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The Asser International Sports Law Centre is part of the T.M.C. Asser Instituut

Multi-Club Ownership in European Football – Part II: The Concept of Decisive Influence in the Red Bull Case – By Tomáš Grell

 

Introduction 

The first part of this two-part blog on multi-club ownership in European football outlined the circumstances leading to the adoption of the initial rule(s) aimed at ensuring the integrity of the UEFA club competitions (Original Rule) and retraced the early existence of such rule(s), focusing primarily on the complaints brought before the Court of Arbitration for Sport and the European Commission by the English company ENIC plc. This second part will, in turn, introduce the relevant rule as it is currently enshrined in Article 5 of the UCL Regulations 2015-18 Cycle, 2017/18 Season (Current Rule). It will then explore how the UEFA Club Financial Control Body (CFCB) interpreted and applied the Current Rule in the Red Bull case, before drawing some concluding remarks. 

 

The Red Bull case: The concept of decisive influence

Background 

The company Red Bull GmbH (Red Bull) started building its football empire[1] in 2005 by transforming the Austrian club SV Wüstenrot Salzburg[2] into what would henceforth be known as FC Red Bull Salzburg (RB Salzburg). As regards its legal form, RB Salzburg is currently a limited liability company (GmbH) wholly owned by the association FC Red Bull Salzburg e.V. Until 2015, when the club began a disengagement process from Red Bull, the statutes of FC Red Bull Salzburg e.V. conferred on Red Bull the right to appoint and remove the members of the association's board.

In 2009, with the objective of playing the top-flight Bundesliga within a decade, Red Bull invested in the German club SSV Markranstädt, at that time competing in the fifth tier of German football. The club was subsequently rechristened as RasenBallsport[3] Leipzig (RB Leipzig) and rebranded. Although RB Leipzig thrived on the pitch, it attracted much criticism off the pitch for attempting to circumvent the so-called '50+1 rule', according to which German football clubs may not allow investors to acquire a majority of their voting rights.

Since Red Bull's takeover of RB Leipzig in 2009, the two clubs have maintained a close cooperation involving an increased transfer activity which has seen players moving from one club to the other on a regular basis. With the help of players like Naby Keïta, who moved from RB Salzburg to RB Leipzig in the summer of 2016, the German club finished second in the 2016/17 Bundesliga season, its first-ever in the top flight, and qualified for the 2017/18 UCL group stage. RB Salzburg, for their part, added in the 2016/17 campaign another domestic title to their collection and secured a spot in the 2017/18 UCL second qualifying round.

The Current Rule  

As mentioned above, the Current Rule is encapsulated in Article 5 of the UCL Regulations 2015-18 Cycle, 2017/18 Season (UCL Regulations). It preserves the structure of the Original Rule, making admission to the UEFA club competitions conditional upon fulfilment of three specific criteria. In terms of substance, however, the Current Rule differs in two important aspects. First, unlike the Original Rule which outlawed ownership, personal and other links only between clubs participating in the same UEFA club competition, the Current Rule extends this prohibition to clubs participating both in the UCL and the UEFA Europe League. Second, an individual or legal entity is now deemed to have control over a club not only if he/she/it (i) holds a majority of the shareholders' voting rights; (ii) is authorized to appoint or remove a majority of the members of the administrative, management or supervisory body; or (iii) is a shareholder and single-handedly controls a majority of the shareholders' voting rights, but also if he/she/it (iv) is able to exercise by any means a decisive influence in the decision-making of the club.[4] The purpose of this latter change is to address situations where an individual or legal entity falls short of having de jure control over a club, but nevertheless remains able to exercise such an influence that may, if exercised in more than one club, jeopardize the integrity of the UEFA club competitions. As will be discussed in the next section, the concept of decisive influence played a pivotal role in the Red Bull case.

Furthermore, the club coefficient no longer serves as a principal criterion in determining which of the two or more commonly owned clubs should participate in a UEFA club competition. Under the Current Rule, the club which qualifies on sporting merit for the more prestigious UEFA club competition is to be favoured.[5] If two or more commonly owned clubs qualify for the same UEFA club competition, then the club which was best-ranked in its domestic championship should be admitted.[6]

Proceedings before the CFCB

On 15 May 2017, soon after RB Salzburg and RB Leipzig had both secured their place in the 2017/18 UCL, the UEFA General Secretary dispatched a letter to the CFCB, expressing his concern that the clubs might not fulfil the criteria enshrined in the Current Rule. The subsequent investigation conducted by the CFCB Investigatory Chamber relied to a great extent on compliance reports prepared by independent auditors. On 26 May 2017, the CFCB Chief Investigator referred the case to the CFCB Adjudicatory Chamber, concluding that the clubs had failed to satisfy the criteria set out in the Current Rule and, as a result, only RB Salzburg should be admitted to the 2017/18 UCL.[7] In particular, the CFCB Chief Investigator suggested that Red Bull exercised decisive influence in the decision-making of both RB Salzburg and RB Leipzig, and identified several ways in which this influence manifested itself. For instance, the CFCB Chief Investigator drew attention to the presence of certain individuals allegedly linked to Red Bull in the decision-making bodies of both clubs or an unusually high level of income received by the clubs from Red Bull via sponsorship agreements.[8]

In its decision handed down on 16 June 2017, the CFCB Adjudicatory Chamber paid attention mainly to the changes made by RB Salzburg as part of the club's disengagement process from Red Bull. As noted above, Red Bull ceased to have the right to appoint and remove the board members of FC Red Bull Salzburg e.V. in 2015, when the association's statutes were amended accordingly. With this in mind, the CFCB Adjudicatory Chamber had to examine whether Red Bull was not able to exercise decisive influence in the decision-making of RB Salzburg (and RB Leipzig) by any other means.

The CFCB Adjudicatory Chamber was confronted with an onerous task, in particular because the UCL Regulations do not specify when an individual or legal entity is deemed to have decisive influence in the decision-making of a club. Nor do these regulations clarify how such a level of influence could be attained. Having examined the wording and purpose of the Current Rule, the CFCB Adjudicatory Chamber asserted that ''the benchmark for establishing decisive influence is a high one'',[9] finding support for its conclusion in the EU Merger Regulation.[10] For the avoidance of doubt, the Chamber further noted that the concept of decisive influence is not to be confused with that of significant influence which features in the UEFA Club Licensing and Financial Fair Play Regulations, Edition 2015.[11]

In determining whether Red Bull was indeed capable of exercising decisive influence in the decision-making of both clubs, the CFCB Adjudicatory Chamber observed from the aforementioned compliance reports that RB Salzburg had removed certain individuals allegedly linked to Red Bull from the club's decision-making bodies and terminated certain loan agreements entered into with the beverage company.[12] With the aim of refuting the CFCB Chief Investigator's allegations, RB Salzburg presented additional documentary evidence. According to the CFCB Adjudicatory Chamber, it followed from such evidence, inter alia, that Red Bull had reduced the amount of sponsorship money paid to the Austrian club or that a cooperation agreement between the two clubs had been terminated.[13] This evidence alleviated the CFCB Chief Investigator's concerns to such an extent that he eventually decided to withdraw his objection to the admission of RB Salzburg and RB Leipzig to the 2017/18 UCL.[14] Consequently, the CFCB Adjudicatory Chamber held that, at the time of its decision, Red Bull's relationship with RB Salzburg resembled ''only a standard sponsorship relationship''.[15] Having concluded that Red Bull did not have decisive influence in the decision-making of RB Salzburg, there was no need for the Chamber to consider Red Bull's relationship with RB Leipzig.[16]

Furthermore, the CFCB Adjudicatory Chamber verified whether one of the clubs did not exercise decisive influence over the other. In this regard, the Chamber referred to the cooperation agreement and the increased transfer activity between the clubs. Nonetheless, the Chamber eventually stated that there was insufficient evidence to arrive at the conclusion that RB Salzburg exercised decisive influence over RB Leipzig or vice versa.[17]

 

Further implications and concluding remarks

Rules aimed at ensuring the integrity of club competitions also exist at the national level. In England, the Rules of the Premier League stipulate, inter alia, that a person[18] – be it either natural person, legal entity, firm or unincorporated association – may not (i) be involved in or have any power to determine or influence the management or administration of more than one club participating either in the Premier League or the English Football League;[19] and (ii) hold or acquire any significant interest in more than one club participating in the Premier League. A person is deemed to have acquired significant interest in a club if he/she/it holds 10 per cent or more of the shareholders' voting rights.[20] In Spain, an individual or legal entity may not hold 5 per cent or more of the shareholders' voting rights in more than one club participating in a professional competition at the state level.[21]

It follows that both in England and Spain, the pertinent regulations set a relatively low threshold of the shareholders' voting rights that an individual or legal entity may not exceed in more than one club participating in the same domestic club competition. Moving back to UEFA, the Current Rule sets the relevant threshold at 50 per cent (majority of the shareholders' voting rights), but complements it with the 'catch-all' notion of decisive influence.

I believe that the CFCB Adjudicatory Chamber may have missed a golden opportunity in the Red Bull case to clarify further the rather vague concept of decisive influence. Unfortunately, the Chamber limited itself to stating that ''the benchmark for establishing decisive influence is a high one'',[22] without providing any concrete examples of how such a level of influence could be attained or manifested in practice.[23] The concept of decisive influence therefore remains shrouded in legal uncertainty. Moreover, in order to avoid speculations, the Chamber could have provided more details about the changes made by RB Salzburg. For instance, it could have specified which individuals allegedly linked to Red Bull were removed from the club's decision-making bodies or how the amount of sponsorship money paid to the club was reduced. Such details become particularly important if the concept of decisive influence plays a central role, because in this context the general public will not be able to access most of the relevant information via commercial registers. In contrast, this will not be the case with legal systems in England or Spain which employ a threshold of the shareholders' voting rights as a key criterion. Thus, if UEFA fails to provide such details (subject to confidentiality rules) in its decisions, its credibility might suffer.

Despite the fact that this post has identified certain flaws of the concept of decisive influence, I do not believe that a modification of the Current Rule should be a matter of urgency. As suggested above, a well-reasoned decision may foster UEFA's credibility and help reduce the legal uncertainty emanating from the concept of decisive influence. Bearing in mind the recent revitalization of multi-club ownership in European football, UEFA might soon get another opportunity to deliver such decision.


[1]   It should be noted that in addition to FC Red Bull Salzburg and RasenBallsport Leipzig, Red Bull also owns the U.S. club New York Red Bulls and the Brazilian club Red Bull Brasil.

[2]   It was often referred to as SV Austria Salzburg, a name that was given to the club at its foundation in 1933.

[3]   In fact, due to the rules prohibiting clubs to be named after their sponsors, the abbreviation 'RB' does not officially stand for Red Bull, but rather for RasenBallsport which can be roughly translated as 'lawn ball sports'.

[4]   UCL Regulations, Article 5.01(c).

[5]   Ibid. Article 5.02(a).

[6]   Ibid. Article 5.02(b).

[7]   As the Austrian club finished first in its domestic championship (whilst RB Leipzig finished second).

[8]   CFCB Adjudicatory Chamber AC-01/2017 RasenBallsport Leipzig GmbH and FC Red Bull Salzburg GmbH, Decision of 16 June 2017, para. 11.

[9]   Ibid. para. 41.

[10] Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings, Article 3(2). See also Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings.

[11] CFCB Adjudicatory Chamber decision (n 8) para. 40.

[12] Ibid. para. 50.

[13] Ibid. para. 51.        

[14] Ibid. para. 52.

[15] Ibid. para. 55.

[16] Ibid. para. 57.

[17] Ibid. para. 58.

[18] Rules of the Premier League to be found in the Premier League Handbook, Season 2017/18, Rule A.1.122.

[19] Ibid. Rule F.1.2. This provision in essence corresponds to Article 5.01(b) of the UCL Regulations.

[20] Rules of the Premier League, Rule F.1.3.

[21] Royal Decree No 1251/1999 on Sports Limited Liability Companies, Article 17(1) and (2). Professional football competitions at the state level include only La Liga and Segunda División A.

[22] See CFCB Adjudicatory Chamber decision (n 8) para. 41.

[23] Such examples could only be inferred from the changes made by RB Salzburg.

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Asser International Sports Law Blog | The Validity of Unilateral Extension Options in Football – Part 1: A European Legal Mess. By Saverio Spera

Asser International Sports Law Blog

Our International Sports Law Diary
The Asser International Sports Law Centre is part of the T.M.C. Asser Instituut

The Validity of Unilateral Extension Options in Football – Part 1: A European Legal Mess. By Saverio Spera

Editor’s Note: Saverio Spera is an Italian lawyer and LL.M. graduate in International Business Law at King’s College London. He is currently an intern at the ASSER International Sports Law Centre.

                 

In the football world the use of unilateral extension options (hereafter UEOs) in favour of the clubs is common practice. Clubs in Europe and, especially, South America make extensive use of this type of contractual clauses, since it gives them the exclusive possibility to prolong the employment relationship with players whose contracts are about to come to an end. This option gives to a club the right to extend the duration of a player’s contract for a certain agreed period after its initial expiry, provided that some previously negotiated conditions are met. In particular, these clauses allow clubs to sign young promising players for short-term contracts, in order to ascertain their potential, and then extend the length of their contracts.[1] Here lies the great value of UEOs for clubs: they can let the player go if he is not performing as expected, or unilaterally retain him if he is deemed valuable. Although an indisputably beneficial contractual tool for any football club, these clauses are especially useful to clubs specialized in the development of young players.[2] After the Bosman case, clubs have increasingly used these clauses in order to prevent players from leaving their clubs for free at the end of their contracts.[3] The FIFA Regulations do not contain any provisions regulating this practice, consequently the duty of clarifying the scope and validity of the options lied with the national courts, the FIFA Dispute Resolution Chamber (DRC) and the CAS. This two-part blog will attempt to provide the first general overview on the issue.[4] My first blog will be dedicated to the validity of UEOs clauses in light of national laws and of the jurisprudence of numerous European jurisdictions. In a second blog, I will review the jurisprudence of the DRC and the CAS on this matter.

Even though the DRC’s and the CAS’s view on UEOs matter most prominently in daily practice, it is impossible to entirely ignore the positioning of national laws and EU law vis-à-vis the legality of UEOs. In fact, as we will see later, arguments derived from national law also play a fundamental role in the assessment of the UEOs by the CAS. A comparative analysis of the UEOs validity under national laws is extremely difficult to conduct, as these clauses are relatively rare outside of football and the few rulings of lower level national courts are difficult to access. In an ordinary employment contract, deprived of the specificities of the sporting context, it is hard to fathom the utility for the employer to have the power to extend the contract unilaterally at his or her will. Due to the operation of the transfer market, football players are in a peculiar employment condition, hardly comparable to that of any other employee. The investments clubs make on training footballers and their transfer value contribute to this unique employment relationship to the extent that footballers are considered intangible assets for the clubs.[5] Given the difficulty of comparing hardly comparable situations, the only way to proceed to a comparative overview is to attempt to produce comparative snapshots, which, due to the limited amount of space, are necessarily incomplete.


In Switzerland: It’s unenforceable

It is ironical that in a liberal country like Switzerland, where contractual freedom is interpreted widely, the validity of UEOs under national law is doubtful. Although there are no provisions concerning UEOs in Swiss labour law, we can conclude that under Swiss law these clauses are most likely unenforceable.[6] In Switzerland such an option would be deemed to infringe employment law and thus considered invalid when incorporated in employment contracts. According to Art. 335a para. 1 of the Swiss code of Obligations[7] there must be formal parity between employer and employee concerning terminations of contracts. UEOs clauses would circumvent this provision by creating disparity between the parties, as they confer to one party the unilateral possibility to prolong the contract. The Swiss Civil Court, although in disputes arising outside the realm of football, has in the past denounced the circumvention of the provisions. It imposed the equality of treatment between employer and employee concerning the conditions of termination of an employment contract. In one case regarding a two year contract for services abroad, which included the possibility of tacit renewal and the right for the company to recall the employee in Switzerland, the Court stated that the right to recall the employee granted unilaterally to the employer gave him a more favourable position than the employee with regard to the termination of the fixed-term contract. This situation, stressed the Court, is contrary to the purpose of then Art. 336 para. 2 CO, which aims to grant equivalent protection to the parties.[8] A next case involved a trilateral service contract between an employee, an employer (Meco Mechanical Corporation) and a beneficiary (the government of the then United Arab Republic, a short-lived political union between Egypt and Syria). The contract included a right to early termination granted to the beneficiary. The Court, nonetheless, stated that this right is contrary to “Article 347 (3) of the Swiss Code of Obligations, which prohibits the agreement between different periods of notice for the employer and the service provider. This prohibition cannot be circumvented by making the right of termination or the automatic termination of the employment relationship conditional upon a condition which is unilaterally dependent on the will of the employer. Such a condition would allow the employer to terminate the contract at a point in time at which the service provider could not.[9]

It should be noted that the principle of parity between the parties is not considered part of the Swiss ordre public. Consequently, if a case has to be decided on Swiss territory according to a foreign law that allows for the use of unilateral extension options, Swiss law cannot prevent the application of such clauses. However, if the clause leads to over extensive commitment on the side of the employee, it might be considered an infringement of the ordre public and, thus, be deemed null and void. 


In Germany: It’s complicated

According to a first ruling of the Labour Court of Ulm, some UEOs are considered null and void. It concerned a one-year agreement (valid from 1 January 2007 to the end of season 2007/2008) between the club and the player, which contained an UEO giving the club the right to extend the contract for one more year. [10] The Court held the option invalid. More precisely, the Court considered the unilateral option ineffective. Based on Art. 307 para. 1 BGB, provisions in general terms and conditions should be considered invalid if they unduly penalize the contractual partner and are not accompanied with appropriate compensatory measures. In the present case, the Court found that the unilateral option clause served only the purpose of providing the employer with an additional income in the form of a transfer indemnity. In these conditions, the UEO amounts to a disproportionate restriction of the freedom to work enshrined in Art. 12 of the Grundgesetz (German constitution).[11]

Nonetheless, a few years after the decision of the Labour Court of Ulm, the German Federal Labour Court held (implicitly) another UEO clause for valid.[12] The Court dealt with the option only incidentally, as the case mainly revolved around the validity of the resolution agreement signed by the parties. The player, 15 years old at the time, and the club had originally concluded a contract for a period of four years (from 1 July 2006 to 30 June 2010) with the option granted to the club to unilaterally extend the relationship for another year (until 30 June 2011). Sometime after having joined the club, the player started suffering psychological pressure due to a series of personal circumstances and expressed the desire to terminate the contract prior to its natural expiry. The parties then signed a resolution agreement, pursuant to which the club agreed to a resolution in return of a payment of € 40,000. The decision was focused on the validity of that agreement, it only briefly scrutinised the extension option and considered it compatible with the framework of § 15 Abs. 4 TzBfG (or of § 624 BGB for free employment), due to the fact that the length of the contract respected the maximum binding time of five years.[13] The Court emphasised, in fact, that this is the threshold a fixed-term employment contract has to observe in order to avoid curtailing excessively the employee’s personal freedom and added that the standard is consistent with the principle of freedom of work and of choice of work enshrined in Art. 12(1) of the Basic Law.[14]


In the Netherlands: It’s probably ok

It takes a bit of legal extrapolation to conclude that any jurisdiction plainly authorizes UEOs, given that none of those examined for the purpose of this blog has a labour legislation in place which expressly supports the validity of UEOs. However, in the Netherlands, where the national labour legislation does not contain any provisions on UEOs, the only known (private) decision to date recognized the validity of such clauses under Dutch law. In the dispute between the Tunisian football player Hatem Trabelsi and his club Ajax Amsterdam the unilateral option included in the contract was deemed to be valid and binding.[15] The ruling found the option compatible with the dismissal system provided by labour law in combination with contract law.[16]


In Belgium, Spain, Austria and Italy: It depends on the collective bargaining agreement

A very common framework among jurisdictions seems to reflect the specificity of sport in that it makes footballers’ employment contracts sort of double-layered agreements regulated by employment legislation on the one side and by Collective Bargaining Agreements (CBAs) on the other. In this context, the various legislations delegate to CBAs the duty to outline the details of footballers’ employment conditions, among which one often finds the requirements for UEOs to be validly included therein.

In Belgium, player contracts are mainly regulated by provisions of employment law, in particular by the Act of 3 July 1978 on employment contracts (the Employment Contracts Act).[17] Yet, with regard to option clauses, the Football Collective Agreement of 15 February 2016 states that, although in general these options are not valid, they are not considered to be unilateral under certain conditions. According to Art. 15 of said agreement, if the clause (i) is agreed upon in writing at the outset, (ii) provides a total duration, extension included, of the relationship of maximum 5 years, and 3 years for under 18 players and (iii) provides for a certain increase in salary (at least 15% of the fixed remuneration and 5% of the match- or selection premium, or 20% of the fixed remuneration, whereby the increase does not need to exceed the amount of 20.000 Euro), it might be considered valid and binding as not unilateral.

In Italy, the employment aspects of sports are regulated by the Law 91/1981. This special legislation, according to which some of the dispositions applicable to subordinate employment do not apply in the sporting context,[18] was enacted to reflect the peculiarities of the employment relationship in sport.[19] This legislation does not include any express provision covering UEOs, but – while generally stating at art. 5 that the duration of the fixed-term contract cannot exceed five years - it relies on the CBA for specific contractual requirements. Art. 2 para. 2 of the CBA states that “option agreements are permitted both in favour of the Club and the Player, on the dual condition that a specific consideration is provided in favour of the party who grants the option and that the limit of the overall duration of the Contract, such overall duration consisting of the sum of the duration provided plus any extension represented by the option […], does not exceed the maximum duration provided by law”. The “specific consideration” of the English version is translated from “corrispettivo specifico” which means that, aside from the five-year ceiling, the condition for the UEO to be valid is an increase in the salary of the player.

In Austria these clauses are not invalid as such, but they have to meet the requirements laid down in Section 6(4) of the Collective Agreement for football players of the Austrian Football League (KV-ӦFB), as amended on 1 July 2014. It reads as follows: “The granting of an option to be exercised by a unilateral declaration is only permissible if each party of the contract is granted equal rights and the exercise of the option is linked to equivalent conditions for both parties […]. The date of conclusion of the contract shall be decisive for the assessment of equivalence”.[20] The Austrian Supreme Court recently upheld the decision of the lower courts in a dispute regarding the validity of an extension option contained in a football player’s contract.[21] The one-year agreement, valid from 1 July 2014 to 30 June 2015, contained an option that granted the club the possibility to extend the contractual relationship for two more years, until June 2017, as long as the club exercised it by 31 May 2015.  On October 2015 the player remitted his salary payments to the club and referred the case to the Tribunal to question the validity of the option. Both the Court of first instance and the Court of Appeals considered the agreement ineffective as the clause did not meet the requirements of Section 6 (4) KV-ӦFB. The ground on which the two courts reached this conclusion was the lack of equivalency of rights under the agreement, as (i) the increase in salary (of 15%) was not proportionate to the length of the extension; (ii) at the time of signing the contract, the contractual conditions for an extension were not defined.[22] The Supreme Court held that the assessment of the lower courts could not be disputed and reiterated that Section 6 (4) KV-ӦFB is unequivocally clear in requiring the granting of equivalent rights to both parties of the contract for an UEO to be acceptable. Equivalence, the Court continued, that has to be assessed at the date of conclusion of the contract.

In Spain the main source of law regarding the employment relationships of professional athletes is the Royal Decree 1006/1985. Regarding the duration of the contract, art. 6 of RD 1006/85 provides that (i) sportsmen contracts are always fixed-term contracts, (ii) the extensions of these contracts, which shall always be definite as well, can be achieved through subsequent agreements between the parties when the contract is about to expire. Paragraph 3 of this provision admits different possibilities of extension in so far as the Collective Bargaining Agreement provides so.[23]  On the matter, the current Collective Bargaining Agreement defer in turn to the RD 1006/85, as Art. 14 provides that “by mutual agreement between the Club and the Footballer, the contract may be extended, in the terms established in the second paragraph of article 6 of Royal Decree 1006/1985, of June 26”. At the moment, therefore, it seems that extension options in Spain need to be agreed with the player.

                 

In the UK: Likely not

Sometimes circumstances other than the CBA can play a role. The United Kingdom and the Premier League, for instance, represent a unicuum in the panorama of the jurisdictions under scrutiny in the sense that, although here – as in other countries – the employment relationship is governed by national law, collective agreements and the rules of the Football Association (FA),[24] two specificities place this system in a peculiar position. First of all, in the United Kingdom collective agreements are not legally enforceable. It is true that the terms of a collective agreement may be binding and enforceable between the parties of an employment relationship if these have been incorporated into the individual contract.[25] However, a court may nonetheless conclude that the term is not enforceable. Secondly, no single overarching collective agreement encompasses the employment relationship between clubs and players in the Premier League. There are, instead, a series of collectively negotiated agreements, such as the Standard Players’ Contract.[26] In an early decision that challenged the English ‘Retain and Transfer System’ as an unlawful restraint of trade, the High Court placed emphasis on the inequality of bargaining power in a professional football player’s relationship with a club, stating that “in the football industry players commonly enter into their first contract either while they are under 21 or shortly afterwards, and that wherever they may subsequently go, within the Football League, there is only one form of contract they can sign. The Court must be careful to see that contracts made in these circumstances are justifiable in the interests of both parties”.[27]

That said, although there is no CBA in place that can enlighten us about the validity of UEOs, a satisfying answer could nonetheless be found in the Courts’ rulings concerning contracts in the (to some extent) comparable context of the music industry. The profession of the musician resembles in various aspects that of the football player. As for footballers, musicians’ contracts are linked to their performance, in terms of copies of albums sold, concert tickets sold, royalties from the ads etc. The more a musician is perceived to be promising, the more lucrative the contract he can get from the record company will be. Just as sports professionals, musicians often begin their career in their prime age. In order to get a foot in their respective highly rewarding industries, sportsmen and musicians might agree to contractual clauses without fully understanding the consequences or, more likely, even if they do fully understand the implications of such contracts they may feel they have no option but to sign them if they want their career to start or progress.[28] This similarity allows us to draw some useful comparisons from the case law of UK courts regarding musicians.

For instance the House of Lords declared void an agreement between a young and unknown musician by the name of Tony Macaulay and the publishing company Schroeder Music Publishing Co Ltd, which contained a clause extending to 10 years the original five-year undertaking of the company.[29] When he signed the contract, the musician was aged 21. The agreement provided that the duration of five years would have been extended to 10 in case the royalties for the first five years exceeded £ 5,000. In the words of Lord Reid “if the respondent’s work became well known and popular he would be tied by the agreement for ten years”.[30] In consideration of the duration of the contract and the fact that the payment received by the author was minimal unless his work was released, which was not an obligation for Schroeder Music according to the contract, Lord Reid was of the opinion that the publishers’ appeal had to be dismissed. His reasoning was grounded on the consideration that “if contractual relations appear to be unnecessary or to be reasonably capable of enforcement in an oppressive manner, then they must be justified before they can be enforced”.[31] Lord Diplock deemed the contract unenforceable due to its substantial unfairness and emphasised the need to accord protection to “those whose bargaining power is weak against being forced by those whose bargaining power is stronger to enter into bargains that are unconscionable”.[32] For the same reason, the English Court of Appeal struck down as void a publishing agreement between the already established band Fleetwood Mac and the publisher which tied the band to the company for a five year period plus the possibility to extend the relationship for another five years.[33] The court held that the publishing agreement gave the company “a stranglehold over each of the composers”[34] and found the contract fundamentally unfair to the group.

These two decisions give us an insight on how under English law, where – it is important to bear in mind – as a general rule the letter of the contract prevails, clauses of these kind tying professional musicians have been considered null and void because of the disproportionate contractual power between the parties. A conclusion that was confirmed even when the band concerned was not unknown. It is easy to see how such reasoning could be applied to UEOs in professional football.

                 

Under EU law: It should be fine

The last unknown is the position of EU law with regard to UEOs. In many ways, UEOs are contractual mechanisms used to attenuate the consequences of the Bosman ruling.  Indeed, they give the club the opportunity to prolong an employment contract without the consent of a player, and therefore to obtain compensation in case the player wishes to move to another club. However, the striking difference with a Bosman situation is that this contractual set-up is not mandated by the private regulations of the football federations or leagues. Instead, it is negotiated ab initio between the contractual parties, and hardly ever imposed by a collective agreement. Thus, as long as the original free will of the player is not constrained by private rules, which in fact might be the case in a closed labour market where the clubs can act as an oligopoly and (implicitly) coordinate their behaviour, one could argue that the free movement of a player is restricted only by his or her own free will.  In its more recent Bernard ruling, the CJEU came close to dealing with an UEO, but here again the forced prolongation of the contract was imposed by the French collective bargaining agreement in force at the time of the dispute and not negotiated on an individual basis between the parties. Therefore, it is relatively unlikely that EU law could be successfully invoked to challenge the validity of UEOs, unless those are at least identified as a collective practice or informal rule applied by clubs against the will of players.


Conclusion: A European legal mess

Notwithstanding the hardly avoidable incompleteness of the above comparative sketch, a short conclusion on the validity of UEOs in light of national and European law is in order. First of all, it is clear that no single answer prevails Europe-wide. The brief analysis carried out shows that each of the jurisdictions scrutinised approaches the topic differently. The only uniformly shared regulatory trait is that national legislators have not regulated the matter. Instead, we had to look for potential answers in the jurisprudence of local courts, more often than not extrapolating from cases outside of the realm of football. Furthermore, legislators commonly delegate to CBAs the duty to define the employment conditions of professional football players. In short, the legality of UEOs is usually dependent on the interpretations of local courts or the decisions of local social partners. However, where UEOs are deemed valid, it is always under stringent conditions such as a strict limit to the overall duration of the extended contract and the provision of a substantial increase in salary. Hence, the validity of UEOs hinges on the rather subjective evaluation of the overall fairness of a specific UEO in the context of a specific contract. Whether this is also true of the jurisprudence of the DRC and the CAS when confronted to UEOs will be the subject of our next blog.


[1] The reference is obviously to young players older than 18, as in respect of contracts of minors art. 18 FIFA RSTP is crystal clear in prohibiting the signing of contracts longer than three years.

[2] D. F.R. Comparie, G. Planás R.A. and S-E. Wildermann, Contractual Stability in Professional Football: Recommendations for Clubs in a Context of International Mobility, 2009, p.27. The authors point out that, although transfer fees constitute an important part of every clubs’ financial income, some clubs, particularly those with smaller broadcasting revenues, rely on them to a great extent. Usually, clubs which cover their costs mainly through transfer fees tend to build a good youth development, because being able to sell the players when they are valued the most is financially crucial for them.

[3] F. de Weger, The Jurisprudence of the FIFA Dispute Resolution Chamber, Asser Press, 2016, p. 164.

[4] The few existing contributions on this question are F. De Weger, The Jurisprudence of the FIFA Dispute Resolution Chamber, Asser Press, 2016, pp 163- 191 and W. Portmann, Unilateral option clauses in footballers’ contracts of employment: an assessment from the perspective of international sports arbitration,Sweet Maxwell Int Sports Law Rev, 2007,  7(1):6-16.

[5] See UEFA Club Licensing and Financial Fair Play Regulations (2015 Edition), which, at ANNEX VI (B)(ix), includes players as intangible assets among the assets that need to be disclosed for balance sheet requirements and, at ANNEX VII (C)(1), sets out the minimum accounting requirement “for player registrations carried out as intangible fixed assets as set out in Articles 47, 48 and 52”.

[6] For a similar view, see Jan Kleiner, Der Spielervertrag im Berufsfussball, Schulthess, 2013, at pp. 891-900.

[7] Art. 335a para 1 Swiss Code of Obligations reads as follows: “Notice periods must be the same for both parties; where an agreement provides for different notice periods, the longer period is applicable to both parties”.

[8] BGE 108 II 115.

[9] BGE 96 II 52. The original German version reads as follows: “Eine solche Schranke bildet insbesondere Art. 347 Abs. 3 OR, der die Vereinbarung verschiedener Kündigungsfristen für den Dienstherrn und den Dienstpflichtigen verbietet. Dieses Verbot kann nicht dadurch umgangen werden, dass das Kündigungsrecht oder die automatische Beendigung des Dienstverhältnisses von einer Bedingung abhängig gemacht wird, deren Eintritt einseitig vom Willen des Dienstherrn abhinge. Eine solche Bedingung würde es dem Dienstherrn erlauben, den Vertrag schon auf einen Zeitpunkt zu beenden, auf den der Dienstpflichtige das nicht tun könnte. Ein bedingtes Kündigungsrecht und eine bedingte automatische Beendigung des Dienstverhältnisses dürfen nur vereinbart werden, wenn und soweit der Eintritt der Bedingung vom Willen der Parteien nicht abhängt oder beide Parteien ihn in gleicher Weise herbeiführen können“.

[10] ArbG Ulm, judgment of 14 November 2008 – 3 Ca 244/08.

[11] Ibid., para. 37. The original German version reads as follows: “Nach § 307 Abs. 1 Satz 1 BGB ist eine formularmäßige Vertragsbestimmung unangemessen, wenn der Verwender durch einseitige Vertragsgestaltung missbräuchlich eigene Interessen auf Kosten seines Vertragspartners durchzusetzen versucht, ohne von vornherein auch dessen Belange hinreichend zu berücksichtigen und ihm einen angemessenen Ausgleich zu gewähren. Die Feststellung einer unangemessenen Benachteiligung setzt eine wechselseitige Berücksichtigung und Bewertung rechtlich anzuerkennender Interessen der Vertragspartner voraus. Bei diesem Vorgang sind auch grundrechtlich gestützte Rechtspositionen zu beachten. Zur Beurteilung der Unangemessenheit ist ein genereller, typisierender, vom Einzelfall losgelöster Maßstab anzulegen. Im Rahmen der Inhaltskontrolle sind dabei Art und Gegenstand, Zweck und besondere Eigenarten des jeweiligen Geschäfts zu berücksichtigen. Zu prüfen ist, ob der Klauselinhalt bei den typischen Interessen der beteiligten Verkehrskreise eine unangemessene Benachteiligung des Vertragspartners ergibt (vgl. BAG Urteil vom 18.03.2008 9 AZR 186/07 Rn. 19, NZA 2008, 1004 ff.). § 6 a Spielervertrag gibt nur dem Arbeitgeber das Recht, den Vertrag um ein Jahr zu verlängern. Will der Spieler den Arbeitgeber nach Ablauf der Laufzeit des Vertrages wechseln und übt der Arbeitgeber sein einseitiges Optionsrecht für die Vertragsverlängerung rechtzeitig aus, führt das dazu, dass ein aufnahmebereiter Arbeitgeber eine Freigabe des Spielers durch den bisherigen Arbeitgeber nur gegen Zahlung einer Transferentschädigung erhalten wird. Durch die Transferentschädigung reduziert sich die Aufnahmebereitschaft von neuen Arbeitgebern und die Verdienstmöglichkeit des Arbeitnehmers bei neuen Arbeitgebern. Der Kläger verursacht dem neuen Arbeitgeber bei einem ablösefreien Wechsel weniger Kosten. Der budgetierte neue Arbeitgeber kann dem Kläger in diesem Fall eine höhere Vergütung zahlen. Die einseitige Optionsklausel dient nur dazu, dem abgebenden Arbeitgeber eine zusätzliche Einnahme in Form einer Transferentschädigung zu verschaffen. Sie behindert damit erkennbar die Berufsfreiheit des Arbeitnehmers nach Artikel 12 Abs. 1 Satz 1 Grundgesetz, wonach alle Deutschen u. a. das Recht haben, die Arbeitsstätte frei zu wählen. Das Interesse des Beklagten an einer Einnahmequelle aus einem Spielertransfer hat hinter dem grundgesetzlich geschützten Interesse des Klägers an der Berufsfreiheit zurückzutreten”.

[12] BAG, judgment of 25 April 2013, 8 AZR 453/12.

[13] Ibid., para 32.

[14] Ibid.

[15] Dutch KNVB Arbitration Tribunal, 4 June 2004 n. 1022.

[16] M. Colucci and F. Hendricks, Regulating Employment Relationships in Professional Football. A Comparative Analysis, European Sports Law and Policy Bulletin 1/2014, p. 254.

[17] Ibid., 39.

[18] To sports contracts do not apply Art. 4, 5, 13, 18, 33, 34 L. 300/1970, regulating, among others, medical assessments and dismissals and Art. 1, 2, 3, 5, 6, 7, 8 L. 604/1966. To fixed term contracts, the provisions of L. 230/1962 do not apply.

[19] Colucci, Hendricks, Regulating Employment Relationships in Professional Football. A Comparative Analysis, European Sports Law and Policy Bulletin 1/2014, 201 – 202.

[20] The original German version reads as follows: “Die Einräumung von durch einseitige Erklärung auszuübenden Gestaltungsrechten (Optionsrechten) ist nur zulässig, wenn sie jedem Vertragsteil gleichwertige Ansprüche einräumt und auch die Art der Ausübung des Optionsrechtes für beide Teile an gleichwertige Bedingungen geknüpft ist (z.B. einseitige Vertragsverlängerungsmöglichkeit durch den Klub bei bereits vorab festgesetzter Gehaltserhöhung für den Spieler oder sonstiger gleichwertiger Verbesserungen für den Spieler, wobei stets die besonderen Umstände des Einzelfalles [Alter des Spielers, Dauer der Vertragsverlängerung] zu berücksichtigen sind). Für die Bewertung der Gleichwertigkeit ist der Zeitpunkt des Vertragsabschlusses maßgeblich”.

[21] OGH 28.10.2016, 9 ObA 88/16f

[22] Ibid., The original German reads as follows: “Das Erstgericht gab dem Klagebegehren statt. Es kam zu dem Ergebnis, dass die Optionsvereinbarung unwirksam sei, weil sie nicht den Voraussetzungen des § 6 KV-ÖFB entspreche. Den Vertragsteilen würden durch diese Vereinbarung keine gleichwertigen Ansprüche eingeräumt. Der „Sideletter“ zum Spielervertrag, der ein höheres Gehalt für die Verlängerungszeit regelte, sei nicht statutengemäß unterfertigt worden und daher nicht wirksam geworden; darüber hinaus sei diese Gehaltserhöhung im Verhältnis zur Dauer der Verlängerung auch nicht angemessen. Das Berufungsgericht gab der Berufung des Beklagten dagegen keine Folge. Auf die Frage des rechtswirksamen Zustandekommens der im „Sideletter“ vorgesehenen Vereinbarung komme es hier nicht an, weil § 6 Abs 4 des KV-ÖFB die Gleichwertigkeit der Ansprüche beider Vertragsteile bereits zum Zeitpunkt des Vertragsabschlusses fordere und die dem Beklagten im Spielervertrag eingeräumte Option daher dem Kollektivvertrag widerspreche. Bei Abschluss des Vertrags sei nicht festgesetzt worden, mit welchen Verbesserungen der Kläger im Fall der Verlängerung rechnen könne; eine Lösungsbefugnis des Klägers sei auch nicht vorgesehen. Außerdem sei die Option wegen ihrer Dauer (Verlängerung doppelt so lang wie das befristete, eigentliche Vertragsverhältnis) nicht als gleichwertig anzusehen. Wenngleich das Interesse eines Fußballvereins an einer einseitigen Verlängerungsmöglichkeit insbesondere im Nachwuchsbereich plausibel sei, dürfe sich der Verein nicht vom Risiko der sportlichen Entwicklung des Spielers zu dessen Lasten (weitgehend) befreien. Hier sei die Option wegen der doppelten Länge der ursprünglichen Vertragsdauer schließlich auch im Fall einer Erhöhung des Entgelts um nur 15 % (wie im „Sideletter“ vorgesehen) nicht als ausreichend gleichwertig anzusehen“.

[23] Art. 6 RD 1006/1985 reads as follows: “La relación laboral especial de los deportistas profesionales será siempre de duración determinada, […].Podrán producirse prórrogas del contrato, igualmente para una duración determinada, mediante sucesivos acuerdos al vencimiento del término originalmente pactado. Solamente si un convenio colectivo así lo estableciere podrá acordarse en los contratos individuales un sistema de prórrogas diferente del anterior, que en todo caso se ajustará a las condiciones establecidas en el convenio”.

[24] L. O’Leary, Employment and Labour Relations Law in the Premier League, NBA and International Rugby Union, T.MC. Asser Press, 2017, p.204.

[25] Ibid., p.99.

[26] ibid., p.208.

[27] Eastham v Newcastle United Football Club [1964] Ch 413, p. 428, cited in in Leanne O’Leary, Employment and Labour Relations Law in the Premier League, NBA and International Rugby Union (2017), 5.

[28] S Gardiner, M James, J O’Leary and R Welch with I Blackshaw, S Boyes and A Caiger, Sports Law – Third Edition (2006), 494.

[29] [1974] 3 All ER 616

[30] Ibid.

[31] Ibid.

[32] Ibid.

[33] [1975] 1 All ER 237.

[34] Ibid., 238.

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