The Current Situation
A player’s representation contract (a written agreement between player and agent) contains a clause that commits them to paying their agent a percentage of the gross salary in their employment contract. This seems an ordinary requirement as in most things in life it is the customer of the services that pays for them. However, it is commonplace for the signing football club to pay the agent’s commission on behalf of the player as negotiated by the agent. They can arrange for the club to cover the player’s agent’s commission cost and ensure that they receive the right remuneration for their service, this is known as a ‘benefit in kind’ payment. Some players may be under the impression that the club is paying for them and are shocked when they’re hit with the added fee on their tax return. They are required to pay income tax on their salary and then the ‘additional income’ of the benefit in kind paid by the signing club. This is still beneficial for the player as they only pay a percentage of tax on the amount that the club pays to their agent rather than having the personal responsibility of fully remunerating their agent.
Clubs and players can establish clauses in the employment contract that gives bonuses to compensate the player for this tax. For example, a ‘loyalty bonus’ is a set fee that is paid on a certain date to a player if they remain at the club for a specified period of time. This can be set at enough to cover the tax that the player has to pay from the ‘benefit in kind’ payment by the club. The intermediary may negotiate a loyalty bonus or other performance bonuses in order to ensure that their client makes a net gain.
Tax authorities benefit hugely from football. For example, in the UK, the Premier League generates around €900million of tax returns per year with a large proportion coming from player salaries. Paying agents as a benefit in kind also creates a significant taxable pool of money. It is estimated that almost €600million is spent on agent fees by clubs globally, 80% of this happens in Italy, England, Germany, Portugal, Spain and France combined. Astonishingly, in Portugal, clubs spend more on agency commissions than they do on transfer fees. If these are paid on behalf of the player and is taxable under the country’s tax laws, then the government can generate a generous contribution of tax from football.
Why Would the Club Pay?
There are several reasons why it has become the norm for clubs to pay on behalf of the player. The primary reason is that if the clubs did not pay the agent on the player’s behalf, they would lose money rather than the player. The market would adjust so as to raise the players’ asking wages high enough to safeguard their income, making an overall gain, even after tax. The clubs would have to spend more money on their players’ salaries to compensate for this. With a higher salary the player would be able to pay the agent as an ‘absolute cost’, which is not taxable whilst also not losing overall on what their wages would have been if the club paid the agent on their behalf instead. It is estimated that if the players were to pay their agents in the Premier League, this would cost clubs an additional €200million per year. So, despite the impression that the clubs have huge expenditure on paying agents on the player’s behalf under the current system, they would be hit with greater financial pressures if they had to pay the players more to be able to cover the fees themselves.
A second reason why it is beneficial for agents for the clubs to pay on the players’ behalves is that it guarantees they are appropriately remunerated. The finance departments of football clubs are more qualified to handle commissions, expenses and taxes than the footballers themselves. Therefore, it is more common that the burden of payment to the agent lies with the club who are more likely to use the correct legal and payment procedures.
In instances of dual representation in England, it is undoubtedly simpler for one party to pay the entire fee and incorporate this into negotiations. If the agent is representing both the player and the buying club, both parties will owe a certain percentage of commission to the agent. The club can pay on behalf of the player as well as themselves and will factor these payments into the employment contract and transfer of the player. This has the added benefit of lowering the amount of tax that is payable by the player as the benefit in kind is smaller. For example, if the club paid the 3% commission that they supposedly owed the agent themselves, plus the 3% that the player owed, the player would only be taxed on that 3%. The target of the agents’ services would be stipulated in the dual representation agreement which is agreed upon by all three parties as consent for the agent to act on behalf of the buying club and the player.
The Problems
The issues that arise from this system of the signing clubs remunerating the agent on behalf of the player are centered around tax. In 2018, the British tax authority, HMRC, investigated 171 players over questionable tax payments. The doubt lies in how much a player owes as a result of the benefit in kinds paid by their clubs as often players and clubs try to find a way to minimise their tax demands.
The FA estimate that the 80% of the 1400 agent negotiations between 2015 and 2018 in which the buying club and the player claimed to use the same agent is a false representation of reality. In most of these cases the agent was acting for just the player. However, when the transfer was recorded, the agent apparently provided his services to the club as well and therefore was owed a proportion of his commission from the club that the player could not be taxed upon.
In countries such as Germany, it is not uncommon for the player to deny that they used the agent at all. The clubs of the Bundesliga spent almost €200million on agency fees in the 2019/20 season but the tax authorities would have lost out on the correct value of tax that should have been paid by players who relied on the clubs’ benefits in kind to pay the agents on their behalf. If it is possible to show that the agent worked for the club and that his services benefitted them rather than the player then there would be no taxes due. The agent would be registered in the transfer as acting on behalf of the club rather than the player so their commission would be classed as a ‘club expense’ rather than a benefit in kind to the player. It may be difficult for the tax authorities to prove that the player owes the agent for his services rather than or as well as the club.
For some cases, agents may not even sign a representation agreement with the player. They are still able to have the player as a client but persuade them that a representation agreement is not necessary because the agent ‘trusts’ them. In theory there would still be a certain level of commission that is agreed upon despite a lack of a legally binding contract. This would actually benefit the agent and negotiations as it is likely that the buying club would pay on behalf of the player. However, the player would not be taxed as according to official records, the agent does not represent the player and his services were for the club. It is a system that troubles tax authorities as it is very difficult to monitor and accurately know the tax that they are entitled to claim from these transactions.
An additional issue with the clubs paying on the player’s behalf is that the player may be ‘kept in the dark’ about certain factors of the deal. The player may not know exactly what they are paying the agent for and how much. Are they getting good value for money? Do they even know what they are being taxed for? How much money is the agent taking?
Solutions
Similarly, to the topics I have discussed over the last few weeks, the solutions to the question of who should pay the agent and the issues with taxation lie in the need for greater transparency.
The United States have adopted a system that could help football and agents. Commissions and agency fees are open for the agent and the player to agree upon and is then payable by the player. This means that the agent has the responsibility to make sure that the player is aware of exactly what services they will provide to them and how much commission they are entitled to. The contracts also clearly stipulate how the player will be taxed and allows the player and agents to adjust the negotiations for this.
For this to be successfully implemented into football, it would be expected that FIFA will devise a process that ensures the agents are remunerated. It would not be an effective solution if there was not a system in place that protects agents and guarantees they will not be taken advantage of and underpaid.
It would be imperative for clubs to attain a high level of transparency and work in conjunction with the relevant tax authorities. Providing formal documents, data and accurate records of intermediary interactions may be an arduous task but would heighten transparency and allow for the tax authorities to monitor tax returns from players and clubs accurately and effectively.
Summary
In conclusion, the uncertainty and complexity of who pays the agents and the issue of tax evasion tactics through methods such as players denying the use of agent services creates a problem for football and for the tax authorities.
I would argue that football should adopt an ‘agent-remuneration’ system similar to that which is already in effect in the United States. This would create transparency within the industry whilst working with tax authorities to make the system simpler and more accurate. The players would be able to understand and control what they are paying for and the value of commission and this would be complimented by a protective mechanism for agents to prevent mispayments.
There is a suggestion that the new FIFA regulations are considering prohibiting benefit in kind payments, even in dual representation contracts. The club will be required to pay the agency fee that they are contracted to whilst the player must pay their commission percentage directly to the agent. This would be a step towards the American model.
