Restraining English players from cricket's Indian revolution

Restraining English players from cricket's Indian revolution
The controversial Indian Premier League (IPL) is now underway, with English cricket stars conspicuous by their absence. They have been banned from both the IPL and its rival tournament, the Indian Cricket League (ICL), by the England and Wales Cricket Board (ECB). Players competing in the ICL will receive a 12 month ECB ban, from all forms of English Country cricket.

Many players feel that they are being unfairly prevented from benefiting from by far the most lucrative cricket tournament in history, with some positing that such a ban may flout the law on restrictive covenants.

Background
The IPL has already attracted an audience of one billion consumers and billions of pounds in revenue. Television rights alone sold for $1 billion. The auction of players across eight rival teams also raised a further $723 million. The ECB, to whom 12 key players are centrally contracted, has refused to allow these elite cricketers to participate, much to the chagrin of many cricketers who for many years have watched their salaries pale in comparison to those of competitors in other sports. It is concerned that the bank-rolled Twenty20 league will adversely impact on the integrity of the game and perhaps even spell the end for Test cricket.

ECB's position
The ECB has argued that it must protect the England national team's interests; England have a Test Match Series against New Zealand scheduled for shortly after the IPL ends this year, and the Ashes series (England v Australia) follows next year's tournament. Many commentators have called into question the lawfulness of the ECB preventing cricketers from plying their trade in the Indian tournaments.

In the past fortnight, three Northamptonshire players (Justin Kemp, Andrew Hall and Johan van der Wath) won their appeals against their suspension from the ICL by the ECB. A panel chaired by Nicholas Stewart QC ruled that the suspension was unenforceable because the ECB had not specifically outlawed their participation in the ICL prior to taking part. Indeed, the panel unanimously rejected a request to refer the decision back to the ECB. It is hard to see how effectively the ECB could actually specify the IPL/ICL as being 'off limits'. Employers who wish to rely on post-termination restrictions often seek to set out a list of competitors to whom such restrictions apply. However it is recognised that this approach can be circumvented where there are changes in the market, mergers or takeovers which render the list obsolete. As things stand, it is the IPL which is seen as the major threat; in a year's time, there could be an English or South African Premier League.

The law
The law on restraint of trade and restrictive covenants has always been a grey area. At stake are competing principles of free movement and an open labour market versus the right of an employer to protect a legitimate business interest. There has been a recent trend towards the courts adopting a more commercial position and enforcing post-termination restrictions, provided that such restrictions go no further than is necessary to protect the relevant business. That is why technical legal drafting is required and restraint of trade cases become expensive and time-consuming affairs. However what is the position when the individual is still a current employee?

All employees owe an implied duty of fidelity to their employer. Many contracts of employment will expressly require exclusive service or require the individual to gain consent from his employer prior to pursuing additional employment opportunities. An analogy can be drawn with the Kerry Packer World Series Tour in the early 1970s where the courts (Greig v Insole) forced counties to drop bans imposed on players on the grounds of restraint of trade.

Money talks
The ECB may realise that money talks and that its top players could simply refuse to sign central contracts in the future, should an accommodation not be found. The Professional Cricketer's Association has stated that over 10% of all professional cricketers in England have been approached to play in either the IPL or the ICL. What is also inevitable is that others will try to copy the format of the IPL and hope that new markets can be tapped into equally successfully. Cricket has for a long time been fairly immune to the commercial market forces which have shaped other sports, such as football. Football's financial revolution in the early 1990s also brought with it a string of hotly contested legal disputes, most famously the Bosman case, and it seems that cricket has now turned down a similar path.

13/05/2008

Paying the penalty

Paying the penalty
For football clubs, the credit crunch is nothing new. Football has been through tough times already due to the collapse of ITV Digital, overspending and a concentration of wealth at the top end of club football. In the last decade alone, an astonishing 30 professional football clubs entered into administration. It is a fairly safe prediction to say that there may well be another 30 in the next five years or so. As things stand, Gretna and Rotherham United, are the latest teams to go into administration.

Last week, Leeds United FC were unsuccessful in their appeal against the imposition of a 15 point deduction by reason of having gone into administration. The rationale for such a deduction is that football clubs were essentially exploiting the use of administration, followed by a Creditors' Voluntary Arrangement (CVA), to escape from their debts and continue on a cycle of financial mismanagement and failure. Essentially, well-run clubs were not benefiting from their prudence.

The immediate consequence of the points deduction for Leeds United is the fact that they remain in the play-offs for promotion. The ruling of the independent panel has been welcomed by a number of clubs, including Swansea, Carlisle, Doncaster and Nottingham Forest, who had all threatened legal action in the event that the points deduction was overturned. Leeds United have proposed an amendment to the relevant Football League regulations to allow clubs to better withstand market conditions.

The application of normal insolvency law principles to football clubs is a fascinating study and we look at certain key aspects of this subject below.

Background
The key difference between football club insolvencies and normal insolvencies is that the employees (that is the players) and other football creditors (so called "super creditors") are in practice paid in full as a priority to other creditors. Other super priority creditors include other football clubs and the team manager. Service providers such as the police and the emergency services are also paid in full in priority to other creditors. This is provided for under Football League rules and from a practical perspective is necessary to maintain the value of the club. In a normal insolvency situation, the employees of the relevant business are paid wages and salary in priority to other creditors if they are retained following 14 days after appointment of the administrator but otherwise are required to seek recovery of unpaid wages and redundancy pay from the Secretary of State and there is a cap on the amounts which can be recovered from this source. Each employee must then rank alongside unsecured creditors for the balance of the sums which they are due.

Administration
Administration is an insolvency proceeding designed to allow a business to continue to trade and survive in the long-term. Often the first real opportunity that creditors and third parties have of knowing the aims of the administration and the actions to be taken by the administrator is when they receive the report and statement of proposals prepared by the administrator and sent to creditors in advance of the creditors' meeting. This meeting should generally be held as soon as reasonably practicable after the company enters into administration and no later than 10 weeks after the administration date or such longer time as the court allows. In practice, this means that the creditors will have very little information on the conduct of the administration until they receive the statement of proposals. As with all administrations, the Administrator faces a difficult decision in determining whether certain assets are sold or retained in the hope that the business turns the corner.

In the context of football administrations, if the club is doing well then the Administrator will wish to retain the best players in the hope that the team can gain promotion, which in turn will lead to greater revenue for the business. On the other hand, if the club does not succeed then the players may well leave for nothing (if their contract expires) or for less than full value if the Administrator is forced into the quick sale of players to secure the continued existence of the club.

The blame game
So where does the buck stop? Well, in the case of Rotherham United, the Football League authorities decided that the Chairman of the club was responsible. He became the first football club director to be disqualified under the Football League's "fit and proper person test" due to being at the helm when the Company agreed a CVA in 2006 (basically non-football creditors took a hit and wrote-off large amounts of debt and the Revenue was paid in full) and also when the club entered into administration recently. Intriguingly, the Chairman has suggested that he may well challenge the ruling and as a matter of fact, could be a potential lifeline for the club in terms of future investment.

Lessons to be learned
The introduction of a 15 point deduction for teams entering into administration, has forced clubs to think twice before calling in the Administrators. Any business experiencing difficulties will be faced with the prospect of seeking further investment (and incurring more debt in many cases) to try and turn the corner, restructuring or entering into a form of insolvency. In certain cases, the precise nature of the insolvency proceedings will be determined by law. However, it is critical that creditors carefully scrutinise the terms of the insolvency practitioner's proposals or the terms of any CVA. Rotherham United were obliged under the original CVA to provide free tickets to the former owners, allow the former owners free hospitality and also pay annual rent to use the stadium.

A considerable constraint on football clubs is the fact that Administrators can only trade the main asset of the business, the players, in two predetermined transfer windows falling in January and the summer months. Additionally, the Football League has ruled that it will not allow clubs to enter into liquidation and essentially re-establish itself under a different guise, free of their historic debt. This is why football clubs tend to enter into administration followed by a CVA.

In terms of the consequences for individuals involved in running a club, we have already seen that there are football specific rules. One wider provision that applies across business is that under the Insolvency Act 1986, anybody who has been a director of a company which has gone into liquidation must follow a set procedure, which may involve notifying all creditors or obtaining the court's permission if he wants to be a director of a new company with a similar name within five years. Trading without obtaining that permission is a criminal offence and anyone prosecuted and found guilty of it is liable to a fine or imprisonment.

Conclusion
The experience of football in the last decade shows that market conditions such as those we are entering into just now, mean that insolvency proceedings are an unavoidable reality, but if managed correctly they can allow the rescue culture to be more than a political aspiration. Despite the recent incidence of administrations, only four football clubs have in fact left the football league due to financial failure. That said, it is worth bearing in mind that the primary function of an Administrator is to obtain the best deal for creditors and he is under no obligation to keep the club in business save to the extent that this will achieve the objective of the administration.

13/05/2008

2012/2014 column

2014 Commonwealth Games bill passed
Less than six months after Glasgow won the bid to host the 2014 Commonwealth Games, MSPs passed the Glasgow Commonwealth Games Bill on 30 April 2008 in a spirit of cross-party consensus.

The key measures set out in the Bill are:

• transport - to ensure athletes and competitors are able to travel efficiently to and from Glasgow and between venues;
• planning – to make provision for compulsory purchase by councils, where necessary;
• policing – greater powers for police and enforcement officers;
• marketing – provisions to prevent 'ambush marketing'.

2014 Commonwealth Games consultation
An initial consultation paper aimed at creating a lasting legacy for Scotland from hosting the 2014 Games closed on Friday 9 May 2008.

This consultation document invited respondents to have their say on how the Scottish Government and its delivery partners plan to identify and deliver the maximum benefits and legacy to the whole of Scotland from the Commonwealth Games in Glasgow in 2014 and from the London Olympic and Paralympic Games in 2012.

Specifically, responses were requested to 4 key questions:

• are the benefits you would like from the Games covered in this paper?
• is there anything else the Scottish Government should be doing?
• how can we, individually or collectively, best achieve these aims?
• do you have any other comments to offer on what should feature in the final games benefits and legacy plan?

The consultation paper has been sent to 1000 key stakeholders and organisations.

The outcome of the consultation will be covered in the next Shepherd and Wedderburn sports e-bulletin.

2012 Games
Preparations for the 2012 London Olympics continue apace with the Design Team for the Olympic Stadium having been appointed. Many other projects are out to tender and being finalised very quickly.

In the meantime, an army of billions has descended on London to clear up contaminated sites. This army consisting of tiny bugs, is being used to clean contaminated soil. Apparently, bacteria, fungi and other microbes will completely clean the soil so it can be reused elsewhere on the Olympic Site. The process does not generate any waste, significantly reducing the amount of material being taken to landfill sites.

13/05/2008

Sports shorts

Points-based immigration will not impact on visiting sports stars
The Home Office has allayed the fears of the sports industry by announcing that Tier five of the new points-based immigration system (which applies to 'temporary workers') will not generally cover persons travelling to the UK for sports events. Organisers of such events had feared massive administrative costs in securing licences for competitors, but the Home Office has stated that sportspeople will now generally only require visitors' visas.

England 2018 under threat from the taxman
The Central Council for Physical Recreation has echoed the fears of leading accountants that international sports bodies are being put off awarding major sporting events to the UK due to its high levels of taxation. HM Revenue & Customs currently claims a share of international sports stars' worldwide income if part of it is earned in the UK. Whilst the International Olympic Committee insisted that the rules be relaxed for foreign London 2012 athletes, many fear that FIFA will shun England's bid to host the 2018 football World Cup due to tax concerns.

The current rules stem from a 2006 House of Lords decision in which Andre Agassi was ordered to pay tax on his international endorsements income.

Towards an EU policy on sport
The European Parliament has adopted the Mavrommatis report, which sets out proposals relating to TV rights, equality and the prevention of doping in sport. The report:

• welcomes the Commission's July 2007 White Paper on Sport;
• urges Member States and sports bodies not to discriminate on the grounds of nationality in selecting players;
• sets out policy initiatives to mitigate the risk of doping in sport; 
•  insists that key sporting events should be free-to-air, with TV revenues shared equitably through collective selling of media rights; and
• promotes equal pay for male and female athletes.
  
  

13/05/2008