It is with much pleasure that we welcome readers to the September 2018 edition (citation: GSLTR 2018/3) of our ground-breaking journal and on-line database (www.gsltr.com): Global Sports Law and Taxation Reports (GSLTR).
Once again, association football – the world’s most favourite and lucrative sport – has been dominating the sporting headlines.
Despite the controversy surrounding the awarding of the 2018 FIFA World Cup to Russia, the tournament, which took place between 14 June and 15 July, by all accounts has been a great success. As FIFA President, Gianni Infantino, declared afterwards:
“We said we wanted this to be the best World Cup ever and it’s been the best World Cup ever.”
The event was particularly noteworthy for the fact that, for the first time, VAR – the Video Assistant Referee system – was successfully introduced to deal with four match-changing situations:
– red cards; and
– mistaken identity when awarding a red or yellow card.
According to FIFA, VAR had a success rate of 99.3%, up from the 95% of correct calls made by referees without using VAR. And FIFA’s Deputy Secretary General (Football), Zvonmir Boban, the former Croatia midfielder, who oversaw the VAR project for FIFA, declared in a statement after the tournament:
“As said by the FIFA President, VAR is not changing football, it is cleaning football, and this was our overriding aim when we started the VAR project together with The IFAB. The extensive preparation, both before and during the tournament, coordinated and guided by the chairman of the FIFA Referees Committee Pierluigi Collina and FIFA’s Director of Refereeing, Massimo Busacca, has produced outstanding results and I am proud to have been part of this team.”
Furthermore, the use of VAR also contributed to a cleaner event, in that, as pointed out by David Elleray, IFAB Technical Director, the presence of VAR meant that players would know that they were not able to get away with anything under the new system. As a result, only four players were sent off during the entire tournament, the fewest since 1978.
Also, we have had the summer “transfer window” which, as usual, has produced some surprises. Cristiano Ronaldo has moved from Real Madrid to Juventus in a £ 105 million transfer deal. In the English FA Premier League (EFPL), the “transfer window” closed on 9 August 2018 and a total of £ 1.27 billion was spent!
That figure is down from the £ 1.4 billion spent in the 2017 summer transfer window and the total number of transfers also was down from 384 in 2017 to 282 in 2018.
Another striking feature: the world record fee for a goalkeeper was beaten not once, but twice. On 19 July 2018, Liverpool FC completed the deal for Brazilian national goalkeeper, Alisson Becker, for a then world record fee for a goalkeeper of £ 66.8 million, signing him from Italian club, AS Roma. Approximately three weeks later, on the transfer deadline day, Chelsea broke the transfer record for a goalkeeper with the £ 71 million signing of Kepa Arrizabalaga from Athletic Bilbao. It is quite remarkable that the transfer record for a goalkeeper was broken twice in three weeks, considering that the record had stood since 3 July 2001, when Juventus paid € 53 million for Gianluigi Buffon from Parma Calcio 1913.
Other highlights include:
– Fulham became the first newly-promoted team in EFPL history to spend over £ 100 million in the summer transfer window. Backed by the ambitious Shad Khan, Fulham surpassed the £ 100 million barrier with the deadline day signing of Andre Anguissa from the French club, FC Olympique Marseille, for approximately £ 30 million.
– Tottenham Hotspur did not purchase a single player this summer.
– Wolverhampton Wanderers, with close links to Portuguese super-agent, Jorge Mendes, continued to add Portuguese players to its ranks, with the addition of goalkeeper Rui Patricio and midfielder João Moutinho. Additionally, the club beat its transfer record with the purchase at £ 18 million of Adama Traore from the championship club, Middlesbrough FC.
– Liverpool FC spent over £ 170 million in its pursuit of closing the gap on Manchester City. In addition to the arrival of Alisson Becker, Liverpool also purchased midfielder Naby Keita from the German club RB Leipzig FC for £ 52.8 million; Brazilian midfielder, Fabinho from AS Monaco FC for £ 40 million; and Swiss midfielder, Xherdan Shaqiri, from Stoke City FC for £ 13 million.
– It was a quiet transfer window for Manchester United with only Brazilian midfielder, Fred, signing from FC Shakhtar Donetsk for £ 43.7 million and defender, Diogo Dalot from Porto FC for £ 19 million.
– West Ham United, in its pursuit to win over the alienated fans at the Olympic Stadium, spent £ 36 million on Brazilian midfielder, Felipe Anderson, from SS Lazio FC. Weeks before, the club had broken its transfer record with the signing of Issa Diop, from French club, Toulouse FC, for £ 22 million.
Now, to the articles in this issue.
On the sports legal side, we publish part 2 of Jason Haynes’ major article on “Reappraising the relationship between law and sport: Contemporary questions and issues”. As he points out, the law plays a fundamental role in sporting affairs, whether at the operational, administrative or institutional level, and goes on to reach some thought-provoking conclusions as follows:
“As illustrated in this article, perhaps the biggest conflict, if not travesty of justice, lies in the very definition of “sport”, which the jurisprudence has confirmed is non-negligible physical activity, effectively excluding the game of duplicate bridge, chess and presumably also dominoes.”
Apart from the definition of “sport”, there appears to be an uneasy relationship between law and sport in respect of a number of thought-provoking questions, including:
– whether ordinary negligence or “reckless disregard” is the appropriate standard by which to judge players’ conduct which causes injury in so far as negligence claims are concerned;
– whether there should be a role for the “playing culture” in the determination of criminal liability in respect of sports related injuries;
– whether too much discretion has been afforded to sports bodies in the determination and sanctioning of “disreputable” conduct;
– whether we should continue to trust private sporting bodies to conduct their affairs, without governmental intervention, in light of increasing allegations of poor governance and administration;
– whether the anti-doping regime should be abolished and replaced by “soft paternalism”, wherein engagement in drug use is supervised by trained medical personnel;
– whether intellectual property law should protect actual sporting events; and, finally,
– what is the proper role of international law in the advancement of the rights of players.”
We also include a topical contribution on football players and trademarks on the occasion of the 2018 FIFA World Cup by Amelia Skelding and Timo Haslam. As the authors point out:
“Many IP savvy footballers own registered trade marks to assist the monetisation of their fame. A recent EU court decision ruled that the Barcelona superstar Lionel Messi was so famous that consumers of sports equipment and clothing would not confuse his logo (shown below) with Spanish cycling gear manufacture, MASSI. Messi owns one of the largest trade mark portfolios of all leading players, with 76 registered marks, primarily for his name, his logo and his signature.”
They also cite in their article examples of other famous footballers who have registered trademarks and conclude as follows:
“Trade marks are everywhere: on the pitch, on the player’s kit and now even their names and goal celebrations. The World Cup provides a global stage for the players to maximise their commercial appeal and marketing potential with global audiences of tens of millions of people for each match. With their trade marks and branding protected, the players could focus on the harder task of performing well and scoring at the World Cup!”
We also publish an article on doping in football by Alexander Wild, which concentrates on the situation in Germany. He reaches the following stark conclusion:
“It has to be stated that there is no evidence for systematic doping in the top German football leagues. The opening statement of Mueller-Wohlfahrt, however, does not meet this many-layered issue. Rather one can assume that the current doping control system is simply not as effective as it could be.”
In addition, we include an article by Arjo Klamer and Dolf Segaar on the vexed question of how to address malpractices in sports. In their introduction, they point out that:
“The financial factor has become a threat for sports. While young people all over the world are running across fields, wrestle, jump, skate, play, compete to enjoy themselves, we witness more and more financial malpractices, forms of abuse and exploitation, the influence of drugs, corruption, sexual abuse, and other practices that spoil the game.”
And they raise the following pertinent question:
“…. how to respond to such malpractices……(s)hould that be governmental institutions like courts, or should sports organizations be the ones to take responsibility? And what kind of rules should those responding agencies have to issue?
When all those questions are answered, we can deal with the issue of compliance: that is, how athletes and sports clubs are held to the rules and are controlled for their adherence to, or complying with, the rules.
The situation in the sports world is far from clear right now. We observe a mixture of systems each of which has its own logic. That is why the answer to questions about compliance is far from obvious; certainly, if we compare this sports world with the world of finance, for example, or accounting.”
In the conclusion to their thought-provoking article, the authors recognise the danger of the imposition of laws on the world of sports and observe that:
“Such laws may undo the social fabric that gives sport its special characteristics. Even so, current practices make clear that interventions are necessary.”
And they add:
“A good option is the creation of organizations in which (international) governments and sports organizations collaborate to address certain practices. The foundation of the international anti-doping agency, WADA, is a good example that deserves copying.
As the world of sports may be too resistant to such interventions, because of vested interests and (inter)national complications, (inter)national politicians may have to take the initiative. They can do so because sports serve purposes that exceed the purposes of those who have (only) financial interests in them.”
We include an article by John Wolohan on the regulation of sports agents in the United States. He sets out the purpose and scope of his article in the introduction as follows:
“The purpose of this article is to examine the regulation of sports agents and financial advisers.
The article begins with a brief overview of the history of sports agents in the United States.
The article then briefly reviews some of the most notorious agent scandals, before examining various attempts by governments and sports organizations to regulate the sports agent industry.
Finally, the article concludes by looking at the future of the athlete-agent relationship. In particular, the article explores what sports organizations can do to protect college and professional athletes from agent abuse.”
And he reaches the following conclusions:
“The problem with the agent business is not that all agents are unethical, but simple economics. In particular, there are a lot more people interested in working as agents so there is high demand. However, there is a very limited supply of professional athletes for them to represent. For example, in the five major sports in the United States, there are only 4,374 professional athletes playing at the top level. At the same time, there are over 2,000 certified agents. Because of the competition for this limited resource (professional athletes), it should not be surprising that sport agents, and/or their employees, are sometime placed in unethical situations in an attempt to get an athlete to sign with them.
To offset this economic problem, the sports industry needs to take a hard look at how it regulates agents. While it has moved over the last 40 years from an unregulated free for all, where anyone could negotiate a player’s contract or handle their finances, to a more formal set of regulations, with testing and educational standards, the industry is still ripe for abuse by unethical agents.
The unions and players’ associations need to take a more proactive stance. While they continue to modify their rules regulating agents, the pace is too slow. The sole purpose of the players’ association is to protect their members. Therefore, to protect athletes, it is essential that the unions develop higher standards. While these standards alone will not wipe out agent abuse, they should reduce it.
Finally, only the unions and players’ associations have the power to police agents. Since the CBA (Collective Bargaining Agreement) requires the teams to only negotiate with certified agents, by threatening to withhold certification, the unions are the only group with enough power to enforce change.”
Also, we have an article by Athena Constantinou and Ian Blackshaw on the important subject of building, commercializing and protecting an athlete’s brand. In introducing the subject, the authors make the following points:
“An athlete, by developing his or her personal brand, will be able to monetize the success of today for tomorrow and in the long term.
A well-crafted brand strategy can transform the athlete from a sports-related VIP, to a business-related VIP with a life-time duration.
It is very important to build and capitalize on the athlete’s brand and create proper personal marketing strategies with well-defined branding activities which are in line with his or her financial life plan.
It is also very important to protect legally that brand whenever and wherever possible.”
The authors’ main thesis is that the brands of sports celebrities should be protected from the start of and throughout their careers and continue into their retirement; and they reach the following conclusions in their article:
“The brand value of athletes, the image that has been etched in our minds over time when we hear their names, best measures their power in the world of sports.
The image of sports celebrities has become a tradable commodity nowadays and well-known athletes can influence millions of people and earn significant sums of money for exerting this influence.
Exceptional athletic performance, when combined with a unique personal style and a marketable lifestyle, can shoot an athlete to the top tiers of the sports stardom sphere!”
Finally, Laura Donnellan writes on the controversial subject of the rights and wrongs of cloning champion racehorses. Her article discusses how the cloning of horses emerged and the rules of the British Horseracing Authority (BHA) and the American Quarter Horse Association (AQHA) and also looks at the response of the Fédération Equestre Internationale (FEI) and the animal welfare arguments that have been raised. The position of the European Union and the cloning of animals is also examined, as well as the legal issues that surround the racing authorities’ refusal to register cloned and artificially inseminated horses. Her article concludes with the following interesting comments and observations:
“While a number of equestrian sports have embraced cloning, it is doubtful that horseracing will amend its registration criteria any time soon.
Racing is a global industry that has remained beholden to its traditions.
If cloning were to be recognised by the racing authorities, it would be difficult to justify it on ethical grounds. The recognition of AI and, by extension, cloning by an Australian court would have had decimated the Australian racing industry.
Unless other countries follow suit, the lack of harmonized eligibility rules for racing would have disastrous consequences. It would seem that the rules requiring physical mating will remain in the Stud Book. Short-term studies have shown that cloned embryos are more susceptible to foetal abnormalities.
As cloning is still relatively in its infancy, more medium and long-term studies are needed to accurately assess the impact of cloning on the welfare of animals. Technology is rapidly advancing and the creation of genetically modified horses seems to have received tacit acceptance from the FEI; however, such horses could be in breach of the rules on technological doping.”
On the sports tax side, we include an article by Panagiotis Chr. Roumeliotis on the controversial subject of buy-out clauses in professional football players’ contracts and their tax implications. In connection with football players’ transfers, several financial streams with different nuances take place, such as transfer fees and solidarity payments to previous clubs; sign-on bonuses or a portion of transfer fees to the players; agent’s fees on behalf of the player and/or the club; image rights payments; and, in contemporary times, payments due to buy-out clauses.
As the author of this article observes:
“Each of these transactions should be examined ad hoc, while account should be taken of the fact that, upon such payments, a minefield of tax issues is emerging.”
The article goes on to examine these tax issues and the author concludes as follows:
“Buy-out clauses, [being] prevalent in Spain, […] will continue to [make headlines], bearing in mind their mandatory character, as well as their raison d’être, notably, their aim to dissuade a footballer from taking the initiative to leave the club.
[From a tax point of view,] their qualification and subsequent taxation is not crystal clear, but, […] this could not prevent reaching a conclusion that the destination club’s state should be entitled to tax such flows of income. Should the player be considered resident, for DTC purposes, in the jurisdiction of the destination club, this would be construed as a purely domestic situation, creating no further cross-border tax implications whatsoever.
Should this not be the case, and the player is considered as a tax resident of the jurisdiction where the club of origin is incorporated, a delimitation of the scope of art. 17 and art. 15 takes place. In this respect it is unequivocally deducible that both provisions entail ultimate attribution of taxing rights to the destination club’s state. Accordingly, such tax treatment would take the form of withholding tax on the gross income.
Of course, one should pay heed to the fact that the above-mentioned scenario implies that the player is confronted with double taxation – in his residence State and in the destination club’s State, as the income would be obtained there and, more likely than not, be taxed therein. Nevertheless, relief should be granted by the residence state by virtue of the DTC provisions [configuring such alleviation].”
We also publish another report in our series on the tax implications of international transfers of professional football players. This one is on Portugal and is contributed by João Riscado Rapoula. In it, he deals with various scenarios and also covers the tax treatment, for income tax purposes, of fees paid to an agent involved in the negotiation of the transfer of the player.
We also have a comparative overview of the tax situation relating to international football transfers in Belgium, Switzerland, The Netherlands and Turkey by Eduardo Montejo and Carlos Carnero.
Lastly, we include a timely article, following the recent transfer of Cristiano Ronaldo from Real Madrid to Juventus, by Stefano Oliva and Elio Andrea Palmitessa on some issues for international sportspersons transferring their tax residency to Italy. In the conclusion to their article they make the following points:
“As shown above, the application of the Regime to incoming sportspersons appears advantageous but, to some extent, sticky, since it requires preliminary analysis of the source of the income concerned, in order to test the effectiveness of the Italian substitute flat tax regime for new residents. Nevertheless, the recent transfer of Cristiano Ronaldo from Real Madrid to Juventus stimulated huge discussion in Italy on the potential benefits for foreign footballers transferring to Italy. In his specific case, it seems that benefits may derive generally from the exploitation of image rights and advertising or sponsoring fees sourced outside Italy, rather than from the allocation abroad of part of the employment income received by the Italian club for games played away in the Champions League. The “Ronaldo-case” could, therefore, be a perfect example of the advantages given by the Regime to high net worth individuals relocating to Italy.”
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, and continue to do so, and we hope that more will join their ranks!
So, now read on and enjoy this latest edition of GSLTR.
Dr. Rijkele Betten (Managing Editor)
Prof. Dr. Ian S. Blackshaw (Consulting Editor)