Overview
The Tribunal set up under the Football Association (FA) Rule K has issued its award (the 'Award') following the conclusion of a lengthy 5-day proceeding which involved a challenge to the legality of its National Football Agent Regulations (NFAR). The FA Rule K Tribunal found the proposed Fee Cap and Pro Rata Payment Rules to be in breach of the Competition Act, 1998. This article will explore the recently published arbitration Award and its broader significance within the sports ecosystem.
Background
The FIFA Football Agent Regulations (FFAR) were approved in December 2022 with their planned implementation on 1 October 2023. FIFA constructed the regulations in response to “a series of market failures in the agent services market”, and concerns that too much money was “going out of football”; annual agents’ fees recorded on FIFA’s Transfer Matching System (TMS) increased from $131.2 million in 2011, to $654.7 million in 2019, although it must be acknowledged that this occurs in proportion to increasing player wages and transfer fees. Most of the proposed regulations have been widely supported by agents and football stakeholders alike, notably those relating to increased professional standards and improved player welfare. Several of the more contentious regulations have, however, faced strong opposition, the 3% fee cap on agents’ commission (‘Fee Cap’) attracting the most attention.
Opposition from the global agent community has driven ongoing legal challenges across multiple jurisdictions. The first reported legal action occurred in the German national courts in March 2023, assessing FFAR’s compatibility with EU competition law. The subsequent granting of an injunction has seen FFAR implementation delayed in its entirety for any transfer activity involving a party with links to Germany. Ongoing proceedings in other large European markets including Spain and France have prevented the enforcement of FIFA’s 3% Fee Cap. As will be explained in this article, the Tribunal’s findings deem that the Fee Cap and Pro Rata Payment Rules will not be implemented in their current forms in the UK.
Additionally, the Professional Football Agents Association (PROFAA) sought to achieve legal clarity through proceedings at the Court of Arbitration for Sport (CAS). PROFAA’s submission before CAS challenged the legality of the FFAR, notably across Swiss Law and EU Law. In their published findings on 24 July 2023, CAS dismissed all claims filed by PROFAA in their entirety. FIFA publicly welcomed the ruling and stated that the CAS proceedings represent the first in-depth legal assessment of the legality of the FFAR by an independent panel of renowned experts.
Inside the Tribunal
The Tribunal decision involving football agencies, CAA Base, Wasserman, Stellar Football, and Areté Management (the ‘Claimants’), against the FA and FIFA (the ‘Governing Bodies’), over the implementation of proposed rules within the FFAR, sheds light on a contentious dispute over several provisions within the FFAR, now planned to be implemented as the NFAR, these included:
Fee cap provision limiting agent commissions.
Pro-rata payment provision restricting agent payments in case of early player transfers.
Dual representation provision limiting an agent's ability to represent multiple parties.
Client pays provision prohibiting third parties from paying agent fees.
The Governing Bodies argued that these provisions were necessary and proportionate to address identified issues within the football transfer system, such as conflicts of interest, financial transparency, and contractual stability.
The Tribunal employed a structured approach to analyse the proposed rules against competition law, considering:
Whether the rules prima facie infringe the Competition Act, 1998.
If so, whether the rules escape competition law as ancillary restraints under established principles.
If not, whether the rules breach competition prohibitions and if they are objectively justified.
Whether the rules constitute an unreasonable restraint of trade at common law.
Dissecting the Trubunal's analysis
The Tribunal initiated its analysis by asserting that the proposed rules prima facie infringed the Competition Act, 1998, as they directly or indirectly fix prices and trading conditions. Departing from the principle established in cases like Wouters and Meca-Medina, the Tribunal held that the rules do not escape competition law scrutiny, as they are not primarily aimed at preserving competitive balance within the sport, suggesting a departure from the traditional understanding of competition law applied to sporting rules and from the ruling in CAS in FIFA v. PROFFA.
The Tribunal concluded that the proposed rules lacked justification under the Wouters/Meca-Medina approach, emphasising that the rules were more focused on regulating football agents in a purely economic context. Additionally, the Tribunal found a limited connection between the rules and the alleged market failures or objectives claimed by the Governing Bodies. However, the Tribunal still decided to consider whether the proposed rules are reasonably necessary to address the market failures and abuses that the Governing Bodies claim exists in the transfer market.
i) Fee Cap
The Governing Bodies argued that Fee Caps were necessary to address market failures and abuses in the player/transfer system. They claimed that Fee Caps were aimed at reducing financial incentives for agents to engineer transfers quickly, limiting conflicts of interest, ensuring fair and reasonable fees, improving financial transparency, and promoting solidarity between elite and grassroots football.
The Claimants asserted that the primary objective of the proposed Fee Caps has always been to limit fees, benefiting clubs. They argued that the Governing Bodies lack substantial evidence supporting alleged abuses and market failures, emphasising that Fee Caps are neither necessary nor proportionate to address these issues.
The Claimants challenged specific problems purportedly addressed by Fee Caps:
Hidden information problem: Agents exploiting knowledge for negotiation, countered by FA rules and club policing.
Hold-up problem: Agents demanding higher fees under time pressure, countered by player and club consent.
Gatekeeper problem: Agents charging access fees, refuted by existing FA rules and potential harm to agents' long-term interests.
The Claimants argued that none of these problems justify capping fees, as they are adequately policed by existing FA rules, requiring club involvement. The Tribunal's examination of the Fee Cap revealed a historical evolution primarily driven by concerns about excessive agents' fees, rather than a response to alleged market failures or abuses. Key points in this context include:
Restriction by object and effect – by fixing prices and it is increasing the chances formation of a buyers’ cartel (which was never considered by CAS in its ruling);
The origins of the Fee Cap;
Doubts about its legality were raised early in the process; and
The emergence of its purported rationale after its initial development.
Despite Governing Bodies claims of addressing market failures and abuses, the Tribunal found that the evidence on these issues to be unconvincing due to:
Fee Cap restricting competition by object and effect;
lack of a compelling connection between Fee Caps and the alleged market failures or abuses presented by FIFA; and
Fee Caps may inadvertently incentivise agents to encourage more transfers to offset the financial impact of capped fees.
In its conclusion, the Tribunal determined that the Fee Cap lacked justification by a legitimate objective and is not reasonably necessary for such an objective. The decision aligns with observations made by Landgericht Mainz and Landgericht Dortmund, both questioning the necessity and proportionality of Fee Caps in response to alleged abuses.
ii) The Pro Rata Payment Rule
The aspects of FFAR being challenged in this claim relate to Article 14(7) and (12a) which impose restrictions on payment terms, specifically preventing the payment of agent service fees should a player transfer away from a club before their existing contract expires. The Governing Bodies argued that enforcing service fees to be paid in instalments every three months for the duration of a negotiated employment contract will disincentivise agents from seeking a player transfer before the end of their contract, protecting contractual stability and preventing engineered transfers.
The Tribunal found this not to be an adequate and proportional response to the perceived threats outlined by the Governing Bodies and constitutes an object restriction; they amount to a collective fixing of terms by the clubs. They also found the Pro Rata Payment Rules to be a restriction by effect, the Claimants providing sufficient evidence that agents would experience a significant loss in revenue.
iii) Dual Representation
Article 12(8)-(10) of the FFAR prohibits multiple representation in any form other than representation of the player and engaging club, provided that both parties give prior explicit consent. Multiple representation is long-established practice in the industry, a practice which the Governing Bodies claims must be limited “to raise professional and ethical standards by preventing conflicts of interest”.
The Claimants submitted that in so far as multiple representation may, in theory, give rise to potential conflicts of interest, the NFAR proposed restriction is not necessary or proportionate to manage such conflicts, given the agent’s fiduciary duty to act in the best interests of their client under FFAR and the existing FA rules on disclosure.
As to whether the Dual Representation Rule can be considered reasonably necessary to tackle the market failures and abuses identified by the Governing Bodies, the Tribunal found that it is not restrictive of competition by object or effect. The Tribunal assessed that the Dual Representation Rules can be regarded as reasonably necessary for the avoidance of conflicts of interest.
iv) Client Pays Rule
Article 14(2) of the FFAR stipulates that the fee due to an agent is to be made exclusively by the client. The Governing Bodies argued that this is an appropriate means of improving transparency and protecting players who will develop a better understanding of the fees their agent receives. The only possible exception to FFAR Article 14(2) relates to a player whose remuneration is below US $200,000. Current practice involves payment made directly from the club to the agent, notably affording a taxable payroll benefit.
The Tribunal noted that their assessment was brief as they regarded the Client Pays Rule as reasonably necessary for the promotion of transparency; by providing that the person by whom the agent is hired is also the person who pays the agent, the rule ensures that clients are acutely aware of the fees charged by agents, thereby improving transparency and protecting players.
Initial Reactions
Representatives of agencies from CAA Base, Wasserman, Stellar Football, and Areté Management have noted the strong challenge posed by the Governing Bodies throughout the Rule K Arbitration. They expressed their delight at “securing a positive and vital outcome” over the Fee Cap and Pro Rata Payment Rules being found in breach of UK competition law. The Claimants shared their support of regulation in the agent industry but noted a concern that FIFA had overstepped in several instances.
FIFA has “taken note” of the decision and highlighted how it “affects only two of the multiple provisions of the FIFA Football Agent Regulations”. The FA noted that it is “considering the implications of the decision”. The minimal public response from the Governing Bodies in the immediate aftermath is not entirely surprising given the significance of the Award.
The Future
The Award is likely to fuel further debate regarding the harmonised global implementation of the FFAR. The fee cap remains applicable for international transfers under the FFAR, albeit its enforcement is already suspended in Spain and transactions with a ‘link’ in Germany. This ruling in the world's commercially largest football market will encourage legal challenges elsewhere.
Ultimately, we await definitive responses from the Governing Bodies. Complete clarity on the regulatory position is required urgently before the January transfer window. But for now, the Award has added more complexity regarding the uniform adoption of the FFAR across jurisdictions. This unpredictability looks set to continue absent intervention from governing bodies. However, a further catalysing European Court of Justice decision is still forthcoming in 2024/2025.
This also raises difficult questions for CAS and its integrity as an institution. Earlier in 2023, CAS ruled that the FFAR aligns with competition laws. This contrasts sharply with the present finding in England, plus similar conclusions from courts in Germany and Spain. As an arbitration body, CAS derives significant revenue from adjudicating football disputes due to FIFA's recognition of it as the sport's supreme arbitral tribunal. With CAS now potentially perceived as rubber-stamping FIFA regulations across Europe's elite leagues, awkward queries regarding its independence and neutrality appear inevitable. If further rulings continue undermining CAS's past endorsement of the FFAR as competition law compliant, the Court may require a revised, transparent approach to evaluating future challenges to FIFA-imposed rules. Maintaining credibility is paramount for an arbitration institution like CAS that holds monopoly jurisdiction over disputes in football's lucrative market.
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