Premiership clubs (the “Clubs”) are reportedly in a dispute with agents over the payment of agents’ fees. Traditionally, these have always been paid by the Clubs on behalf of players but, in June this year, the Clubs agreed to end this practice. Moving forward, according to the Clubs, players would have to pay agents themselves.
However, agents working in the Premiership have now reportedly downed tools, refusing to recommend that their clients agree to any new contracts with the Clubs. Given that the Clubs typically aim to finalise their recruitment and retention for next season before Christmas, and with the lure of France and Japan ever stronger, tensions are high (yet again) in English rugby.
The Clubs now find themselves locked in a dispute with the Association of Rugby Agents (the “ARA”) and the Rugby Players Association (the “RPA”), with the matter set to go to a mediation next week.
This article will try to explain the dispute and will consider the relevant legal arguments.
1. How do agents’ fees work in rugby?
In rugby union, agents will typically earn 5-10% commission from each playing contract signed by a player they represent. Therefore, each time a player signs a new deal with a Club, their agent will earn 5-10% of the total value of that contract (likely to be paid over the course of the agreement). Sometimes, the agent will negotiate their fee directly with the Club.
This commission has traditionally always been paid by the Club, on the player’s behalf. Therefore, if Player X signs a one-year contract worth £100,000 and the agent negotiates a commission of 10%, the Club will pay Player X’s agent £10,000 (plus VAT), in addition to the £100,000 paid to Player X.
The £10,000 (plus VAT) will be treated as a benefit in kind for income tax purposes, such that Player X will be taxed in respect of the £100,000 plus the £10,000 (plus VAT). Of course, as players are employees, the payment of income tax in respect of these sums is primarily their employer’s responsibility. This is uncontroversial.
Agents’ fees are also included under the salary cap.[1]
2. Why are the Clubs refusing to pay agents’ fees?
According to reports, the agents claim that the Clubs are refusing to pay their fees in order to cut costs, because of the pandemic. They also suggest that the Clubs’ long-term motivation is to exclude agents from negotiations altogether. The agents claim that the Clubs have used HMRC’s recent guidance on the taxation of agents’ fees in football to justify their approach.
On 31 March 2021, HMRC released new guidance on the tax treatment of payments made to football agents. This guidance focuses primarily on the practice of “dual representation” whereby an agent acts for both a player and the acquiring football club, under a tripartite agreement. In such a situation, the club pays all of the agents’ fees and these will typically be split 50:50 between fees paid in respect of services rendered to the player and services rendered to the club.
Previously HMRC had accepted this as being best practice. However, the new guidance makes clear that HMRC does not necessarily accept that this is always appropriate and will scrutinise arrangements to ensure that there is a “commercial justification for payments that have been made”.[2] HMRC’s primary concern is that the dual representation model may be exploited to artificially reduce the amount of income tax payable on behalf of the player (i.e. by treating 50% of the fee paid as being in respect of services rendered to the club when, in fact, more than 50% of the services provided by the agent were to the player). The new guidance thus encourages parties to such arrangements to keep thorough records to evidence the commercial justification for the deal. This guidance will, presumably, apply to rugby transactions in the same way.
For their part, the Clubs insist that their aim is to eliminate a “real conflict of interest” and to “put the player at the centre of the arrangement”.[3] They say that, as the agent is providing services to the player, the player should be responsible for payment of their fees, and for the payment of any tax. According to Premiership Rugby’s Phil Winstanley, the new approach would “avoid any risks in future any tax investigations [sic] or tax issues that impact on the club”.[4]
HMRC have reportedly been investigating Clubs’ treatment of agents’ fees in light of the new guidance, as dual representation agreements do exist in rugby (though perhaps less commonly than in football). After all, and as the agents have pointed out, agents do provide services to the Clubs in securing the services of the players. The Clubs are evidently of the view that the need to consider the structure of transactions more carefully and to keep detailed records is not worth the hassle – or, more cynically, perhaps this is a convenient excuse to stop paying agents’ fees altogether. Yet, when agents provide (recruitment) services to Clubs, they will (rightly) expect to be paid by the Clubs for those services.
Of course, the main advantage to Clubs of not paying agents’ fees would be to save costs, or to save salary cap space, which could be used to pay players more or to increase squad size. The reduction of the salary cap (discussed here) has squeezed Clubs and players, and this is a result.
3. What does this mean for agents?
Clearly, this development is bad news for agents. If Clubs are not paying agents’ fees, players will become responsible for paying them, out of their own pocket. In those circumstances, it is likely that some players will feel that they cannot afford to pay for an agent or may not wish to pay as much as agents were otherwise receiving from the Clubs. Players may also be less reliable when it comes to making agreed payments.
Towards the top end of the market, one would imagine that players would see the value in having an agent and would be able to afford to pay them at the usual rate but, at the lower end, agents may be squeezed out altogether. The larger agencies are likely to weather the storm, but smaller agencies and individual agents may struggle. That said, even a top player earning close to £1 million a year might think twice before paying £50-100,000 out of their own pocket to their agent each season.
If the current agency model is deemed to be too expensive for players – i.e. if they do not feel that they would be getting value for money – it may be that agents turn to a fixed fee model for their services, or that players turn to lawyers (whose fees would typically amount to less than 5-10% of the value of a player’s contract) for assistance with contract negotiations, instead.
4. What does this mean for players?
The RPA is concerned about agents being squeezed out because of the important role agents play in representing players’ interests. Agents are players’ voices in negotiations with the Clubs and there is a real concern that, without them, players (particularly those who are young and commercially inexperienced) will be taken advantage of. Ultimately, it is an agent’s job to ensure that the player is getting the best deal possible, and that they are being paid their market value.
Further, if players do continue to pay agents, it will come out of their own pockets, reducing their income by 5-10%. After the Covid-inspired pay cuts of 2020 and the subsequent reduction in the salary cap (which is rumoured to be extended), the burden of agents’ fees would amount to yet another suppression of players’ earnings. Whilst Clubs could use the money saved to pay players more, this seems unlikely given the cost-cutting climate at present.[5]
Indeed, this may have a detrimental effect on the Premiership as a whole, as it will become a less attractive destination for top talent (both because of the cost implications and because agents will be less incentivised to recruit talent to the Premiership). According to reports, the position in relation to agents’ fees was a factor in South Africa World Cup-winner, Duane Vermeulen, signing for Ulster in spite of interest from the Clubs.
Nonetheless, there may be some benefit to players by virtue of the elimination of any conflicts of interest. Whilst players and agents’ interests are typically aligned in a negotiation, there may be a conflict of interest if agents are negotiating their fee with the Club independently of the player. Such an arrangement sits somewhat uncomfortably with agents’ fiduciary obligations to their clients.
However, this potential conflict could be eliminated by capping agents’ fees, or by regulating dual representation more closely.[6] Clubs refusing to pay agents’ fees altogether in order to eliminate such a conflict of interest would be throwing the baby out with the bath water – and would not be in the best interests of the game.
5. What are the legal arguments?
From a legal perspective, players and agents may be able to mount competition law arguments to undermine the Clubs’ decision. As the Clubs are acting collectively and hold a monopsony over the professional rugby market, the decision not to pay agents’ fees will inevitably distort competition in the market for agents’ services and between players, for the reasons set out above.
The RPA and ARA may therefore argue that the policy amounts to an anti-competitive agreement or an abuse of a dominant position (contrary to sections 2 and 18 of the Competition Act 1998, respectively). The lack of consultation, in particular, may make the latter more attractive.[7] Likewise, it might be argued that the decision amounts to a restraint of trade.
The Clubs would likely argue that any prima facie anti-competitive conduct could be justified as being a proportionate means of achieving the legitimate aim of promoting financial stability. However, given the negative effects outlined above and the modest cost-saving for Clubs, it is in this author’s view doubtful that such an approach would be proportionate (and, in any event, merely saving costs may not be a legitimate aim).
Alternatively, the RPA and ARA may argue that the longevity of the Clubs’ practice of paying agents’ fees has resulted in a term being implied by custom and practice into the Premiership Standard Playing Contract such that they are obliged to do so, unless it is agreed otherwise. According to the relevant case law, a custom or practice will be deemed a binding implied term where it is “reasonable, notorious and certain”[8] and is followed “because there is a sense of legal obligation to do so”.[9] Notably, the Premiership Standard Playing Contract refers to agents’ fees having been paid by the Club.[10]
6. Conclusion
The dispute between the Clubs and rugby agents is just the latest fractious episode in the messy history of English rugby, which has undoubtedly been made significantly messier by Covid-19.[11] Indeed, it is not the first time that this issue has reared its head. In 2003 the Clubs also refused to pay agents’ fees but were ultimately unsuccessful. Whether the Clubs will prevail this time around remains to be seen.
If English rugby had a proper collective bargaining mechanism in place, this type of proposal would have required consultation prior to its implementation but, as it is, the Clubs’ unilateral decision has very quickly resulted in a stand-off with agents – and players are caught in the middle. This helps no one and pushes the case further for true collective bargaining.[12]
In this author’s view, Clubs not paying agents’ fees is not good for the game – even if lawyers might stand to benefit (!) – and may well be legally challengeable. It is likely to have (if it has not had already) adverse effects for agents, players, and the Premiership as a whole.
Article by Ben Cisneros. Ben is a Trainee Solicitor at Morgan Sports Law, though this article reflects only the author’s personal views. Please email ben.cisneros@morgansl.com for any legal or media enquiries.
References
[1] See paragraph 1.15 of Schedule 2A of the Premiership Rugby Salary Cap Regulations 2021-22.
[3] Phil Winstanley, Premiership Rugby (see here).
[4] Ibid.
[5] Interestingly, in football, it has been suggested that clubs’ costs would rise if the burden of paying agents’ fees was shifted onto players, as players would demand higher salaries (Daniel Geey, Should players pay their own agents…? It would cost Premier League Clubs £166m a year!). It may also be that such an arrangement would be less tax efficient. However, such inflation seems less likely in rugby union due to the pressures of the salary cap.
[6] Notably, this is something FIFA are due to implement (with a cap on agents’ commission at 3% of a player’s salary), following many years of debate in football. See here.
[7] Indeed, there may even be a separate argument that the agents and players had a right to be consulted, and that the lack of consultation makes the Clubs’ decision unlawful (see, for example, R (Moseley) v London Borough of Haringey [2014] UKSC 56, discussed here).
[8] Bond v CAV Co [1983] IRLR 360 and Henry v London General Transport Services Ltd [2001] IRLR 132
[9] Solectron Scotland Ltd v Roper [2004] IRLR 4
[10] See paragraph 4 of Schedule 1 of the Premiership Standard Playing Contract
[11] See, for example, ‘Permanent Pay Cuts and Reducing the Salary Cap’ and ‘The Leicester Five: the legal position of players who resisted pay cuts’
[12] Notably, collective bargaining has had success in English football. When the EFL unilaterally attempted to introduce salary caps, for example, the PFA successfully argued that they had done so in breach of the relevant collective bargaining agreement, which required consultation (see here).