I’ve teamed up with top football lawyer Dan Geey to have a look at agents fees: are they out of control, what are the suggested solutions and would they work?
Introduction
Between 2 February 2018 and 31 January 2019, Liverpool paid out almost £43.7m in fees to agents and intermediaries, according to figures provided by the English FA. In total, the 20 Premier League clubs spent over £260m during that same period. Agents are unlikely to receive much sympathy from fans for the job they do, but in our experience they are very much a necessity for clubs and players alike, and many provide the skill set necessary to get a deal over the line.
Nonetheless, UEFA president Aleksander Čeferin was recently at pains to stress that agents’ fees had reached astronomical levels. Čeferin reported that agents often try to dictate terms by telling buying clubs, ‘Look, you will pay me 50% of the transfer or the player goes somewhere else.’ UEFA calculated that more than €3bn has been paid to agents between 2013 and 2017, and suggested a cap on agents’ fees. This recommendation was previously floated by FIFA and draft regulations are soon to be put in place.
Commission Cap
As recently as October 2019, the FIFA Council endorsed wide ranging measures including the establishment of a cap on agents’ commissions. Specifically, 10% of the transfer fee for agents of selling clubs, 3% of the player’s remuneration for player agents and 3% of the player’s remuneration for agents of buying clubs (which could cumulatively be 6% if acting for player and buying club). It remains to be seen whether restricting what agents can earn is legal. Court challenges to what agents would effectively deem price fixing are likely in the absence of further flexibility or movement from FIFA on their cap proposal.
Many will continue to believe that the commissions agents receive should be capped or limited. Others, take a contrary view: regulating the commission for agents in the football business but not for the agents of actors or musicians seems artificial and unrealistic. Ultimately, it is up to those who pay the agents (the club and/or the player) to decide if they are getting value for money.
Another Way?
Critics would argue that players don’t know whether they are getting value for money as they can be in the dark when it comes to the amount paid to their intermediaries in negotiating deals. The best intermediaries will set out in straightforward language how much they are being paid and what the player’s tax obligations will be (as is set out below).
At the time of writing, there were discussions about whether the Premier League should simplify things, such that a player pays their agent the commission due (and is therefore aware of the amount his agent is receiving). This would be a radical change.
How Are Player Agents Paid?
Now, it may sound simple enough to suggest that an agent gets a commission of 5% – or, if they are lucky, 10%. The difficult part to explain is usually who pays the agent. You’d think it would be the player, right? Wrong. The majority of Premier League and top-end Football League transfers involve the buying club paying the agent. Details can vary. A number of different structures are set out below. Brace yourself, it involves tax!
Player pays
In very limited circumstances when dealing with Premier League players, a player may pay his agent for finalising a transfer. Under a player’s representation contract with this agent, as set out above, the player may be obliged to pay his agent 5%, say, of his gross basic wage. This doesn’t happen too often in practice.
Example 1: A player is paid £2m per year. The agent receives £100,000 (5%) from the player per year in one annual payment.
It’s important to note that in the UK this is an absolute cost to the player, i.e. players paying their agents a percentage of their employment income, or a fee for negotiating their employment contract, is not tax deductible for the player.
This is different to the treatment of individual sportspeople, or indeed players’ commercial deals (where an agent will often take a percentage/commission), where fees paid to an agent are tax deductible. Without going into too much tax detail, this is because deductions from employed income need to be ‘necessary’, where for self-employed income, they do not.
Club pays as part of the transfer arrangement
In practice, even if the player is required to pay his agent as set out in their representation contract, the player’s agent can negotiate that the club pays the agent on the player’s behalf. This benefit means the player doesn’t need to pay his agent. However, paying an amount on a player’s behalf is classed as a benefit in kind by the tax authorities and the player will pay tax on the payment by the club to the agent.
Example 2: A player is paid £2m per year. The agent receives £100,000 (5%) from the club paid on the player’s behalf as a benefit to the player.
The player would pay £45,000 of tax on the benefit the club has provided them with (i.e. 45% tax on effective additional income of £100,000). This is included on a player’s tax return and players should therefore be aware at this stage of the amounts paid to their agent on their behalf.
When players aren’t aware of the amount their agent has been paid, their tax return can sometimes produce a nasty shock. Having said that, this isn’t always the case as those at clubs with proactive payroll departments may request for this additional tax to be deducted from the player’s monthly salary and paid through their payroll. If not the club, then a specialist accountant aware of the agents fees payable may have requested such a payroll deduction on behalf of their client.
Some of the big players (those with good lawyers and accountants at least and in a strong bargaining position…) have started to negotiate a loyalty bonus payable in January that covers the tax they have to pay on their agent’s fees for the previous tax year. Tax is obviously also payable on this bonus, so the club need to gross up the payment to give the player the net amount he needs to settle his tax bill.
Club pays because the agent is acting for them
Sometimes the buying club will pay the player’s agent to act on its behalf during the transfer. You may think this is a conflict of interest – and you’d be right. In such a scenario, the player has to agree that his agent can work for both sides.
Example 3: A player is paid £2m per year. The agent will be paid for the work he does for the club and for the work he does for the player. The agent may then receive £50,000 (2.5%) from the club for the work done on their behalf and £50,000 (2.5%) from the club, as a benefit to the player, for the work done on the player’s behalf.
Without getting too complicated, many deals are variations of Example 3. In Example 2, the player is required to pay tax on the £100,000 paid by the club on his behalf. In Example 3, the player will be paying tax only on £50,000 for the portion of the work done on his behalf – thus reducing his tax bill. To justify his £50,000 fee, the agent will have to demonstrate that he did work on behalf of the club, and this is usually set out in a separate representation contract between the player, the club and the agent.
So, what if players paid their agents?
In research carried out by Saffery Champness, a change in agent fees rules would cost PL clubs an additional £166m a year. This figure is based on agents fees of £260.6m between February 2018 and January 2019.
It is foreseen that the players wouldn’t be the ones that are out of pocket. If a player is going to have to pay money onto their agent, they will want additional funds (presumably via the club) to allow them to do so.
In practice this would be for the club to pay the player additional salary (which they would be taxed on) and the player to then make the onward commission payment from their own net income to the agent.
The primary reason that such player payments are unlikely to be introduced is that dual representation appears here to stay (as evidenced by FIFA’s acceptance in their proposed commission caps above). There is tax leakage as a result. There is an additional national insurance cost for players and clubs alike on the additional salary and a loss of VAT relief for the club when they aren’t paying the intermediary directly.
Whilst dual representation is permitted, it makes sense for one party to settle the entirety of the agent’s fees. The way that agents are paid is therefore unlikely to change.
There is one other, very simple, reason that clubs (rather than players) pay agents: to make sure they get paid!
Without stereotyping too much, ensuring funds are in place and instructing the bank to make a payment are activities typically performed better by a PL club finance department than a PL player.
Conclusion
It’s pretty clear that the way that agents/intermediaries are paid at present is rather complicated. Many believe that the way athletes, say, in the US pay their agents directly is the more straight forward model. However, the current club and player incentives are somewhat misaligned with a combination of:
- agents commission not being a deductible expense for players; and
- clubs presumably preferring to pay the player’s agent as a benefit to the player rather than provide more in gross salary to the player.
The more complicated structures, as set out above, will likely remain set in stone until some type of football or HMRC intervention. Whilst such an approach is unlikely to change anytime soon, there is big regulatory conflict on the horizon with likely challenge of FIFA’s commission cap. These authors wouldn’t be surprised if this, if not marketed as such, is FIFA’s opening negotiation offer to the various agency representation groups with the ultimate aim of agreeing a capped compromise. FIFA negotiating with the master negotiators promises to make for an interesting next few months.
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