How Footballers May Use the Data Protection Act 1998 to Protect Image Rights

Recently, the Data Protection Act 1998 (‘DPA’) has increasingly been invoked by claimants attempting to prevent unfavourable publications about them. Yet, though possible, the DPA has yet not been extensively used to protect a claimant’s image rights. As has already been explained in this blog (see here), English law does not protect image rights per se, instead the only recourse to famous persons (including footballers) is through privacy, defamation, or passing off law. However, the DPA, could be another potential route for claimants.

Personal Data

Any photographs or videos taken of a footballer are capable of identifying him, and are therefore potentially ‘personal data’ for the purposes of the DPA. The footballer would therefore be a ‘data subject’. It has to be said, that a player cannot prevent pictures or videos of himself being shown or used by official media partners of the competitions he plays in or the club he plays for. The player’s playing contract and the rules of the competition, which a player agrees to adhere to, will contain provisions explaining the purpose for the processing of the data (i.e. the photos/videos taken of him). For example, the rules of a major football competition will explain that photographs and film footage, including live footage, are required to be taken for the purposes of promoting and broadcasting the event to live audiences. By virtue of agreeing to play football under the terms of his contract and the rules of the competition, the player will accept to this processing of his personal data.

However, the player may be able to prevent third parties from using images identifying him, even if such photos are taken during a football match that is viewed live by millions of people. Ultimately, therefore, the DPA has wider reaching implications than the law of privacy. It is necessary to distinguish between a general shot taken at a football match that incidentally includes a footballer, and shots focusing on one player. In the first case, the photo is unlikely to be considered to be his personal data for the purposes of the DPA, however photos or videos clearly focusing on one player are certainly capable of being personal data.

Processing of Personal Data and the Data Controller

For the purposes of the DPA, any storing of personal data and any use of them, whether or not for commercial purposes, is considered to be ‘processing’ of that data. Any person or entity exercising overall control over the purpose for which, and the manner in which, personal data is processed, will be deemed to be a ‘data controller’ for the purposes of the DPA. The data controller has to process all personal data in accordance with the Principles of the DPA and all of the other provisions contained in the Act.

In particular, all data controllers need to make sure that they comply with, inter alia, Principle 1, Principle 2, and Principle 6 of the DPA, meaning that they are processing data fairly and lawfully; only obtaining data for one or more specified and lawful purposes; and processing personal data in accordance with the rights that the data subject has under the DPA. It is quite obvious that where a third party obtains images and/or footage identifying a footballer without the consent of the footballer, the third party will be in breach of the principles of the DPA.

What are the options for the Footballer?

Pursuant to s.10(1) of the DPA, the footballer who is a data subject by virtue of photographs or film footage processed by a third part, can request the third party to cease to process the photos or videos if there is no legitimate purpose to the processing. As discussed above, a third party using the image of a footballer is unlikely to show that the use (and therefore processing) of the images is for a legitimate purpose.

The footballer would also need to show that the use of the images or footage is causing him or is likely to cause him substantial damage or substantial distress. Where images or clips of footballers are used for commercial purposes without the footballer’s consent, potential or actual substantial damage would be easy to argue, as the player is missing out on royalties or other payments he would have received had his image been similarly used under an endorsement or sponsorship agreement.

Finally, it must be shown that the substantial damage or detriment is unwarranted. In the case where images are being processed without the player’s consent and there is no legitimate purpose to the processing, any damage which is caused would clearly be unwarranted.

Applications of the DPA

As suggested above, the DPA could be used as an alternative to or as supplementary to a claim of passing off in a case where a footballer’s image rights are being infringed. Potentially, a claim to cease processing of personal data under s.10(1) of the DPA could have wider implications that a passing off claim as, unlike in passing off, under the DPA a claimant would not need to prove goodwill in his image.

Where the photos or footage are processed for a journalistic purpose, including the writing of a report of a match, or reporting on another issue, the s.32 exemption of the DPA would apply and the data controller would be exempt from the provisions of the DPA when processing the data. However, in this case, the burden of proof would be on the data controller to show that the data is being processed in view of a potential publication; must show that he reasonably believes that publication would be in the public interest; and that compliance with the provisions of the DPA is not compatible with processing of the data for the journalistic purpose. In short, s.32 of the DPA aims to preserve freedom of speech, and importantly applies even in the case where the data controller is not an actual media publisher. Therefore personal bloggers or other organisations writing news reports would be covered by the exemption.

Conclusion

The increased use of the DPA in privacy and defamation related cases has shown that the DPA is finely balanced in being claimant friendly but also preserves the freedom of speech of journalists. However, as has already been emphasized above, where image rights are infringed for commercial purposes, a claim under the DPA could be a very strong option for image rights owners.

By Andi Terziu

Update on ‘buy-out clauses’

Presuming that a player has negotiated the insertion of a ‘buy-out clause’ into his playing contract, why is it that that footballer must himself pay the sum required to activate the buy-out clause? Can a clause not be drafted so as a bid of a certain value made by a third party club for a player, must be accepted by the player’s current club? Theoretically, such ‘release clauses’ can exist, but their enforceability in English law is not certain.

The fundamental principle of privity of contract would mean that the third party club, who is not privy to the footballer’s playing contract, cannot enforce the clause if the current club decides to reject a bid equal to any sum purported to release the player. This is especially the case as any playing contract would expressly exclude the rights of third parties arising out of statute. As the third party club cannot enforce the clause, it would be entirely up to the discretion of the current club on whether to accept a bid or not. Uruguayan striker Luis Suarez had a similarly worded clause in his previous playing contract with Liverpool FC, which purported that a bid of at least £40,000,000 must be accepted. However, when Arsenal FC made a bit of £40,000,001, Liverpool chose to reject the bid, presumably after being advised of its unenforceability.

One way, around the problem could be a drafting which puts an obligation on the current club to inform the player once a bid which is at least equal to the agreed sum is made. The player would also need to ensure that it is expressly stipulated on the contract that he can enforce the clause in the English Courts without needing to prove a breach or damages (an indemnity of sorts). As such, using the Suarez example, if the drafting had been slightly different so as to implement the above mentioned variations, Liverpool would have been under an obligation to inform Suarez once Arsenal made the bid, and knowing that Suarez has a contractual recourse, Liverpool would have been under pressure to accept. Of course, ultimately Liverpool could have still refused to accept the bid, but in this case Suarez would have been able to enforce the contract by bringing a claim in the English Courts.

 

 

By Andi Terziu

Image Rights protection of Footballers in English Law and how it can be Improved

The protection of the image rights is important for footballers as their ‘image’ is a major source of income – most top sports people are able to augment their income from the sport through endorsement of products and sponsorship. For this to occur they have to exploit the ‘image’ they have enhanced through their sporting reputation. As a result, the player’s image needs to have some protections so as the player reaps the reward for his own reputation.

The main issue is that, unlike in certain jurisdictions, such as the USA and Gurnsey, image rights are not usually directly protected in English law. Historically, images rights have been protected by English Courts by application of contract law principles (in 1848 Prince Albert’s drawing of the royal children and of the royal dogs could not be published without his consent – Prince Albert v Strange (1848) 64 ER 293), and through the law of breach of confidence (in 1888 a modest portrait photographer could not advertise his skills by displaying a portrait of a lady without her consent – Pollard v Photographic Company (1888) 40 Ch D 345).

The English Courts have generally supported the principle of freedom of expression and have argued that true events should be generally published. Very rarely have the courts deviated from this principle, though intellectual property can be said to be the main form of encroachment to the freedom of expression. However, though intellectual property is said to promote innovation that benefits the public at large, image rights, it can be argued, benefit the individual without benefiting the public. Though, as football continues to grow internationally, and as more international stars arrive to ply their trade in these shores, the idea of a need to give more protection to the image rights of the player in England gains support.

One current route for safeguarding image rights is through the protection of private information following the principles established in the Campbell v MGN and developed in Mckennitt v Ash. By way of example, in Douglass v Hello! the photos taken at a wedding were held to be private information that could be protected. However, privacy law only offers limited protection. Photos taken of a football player in public may not be protected as private information. As such, any photo of a live match cannot be protected as it is clearly already in the public domain. This means that anyone could use a photo they have taken during a live match to promote or endorse their product without breaching the law of protection of private information.

Similarly, though a claim in defamation may be another route to protect a player’s image, it is also limited to situations where there is something in the photo that lowers the estimation of the footballer in the eyes of the reasonable member of the public. By way of example, in Tolley v JS Fry & Sons Ltd, an amateur golfer appeared in an advert for chocolate manufacturers with a chocolate bar sticking out of his pocket. He had not agreed to the endorsement and argued that the photo compromised his amateur status as it suggested he was endorsing chocolates. Clearly, defamation can only be a recourse in a case which has a special set of facts. Just as the law of privacy, therefore, defamation offers only a limited protection for image rights.

Under English Law, the best current method of protecting is a claim under the tort of passing off following the case of Irvine v Talksport. In this case, a racing driver could show that his fame and reputation as a sportsman amounted to goodwill as he could be recognised due to his image and this enabled him to obtain an income through sponsorship or endorsement. Therefore an unauthorised use of his likeness in a doctored photo showing him holding a radio with the logo of radio station Talksport on it, amounted to misrepresentation of the public. This misrepresentation was held to have caused damage to Irvine, as he lost the ability to make money by way of royalties through a similar endorsement.

A better protection for image rights would involve the creation of a registration system, similar to that of the trade marks register. A similar system has been introduced in Gurnsey law, and a look at it will reveal the advantages it has over the current approaches in English law.

Under the Gurnsey image protection system, any individual or legal entity who has lived or existed within the last 100 years, any groups of persons who are linked in a common purpose (a good example could be the so-alled ‘class of 92’ of Manchester United players) or any fictional human character would be a registrable personality. Registered images, including names, signatures, characteristics, likenesses, gestures, photographs and illustrations, may be registered in relation to the said personality. An image can be registered if it has actual or potential value and is distinctive in that it is recognised as being associated with the registered personality by a wide sector of the public in any part of the world. By way of example, Gareth Bale could register his heart shaped celebration as his image right, and could protect it more widely than through his trade mark registration of the said celebration, since uses of images of the gesture can be prevented even if they are not used for the purpose of trade.

One major advantage of such a registration system is that the registration of the personality would covey a monopoly property right over the registered images, which is prima facie proved simply by reference to the register. Therefore, once registered, images will be presumed to have value and be distinctive, and it will be up to the defendant to rebut the presumption. As a result it is better for the proprietor to register as many images in relation to their personality as possible. The Gurnsey system is a hybrid of English copyright and trade mark law. The registration process and criteria involve absolute and relative ground examination, and, in order for infringement to be shown, the purported infringing image would need to be (1) identical to the registered image; (2) confusingly similar to the protected image; or (3) similar to the protected image and takes advantage of or is detrimental to the distinctive character or repute of the registered personality. On the other hand, defences such as ‘fair dealing’ are available where an image is (1) used for reporting news or satire; (2) is included incidentally; or (3) is used in relation to goods or services offered to consumers with the image owner’s consent. The more extensive protection of the image rights in Guernsey clearly make the registration regime favourable to current possible passing off action.

Currently, it would not be possible for a sports person to register their personality and images related to it in the Gurnsey registry and then enforce it against infringement in the UK. However, the wider protection given by registration, make the method of protection more attractive than the current protection under English law. As such, it would be an advantage to introduce such as registration system in English Law in the future.

 

By Andi Terziu

 

Sponsorship Revenue of Football Clubs

Introduction to the business of Football Clubs

Firstly, it needs to be said that Football is not a profitable industry as such. It generates a lot of revenue (it is a big ‘money spinner’ – according to the Deloitte ‘Money League’, for a football club to gain a place as one of the top 30 highest revenue making clubs in the world, it had to generate in excess of €100m), but very few football clubs actually make a profit every year.

Even where profit is made, very few clubs pay out dividends to the owners. Usually profits are reinvested into the football club for use in paying wages, player transfers and other expenditure. (Football clubs generally spend about 60-70% of their revenue on wages, and sometimes a sizeable amount in paying transfer fees to recruit new players.)

Taking the example of Chelsea FC, their most recent figures for revenue in the 2012/13 financial year was €303.4m, yet they had a pre-tax loss of around £49.3m. Similarly, Manchester City had revenue of €316.2m, yet made a loss of over £90m for the same financial year. In fact the 20 English Premier League clubs made a loss of £291m collectively in 2012-13. Only 8/20 PL clubs recorded a profit in 2012/13, most of this being nominal in comparison to the size of the revenue.

Clearly Football is not a business where the owners invest capital for short-term gain, or sometimes for any direct gain at all.

In fact, since the introduction of the Financial Fair Play rules by the European governing body UEFA, which ultimately mean that the owners of a football club cannot inject capital freely into the clubs they own (so as to promote self-sustainability of the football clubs), the amount of money that clubs can ‘borrow’ from their own owners has decreased.

The sources of Revenue

There are three main ways in which a football club ‘makes money’:

1. The Matchday revenue and merchandising (for example through the sale of tickets and other related packages that all adds to the match-going experience)
2. Broadcasting income
3. Corporate sponsorship

Out of the three main sources of income, Matchday revenue is stagnating. Football clubs have already been charging very high prices, hence much further increases are not possible without driving fans away from the stadiums.

Broadcasting revenue is rising rapidly, with the broadcasting rights to live football matches being bought by TV companies for ever increasing amounts of money – recently Sky and BT spent £3.018billion on the right to show live Barclays PL matches until 2016. Most of this money will be paid out to the clubs on a sliding scale depending on the position they finish in the League up until the 2015/16 season.

Sponsorship:

However, our focus is on probably the most lucrative of the three types of incomes: corporate sponsorship.

As the popularity of the sport has increased, all the major companies of the world want to be associated with the sport so as to increase the exposure of their own brand to the football fans. The companies are willing to spend a lot for the chance to be associated with football.

It is not just football clubs who are sponsored by the large companies, but the football competitions themselves have major sponsors which are their main source of revenue. For example the English premier League is sponsored by Barclays, the rest of the Football League (making up the lower divisions) is sponsored by Sky Bet, the FA Cup is sponsored by Budwiser, the League Cup sponsored by Capital One, and the UEFA Champions League has 6 major sponsors including Gazprom, Sony and Heineken.

Commercial sponsorship is a major part of the revenue of the clubs. For example, 55% of German Club Bayern Munich’s revenue of €303.4m is generated from commercial activities. Furthermore, PSG’s (Paris St Germain) commercial revenue of €254.7m is the record amount a football club has ever earned in one season through sponsorship related streams.

The major methods of sponsorship in football are usually:

• Selling the naming rights to stadiums (for example Arsenal have been receiving major sponsorship revenue from Fly Emirates in consideration for naming their stadium the Emirates Stadium until 2028. Similarly, Manchester City receives sponsorship revenue in exchange for naming their stadium the Etihad Stadium, and Bayern Munich also receive sponsorship income due to selling the naming rights to their stadium to German Insurance giants, Allianz).
• Kit sponsorship (all clubs are sponsored by major kit manufacturers in order to wear kits produces by them. Currently the largest deal is Chelsea FC’s Adidas sponsorship of £30m per year for the next 10 years, though Manchester United are close to agreeing a larger deal).
• Shirt Sponsorship (Clubs sell the right to advertise the logo or name of a company in their football shirt).
• There are also many other minor sponsorship methods. For example a club may have a designated airline, designated energy partner, etc. However, the amount of revenue the club receives from these minor sponsors, is much less than the amount received from the major methods of sponsorship.

Stadium, kit and shirt sponsorship decisions are purely commercial decisions. The sponsor will obviously want the link to the football club and the exposure that comes with it for as little money as possible.

The football club will want as much money as it can get in order to remain competitive off the playing field. Though the football club will want the security of securing a sponsorship deal on the long-term, it needs to be aware that the deal could become outdated in a short period of time (in the sense that other clubs may agree much more favourable sponsorship deals in the meantime). Therefore the length of the sponsorship deal is probably as crucial a negotiating point between the club and the sponsor as the amount of sponsorship money.

Shirt Sponsorship – Restrictions and Future Developments

Spanish club Barcelona FC were the first club to actually pay an organisation (the charity UNICEF) £1.25m-a-year in order to display their name on their shirt. This deal was recently extended until 2016, however, Barcelona has moved the name and logo of the United Nations Children’s Fund to the back of the shirt and replaced them from main shirt sponsor after agreeing a sponsorship deal with Qatar Airways that earns the club €30m per year for three years.

Barcelona were also the first club to sell an advertisement space on the inside of their football shirts displaying the trade mark ‘Intel Inside’ belonging to computing company Intel.

However, football clubs are restricted on how much advertisement they can display on their playing kits. Though Spanish clubs like Barcelona are permitted to display numerous advertisements on their kits, the FAPL in their Kit and Advertising Regulations prohibits more than 200 cm² of advertisements used on the front of the shirt and no more than 100 cm² on the back of the shirt, the back of the shorts and on the socks comprising the football kit. This does not include the logo of the club itself and the logo of the kit maker which may be additionally displayed.

However, it is clear that a club is restricted in the amount of advertising space it can sell to sponsors, and a football club playing in England could not follow Barcelona’s example and sell advertisement space on the inside of their shirts. The FAPL reserve the right to issue disciplinary proceedings against any club that breaches the advertisement rules.

In the future, in order to increase sponsorship revenue, football clubs may become more creative: maximising advertisement whilst staying within the rules. One possibility could be to sell advertisement space on the tracksuits worn by players before the start of the match. Another, as Manchester United has recently found out, is to sell the right to advertise on their training kit (Manchester United’s training kit sponsor is Aon). However, the exposure of the companies through these means is minimal, so this is unlikely to become another major type of sponsorship income.

By Andi Terziu

FIFA rules on the unilateral breach of contract by footballers

Following on from the last post on this blog, what can a player do to release himself from his playing contract before the expiration of his terms if no buy-out clause exists in his playing contract? In the wake of the decision of the Bosman case it was felt that the ruling which allowed out-of-contract players to move freely to other clubs could have implications for those under contract too. One compelling argument suggested that a contract can be ended before the end of the contractual term by the player and the player would be able to walk away from his football club, after simply paying compensation to the club. This argument was based on the fact that that football contracts are essentially employment contracts and that the Trade Union and Labour Relations (Consolidation) Act forbids the ordering of specific performance of labour contracts. Similarly, a court will also be reluctant to grant a negative injunction preventing a person from taking up a different employment position after a breach of contract. As such the argument that damages would be the only recourse for the clubs if a player unilaterally breaches his contract seemed to be a sound argument at the time.

However, in the wake of the Bosman decision, FIFA updated their transfer rules. The FIFA transfer rules allow the unilateral termination of the playing contract by the Player only in certain conditions. The main problem that players are faced with if they want to employ this procedure is that according to Article 16 of the FIFA Regulations on the Status and Transfer of Players, unilateral terminations can only take place at the end of any particular season, and the player only has a short window of two weeks from the end of the final match of the previous season during which he has to notify his club that he is willing to terminate his contract. In most cases therefore, this procedure would only be available to players who have already made a decision to end their contract before the end of the season, as the window of opportunity is very small. Furthermore, and perhaps more importantly, FIFA has introduced a protracted period to every contract which ultimately means that a player cannot terminate the contract before some of the term has already passed. The protracted period ultimately means that players up to the age of 28 at the time when they want to end the contract in question cannot unilaterally terminate the said contract before playing for their club for at least 3 seasons. This means that contracts of three years or less are not eligible for termination by this means; only long term contracts of more than 3 years that can be terminated after the protracted period has passed. A player who is aged over 28 at the time would need to have honoured at least 2 years of his contract before he can terminate it. According to Article 17(3) of the FIFA transfer rules, if a contract is terminated within the protracted period, sanctions such as a ban from playing football for up to 6 months will be issued to the player. Potentially at least, the FIFA transfer rules allow an opportunity for a player to terminate his contract if his club as unwilling to transfer him. However, this perceived freedom depends on the amount of compensation payable by the player for the unilateral breach.

There have been a number of relatively recent cases where a player has terminated his contract unilaterally by taking advantage of Article 17 of the FIFA transfer rules. As such FIFA’s Dispute Resolution Chamber (DRC) has had the jurisdiction to decide the amount of compensation payable. In all of the cases, however, an appeal regarding the amount of compensation due to the player’s previous club has been made to the Court of Arbitration for Sport (CAS) which itself has given inconsistent decisions.

The first case is that of Andy Webster who took advantage of Article 17 to unilaterally terminate his contract with Scottish club Hearts of Midlothian FC, and then signed for English club Wigan. CAS who heard the case after an appeal by Webster stated that damages should only be punitive in nature and therefore they rejected the need to pay a large sum equivalent to a transfer fee, settling the amount of damages to the remaining value of Webster’s contract with Hearts. Naturally FIFA were dismayed by the decision as they saw it as a green light for more players to disregard their contracts; something which would disrupt football. However the decision was quickly overturned. The case of Matuzalem had very similar facts, involving the Brazilian player’s unilateral breach of his contract with Shakhtar Donetsk (Ukraine) and later registration with Real Zaragoza in Spain. The case was appealed to CAS who this time imposed a penalty of €11,958,934 payable by the player and his new club in damages for the unilateral breach. This sum was calculated by taking into consideration the transfer value of the player before the breach and a prospective future transfer fee which Real Zaragoza had inserted into a loan agreement with a third club (SS Lazio) where Matuzalem subsequently ended up. In short CAS calculated the market value of the player and stated that this was the amount of damages that were due to the club for the breach of contract. The decision is not without criticism, not least because CAS did not even consider the Webster case when reaching their decision. It is also felt that the decision is wrong because it was based on ‘fictions’ such as a future transfer fee. Though CAS did follow this decision in the latter case of El-Hadaray, the approach has again been overturned subsequently.

The most recent case of De Sanctis, which again involved similar facts (this time the goalkeeper Morgan de Sanctis terminated his contract with Italian club Udinese and subsequently signed for Sevilla in Spain), was decided differently by CAS. Here CAS found that the compensation payable would be calculated differently. They worked out the amount of money spent by Udinese for getting a replacement for De Sanctis, and subtracted from this the total of all the money which would have been spent by the club remunerating the goalkeeper until the end of his contract, including wages and other bonuses. By justifying yet another approach to calculation of damages, CAS stated that each case would have damages calculated differently according to the particular elements of the case and evidence produced by both parties. However, at present it would seem that the decision in De Sanctis is the settled rule that is likely to be followed in future instances of unilateral breaches of contract by players. The true worth of Article 17 to players will not be known until a player with a high market value decides to invoke it.

By Andi Terziu

Buy-out Clauses in Football Players’ Contracts: A means for greater player freedom?

Since the commercialisation of football in the late 19^th Century, the sport has continuously grown so as to become an industry which attracts a lot of investment and generates massive revenue. Due to the huge financial stakes the issues in football which have legal implications become relevant for discussion. Though there has been wide discussion on the employee status of footballers, and the relationship of employment law with the sport, some modern aspects of a footballer’s contract have not been discussed. One such aspect is the buy-out clause. This type of clause is theoretically supposed to allow greater freedom to footballers, something which has been the goal of the players’ trade unions since long before the famous Bosman case was decided. However, in an age when the footballer has a stronger bargaining position vis-à-vis the club he plays for, the use of buy-out clauses is still rare in English football. The buy-out clause is seen to be advantageous for the player because it is an agreement between him and the club that the payment of a specified sum will be enough to release the player from his contract. As such the buy-out clause is capable of forming the basis of a quantifiable measure of damages due to the club for a breach of the playing contract by the footballer.

The football world governing body, FIFA, has recognised this and Article 17(2) of the FIFA Regulations on the Status and Transfer of Players states that the damage for a breach of contract ‘may be stipulated in the contract or agreed between the parties’. However the Court of Arbitration of Sport (‘CAS’), which has jurisdiction over sporting disputes, found in the important case of Matuzalem that there is a clear distinction between buy-out clauses (an arrangement between player and club to quantify damages in the event that the player unilaterally breaches his contract) and what is referred to as ‘minimum transfer fee’ (clauses which are the minimum a club would accept in a transfer for a player). Therefore, though a clause that obliges a club to accept a transfer offer for a player is not recognised by the authorities of football, an agreement between the club and player that the payment by the player of a certain sum would release him from his contractual obligations is recognised. But if FIFA does recognise buy-out clauses, why are they not used more widely in English football?

            One major issue with the buy-out clause is the belief that this type of clause would be unenforceable in the English courts. In English law, though the courts have allowed parties to pre-agree damages for a breach of contract, they have taken it upon themselves to limit the use of penalty clauses. The English courts have generally held that a clause imposing the obligation on the defaulting party to pay an extravagant sum for the breach of contract is a penalty clause and hence is void and unenforceable. Conversely, a genuine pre-estimate of damage would be an enforceable liquidated damages clause. It must be noted that a pre-estimate of damages does not need to be a correct prediction of the damage that will be caused by a breach; it must simply be a genuine attempt to estimate the amount of damage likely to occur to the innocent party. It is unclear what would constitute a ‘reasonable’ pre-estimated damage calculation for a football contract. The value of a player in footballing terms is usually determined by the market , and so is not quantifiable. In most cases the transfer value of a player is much higher than the value of his contract to the club, so it is difficult to establish what the actual damage to a club is, if a player does not honour the terms of his contract. Most clubs, if they are to agree to include a buy-out clause into the footballer’s playing contract, will demand that they set the value in the clause. Hence, they usually set the value to the perceived market value of the player (or sometimes even higher than this). Because of this, the values usually contained in buy-out clauses are extravagant sums. As a result, a buy-out clause containing the ‘transfer value’ of the player is more akin to a penalty clause than a liquidated damages clause.

             However, the English Courts are generally unwilling to conclude that a clause is oppressive, particularly when it has been agreed by two parties with equal bargaining power, and it can be argued that in the current age of superstar footballers, some players at the top of the game have equal bargaining power with the clubs they play for. Also if the agreement is such that the player will pay monthly sums (the damages spread over time) for terminating his contract, the courts will be unable to find this to be a penalty clause even where the overall sum agreed is equal to a transfer fee and not therefore a true attempt at calculation of damage. This suggests that there could be ways for players and clubs in England to make use of enforceable buy-out clauses. Indeed in recent times, though the terms of footballers’ contracts are usually confidential, there have been confirmed reports in the press of the use of buy-out clauses in the contracts of footballers such as Demba Ba and Joe Allen, though the enforceability of such clauses has not actually been tested.

Another problem with buy-out clauses is the fact that it is not clear whether they actually offer any greater freedom to footballers. In Spain, where it is a requirement by the Real Decreto 1006/1985 of 26 June (For the Regulation of the Employment of Professional Sportspeople) for buy-out clauses to be inserted in every player’s contract, Spanish clubs insert over-inflated buy-out fees on the player’s contracts so as to deter other teams from bidding for their important players. For example, according to information released from the clubs themselves, Portuguese star Cristiano Ronaldo has a €1Bn clause in his contract with Real Madrid, and star players Lionel Messi and Sergio Busquets have €250m and €150m value buy-out clauses respectively in their FC Barcelona contracts. Clearly the large value of these buy-out clauses make it very difficult for the players to leave the club and are therefore of no assistance to a player who becomes disillusioned in his current employment and wants to leave. But not every footballer is a big star with an almost priceless transfer value. Most players are affordable in football market terms. Could buy-out clauses work widely for these players?

The fact is that there are problems even where buy-out clauses include reasonable values for the players. Privity of contract ensures that only the footballer and the club he plays for are party to the playing contract. As such a breach of the terms of that contract, that is, by the player deciding to leave the club early, would lead to the player being liable primarily. Despite earning large sums, most footballers would not have the capital to pay for their own transfer value and therefore release themselves from their playing contract. It is therefore the prospective club they want to play for who would need to fund the release of the player. As stated above, the buy-out clause has been distinguished from a ‘minimum release clause’ by the CAS; therefore an offer equal to the buy-out value does not have to be entertained by a club if the bid is hostile. That is, if the club is not prepared to sell a player they will refuse to do so, regardless of an offer equal to the buy-out value being made by another club. As a result, the player seeking to move may have to apply to court to enforce the clause. This will inevitably take time; not an ideal scenario for players seeking to move immediately. Furthermore, as it is the player that has to pay the buy-out value to release himself from the contract, any money given to the player by a prospective club, will be treated as income for tax purposes. Therefore any amount given to the player to release himself would be liable to income tax as soon as it is received by him. Once tax is removed, the value would diminish and there would not be enough to pay the release sum, unless the prospective club is willing to fund the tax liability as well. As such, unless the club is willing to allow their player to leave, the value of the player could escalate to above market value. This makes the use of buy-out clauses unattractive commercially, and explains why they are not used widely. Though the concept of the buy-out clause is attractive to footballers, not many would make an effort to negotiate the insertion of such a clause into their contract as it may not really be of much help in the future.

 

By Andi Terziu