Agreements between Sports Agencies and AgentsTuesday, 31st July 2018
Guest blog by Brabners LLP
This is the first insight article in a series which will focus on the football agency marketplace. Brabners LLP acts for a diverse range of agents, agencies and their player clients (along with football clubs and non-playing staff) and has advised on many of the important commercial and legal issues in the sports agency marketplace, often in both contentious and non-contentious contexts.
Over the past few months we have noticed a marked increase in the volume of our instructions concerning the contractual relationships between sports agencies and agents (or ‘intermediaries’ in the world of football). Increasingly, our sports agency clients are seeking to adopt specific and bespoke contractual terms with their agents, often differing from agent to agent. Perhaps this is on the back of contentious experiences involving agencies and exiting agents, or perhaps it is yet another sign of the increasing commerciality and sophistication of the sports law market.
Our agency and agent clients in the football, golf, cricket and rugby markets are more alive than ever to the fact that ‘one size does not fit all’ and the fluidity of those varied sports agency marketplaces demands a more sophisticated approach. Our experience advising on contentious and non-contentious issues in these areas has emphasised how important it is for agencies and agents to address key fundamental issues at the outset of their relationship, and to take the appropriate legal advice.
Cards on the table!
Before entering into any contractual relationship with an agency or agent, the parties should be confident that they have undertaken the necessary due diligence checks on their potential new commercial partner. Not only will the obvious background checks be important, including the checking of references and publically available records and regulatory information, but the agent or agency should be confident that all existing obligations and liabilities to third parties (particularly any potential post termination or settlement agreement issues) are identified and risk assessed. We have seen a range of disputes in the agency marketplace linked to some of the following issues (which is of course not an exhaustive list):
- An agent is subject to post termination / agreed settlement contractual obligations to a third party (often a previous agency).
- An agent’s existing client base is in fact under contract with the agent’s previous agency, and not the agent directly (or the players themselves are subject to agreed settlement contractual obligations to third parties).
- There are live and ongoing disputes between the agent, player clients and / or previous agencies.
- The agent may actually be subject to regulatory investigation and / or a regulatory sanction and / or a court order precluding the agent from actually performing his / her duties.
- The agent may not in fact be registered with the appropriate regulatory body, or (in the case of football) may not have the essential and requisite authority to work with minors.
If the above issues are not identified and addressed at the outset of the negotiations, the parties can find themselves embroiled in unexpected litigation and/or regulatory inquiries. Not only will additional and unexpected costs, along with the headache of dealing with such matters, be unwanted distractions, but the agent or agencies’ reputation and brand (along with the reputation of the players associated to that agent or agency) will be at risk.
Twist or stick?
As with any contract, it is important for parties to carefully consider how long they want and need the contractual relationship to last. This is particularly important when entering into an agreement with a new agent or agency company.
There are pros and cons to both fixed term and rolling agreements and the right term will depend on a number of factors, including, any previous dealings with the agent / company, your objectives in bringing the agent on board (for example, does the agent have an existing client base with current representation contract relationships), and the nature of the relationship you are looking to build with the agent.
A fixed term has the benefit of certainty. Both sides know when the agreement will come to an end and it allows a certain amount of comfort that the relationship will continue for the set time period. This certainty may be helpful when building a new relationship and if you are also looking to bring the agent’s existing clients under your agency umbrella this can provide the certainty to encourage the integration. Agencies may look to align the term of the agent’s contract with that of certain existing representation contract terms (or may wish to ensure that the expiry date of some of the agent’s existing representation contracts takes place during the agent / agency contractual term).
Alternatively one or both parties may prefer the flexibility of a rolling term agreement. This allows for greater freedom to end the relationship, usually on a set period of notice. However, agents will generally be wary of this type of relationship if the agent is obliged to assign existing representation contract relationships with players / athletes to the agency, or terminate and procure a new direct relationship between the players / athletes and the agency. If a rolling term is the preference of the parties then clear termination and post termination provisions concerning dealings with such players / athletes will be essential.
Are we exclusive?
The decision as to whether the agency agreement should be exclusive or not is wholly dependent on the circumstances of the parties.
Most agencies in our experience would prefer that their agents are exclusively contracted to them to maximise the commercial relationships and opportunities that the agent has available to them. However, as we see the global agency marketplace becoming more accessible, agencies are engaging agents based in foreign jurisdictions and are doing so on bespoke terms. This type of relationship may benefit from a more sophisticated and/ or relaxed approach to exclusivity.
If the agency agreement is not exclusive, the agreement will need to clearly set out which activities are covered by the agreement and those that are not. As a starting point you should consider:
- Is the agreement exclusive worldwide or only for a limited territory?
- Will there be a requirement regarding how many hours per week an agent should be dedicating to his/her obligations under the agreement or will it be distinguished in another way, eg by covering specific players / athletes, and what obligations are imposed on the agent for recruiting and managing players / athletes on behalf of the agency?
- Does the agent have an agreement with another agency that will need to be taken into consideration?
- Do the remuneration and ‘commission split’ provisions sufficiently reflect that the relationship is not exclusive?
- Player client recruitment and management
The terms relating to client recruitment and management are vitally important and we are seeing a much more tailored approach being adopted by parties to the agency and agent agreement. Depending on the experience, success and particular skillset of an agent, the parties will want to address such issues relating to:
- Does the agent have an existing client base and are there any existing contractual obligations?
- Will any new clients be contracted to the agent or the agency?
- Does the agency expect or require the agent to provide details on any potential new clients, and will there be a formal procedure in this respect?
Show me the money
The manner in which an agency pays an agent, and the entitlement to commission are obvious and important issues to consider when entering into an agency agreement. It is absolutely essential to make sure the agreement reflects what was anticipated and what has been agreed between the parties. You should think carefully about the following:
- How will the agent be paid? Will there be a base compensation fee and / or commission split, and what events will trigger payments (brand ambassador activities, introductions, new player client contract executions, receipt of commission linked to such introductions and / or contracts)?
- How will commission be defined? Will all business expenses need to be deducted and / or any third party costs (such as introducer / scouting fees) need to be accounted for before the ‘commission pot’ is established?
- Will the commission split be different for activities that relate to signing the player to a new club, or negotiating a new playing / sporting contract, as opposed to other commercial endeavours including sponsorship and endorsement agreements?
- Will the agent only receive commission from the types of activities above or will they also be expected to undertake brand ambassadorial and / or supporting activities or management duties that attract other fees?
- Will the agent be paid a premium or standard fee each year?
- If the agent fails to generate a certain amount of commission for the agency will they still be entitled to their base payment (we often see ‘return of salary’ provisions built into agreements which look to secure the agency’s return on investment before any commission is shared with the agent)?
- How will the cash flow be controlled and does the agency wish to secure a right to invoice and receive payment from third parties, on behalf of the agent, prior to distributing commission.
- Will there be a limit on expenses that the agent can incur and claim back from the agency and how will this be dealt with from a practical perspective?
When it’s all over
The provisions relating to termination are the single most important clauses that we draft in agency agreements, because this is the area where the majority of disputes arise. Although it may seem counter intuitive when entering into an agreement to be thinking about how it will end, there are some very important consequences if these clauses are not drafted carefully.
In particular, you will need to think about:
- Do players who were brought across to the agency by the agent, at the beginning of the agreement, remain clients of the agent or the agency?
- Do any players signed by the agent during the life of the agreement remain clients of the agent or the agency, or are further post termination contractual mechanisms required to trigger the transition of player relationships from agency to exiting agent?
- How will commission be split following termination, and will commission splits be different depending on the player client?
- Will you need provisions that ensure that the agency receives commission for any transaction that takes place after termination relating to a player signed by the agent during the agreement and / or in scenarios where the parties have agreed to rebalance the agency’s commercial investment in the agent?
- Do any third party contracts / relationships impact on commission and do the parties to the agency agreement require post termination obligations to be imposed on them to ensure that such commission is received (for example, in football, the tripartite relationship between agent, player and club can be a complicated relationship to manage following an agent’s exit from an agency, particularly where trail commissions are due but the player exits the agency)?
This does not need to be an area of conflict or dispute. In our experience, clients are increasingly looking to be fair and open about these exit arrangements to ensure a smooth transition at the end of their agreements. The key here is an open and honest early discussion between the parties about their expectations at termination, especially regarding the agent/player relationships.
Please note this blog was originally posted here.