Intermediaries in Football: an Update on CAS Jurisprudence

This article sets out a summary of several recent cases involving intermediaries and seeks to distill the lessons that can be adopted by intermediaries in what is, two years after the changes to the regulatory landscape, still an uncertain time for intermediaries.

Introduction

Football intermediaries (or football agents, as they were formerly known) are of ever-increasing prevalence in the world of football. They perform a central role in ensuring that the merry-go-round of transfer activity continues apace and, in many cases, the intermediaries are extremely well remunerated for so doing. By way of example, the English Football Association has confirmed that the Premier League clubs paid a total of GBP 174 million (approx. EUR 196 million) to agents in the period February 2016 to January 2017. In the same period, the clubs in the Championship (i.e. England’s second tier of football) spent GBP 42.4 million (approx. EUR 48 million) on intermediaries’ fees.

Yet at a time when intermediaries are playing such a central role in the sport, the regulatory and legal background against which they act has shifted to an area of uncertainty:

• From 1 April 2015, the old FIFA Players Agents Regulations (FIFA PAR) were abandoned. They were replaced by the FIFA Regulations on Working with Intermediaries (Intermediaries Regulations). In short, the Intermediaries Regulations did away with the previously established licensing system, which required agents to have passed an examination and to have in place professional indemnity insurance. Instead, it has been replaced with a system in which any natural or legal person can act as an intermediary, provided they have first registered at national level. It also advises players and clubs to adopt certain “benchmarks” regarding remuneration payable in each transaction.
• Following the introduction of the Intermediaries Regulations, the relevant agent regulations at national level were revised or replaced, ensuring that the mandatory changes set out in the Intermediaries Regulations were transposed and reflected at a national level. In short, the changes to the Intermediaries Regulations completely transformed the regulatory landscape applicable to intermediaries, both on a national and on an international level.
• The changes also led to uncertainty regarding the correct forum for the resolution of disputes involving intermediaries. Previously, under the FIFA Regulations on the Status and Transfer of Players, any disputes involving agents would be resolved by the FIFA Players’ Status Committee. However, on 23 January 2015, FIFA issued Circular no. 1468, which confirmed that FIFA will no longer be competent to hear disputes involving intermediaries. This leaves a lacuna.

Following these changes, it is a time of flux for intermediaries. Many will have unanswered questions: Will the “benchmarks” set out in the Intermediaries Regulations be enforced? Will it make doing business easier or harder? Will there be more disputes involving intermediaries as a result of the changes? When a dispute does arise, which dispute resolution body will resolve it?

CAS 2016/A/4517 Bologna FC 1909 S.p.A. v. Gonzalo Luis Madrid Pineiro

This case concerned a dispute between the Italian football club Bologna FC 1909 S.p.A. (Bologna) and Mr Gonzalo Luis MADRID Pineiro, a Uruguayan football intermediary, regarding sums that were due from Bologna to Mr Pineiro pursuant to two agreements.

The first agreement was entered into by Bologna and Mr Pineiro on 1 July 2008 (the First Agreement), under which Bologna granted Mr Pineiro the exclusive mandate to act for it in relation to the transfer of the player Miguel Angel Britos Cabrera (the Player) to Bologna. The First Agreement was agreed to be valid from 1 July 2008 until 31 August 2008 and provided that:

1. If Bologna signed an employment contract with the Player for a term of five years, Mr Pineiro would be entitled to receive a fee of EUR 2,000,000, payable in three instalments;
2. If, following the Player’s registration with Bologna, Bologna transferred the Player to another club on a permanent basis by no later than 31 August 2012, Bologna would have to pay to Mr Pineiro an additional fee. The First Agreement set out a series of sums that would be payable, all of which related to the transfer received by Bologna for the Player.

On 21 July 2008, the Player signed a five-year contract with Bologna. Following the Player’s registration, Bologna paid Mr Pineiro the sum of EUR 2,000,000 in accordance with the payment schedule set out in the First Agreement.

Almost three years later, on 12 July 2011, Bologna agreed to transfer the Player to Napoli for the sum of EUR 9,000,000. The day after the transfer of the Player to Napoli, Bologna and Mr Pineiro entered into a further agreement (the Second Agreement), under which the parties reiterated the fulfilment of the conditions set out in the First Agreement. In particular, the Second Agreement confirmed the sum that would be payable to Mr Pineiro in accordance with paragraph (d) of the First Agreement, which stated that Mr Pineiro would receive:

“The amount of 4.000.000 (four million) Euros, plus VAT if applicable, in case the Company [i.e. Bologna] receives for the definitive transfer of the Player an amount varying between 8.000.000 (eight million) Euros and 12.000.000 (twelve million) Euros, within 30 days from the receipt by the Company of the amount paid for the transfer of the Player.”

The Second Agreement stated that the sum would be paid to Mr Pineiro in twenty-four monthly instalments over the course of the 2011-2012, 2012-2013 and 2013-2014 seasons. The date for the first payment fell on 30 September 2011 but Bologna failed to make payment of that sum to Mr Pineiro. In fact, Bologna failed to make payment of any of the instalments to Mr Pineiro. As a result, on 17 September 2012, Mr Pineiro lodged a claim against Bologna before the FIFA Players’ Status Committee (FIFA PSC).

Decision of the FIFA PSC

On 23 February 2015, the Sole Judge of the FIFA PSC issued a decision in Mr Pineiro’s favour, ordering Bologna to pay to Mr Pineiro the full sum of EUR 4,000,000, plus interest, within 30 days of notification of the decision.

On 7 March 2016, the Sole Judge issued the grounds for its decision, finding that (inter alia):

• The Second Agreement was signed by both parties and was therefore valid and binding on both of them;
• The content of the Second Agreement was clear: the parties agreed that if the conditions set out in paragraph (d) were met, Bologna would have to pay to Mr Pineiro the sum of EUR 4,000,000; and
• Taking into account the legal principle of pacta sunt servanda (i.e. agreements must be kept), there was no reason for Bologna to escape its liability to Mr Pineiro.

Appeal to the Court of Arbitration for Sport (CAS)

On 25 May 2016, Bologna filed a Statement of Appeal against the decision of the FIFA PSC with the CAS. In its Appeal Brief, Bologna made a number of submissions by which it argued that Mr Pineiro was not entitled to receive the sum of EUR 4,000,000. It argued, amongst other things, that Mr Pineiro’s claim under the Second Agreement was illegal, contrary to the provisions of the FIFA PAR (2008 edition), effectively constituted a covert scheme of third party ownership and that, in any event, it should be reduced as excessive pursuant to Article 417 of the Swiss Code of Obligations (SCO) which states (in translation) that:

“Where an excessive fee has been agreed for identifying an opportunity to enter into or facilitating the conclusion of an individual employment contract or a purchase of land or buildings, on application by the debtor the court may reduce the fee to an appropriate amount.”

Mr Pineiro argued to the contrary: the Second Agreement was perfectly permissible, in accordance with the FIFA PAR and, pursuant to the principle of pacta sunt servanda, the amounts set out in the Second Agreement represented the contractual will of the parties and could not qualify as excessive pursuant to Article 417 SCO.

Following a hearing of the matter on 3 October 2016, the CAS Panel retired to reach its decision.

Decision of the CAS

The CAS Panel issued its decision on 13 March 2017. In terms of preliminary points, the Panel found that it had jurisdiction to deal with Bologna’s appeal against the decision of the FIFA PSC pursuant to Article 67(1) of the FIFA Statutes and that the appeal should be decided in accordance with the relevant FIFA rules and regulations (including the FIFA PAR), while Swiss Law would be applied subsidiarily.

In relation to the various arguments put forward by the parties, the Panel found as follows:

• The payment structure set out in the First Agreement (and as restated in the Second Agreement) was sufficiently clearly worded and precisely determined so as to comply with the FIFA PAR and should therefore be held to be binding and enforceable on the parties.
• No arguments had been made to dissuade the Panel from the conclusion that, as a matter of Swiss Law (or indeed any other legal provisions), either Agreement should be considered null and void.
• However, the Panel noted that, irrespective of the terms of the Second Agreement, Mr Pineiro had no involvement in the transfer of the Player from Bologna to Napoli in July 2011. The Panel noted that Mr Pineiro had already been paid EUR 2,000,000 under the First Agreement in respect of the Player’s transfer to Bologna and that he was not required to undertake any further use of his network or of his negotiation skills in respect of the transfer of the Player from Bologna to Napoli three years. According to the Panel, there were no further “risks, expenses or effort that would reasonably justify additional remuneration of such magnitude.” When considering the transfer fee paid to Bologna for the transfer of the Player to Napoli (EUR 9,000,000), the Panel considered that the EUR 4,000,000 sum payable to Mr Pineiro under the Second Agreement was “an unusually high agent fee that exceeds typical rates and market norms in similar cases.” As a result, the Panel found that the remuneration due to Mr Pineiro was “unreasonable and manifestly disproportionate… in relation to the job and the services provided.” It therefore applied Article 417 of the SCO and required Bologna to pay Mr Pineiro the sum of EUR 2,000,000, rather than the sum of EUR 4,000,000 that was specified in the Second Agreement.

Comment

The outcome of this case turned on the application of Swiss Law and, in particular, Article 417 of the SCO. To non-Swiss lawyers, the outcome may seem strange; the parties had explicitly and clearly agreed their obligations in two written agreements that complied with the FIFA PAR in force at the time. Those agreements were not illegal or otherwise null and void as a matter of any law. Bearing in mind the maxim of pacta sunt servanda, why did the Panel reduce the amount payable to Mr Pineiro?

The Panel discussed the tension between pacta sunt servanda on the one hand and Article 417 SCO on the other. It stated at par. 65 et seq. of its judgment that:

“1…] in exceptional cases, by application of Article 417 SCO, freedom of contract may be limited, with the aim to restore balance between the competing interests of the parties, or with the aim to remedy an undesirable, unreasonable or immoral effect of a contractual agreement on the basis of the principle of proportionality.

The Panel is convinced that under the circumstances of this case the agreement of the parties results into an unreasonable amount of agent fees.

Yet, it cannot go unnoticed that this amount was determined on the basis of a negotiated First Agreement in 2008, and was also further confirmed and reiterated with a Second Agreement in 2011. In this respect, it is of little importance at whose instigation these Agreements were ultimately made. The fact remains that the parties had expressed their contractual will in two instances and this had been recorded in two relevant contractual documents.

This is why the Panel is mindful not to intervene intensively in the sphere of the contractual freedom of the parties. For this purpose, special weight should be given to the fact that the parties had determined a definite fee of EUR 2.000.000 to be paid with the successful conclusion of the Agent’s work, plus a conditional fee, ranging between EUR 500.000 to EUR 6.500.000 and only in the event of the transfer of the Player to a new club, in which the Agent would have no further involvement.

So, having regard to the overall structure of the agreement of the parties and the actual services offered by the Agent, the Panel considers that any additional amount of fee to the Agent cannot be substantially higher, and in fact, cannot exceed the amount of EUR 2,000,000 that he had already received as compensation for his overall agent services to the Club.”

Thus, the Panel considered that the circumstances were sufficiently exceptional to warrant interfering with the parties’ consensual contractual bargain. Indeed, they considered the circumstances sufficiently exceptional that they deemed it appropriate to reduce the sum agreed by the parties by 50% (i.e. from EUR 4,000,000 to EUR 2,000,000).

To non-Swiss lawyers, this decision looks strange. In England, the courts are extremely hesitant to interfere with parties’ bargains, particularly in cases involving commercial parties of similar bargaining power. In the present case, the party who ended up disappointed was Mr Pineiro, who is arguably the least powerful of the two contracting parties, being an individual negotiating with a well-known football club.

This brings us to the practical conclusion from the case. How can an intermediary know that a bargain will be upheld, even if it is recorded in a signed contract with a club? The simple answer is, provided the contract falls to be dealt with by the relevant FIFA rules and regulations and Swiss Law applies subsidiarily, they cannot. There always remains a possibility that CAS will apply Article 417 SCO in applicable cases and reduce the contractual amount, even where the parties have agreed that amount in advance.

This, it is submitted, is an unsatisfactory outcome for intermediaries across the world whose appreciation of the niceties of Swiss Law will likely be lacking.

CAS 2016/A/4554 Pablo Gustavo Cosentino V. Ezequiel Matias Schelotto

This case regards a dispute between the Italian football player Ezequiel Matias Schelotto and the Argentinian football intermediary Pablo Gustavo Cosentino, concerning sums that were due to be paid under a representation contract.

On 1 September 2011, the parties entered into an exclusive representation contract (the Representation Contract), valid for two years, until 31 August 2013, according to which Mr Cosentino and his brother Fernando Diego Cosentino had the right to receive:

“10% of all the sums (remunerations, salaries, wages except bonus, vehicle use and rental housing) granted to the CLIENT in relation to contracts concluded as consequence of the representation.”

On 1 November 2011, the Player signed a new employment contract with Atalanta Calcio valid until 30 June 2015, replacing the employment contract he had signed with the same club in 2010.

On 31 January 2012, Atalanta rejected a transfer offer made by Inter. Subsequently, on 3 December 2012, the Player terminated the Representation Contract with Mr Cosentino in writing.

After that, on 3 January 2013, the Player signed an employment contract with Inter for a duration of 4 1/2 years and a total gross salary of EUR 5,593,000.

On 20 May 2013, Mr Cosentino returned his Players’ Agent license to the Argentinian Football Association (the AFA) and the day after was appointed as CEO of Catania Calcio.

After the termination of the Representation Contract, the Player refused to pay any remuneration to Mr Cosentino either in respect of the employment contract signed with Atalanta, or for the employment contract entered into with Inter. For this reason, on 11 September 2013, Mr Cosentino lodged a claim against Schelotto before the FIFA PSC.

Decision of FIFA PSC

On 20 July 2015, the Sole Judge of the FIFA PSC rejected the demand filed by Mr Cosentino as the claim was deemed inadmissible.

On 23 March 2016, the Sole Judge notified the parties of his findings, which can be briefly summarised as follows:

• At the time the claim was commenced, FIFA had jurisdiction to deal with matters relating to licensed players agents. On 11 September 2013, when the claim was lodged, the Appellant was not a licensed players’ agent anymore as he cancelled his license with the AFA on 20 May 2013;
• Based on Article 6 of the Rules Governing the Procedures of the PSC in force at the time the claim was commenced, only licensed agents were admitted as parties in front of FIFA;
• As a result, the claim of Mr Cosentino was not admissible as he was not a party admitted before FIFA’s decision-making bodies.

Appeal to the CAS

On 13 April 2016, Mr Cosentino filed a Statement of Appeal against the decision of the FIFA PSC with CAS. Among other things, Mr Cosentino argued that FIFA did not correctly apply Article 30 par. 4 FIFA PAR according to which:

“The Players’ Status Committee or Sole Judge (…) shall not hear any case subject to these regulations if more than two years have elapsed from the event giving rise to the dispute or more than six months have elapsed since the players’ agent concerned has terminated his activity.”

Furthermore, Mr Cosentino argued that he was entitled to receive remuneration for the contract signed by the Player with Atalanta as well as for the one with Inter. Mr Cosentino argued that, as the termination was inopportune, the Player had the obligation to compensate his former agent accordingly, as provided by Article 404 SCO, which states that:

“The agency contract may be revoked or terminated at any time by either party. However, a party doing so at an inopportune juncture must compensate the other for any resultant damage.”

The Player argued to the contrary: in is view, the Representation Contract was not valid due to several violations of FIGC and FIFA rules. The Player considered that Mr Cosentino had no right to receive remuneration, as he was not involved in the negotiations with Atalanta or Inter.

A hearing took place on 23 January 2017.

Decision of the CAS

The Sole Arbitrator of CAS issued his decision on 21 June 2017. As a preliminary matter, the Sole Arbitrator found that the Representation Contract was valid. In particular, the Sole Arbitrator stated that the fact that two natural persons were mentioned in the Representation Contract did not render the contract null and void. Moreover, he found that there was no mandatory requirement to transmit the Representation Contract to the national associations as, according to Article 19 par. 6. PAR, players’ agents are merely “advised” to do so.

With regard to the jurisdiction of FIFA to hear the case, the CAS affirmed that the dispute has an international dimension (Mr Cosentino was registered with the AFA and the Player was playing in Italy), and that given the fact that Article 30 par. 4 FIFA PAR gave agents the opportunity to bring a dispute in front of PSC within six months after the termination of the agent activity, Mr Cosentino had time until 20 November 2013 to claim before FIFA. His demand was filed on 11 September 2011, therefore FIFA PSC was competent to hear the Appellant’s claim.

However, at the hearing before the Sole Arbitrator, the facts of the case were clarified by the Parties and, for efficiency reasons, the CAS decided not to refer the dispute back to FIFA but instead to decide the dispute itself.

In relation to the main request of Mr Cosentino concerning his right to remuneration under the Representation Contract, the Sole Arbitrator found that:

• The contract signed by the Player with Atalanta in November 2011 had the same fixed remuneration as the previous one, albeit with a slight increase in bonuses, exempted from the commission due to Mr Cosentino. Therefore, as there was no economical improvement for the Player, Mr Cosentino had no right to remuneration.
• Regarding the employment contract the Player signed with Inter on 30 January 2013, the Sole Arbitrator held that Mr Cosentino and his assistants’ intervention were causal to the employment contract signed by the Player. Specifically, the CAS found that Mr Cosentino and his assistants contacted Inter and were in an ongoing contact with the club from which they get a first offer in January 2012. One of the assistants of Mr Cosentino was continuously in touch with Inter and its representative in order to arrange the deal. Nevertheless, the Player terminated the Representation Contract with no reason.
• As the FIFA PAR did not contain any specific provision regarding the termination of contracts, the Sole Arbitrator stated that it would be necessary to apply Swiss Law to the norms of the brokerage contract (Article 404 SCO). Article 404 SCO provides that a contract may be cancelled at any point in time but if it is terminated at an inopportune moment, the cancelling party has to pay damages to its counterparty.
• As the Player terminated the Representation Contract without just cause and then signed a new employment contract with Inter only a couple of weeks later, the CAS ruled that the termination was made in bad faith and at an inopportune moment. As a result, Mr Cosentino had the right to be compensated for the damages suffered.
• The Sole Arbitrator found that if the Representation Contract had not been terminated by the Player, Mr Cosentino would have had the right to receive 10% of the Player’s gross salary (10% of EUR 5,593,000). Therefore, as the work of Mr Cosentino was causal to the signing of the employment contract between the Player and Inter, and the Representation Contract was terminated at an inopportune moment, the CAS found that the amount which Mr Cosentino was entitled to if the contract was not cancelled should be considered as damage incurred by Mr Cosentino to be compensated.

Comment

The outcome of this case confirms that the key element in the relationship between players and intermediaries is always the causaIity of the intermediary’s intervention in the deal. As elaborated by CAS2 (CAS 2006/A/1019), in principle intermediaries are not entitled to receive any remuneration unless they are the effective cause of the transaction being brought about. To reach this goal, it is always important to consider the extent to which intermediary activity was performed by the intermediary in any given case.

As long as an intermediary has performed an activity that is potentially demonstrable (i.e. through emails, telephone records, flight tickets and witness testimony), it will always be difficult for clubs and players to exclude them from the right to be remunerated under a valid representation contract.

At the same time, this CAS award in the Cosentino case shows how the formal termination of a contract is rendered ineffective with respect to the activity performed and the right to receive remuneration.

If the negotiation has already been carried out, the mere fact that at the time of the conclusion of the deal the representation contract was cancelled in bad faith by the player/club cannot lead to the loss of the right of remuneration by the intermediary.

The CAS also clarified that, applying Swiss Law to fill the gaps in FIFA rules that did not provide any norm relating to the termination, the damage to be recognised in case of inopportune termination of a representation contract, after the negotiations were almost concluded, corresponds to the remuneration that the agent would have if the contract was not cancelled.

However, the foregoing does not preclude a player, even in circumstances where a representation contract exists, from entering into an employment contract, without remunerating his agent, as long as there was no causal activity performed which would justify the intermediary being remunerated.

Conclusion

As noted at the outset, it is a time of change for intermediaries. In circumstances where FIFA has stated that it is no longer competent to hear disputes involving intermediaries, much of the burden will fall on CAS to resolve the disputes that arise out of intermediary relationships and the uncertainty that may exist after the introduction of the Intermediary Regulations (and their domestic equivalents).

The cases discussed in this article provide only a snapshot into the types of dispute that may come before CAS in the coming years. Indeed, both of these cases involve appeals against the PAR, which are no longer in force. While CAS will likely continue to resolve disputes involving the PAR, as those disputes work themselves through the dispute resolution system, it will be interesting to see how CAS approaches disputes under the Intermediaries Regulations, particularly as the role of the intermediary becomes ever more prevalent.

This article was co-authored by Lloyd Thomas of Squire Patton Boggs (UK) LLP and Luca Smacchia of Studio Grassani e Associati.  It was originally published in edition 8 of Football Legal.