sports-law

Sport stars, image rights, fiduciary duties

A MIXTURE THAT ALMOST ALWAYS ENDS UP IN CONFUSION –  WHAT CAN PROFESSIONALS DO TO HELP?

Prelude

As the spotlight recently turned to the Spanish Courts and Javier Mascherano as he appeared in court in an attempt to avoid going to prison over a 1.5m EURO tax fraud. (He joins a long list of personalities, including Neymar & Messi who have been in court in the last 2 years to answer tax claims)

Luckily enough the individual in question has the capabilities to pay his fine, and the Spanish prosecutor allows for a fine to be paid instead of imprisonment for sentences imposed that are less than two years in length. But others in the future may not be so lucky. What intrigued me in this case was the lack of liability which has been imposed on his advisors. As is often the case with premium stars, the media spotlight has been on the result rather than an analysis of the events that have led to the result.

Parallel to the main theme of the article which centres on the history of tax cases, I would like to provide some thoughts and comments as to the role their chosen professionals have played, through either negligence or poor advice.

In this particular case, a statement made by the defendant after the hearing has stuck with me

“I’, a sporting professional, I don’t have a great understanding of taxes and law. To deal with what are for me technical and complicated matters, I have to rely on other people.[1]”

Regardless of the fact that all individuals ultimately are responsible for their tax obligations his statement hit the nail on the head. In a world where millions, if not billions of Euros pass from sports starts to the industries perceived experts, surely a duty of extra care is required when advising such clients who are often considered Ultra High Net Worth, and are in the continued public spotlight. I feel at times our industry tax an ad hoc approach to advising sports stars, through the jungle of what are, State, EU and Regulatory rules as to how they are to conduct their financial affairs

[1] https://twitter.com/Mascherano/status/690163601987014656

History

Tax issues in sport and in particular tax evasion date back to 1940’s where baseball teams in particular the Cleveland Indians in famous owner Bill Veeck, moved ownership to a “tax-shelter” in order to gain an advantage over all teams in the league. His famous quote “I had always been trust by a basic inconsistency in the way we carried our players on the books[1]” epitomises using tax avoidance practices to gain an edge in sport. The road from the 1940’s to the 1970’s is a consistent one to general tax avoidance it was ripe in all industries.

[1] Pay Dirt: The Business of Professional Team Sports By James P. Quirk, Rodney D. Fort 1997 Princeton University Press

Growth of player income

The movement was much slower for individual agreements for players. Today a large majority of professional football players rely solely on wages. The big star players have become businesses unto themselves, with their image rights adding to and sometimes surpassing wage revenue. The 90s saw the first million-dollar sponsorship agreements for players in football as corporations sought out additional promotional avenues. The difference with player sponsorship is unlike a club, players are defined by a single personality and the actions of an individual so the good comes with the bad. Some of the early big sponsorship deals were cancelled or suspended as players such as Cantona, who kicked a spectator, and Zidane, who head butted Materazzi in a World Cup final were both suspended by sponsors. More recently there are the examples of Umbro dropping John Terry and players like Mario Balotelli, who is often in the news for off-field drama, not being able to match the commercial revenue of fellow players.

“It’s not the salary that’s a problem, it’s just the image rights that needed a little perking.” — David Beckham, 2002, on his ongoing contract negotiations with club Manchester United.

As player sponsorship amounts continued to increase the value of image rights also increased, and the agents for the top players started to negotiate the club having to pay the player for the right to use their image. The agents argued, successfully, that the club and league are no different to other sponsors who pay for a players image rights when they use the player in promotional material, in selling kits, in advertising, etc. Previously playing contracts would contain clauses where players would waive all image rights, but now the agents wanted to separate these concerns for foreign players so that they could take advantage of tax concessions.

There were similar deals on the continent already in place, but in the UK the first group of foreign players to structure their image rights separately from playing deals were Dennis Bergkamp, David Platt and Patrick Viera. The players would negotiate a wage, which would be paid in England with full taxes, but they would separately negotiate a flat fee that the club would pay for image rights, and that would be paid into a separate company that the player would setup and assign his image rights to. For foreign players, the image rights company could be based offshore in a jurisdiction with little to no income tax. Club wages provided enough money for the player to live off, so the image rights company could be used as a fund for the future – to be accessed when the player has left the country and is living elsewhere, or to be used when they are away on holidays. If the money was bought back into the UK they would have to pay additional income tax on the sum as well as the corporate tax.

The image rights payments are open to negotiation because they are an estimate for the upcoming year rather than a payment for trailing services. A player agent would sit down with the club and based on club commercial revenue and the amount that player features in promotional material would negotiate a percentage of that revenue that is due back to the player. The agent would take known revenue for last year, increase it based on some growth factor and then calculate a percentage due to his player for image rights based on how famous they are. The lump sum paid would be a guarantee payment on future image rights deals. Kit deals between clubs and sponsors are done in a similar way, the kit sponsor would estimate the number of shirts they expect to sell, then make a payment to the club as a guarantee based on that figure.

Fast forward to the new millennium and the age of transparency. Sports stars are under the scrutiny to declare their income we have seen a continually amount of cases raised from tax departments with fines running up in the millions. A lawyers role becomes all that more important.

The role of a lawyer and their fiduciary duty to sports players

 

In what kind of relationships will there be a fiduciary duty present?
Under the laws of the EU a fiduciary relationship will exist in the following situations:

  • A relationship between a trustee and a beneficiary of that trust
  • A relationship between a director and a company
  • A relationship between partners involved in a partnership
  • A relationship between a solicitor and his client
  • A relationship between a principal and his agent

The responsibility of a lawyer

A lawyer takes on a relationship as an individual who is appointed to act on behalf of a professional footballer in negotiating commercial contracts for that player. The commercial contracts can include the players playing contract with their respective clubs and their various sponsorship and promotional contracts with other bodies.

A lawyer unlike an agent who operates in football has an exception in relation to English football and does not need to be an official FIFA licensed agent through the a Football Association.

Typically a footballer will pay an agent either by an agreed fixed fee or by a percentage, usually between 10 and 20% of any money earned by that player. These fees are often significantly reduced when operating with a lawyer.

Do lawyers owe a fiduciary duty to their clients?

Looking at the above relationships which involve a fiduciary duty it would be reasonable to assume that a football agent would have a fiduciary duty to a footballer which he represents as the footballer would have to place all his trust and confidence in an agent when a contract is being negotiated. The agent will have the expertise and experience to negotiate the best terms and it is his job to arrange the best deal for his client.

Accordingly it has been held under the common law for England and Wales and EU law for the rest of Europe that a football agent and thus a lawyer representing footballers have the following fiduciary duties to the client which he represents:

  • The duty not to put himself in a position where his duties to his principal could conflict with his own interests
  • The duty not to gain undisclosed economic benefit from his position as the principal’s agent
  • This second duty is aimed specifically at dishonest practices often associated with football agents such as secret deals, bribes and bungs.

With the above in mind we hope to have shed light on an increasingly lucrative market as well as provoked thoughts that can assist athletes and not just football to examine their options when choosing their representatives.

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cyprus trademark registration

Are you a new startup?

Are you a new startup? This is the right time to trademark your company’s name or logo!

Without a doubt, any business which established a strong brand have led themselves to success. Take for example, Apple Inc. and their well-known logo, which is recognisable by most people all over the world. It is pivotal for the brand and more importantly for its Intellectual Property Rights to be protected, in order to ensure that consumers do not confuse the brand with somebody else’s brand. Protection for the brand and for the Intellectual Property of the brand can be achieved by registering for example the company’s trademark or trademarks internationally.

A trademark is any unique word, symbol or name used to identify and distinguish the goods of one seller from the goods of another. The main aim of trademarks is to protect the trademarked goods and/or services from use and/or misuse by competitors. A trademark further protects to prevent any confusion or manipulation of consumers. In this way consumers are allowed to link distinct attributes and characteristics with a particular brand or company.

Attention must be paid to the word or phrase that you want to trademark. A word or phrase that is commonly used or is already connected with another good or service cannot be trademarked. As a result, the first test to be followed when you want to trademark your goods or services is the ‘test of uniqueness’. What can be considered as unique is the combination of the symbol with your company’s name and their relationship.

If you value your intellectual property rights as you should, you should trademark your goods or services if you have not already done so. A company with a high turnover and fame, simply adds value to the company itself when its Intellectual Property is properly protected.

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what-is-trust

What is a Trust

A Trust is a legal mechanism for separating the ownership of an asset into two parts: the “legal” ownership, or title to the asset and the “beneficial” ownership. Trusts are incredibly useful and flexible engines that people ignite for all sorts of different purposes.

The trust is established by an individual “the Settlor” and the Settlor appointed is either a person or a legal entity to hold legal ownership of assets in the Trust for the benefit of the Beneficiaries, hereby “the Trustee”. The Beneficiaries are any of the person(s) , legal entity(ies), charities who have the beneficial right to enjoy the assets in the Trust when the Trustee determines to make a distribution in their favour as discretionary Beneficiaries. Or the person(s) , legal entity(ies), charities  who have the beneficial right to enjoy the assets in the Trust: the defined  interest Beneficiaries.

The trust is created by a Deed or Declaration in a written document, executed under seal between the Settlor and the Trustee.  In law the Trustees are the owners of the trust property, although they may not deal with it as absolute owners but rather in accordance with the provisions of the law. This legal separation between the legal and beneficial ownership is the actual reason why someone wants to form a Trust: the considerable flexibility in tax mitigation and financial planning, succession planning and asset protection planning.

In Cyprus, the Trusts are governed by the Cyprus International Trusts Law 1992 which complements the Trustees Law Chapter 193 of 1995 which it’s based on the English Trustees Act of 1925. In Cyprus anyone of right age and provident about his future can create a Cyprus International Trust. According to the Law, the Settlor must not be resident in Cyprus during the year preceding the creation of the Trust, the Trustee or one of the Trustees in the case of more than one must be resident in Cyprus for the whole life of the Cyprus International Trust, the Beneficiary or Beneficiaries must not be resident in Cyprus and the trust property must not include any immovable property in Cyprus.

A Trust can be either a Discretionary Trust (the trustees have the discretion about how to use the trust’s income and about how to distribute the trust’s capital), a Fixed Trust (preventing the trustees from using their full power in the way assets are distributed to the Beneficiaries as in that case the Trustees will have to follow the terms of the trust), a Purpose Trust (set up in order to advance a specific purpose has no beneficiaries as it is usually set up for a charitable purpose) or an Accumulation & Maintenance Trust (set up in those cases whereby assets are needed to be held on behalf of someone until a certain future event will take place, such as a child reaching adulthood or person getting married.

Where the trust is created by a will, then the particular requirements in relation to wills have to be observed. The trust must satisfy the three certainties: certainty of intention, subject-matter and objects. Therefore the Settlor must manifest an intention to create a trust, the trust fund must be specified with reasonable certainty and the beneficiaries under the trust must be significant.

Tax:

Cyprus International Trusts are not taxed in Cyprus. The taxation of trusts are fairly complicated:

  • Income: All income whether trading or otherwise of an International Trust is not taxable in Cyprus
  • Dividends: Dividends interest or other income received by a Trust from a Cyprus company are also non-taxable nor subject to withholding tax.
  • Capital gains: Gains on the disposal of the assets of an International Trust are not subject to capital gains tax in Cyprus.

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domain-name-infringement

Repression of cybersquatting practice regarding the infringement of domain name

The sector of intellectual property rights has seen rapid expansion particularly as a result of the increase in internet use ensuing in consolidation of trademarks, domain names and patents. The infringement of such rights is not easily recognisable as the infringers are very careful when replicating the content of a domain name holder and subsequently creating major confusion for the consumer.

In case of infringement of intellectual property rights such as the consolidation and use of a domain name, a complainant must base their case upon certain criteria. The two most commonly used are the similarity or resemblance of the domain name(s) and the abusive conduct of acting in bad faith.

Regarding the former, the Registrar of domain names has the discretion to offer future clients similar domain names with an already registered one but which is not already taken.

The hairline of legal and illegal practice lies on the possibility of occurrence of significant risk of consumers to be deceived, defrauded or at least confused by the newly registered domain name, consequently resulting in an anti-competitive practice.

With regards to the latter mentioned infringement, this encompasses the abusive conduct of a third party by acting in bad faith; this is actionable and subject to remedies. The complainant of such a case must thus prove that bad faith registrations and uses of other’s marks intend to create unfair profits to third parties from the goodwill of operations of the complainant.

The remedies offered in such cases give the domain name holder the opportunity to suppress such infringement and restore the intellectual property rights; all with a high chance of succession.

The first remedy offered is the simplest – this is to inform the Registrar of the infringer about the relevant violation. When the Registrar is notified there is obligation for further action(s) to be taken in order to suppress such infringement. Inter alia, the Registrar’s duty is to check whether the allegation of the complainant is legally based and if this is so, to initiate the procedure of taking down the cyber-squatters’ domain name.

In contrast, when the Registrar is acting in bad-faith and refuses to take steps in order to suppress such infringement, then the Registrar may be liable of contributory infringement of the complainant’s intellectual property rights. In this case, it is provided through the ICAAN Registrant Accreditation Agreement (RAA) that the complaints against the Registrar (and against the Infringer) can be filed before the Uniform Domain Name Dispute Resolution Policies (UDNDRP).

The second remedy offered is through UDNDRP. The UDNDRP is offered through WIPO and sets out the legal framework (UDNDRP Policy and Rules) for the resolution of disputes arising between a domain name Registrant and a third party regarding the abusive registration and use of an Internet domain name. The UDNDRP process is relatively quick, with decisions given within 30 – 60 days of filing the complaint. This procedure gives the complainant the opportunity to prove their case before reaching the court; this also has an international scope as it offers a sole mechanism for resolving a domain name dispute regardless of where the Registrar or the domain name holder or the complainant are located, hence, there are no jurisdictional issues. Another advantage is that filing a complaint will also temporarily prevent the Registrant from transferring a domain name to any third party until a decision has been reached.

The last option available is going before a court against the Infringer and the Registrar. If a case is decided against the Infringer and the Registrar of the domain name, the court may attribute damages to the complainant resulting from the suspension, cancellation, or transfer of the domain name. Moreover, the court may award injunctive relief to the domain name Registrant by ordering the reactivation of the domain name or the transfer of the domain name back to the domain name Registrant. In any case, going before a court is only preferable as a “last-resort option” since it is very difficult to battle the jurisdiction issues so as to ultimately decide which court has jurisdiction to resolve the case.

It is very important for the domain name holders to know that, although an infringement of intellectual property rights in this form is very hard to be recognized, attributed remedies are no longer considered intangible.

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Does a bank owe a duty to its customers?

It is a well-known fact that many people face very serious problems with their loan agreements, bank accounts, deposits and the like. As a consequence, they become parties in a judicial dispute after banks initiate a legal claim against them in order to gain back ‘their’ money. The outcome is very obvious; being in favour of the banks. But what do banks have to do in order to protect their interests and also their clients? Do they owe a duty to them?

Without a doubt, the relationship between banks and customers is one of contractual nature. Thus, banks should be guided, at first, by the principles of contract law. In a contractual relationship, there is a fiduciary duty between the parties; this means that each party must act bona fide towards the other. This fiduciary duty exists not only to banks’ customers when they ask for financial assistance and particularly loan agreements, but also to third parties, such as guarantors. Banks should inform their customers about the risks they may face in the future in relation to their loans. This duty extends to guarantors, as third parties to the contractual relationship between the bank and the customer. Guarantors have to be informed in case where the customers, whose loans guaranteed, do not comply with their obligations and/or debts.

Moreover, one may say that banks most certainly do owe a duty to their customers concerning fraud which may be committed by someone in chief – making a payment order on behalf of the customer. Special duty of care may arise when a client intends to make an investment. In this case the bank must give its opinion and/or all necessary information about the investment products. According to the Directive for the Professional Conduct of Banks 558/2007 of the Central Bank of Cyprus, Cyprus Banks should adopt specific practices and follow certain rules in accordance with the provision of investment or ancillary services and the performance of investment activities.

In addition, the Association of Cyprus Banks established a Code of Conduct for all banks, aimed to promote their good practice standards and the trust that needs to exist in every relationship between the bank and a customer.  Furthermore, this Code established certain rules and practices that banks have to follow in order to ensure a fair ‘deal’ with the client. The Code does comply with Cyprus banking regulations, European and International standards. Unfortunately, it applies only to natural persons and not to legal entities.

The question is whether banks follow these deontology rules since they clearly owe a duty to their customers, and if it is possible, a duty to legal entities too – and if they don’t, what are the consequences? There is no clear answer as yet; meanwhile there are lot of pending legal procedures dealing with this matter and hopefully the outcome will be discovered within the following years.

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