The dotted line

The dotted line Dec/Jan 2014

FEATURE | LAW

The dotted line As the amount of money sloshing around the sports industry, from player remuneration to sponsorship and broadcast rights fees, has risen, so too has the need for specialist legal expertise. Using Ayrton Senna’s 1987 and 1988 contract with the Lotus Formula One team as a base, SportsPro invited leading sports lawyers to examine the evolution of athletes’ contracts over the past 25 years.

By David Cushnan

A

yrton Senna’s 1987 and 1988 contract with Lotus was recently made publicly available online by the Legacy Tobacco Documents Library, a University of California resource charting the growth of the tobacco industry. In step with many Formula One teams of the day, the Lotus team of 1987 was funded largely through tobacco dollars; it was the first year of the team’s new title sponsorship agreement with RJ Reynolds, the result of which was the distinctive yellow Camel colours dominating the cars’ livery.

It is rare for a document such as this to be made publicly available – “a little piece of gold” was how one sports lawyer described this document to SportsPro, while another admitted “it wasn’t worth your life” to publicly disclose any sort of confidential legal agreement – and even if this one is 25 years old, it provides a glimpse into how contracts of the day were negotiated.

First, some context: the Senna of 1987 was considered a rising star of Formula One. This contract, which runs to 19 pages, was the renewal of a deal the Brazilian had struck with the team for the 1985 and 1986 seasons. In 1985, Senna had scored the first of his 41 Formula One victories on the way to fourth place in the world championship. He was fourth again in 1986. As this agreement was negotiated, he was still two years away from the move to McLaren which paved the way for his three world championship seasons.

For Lotus, 1987 was a year of change.

The team switched from Renault to Honda power and attracted RJ Reynolds as a new investor after another tobacco firm, John 2 | www.sportspromedia.com

Player & Sons, took away its famous black and gold branding in ending its sponsorship at the end of the previous year.

“Senna was apparently renowned for negotiating hard,” notes Anil Matharu, a senior sports lawyer at Harbottle & Lewis who SportsPro asked to cast his eye over the archive contract. “But the 1987 contract doesn’t appear to have been heavily negotiated, or at least if it was, Senna and his representatives settled for some key points, such as number one driver and a number of concessions regarding his right to do personal sponsorship activities.”

Harbottle & Lewis has acted for three of the major title sponsors in today’s Formula One – Vodafone, Infiniti and Philip Morris – and for the likes of the England cricket team and Chelsea FC. “I think if we saw a contract like this today it would be slightly more balanced; there would be more stipulation in terms of what the team has to do in terms of its general duty of care towards the driver,” continues Matharu. “I don’t think, bar one or two significant areas, that the format of this contract from ’87 to a typical player contract now has changed dramatically. But there are some aspects of Senna’s contract which are quite specific to how Formula One is run, as opposed to a player contract in a true team sport such as rugby or football.”

Structure Both Matharu and Alan Wetterhahn – a partner at Fladgate LLP, which acts for various international footballers, including Real Madrid player Gareth Bale, and which

has acted for Formula One teams, owners and sponsors since 1993 and is currently acting for Force India – note immediately that the Senna contract bundles up the use of his services as a driver and his image rights. The contract is officially between Team Lotus International Limited and Ayrton Senna Da Silva Promotions Limited, Senna’s own company which was registered in the Bahamas.

“This is a contract for services, it’s not an employment contract,” Matharu points out, “but it has a lot of elements that you would find in an employment contract.”

Citing the contracts of today, Wetterhahn adds: “There’s generally one contract that deals predominantly with the marketing and promotion side of things and the driver’s company’s obligation in relation to promotion and marketing, and then there’s another agreement which deals with the racing side – they are split up along those lines, with separate fees.

Certainly, that’s a significant change.”

As Matharu adds, there might also be tax implications. “It could easily be contained within two separate contracts,”

Ayrton Senna (right) drove for Lotus in Formula One races from 1985 to 1987 and his final contract with the team has now been publicly released

he says of a typical player contract in 2013. “In fact from a tax perspective it would make a lot more sense – and from a legal perspective, because you’ve got two different entities. You’ve got the individual, with his income tax implications, and you’ve got the company, which is often effectively the player or at least he will have a controlling interest in it, entering into a separate contract.”

Lotus did not contract directly with Senna the individual, for reasons unknown, a state of affairs which Matharu suggests could potentially be problematic for the team if a dispute arose. “If I was advising the team, I would say that you don’t know what’s going to happen to Ayrton Senna da Silva Promotions Limited,” he says. “The contract says that Ayrton Senna da Silva Promotions Limited holds the exclusive rights to exploit his name and fame; interestingly, it doesn’t say that the company holds the exclusive rights to procure his driving performances, despite driver obligations being set out in the contract. If Promotions fell away or became insolvent, or it ceased for whatever reason to hold the rights to Ayrton Senna, then

the team would have greater difficulty in enforcing the performance of the contract

by Senna. There’s no contractual remedy for them because, by virtue of the principles of the law of privity they can only go against the entity with whom they’ve contracted.

They wouldn’t have an automatic right to pursue Ayrton Senna directly, at least under contract, for Promotions not performing its obligations here.”

Image rights Although still not the case in Formula One, template player contracts have come to the fore in other sports, providing a uniformity that would not have been the case 25 years ago. “The Premier League and all the professional FA [Football Association] leagues below it have a template playing contract,” Wetterhahn says. “In many cases the player and the club can get away with simply inserting names, dates and the numbers as far as the salary is concerned.

That is for playing services.

“Some players, and certainly many of the bigger names, have an image rights company which enters into a separate arrangement with the club in relation to the use of that player’s image. It’s the image rights company that is involved in promotions; essentially, it gives the club the ability to, for example, put a player’s face on a club’s sponsored water. In terms of the way things are structured that’s a big change.”

Matharu adds: “The Premier League doesn’t currently stipulate a separate image rights contract for clubs and players; it only stipulates standard player contracts. So, in football, the extent of

player-club licensing arrangements is really down to how sophisticated each club is in terms of its commerciality and in terms of how many commercial partners it has got to satisfy.

“It may service a number of club sponsors, both through traditional things like stadium signage and designations and trademark licensing, but also through what players will do for them. So will the club sponsors have the right to use players to advertise their association with the club in a ‘team capacity’, for example as a group of three or four and wearing team kit? If there are a number of those club sponsorships across various brand sectors, then preferably the image rights contracts which the clubs produce should be quite detailed as to what the player can and can’t do in terms of their individual endorsement deals.”

Detailing of image rights in contracts has become more sophisticated, with Wetterhahn citing the increase in territoryspecific sponsorship agreements as one of the reasons for the added complexity.

“A club like Manchester United has many sponsors in many categories in many territories, but the general principle is that in a perfect world club and players won’t have sponsors that clash,” he says. “That principle is there 25 or 26 years ago, and the principle hasn’t changed since; it’s probably managed better and there’s probably a situation where there’s more likelihood of a clash now because the sponsors are appreciating the value of the players.”

Certain Formula One teams, notably McLaren, are believed to have traditionally paid drivers higher salaries in return for the agreement that they SportsPro Magazine | 3

FEATURE | LAW

will not sign personal sponsorships, thus limiting a clash. There is no standard, however, across sport for how image rights are incorporated into contracts. “Some strong teams or clubs,” Wetterhahn explains, “when they negotiate against weaker athletes, might say, ‘You cannot have a sponsor which conflicts with a team or club sponsor.’

Some will say, ‘If you have a proposed deal which conflicts, come and speak to us.’ Others will say, ‘We’re not interested in anything that doesn’t clash, so do what you want in those categories.’”

Morality clauses As the likes of Lance Armstrong, Oscar Pistorius and Tiger Woods have discovered for very different reasons, morality clauses are another area of athlete contracts, with teams or

Senna was seen as an accomplished negotiator

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sponsors, to have undergone significant development. “Think of the number of sports news stories in recent years which contain the suffix ‘–gate’ or ‘–fixing’,” Matharu says. “Such issues are hardly new to sport, but their level of public coverage is more widespread, and sports contracts have become more detailed to reflect this.

Various sports contracts – be it a playerclub contract or a sponsorship contract – sometimes have specific remedies in place if you do commit such an act.”

In the Senna contract of 1987, only Senna’s promotions company has the right to terminate, a situation Matharu says he finds “slightly anomalous”, adding: “You might say, ‘Well, OK, the team wouldn’t want to dispense with Senna’s services in the majority of circumstances; so why would they want to terminate the contract?’ But still, you’d think the right would be in there, especially when the contract is with his promotions company.

“I was slightly surprised to see that the team doesn’t have the right to terminate because it’s not beyond the realms of possibility – it has happened in other sports – that a team terminates a player contract for seriously bringing the sport into disrepute, the team into disrepute or some other form of immoral behaviour, or for sporting reasons.”

Tightening up the detail of such clauses is a further development. “Sometimes they are very, very broad,” reports Wetterhahn, “and that’s not great for anyone, really.

Sometimes they point to a moral standard of society which is not helpful. A welldrafted clause will say: ‘In the opinion of the team or the club if you have brought us into disrepute, we can terminate.’”

There is also the concept of reverse morality, in which an athlete in a particularly strong bargaining position can negotiate the right to terminate if a particular sponsor of the team with which he is contracting ends up harming the athlete’s image.

Mark Buckley is a colleague of Wetterhahn at Fladgate, where he is a partner. He adds that a Formula One team, for example, has its own legal responsibilities. “There are insurance provisions they have to comply with,” he says, “there are sporting regulations they have to comply with, technical regulations they have to comply with, because if a driver is stopped from racing because of an infringement he could lose out from other contractual obligations.”

Disputes Four years after Senna signed this contract with Lotus, Formula One set up a Contract Recognition Board (CRB) to arbitrate on contractual disputes where more than one team laid claim to a single driver. The CRB was set up after Michael Schumacher’s 1991 switch from Jordan to Benetton. Although the Senna agreement includes a clause allowing the driver to begin negotiations with another team from August 1987, towards the end of the first annual contractual period – the Brazilian did so and subsequently joined McLaren for 1988 – there is no clause detailing the process should there be a clash of contracts.

“Because the driver doesn’t contract with Formula One, it’s covered in the Concorde Agreement,” Buckley explains of the CRB, referring to the document which binds together Formula One’s

teams, sanctioning body and commercial rights holder. “That provides that every team contract with a driver has to have this arbitration clause in it and has to be registered with the Contract Recognition Board in Geneva, so if there is a dispute it is very quickly and privately resolved.”

A similar model is in place across many sports, although in the case of soccer it is the governing body, Fifa, which takes charge of all disputes between players and clubs, and between clubs. “To an extent,” Buckley adds, “that’s to keep it out of the public, which doesn’t always work – a lot of other sports are trying to follow that now.” In many sports, although not Formula One, the ultimate arbiter is the Court of Arbitration for Sport, a body originally conceived by the International Olympic Committee (IOC) in 1984 and based in the Swiss city of Lausanne. It has since covered disputes ranging from player transfers to doping cases.

General evolution The experts from Harbottle & Lewis and Fladgate agree that the major legal principles present in the 1987 Senna contract are largely unchanged. “The legals are the legals to some extent,” says Wetterhahn, while Matharu adds that it is “not a million miles away from where we are now with regards to player contracts.

“I think what has changed in the detail of player contracts,” Matharu continues, “is the sporting regulations that ultimately underpin them. If you had a single sentence in a player contract that said each party ultimately will comply with the terms of the relevant sport’s rules and regulations, there’s a lot caught up in that. We’ve come a long way in terms of sports regulations dealing with corruption, match-fixing, behaviour – and the use of social media as clubs and governing bodies have become more accountable. The industry has developed broad commercial standards for what an individual can do in an individual capacity from an endorsement perspective.

“Whilst those things have been tightened up in terms of image rights licensing arrangements, the law in this country has been slow to catch up, because there isn’t an underlying protection of image rights under English statutory law. So that hasn’t moved on but people making money out of licensing

arrangements has continued to evolve.”

Fladgate’s Wetterhahn, meanwhile, suggests the biggest development has come in the protection of a team’s sponsors, “because teams are protecting their income”. He adds: “Teams will be wary of losing sponsors because of a driver or athlete.

“We’ve also started seeing, in football again, image rights broken up by territory, so you’ll have an arrangement with a player and also arrangements with one image rights company for local image rights, say the UK, and one agreement with an image rights company which handles things outside the UK. Some of the bigger clubs have lots of revenue coming from outside the UK, so that makes sense. In terms of trends, it’s that and social media.

“Just in the last few years,” he continues, “there have been relatively strong obligations for a player to let a club use his ‘followers’. Certain players have lots and lots of followers, for want of a better word, and clubs hope to buy into that; they don’t necessarily want Neymar to disclose the details of all his followers but they would love him to be tweeting a message from a club sponsor to his millions of followers.” In some cases, there are specific clauses inserted into contracts detailing the frequency with which players will send club messages via their various social platforms.

The legal bones of the contract may be similar to those negotiated in 2013, but it is hard to imagine Ayrton Senna on Twitter, much less being told what to tweet.

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