EDITORIAL

It is with much pleasure that we welcome readers to the March 2018 edition (citation: GSLTR 2018/1) of our ground-breaking journal and on-line database (www.gsltr.com): Global Sports Law and Taxation Reports (GSLTR).

The beginning of the New Year has been dominated by the alleged Russian systematic doping scandal at the 2014 Sochi Winter Olympics; association football finance; and new allegations of corruption by the leading international sports federations, including the IOC.

As regards the Russian doping scandal, the IOC imposed life-time bans on several Russian athletes, who were hoping to participate in the Pyeongchang Winter Olympics in February 2018, and these bans were legally challenged before the Court of Arbitration for Sport (CAS). On 1 February 2018, the CAS overturned the bans in 28 cases, due to lack of sufficient evidence, and upheld the bans in 11 cases, but substituted a ban of one edition of the Winter Olympics, namely the one in South Korea, in place of the life-time ban. Details of this CAS decision were posted on the GSLTR website on 2 February 2018. On 6 and 7 February 2018, 32 Russian athletes and 15 athletes, including 2 coaches, respectively filed appeals with the CAS against the IOC decision not to invite them to participate in the Winter Olympics and requested CAS to overturn the IOC decision. On 9 February 2018, the CAS dismissed these appeals, holding that the process established and followed by the IOC in drawing up the invitation list was not a sanction, but an eligibility issue, and was fair and not exercised in any discriminatory or arbitrary manner. Details of this CAS decision were posted on the GSLTR website on 9 February 2018.

On 23 January 2018, Deloitte launched the 21st edition of its annual Deloitte Football Money League (DFML). Manchester United remained at the top, by the narrowest of margins from Real Madrid.

United’s revenue of € 676 million was boosted by their success in the UEFA Europa League and their victory in Stockholm helped them to hold off Real Madrid, who, despite winning the Champions League and their domestic title, fell just short of regaining the Money League top position.

FC Barcelona, Bayern München and Manchester City made up the rest of the top five clubs.

A record ten English clubs featured in the top 20, generating revenues of € 3.8 billion, helped by the fact that the 2016-2017 season was the first of the record English Premier League broadcast deals.

The Deloitte Report is free to download from www.deloitte.co.uk/dfml and includes interviews with some rising stars from the football and esports industry.

 

The DFML in some key numbers:

–  10 – the record number of English clubs in the Money League top 20, the first time any country has occupied half of those positions, with 3 from Italy, 3 from Spain, 3 from Germany, 1 from France;

–  3.4 – the ratio of Manchester United’s revenue in 1st to Everton in 20th, compared with a ratio of 4 in 2015-2016;

–  first time that Southampton have been in the Money League top 20;

–  7 – the number of countries represented in the top 30.

–  135.7 – the difference in £ million between AFC Bournemouth’s revenue in 1996-1997 (£ 1.1 million) and 2016-2017 (£ 136.8 million), where they are in 28th place.

 

The latest auction of the English Premier League TV rights for the three seasons 2019-2022 has been held and has yielded the following results.

As regards the Winter Football Transfer Window, perhaps the highlight was the transfer from Arsenal FC of the Chilean striker Alexis Sanchez to Manchester United in an exchange for the Armenian so-called “playmaker” Henrikh Mkhitaryan.  Although no money changed hands, the Sanchez transfer is reputedly worth £ 180 million. Taking into account his salary of £ 600,000 per week, his signing on fee of £ 20 million, as well as factoring in bonuses and image rights fees, Sanchez is the highest paid English Premier League player to date! On the subject of the football transfer market, the FIFA President, Gianni Infantino, has called for some reforms of the system; in particular, he is concerned about the large sums of money going to football agents, compared with the relatively smaller sums going to solidarity contributions.

Some other interesting football financial statistics from the CIES Football Observatory (www.football-observatory.com) posted on 12 February 2018:

 

No club in football history has invested as much money in transfer indemnities to assemble the squad than Manchester City presently. Despite the loan of Mangala to Everton, the expensive signing of Laporte brought the total squad recruitment cost to a record high of €878 M.

The data for all big-5 league teams is available in issue number 214 of the CIES Football Observatory Weekly Post.

Manchester City outranks Paris St-Germain (€805 M), Manchester United (€747 M) and Barcelona (€725 M). These are the only clubs having spent more than €700 M to assemble their current squad. The economic logic suggests that the next Champions League winners is to be found among these teams. However, while money is important, other factors such as team cohesion can influence the course of events.

The average amounts invested in transfer fees by league and team varies between €97 M for the French Ligue 1 to a record high of €291 M at English Premier League level. The figures in the three other competitions of the big-5 are more balanced: €113 M for the German Bundesliga, €124 M for the Italian Serie A and €131 M for the Spanish Liga. In total, 42 clubs out of 98 have a squad recruitment cost of more than €100 M.

Corruption, like doping, is rarely out of the sporting headlines, and, according to a report published on 31 January in the New York Times, the US Attorney’s Office for the Eastern District of New York Brooklyn is spearheading a widespread investigation by US prosecutors into alleged global corruption in sport.

This is the same office that previously led the investigations into the FIFA corruption scandal and the systematic doping scandal in Russia.

The sports bodies under fire include the IOC, FIFA, IAAF, US Olympic Committee (USOC), as well as leading sports figures who have helped to secure hosting rights for a number of major international sporting events.

The prosecutors have subpoenaed documents, financial records, both corporate and personal, and testimony dating back to 2013.

One of the sporting events involved in this investigation is the Eugene, Oregon, successful bid to host the 2021 IAAF World Championships, which was controversially awarded without any rival bid being invited or considered by the IAAF.

The kind of corruption being investigated by the US prosecutors includes racketeering, money laundering and fraud.

 

We turn now to the articles that we publish in this issue of GSLTR.

On the sports legal side, we publish an article by Markus Manninen on doping, entitled “Proof of source – a prerequisite for an unintentional anti-doping rule violation?” As he points out in his introduction:

According to the 2015 version of the World Anti-Doping Code (WADC), intentional anti-doping rule violations (ADRV) based on the presence of a prohibited substance in an athlete’s sample, the use or attempted use of a prohibited substance, or the possession of a prohibited substance are sanctioned with a four-year ineligibility period. Should the ADRV qualify for an unintentional violation, the default ban is two years. These main rules are stipulated in art. 10.2.1 and 10.2.2 of the WADC […]

Because the finding of intentionality has a considerable significance on the length of the ineligibility period, many athletes defend themselves by strongly putting forth that they have not committed the ADRV deliberately. […]

Generally speaking, […]  in order to be entitled to a finding of unintentional violation, the athlete must establish, on the balance of probabilities, how the substance in question came to be present in their system.

However, in his article, he considers three recent CAS rulings on this important subject in the cases of Fiol, Ademi, and Iqbal, which found that an ADRV may be deemed unintentional even if the athlete is unable to establish the source of the prohibited substance. But he points out that such cases are “extremely rare”.

We include an article by Manuela Macchi on the “Protection of brands at sports events”. As she points out:

Sports events need to capitalise on Intellectual Property (“IP”) to maximise revenue and they have been doing so increasingly [… and] have a strong drive in creating brand equity that can subsequently translate into increased revenue from sponsorship, merchandising deals, and the creation of other spin-off products, such as computer games.

In her article, she seeks to answer the following questions:

what are the challenges for protecting the IP at sports events and how are the parties involved tackling them?

She also considers what forms of IP might be available to protect or exploit major sports events. She also looks at the vexed question of “ambush marketing” and how this form of unfair association with a sports event may be countered, especially through the use of so-called “event-specific legislation”.

We publish a thought-provoking article by Dr. Teng Guan Khoo on race discrimination and sport and how it may be tackled through “positive discrimination”. He puts the case as follows:

In answering this question, it is difficult to adapt to pure equality in sports. Since all countries, including the UK, vary according to individual historical perspectives, the issue is not simply about applying either the theory of strict equal opportunity, positive discrimination or positive action. Rather, it is more a case of adapting the suitable variations of both theories, in order to achieve a political solution; primarily, to resolve the matter of racial inequality whilst avoiding any form of racism towards other races that do not benefit from the solution itself. In the UK, the participation of ethnic minorities in sports, both in participation or management, remains a core issue. Even though a few ethnic minority groups have managed to make it to the playing field, this opportunity remains elusive to the other ethnic groups. More importantly, the management structure of sports governing bodies and professional clubs or associations are still dominated by the indigenous ethnic group. In view of this, clear application of positive action may assist in improving the participation of ethnic minorities within the sporting industry […].

As we mentioned above, corruption in sport, like doping in sport, is an ongoing issue in many sports, not least association football. It even rears its ugly head in the otherwise genteel sport of equestrianism. In her article, entitled “Allegations of misgovernance at the British Equestrian Federation” our resident expert on equestrianism, Laura Donnellan, describes how the British Equestrian Federation (BEF) has recently been the subject of an independent review, following the resignation of its Chief Executive Officer (CEO) Clare Salmon, into significant and serious concerns about the culture, governance and interaction of some of the BEF constituent bodies. In her article, she discusses the events leading up to the resignation of Clare Salmon and the terms of reference of the independent review and also covers the issues raised by these bodies. Her article concludes as follows:

It will be interesting to see what the BEF review reveals and whether Clare Salmon will be vindicated. She succeeded a CEO, who was in office for seventeen years; with all the best will in the world, Salmon was facing an uphill battle in being accepted by the “horsey people”!

We also include an article on the need for a policy in football clubs, especially those of the English Premier League, on the commercialization and exploitation of sports image rights of their players, particularly in relation to the valuation of these rights, for tax purposes. In a joint article by Athena Constantinou, who has developed a sophisticated valuation method, and Ian Blackshaw, the authors argue in their article that, although setting up proper procedures and documenting all image rights arrangements may be a time consuming and cumbersome task for football clubs:

“[…] it seems that this may be the only way to be able to provide an audit trail and enable football clubs to justify and defend such arrangements before any tax authorities which question them, and, as such, well worth the effort and expense.

 

For, as they point out, quite rightly:

“[…] there is so much at stake financially, both for the players and their clubs, in relation to the commercial exploitation of these very valuable image rights.

Finally on the sports legal side, we publish an article on the inexorable rise of “esports” (also written as eSports, e-Sports or e-sports) by Emre Bilginoğlu, our resident expert on the subject. In his executive summary, he sets the scene for his article, writing as follows;

We have witnessed an incredible growth of a new form of sport, electronic sports, known as esports. While debates regarding its definition and nature still remain, those deliberations are quite overshadowed by the massive growth of the esports business.

To comprehend the nature of the esports business and to understand how it has managed to grow exponentially so far, those who are curious about the subject should analyze the rise of esports in all its aspects.

    That is the purpose of this article.

As he concludes:

This article has tried to provide an insight into the crucial elements of esports and how these have played a role in the rise of esports. It seems likely that the rise will go on, as a lot of companies and business people acknowledge how colossal this market is. Viewers enjoy this involvement of more money with more events, media coverage and with products made specifically for fans.

For esports, then, it is a case of “onwards and upwards”.

On the sports tax side, we publish another article in our series on the taxation of international transfers of professional football players. This one deals with the situation in Spain and is coauthored by Eduardo Montejo and Carlos Carnero. Their article covers the tax treatment of the income paid to players and other payments, such as agent’s fees or commission fees, from the point of view of the player and the agent.

We also include an article by Leoni de Boer on determining the “place of supply” in VAT cases, based on a recent Dutch court case of 30 January 2018. In this article, she first considers the facts and legal background and the decision in this case and, subsequently, looks in more depth at the application of the concept of recipient from a VAT perspective. That concept, as the author of the article points out, is not only of importance for determining the place of supply of services; but is also very relevant for taxable persons, in order for them to deduct input VAT on their purchases of goods and/or services, which is only possible in respect of costs for which those persons can be considered to be the recipient of the services concerned. The article concludes with some practical considerations for sports clubs to take into account in such cases.

We also publish an article by Carsten Schlotter and Philip Diffring in our series on the various tax aspects of international transfers of professional football players. This time, we look at the position in Germany. We also include, in the same series, articles on the situation in France by Jacques Messeca and the United Kingdom by Kevin Offer.

Finally, and as always, we would welcome and value your contributions in the form of articles and topical case notes and commentaries for our journal and also for posting on the GSLTR dedicated website www.gsltr.com. A number of you have already responded to this invitation, but, as they say, the more of you who do so, the merrier!

 

Dr. Rijkele Betten (Managing Editor)

 

Prof. Dr. Ian S. Blackshaw (Consulting Editor)

 

March 2018