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Football Agents Regulations: demise of the Fee Cap? – Jeremy Lewis KC

18.12.23

In July 2023, FIFA appeared to have scored a decisive victory before CAS as to the legality of the new FIFA Football Agent Regulations (FFAR).  Less than 6 months later the position looks very different following the decision of an FA Rule K arbitration tribunal.  The decision is a hammer blow at least in relation to the proposed cap on agency fees.  But the story of the FFAR is still unfolding, with the CJEU primed to have its say.

Overview

The FFAR governs transfers with an international element but requires member associations to introduce equivalent national football agent regulations (NFAR) by 30 September 2023.  The English FA delayed introduction of the NFAR pending the verdict of a Rule K arbitration commencing by several sporting agencies in June 2023.   The panel consisted of two former Supreme Court judges and a former judge of the CJEU.  FIFA was a party to the arbitration and therefore bound by the decision.  On 30 November 2023 it was announced that the challenge had succeeded in part.  Detailed reasons were provided on 14 December 2023.

The arbitration concerned four aspects of the FFAR.  Two were found to be contrary to UK competition law, both on the basis of being agreements between undertakings that unlawfully restrict or distort competition and being an abuse of a dominant position:

• The Fee Cap (Art 15(2) FFAR). This provides that agents representing releasing clubs are subject to a limit of 10% of transfer compensation, and agents representing either engaging clubs or players or coaches are entitled to 5% of the remuneration of the player or coach up to US$200,000 or 3% of remuneration exceeding US$300,000, or twice that if acting for both the engaging club and the player or coach.
• Pro Rata Payment (PRP) rules which require payments to be made over the period of the player’s contract and restrict fees to a percentage of fees actually received by the player, and prohibit agents from receiving those fees in respect of any period of an employment contract which is not performed because the player transfers to another club (Arts 14(7), (12)(a) FFAR).

Two other aspects of the FFAR were found to be lawful:

• The “Client Pays” rule which prevents third parties from paying agents on behalf of the player or coach except where an agent represents an individual whose annual remuneration is below US$200,000 (Article 14(2),(3) FFAR).
• Restrictions on multiple representation, such that a football agent cannot act for each of the releasing club, engaging club and the play (though they may act for the player and the engaging club in the same transaction with the explicit written consent given by both clients) (Art 12(8),(10) FFAR). There was no challenge to the prohibition on acting for the player and releasing club.

Fee Cap and PRP rules: The core reasoning

The case was based on Parts 1 and 2 of the Competition Act 1998 (corresponding to Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU)) and on common law restraint of trade principles.

Part 1 of the 1988 Act concerns “agreements between undertakings” and “decisions by associations of undertakings” or concerted practices which “have as their object or effect the prevention, restriction or distortion or competition within the United Kingdom”, including agreements which “directly or indirectly fix purchase or selling prices or any other trading conditions” (s.2).   Part II is concerned with abuse of a dominant position.  It was accepted that the question of whether there was an abuse would stand or fall with the analysis under Part I (and found that the FA had a dominant position in the market for agents services in England as an emanation of the clubs [398]).

As to the Fee Cap and the PRP rules, the Tribunal reasoned in relation to Part I of the 1998 Act that:

4. The decision by the FA and FIFA to adopt the NFAR and FFAR were decisions of an association of undertakings and also agreements between the undertakings (clubs) who are the members of the relevant leagues (since membership entails an agreement by the club to abide by the rules)[1].
5. The rules in question were prima facie capable of restricting competition.[2]
6. It was therefore necessary to determine whether the rules under challenge escape the application of the competition rules pursuant to the “Wouters/ Meca-Medina[3] principle” or otherwise as “ancillary restraints”.  This permits an agreement which is restrictive of competition to be justified as being inherent in the pursuit of legitimate objectives and proportionate to them[4]. As to this:
   • The sporting expertise of the FA and FIFA would be taken into account in relation to whether they could reasonably have considered that a regulation was necessary. However the Tribunal would still need to verify that there was evidence to support the finding that the regulation was necessary to achieve the legitimate objective.[5]
   • The Wouters/ Meca-Medina principle applies to financial restrictions designed to preserve competitive balance and to protect the integrity of sporting competition such as FFP rules[6] or a salary cap[7] or doping restrictions[8]. However the Tribunal distinguished this from the provisions under challenge which were not seeking not regulate sporting activities but to regulate prices and associated terms or who should contract with agents.  It concluded that these restrictions did not fall within the Wouters/ Meca-Medina [9]
   • Even if the Wouters/ Meca-Medina principle applied, the Fee Cap and PRP rules were not reasonably necessary to address the alleged market failures and abuses asserted (such as agents keeping information from client, agents holding up transfers to improve their bargaining power, or engineering transfers):
     • It was argued that the Fee Cap would reduce financial incentives for agents to arrange as many transfers as possible as quickly as possible and enhance contractual stability and thereby protect competitive balance and avoid abusive, excessive and speculative practices. However the Tribunal concluded that the changes had in fact been driven simply by a view that agents’ fees were excessive, that the evidence of the alleged abuses and market failures was not compelling and in any event the Tribunal was not persuaded that there was any justifiable connection between a fee cap and the claimed abuses and market failures [221].  On the contrary, a fee cap would incentivise agents to recoup the difference by encouraging more transfers.
     • Nor was the PRP rule an adequate or proportionate response to the perceived threat of agents encouraging their clients to leave clubs before the end of their contracts [257-258].  An early move to another club may be in a player’s interest, and in any event there was no evidence that abuse consisting of engineering transfers was so common as to make it necessary to make agents’ fees contingent on the subsistence of a player’s contract.
7. By their nature the Fee Cap and PRP rules had the object[10] of restricting competition and in any event had that effect. CAS had reached a different view about the Fee Cap but that was down to analysing it as a vertical restraint (applying to a reseller and referring to competition below the cap) rather than a horizontal price agreement limiting restriction between clubs.  Equally the PRP rules had the avowed objective not only of changing the method of remuneration of agents but also disincentivising and reducing economic activity by them, by discouraging them from encouraging or participating in transfers before the end of the contract period.[11]
8. Section 9 of the Competition Act provides for exemptions if four cumulative conditions are made out. However in the Tribunal’s view, neither the Fee Cap or PRP rules meeting the first condition of an objective improvement in production or distribution.[12]

The Client Pays rule and the multiple representation restriction

Neither the Client Pays rule nor the multiple representation restrictions were found to have the object or effect of restricting or distorting competition.  Neither had a similar impact on remuneration of agents to the other two rules challenged.  The multiple representation restrictions occurred only in a small proportion of cases and so did not have an appreciable effect on competition.[13]

The Tribunal therefore turned to whether they were unenforceable under common law restraint of trade principles.  Since they were prima facie in restraint of trade, they needed to be reasonable with reference both to the interests of the parties[14] and the public.   The Tribunal accepted that recourse to the common law was not excluded by the Competition Act.  That is unsurprising.  It is one thing to regard legislation as blocking further development of the law, as in restriction of contractual remedies for fairness of dismissal following Johnson v Unisys [2003] 1 AC 518 (HL).  It is another to regard it as excluding well established existing public policy principles as in the common law restraint of trade principles. There were no inconsistent remedies that were so substantial that Parliament could have intended that the common law remedy should not have survived.[15]  However both restrictions were found to be reasonable: the restriction on multiple representation reduces the risk of conflicts of interests and the Client Pays rule ensures that the player/ coach is aware of fees being charge by the agent [402].

Comment

The decision of the Rule K Tribunal is binding as between the parties to the arbitration, which included not only the FA but also FIFA.  There is no right of appeal (Rule K10.2).  The FA may now update its current Working With Intermediaries Regulations so as to bring on broad the relevant provisions of the FFAR other than the Fee Cap and the PRP rule.

However the arbitration is unlikely to be the last word as to the validity of the rules, at least outside of England or in relation to provisions which were not considered in the arbitration.  Following a referral by a Regional Court in Mainz, a case is pending before the Court of Justice of the EU as to whether several aspects of the FFAR (Case C-209/23), including but not limited to those challenged in the arbitration, are contrary to, amongst other provisions, Articles 101 and 102 of the TFEU (on which Parts 1 and 2 of the Competition Act 1988 are based).  Indeed in several respects the challenge to the new rules is significantly more wide-ranging.  The prospect remains of a CJEU ruling upholding one set of rules applicable across the EU, but which cannot be enforced in England as least as between the parties to the arbitration.  But the viability of a twin-tier systems is questionable at best, given that according to a FIFA report published in December 2022[16], out of a total of US$622.8m spent on intermediaries in 2022, almost a third (US$203.2m) was spent by English clubs.

Beyond the impact on football agents, an issue arises as to whether it may be possible to draw on aspects of the reasoning in support of other regulatory challenges.  In considering whether to accept the measures were necessary in order to promote legitimate objectives, the Tribunal reasoned (at [191]) that:

“The view of the Tribunal is that the regulatory authority in a case such as this plainly does not have a margin of appreciation in the sense of public law, because it is not a public body. But a court or tribunal, which is not expert in sport, may consider, as the Court did in Wouters in relation to professional associations, whether a sporting authority could reasonably have considered that a regulation was necessary, but it needs, nonetheless, to verify that there is evidence to support the finding of necessity.”

Broadly, therefore, the approach was not simply to defer to the assessment of sporting authorities, but to test whether a regulation which has the object or effect of restricting competition was necessary for a legitimate objective.  Indeed the Fee Cap restriction was found to be likely to undermine the stated objectives.  The Tribunal’s reasoning points however to caution in deploying it more widely, given the distinction drawn with cases, such as in relation to FFP or a salary cap in rugby.  The Tribunal considered that the Governing Body would have more latitude where measures could be regarded as more rationally concerned with preserving a competitive balance and protect the integrity of sporting competition.

That may not be a full answer to wider regulatory challenges seeking to test the evidential basis for restrictions and whether they are necessary for their stated legitimate objectives.  One instance is restrictions on owner investment, which may be said to insulate successful or wealthy clubs from new competition, whilst adopting measures going beyond what is necessary to ensure sustainability.  After all, there is a certain irony that the rules held to be invalid were found to be driven by a concern as to excess sums flowing out of football to agents, whilst at the same time other rules restrict funds flowing into football through owner investment.

JEREMY LEWIS KC

[1] [161] – [164].

[2] [165] – [168].

[3] Referring to the CJEU decisions in Case C-309/00 Wouters v Algemene Raad van de Nederlandse Orde van Advocaten [2002] ECR I-1577 (concerning regulations by the Netherlands Bar) and Case C-519/04P Meca-Medina v Commission  [2006] ECR I-6991 (concerning IOC anti-doping rules).

[4] [169] – [177].

[5] [183] – [192].

[6] Queens Park Rangers v English Football League (Football Disciplinary Commission panel, 19 October 2017).

[7] Rugby Premier League v Saracens Ltd (4 November 2019)

[8] As in Meca-Medina.

[9] [193] – [202].

[10] An “object restriction” refers to types of coordination between undertakings which by their very nature can be regarded as sufficiently harmful to the proper functioning of normal competition that there is no need to examine their actual effects on the market.  Where established there is no further need to show an appreciable adverse impact on competition (see [265] to [276]).

[11] [277] – [329].

[12] [374] – [383].

[13] [330] – [373].

[14] More fully they must be no more than reasonable required by the parties in whose favour the restriction was imposed to protect their legitimate interests: see eg Quantum Advisery Ltd v Quantum Actuarial LLP [2022] 1 All ER (Comm) 473 (CA) at [62] – [65].

[15] [403] – [406].

[16] Intermediaries in international Transfers 2022 https://www.fifa.com/legal/media-releases/fifa-publishes-2022-intermediaries-in-international-transfers-report