated department to deal with all agent-related disputes.
The standout amendment is the proposed mandatory cap on commission fees. FIFA is now intending to set the following mandatory caps:
- Where the agent is acting for the player – 3% of the player’s salary;
- Where the agent is acting for the buying club – 3% of the player’s salary; and
- Where the agent is acting for the selling club – 10% of the transfer fee.
Additionally, there will be new rules to regulate conflicts of interest. In other words, FIFA intend that agents will only be able to represent more than one party to a transaction where the agent is acting for both the player and the buying club (permissible ‘dual representation’). In these circumstances, the commission cap would be 6% of the player’s salary.
Finally, all agent commissions would be paid through a centralised FIFA clearing-house (which is being set up for the benefit of transparency in respect of all payments connected to transfers, including transfer fees and any training compensation and solidarity contributions owed to players’ former clubs).
Attitudes to football agents
Among football fans, there has tended to be a long-held negative perception associated with agents and the work that they do on behalf of players and clubs. An assessment of the merits and justification for agents’ existence in the football eco-system is a discussion for another day and perhaps another article in due course. Public declarations by proclaimed ‘super-agents’ regarding the happiness (or unhappiness) of players at their employer clubs, or comments aimed at the management staff at those clubs, have arguably amplified this negative perception. For example, many football fans will be aware of the heated discussion that took place between Mino Raiola (Paul Pogba’s agent) and Simon Jordan on talkSPORT radio last week. Accordingly, the majority of football fans would appear to be supportive of what FIFA is trying to achieve.
As you would expect, the agents themselves take an altogether different view. Last month, the AFA assembled to discuss the proposed reforms and settle on the strategy of a unified challenge against FIFA. This month, another representative body for football agents known as the Football Agents Forum ("FAF") released a strongly worded statement to reassert agents’ general dismay at the possibility of the reforms being implemented in 2021. The message is simple: football agents strongly contest the reform proposals and argue that an insufficient consultation of agents actually took place before FIFA announced its intentions. The agents consider there are valid grounds under competition law that would render FIFA’s proposals unlawful, but remain hopeful that independent legal action can be avoided – either because FIFA can be persuaded to exclude altogether the mandatory cap component of its reforms, or because there is an acceptable alternative solution.
What are the key areas in dispute?
Generally, there does not appear to be much contention regarding the idea of a clearing-house or a re-introduction of the licensing regime, particularly if these measures would help to eradicate the existing perception of a ‘wild west’ marketplace. The requirement for a more professional outlook, and unavoidably a working knowledge of the relevant issues that exist within the game, would likely benefit the players more than anyone else. This appears to be progressive.
The key issue is the mandatory cap. FIFA’s recommended rates already suggest a rate of 3% of the player’s salary where the agent is acting for the player and the same rate where the agent is acting for the buying club. Accordingly, readers might query why agents are particularly dissatisfied at the prospect of those same rates being fixed as a mandatory cap. However, the reality is that many agents and players choose to ignore the recommended rates. In practice, the industry standard has always tended to range between 5% and 10% (or occasionally more), even before FIFA published its regulations in 2015.
The recommended rate where it applies to the transfer fee (where the agent is acting for the selling club) also stands at 3%. Irrespective of the fact that the mandatory cap applicable to this scenario is being raised to 10%, it is important to note that agents do not currently face dual representation restrictions in the same way that FIFA intends once the reforms are implemented. Currently, as long as each party that the agent represents is aware and gives prior consent, dual representation is permissible even where one of those parties is the selling club (provided there is also compliance with the regulations set by the applicable national association).
Why do agents think the mandatory cap is such a problem?
Fundamentally, agents do not think their financial earnings should be subject to a firm restriction, particularly when you contrast the position against agents’ rates of commission in other industries. For example, there is no equivalent hard cap on commission for agents of musicians or TV personalities, or for agents working in other sports (the British Boxing Board of Control’s standard manager contract recommends a rate of 25%). Football agents would argue that they work in a highly competitive marketplace and are further restricted in a domestic context by the maximum permitted length of a representation contract, which is set at two years by the FA’s regulations.
As alluded to above, a key rationale for change by FIFA is the need to address "exorbitant ‘commissions’ being earned left and right". The agents might argue that this is more a natural consequence of a continued increase in player salaries, rather than a dishonest exploitation of an industry standard commission rate.
An industry perspective
There are also several reports (including based on data collected by FIFA’s own Transfer Matching System) which indicate that only a small percentage of worldwide transfers account for the bulk of worldwide total commission. Such evidence suggests there is a higher percentage of worldwide transfers involving agents where the commission amounts are not so exorbitant. In reality, the super-agents that we see operating at the very top of the game (often with an almost celebrity-like status) are a small subsection of the total number of football agents. Certainly, the imposition of a 3% cap would affect their earnings from contracts and transfers (and rightly so in the reasonably held opinion of many observers). However, much less is made of the vast majority of agents who do not earn anywhere close to the same commission amounts as those super-agents.
We can break this down in a domestic sense. High-profile Premier League players tend to gravitate to a select number of experienced, well-established and familiar football agencies, or otherwise a handful of well-networked and trusted individual agents (excepting those players represented by close family and/or friends). Operating below the Premier League, there is a far wider spread of agencies and individual agents ‘earning their stripes’, working with players with lesser salary expectations and a greater insecurity in respect of their footballing futures.
In other words, a 5% commission taken on a high-profile Premier League player’s 5-year playing contract is inevitably more lucrative than the equivalent 5% taken on a journeyman EFL League One player’s 2-year playing contract. In an already competitive marketplace in which players can change agents every two years, some might argue that taking away an agent’s capacity to earn anything over 3% would be more harmful to those agents who do not operate at the elite-level.
The commercial component
The extent of this impact is underlined by the fact that top-level agencies have an additional stream of revenue available to them. Inevitably, higher-profile players are more marketable in respect of brands and sponsors, which means their agents benefit from a separate commercial commission that is not subject to regulation by FIFA. This commercial commission tends to be at a higher rate and closer to what one might expect to see in the case of agents’ contracts with musicians and TV personalities. Therefore, the relevant agent might yet be comforted by the 20% (or more) commission taken on a player’s lucrative endorsement deal with a boot supplier or clothing range, on top of the would-be 3% they would take on their client’s playing contract.
In addition, higher-profile players often have separate and lucrative image rights arrangements with their clubs. Image rights payments to players fall outside the scope of a player’s gross salary (based on the FA’s regulations) and therefore the recommended rate. Again, this offers agents an opportunity to negotiate a higher commission rate on payments that are not subject to regulation by FIFA.
Taking all of the above into account, agents argue that the imposition of a hard cap would put a significant number of its members out of business and more directly affect those agents not known to the everyday football fan. Consequently, there is an argument here that FIFA’s objective to reduce the exorbitant commissions would be more impactful to the agents who are not directly responsible for those commissions.
A case of tough luck?
The everyday football fan reading this might maintain the view that a 3% hard cap is a reasonable solution, irrespective of which agents are affected. FIFA is keen to ensure that more money stays in football. By imposing a hard cap, creating a centralised clearing-house and re-introducing a licensing regime, FIFA will be hoping to see a more professional and responsible network of agents operating in a more transparent marketplace. The intention is that this will give FIFA more oversight in terms of how and where money is being exchanged, with a greater likelihood of reducing the amount of money that FIFA considers ‘disappears’ from the game. For example, FIFA would consider itself better positioned from an enforcement standpoint where payments take place outside of its clearing-house.
Ultimately, FIFA has been clear in outlining its priority – to protect the interests of players and the wider interests of football. FIFA has concluded that the proposed reforms are a "sensible, reasonable, rational, proportionate and necessary" method by which to achieve this outcome. Therefore, FIFA may not be swayed by arguments around the extent to which the intended reforms might disadvantage any subsection of football agents.
Closing comment: is there a solution to suit all parties?
The concept of a gradual hard cap – where the permitted level of commission would increase as the economic value of the transaction decreases – is one approach mooted and seemingly more acceptable to the football agent community. This would more likely ‘smoothe the gap’ between agents operating at the higher end of the game and those working at a lower level, arguably realigning the proposed reforms so that they are more targeted towards those agents who benefit from substantial commissions.
Then again, agents might also accept this approach brings with it some complexities that would need to be resolved before FIFA gives it proper consideration. For example, how might the agent justify (or avoid) taking a greater cut of a lower league player’s salary than a higher-paid elite-level player? In practice, clubs will often meet the player’s payment obligation to his agent on the player’s behalf with the player then paying tax on the payment as a benefit in kind, but that is not always the case.
These are among the types of questions that the agents will need (and may already have) answers to, as they ramp up their efforts to change the direction of the reforms. One thing looks clear, if FIFA seeks to retain the mandatory cap and is unconvinced by any alternative solutions proposed by the agents – it is very possible that we will be witnesses to a second significant legal battle in the football industry in the coming months.
Charles Russell Speechlys strengthens international Sports credentials with the appointment of Benoît Pasquier
Charles Russell Speechlys strengthens international Sports credentials with the appointment of Benoît Pasquier
Henry Cuthbert writes for Law in Sport on Usain Bolt's move to trademark his legendary victory celebration
Trademarked For Success – What Can Athletes Learn From Usain Bolt’s Legendary Victory Celebration?
Charles Russell Speechlys advises Sage on sponsorship deals
Charles Russell Speechlys has advised Sage, a global leader in software technology, on a series of high-profile partnership deals
Private Equity News quotes Darren Bailey on the Americanisation of UK football
“We’re seeing an Americanisation where the matchday is turning into much more of an entertainment beyond just the sporting spectacle”
Private Equity News quotes Darren Bailey on US investment in European football
“Relegation, or a failure to qualify for European competition, can have catastrophic financial implications for clubs in Europe."
Lesley O'Leary writes for The Law Society Gazette on law firm strategy
‘You need to have a frank discussion about the things that matter to clients’
Strike a Pose - Usain Bolt files legendary victory celebration as a trademark
The Financial Times quotes Darren Bailey on the European Super League and the landmark case at the ECJ
“A win for the clubs may well lead to a far more fragmented football landscape"
Charles Russell Speechlys advises Fresh Air Festival on the Bangkok Century Cup 2022
Charles Russell Speechlys advises Fresh Air Festival on the Bangkok Century Cup 2022
City AM quotes Darren Bailey on the European Super League and the upcoming hearing at the ECJ
“The ramifications of the ECJ judgment for the future shape of football… cannot be underestimated".
Nick White writes for Sports Business on the new IP laws to help protect Fifa World Cup rights
How will Fifa’s IP rights be protected?
Update on FIFA-related proceedings in Switzerland
An update on the TV rights appeal trial for the World Cups and the on-going trial against former FIFA president and former UEFA president.
Sports Arbitration Rules and Roster of Dedicated Arbitrators
The Bahrain Chamber of Disputes Resolution publishes a brand-new set of Sports Arbitration Rules.
“Nobody puts Baby in the corner…”
Charles Russell Speechlys celebrates this year’s Sports Technology Awards finalists
The Sports Technology Awards celebrates tech-led innovation in sports, globally.
Liverpool FC’s Hero Club and the current state of play with football NFTs
Liverpool’s Hero Club hit the headlines this week and serves as an interesting reflection of the current state of play.
Rules to be followed by Swiss basketball clubs when hiring players through agents
Swiss clubs that use foreign agents who they know do not have a Swiss employment permit are punishable under criminal law.
Social Tokens: What are the regulatory challenges in the UK?
Social tokens are one of the latest innovations in the crypto space and have grown significantly in recent years.
Richard Davies and Rahim Hirji write for the American Bar Association on tattoos, athletes and image rights
LeBron James. Zlatan Ibrahimović. Mike Tyson. What is the common factor?
Sports Business: Five Current Themes
Nick White goes early with his thoughts on this year's Sports Business themes.