Rudi Kidd: Sports Law – Rogue Agents

The recent alarming news reports of sports stars losing money on their financial investments and allegations of secret commissions paid to agents should serve as a warning to everyone involved in professional sports.

Players will often not understand (or even want to try to understand) the complexities of contractual transactions, so they sign with an agent and then rely on him (or her) for ‘personal advice’, ‘to develop their careers’ and for ‘financial advice’. The appointment of such agents involves the expectation of trust and good faith and means they owe fiduciary duties towards their clients.

During a player’s career he (or she) will be transferred from one club to another and may also be offered various personal commercial contracts, such as image rights licensing, endorsements deals, sponsorships and ambassador contracts.

Agents are often paid by way of a commission based on the amount of income earned by the player. The agent therefore has a vested interest in increasing the income of the player. One of the most common complaints against bad agents is that they engineer moves for a player, not as part of proper development of that player’s career, but simply to generate more commission for themselves,

Whilst he is earning, in a career that often brings high levels of income but is, by its nature, quite short-term, the player should also be encouraged to think about his retirement and therefore invest for the future.

On all these occasions the agent will be acting on behalf of the player and the player is the principal. In any transaction involving the agent’s services to the player the agent should only be receiving a commission from the player – because the agent should be acting in the player’s interest alone. If he is being paid by the other party he may be a servant with two masters at best – and at worst simply out for himself alone.

As regards the law, if an agent is taking payments from others as a result of his acting for the player, this must be disclosed to the player. Where the second payment is not so disclosed, such ‘double-dipping’ is a secret commission and illegal.

There is also the criminal offence of bribery, which many people don’t realise applies to commercial arrangements with agents. The law was much strengthened in the 2011 Bribery Act. However such conduct has always been a criminal as well as a civil wrong.

A succinct definition of bribery by payment of secret commissions is as follows:

“Bribery is committed where one person makes, or agrees to make, a payment to the agent of another person with whom he is dealing without the knowledge and consent of the agent’s principal”. – Briggs J, in Ross River Ltd v Cambridge City FC [2008].

And in the case of Petrotrade Inc. v Smith [2000] Steel J gave the following definition of a bribe under the civil law:

“For the purposes of the civil law a bribe means the payment of a secret commission, which only means:

(i) that the person making the payment makes it to the agent of the other person with whom he is dealing;

(ii) that he makes it to that person knowing that that person is acting as the agent of the other person with whom he is dealing; and

(iii) that he fails to disclose to the other person with whom he is dealing that he has made that payment to the person whom he knows to be the other person’s agent.”

Agents (when recommending financial products for their players) have in the past been tempted to take such secret profits as ‘introducer fees’ based on the commission earned by the company selling the financial product to the player.

If you are an honest agent – any such fees must be disclosed up front to the player. Whether you or the player keep them, or whether they are split or waived and invested back into the product, can then be discussed with the player.

Not disclosing them or trying to satisfy your fiduciary duties by including a general clause allowing you to keep any and all such future fees or commissions in the small print of your contract with the player (without giving him any idea of their value or when you are actually taking them), may well get you into a lot of trouble.

In the event that a player discovers that his agent has received a secret profit or other bribe from a transaction, what are his remedies against the rogue agent? These may include:

  • a requirement to hand over or compensate to the value of any monies or other benefits received
  • an action in damages for fraud or breach of fiduciary duty for any additional losses suffered.
  • a proprietary claim under a constructive trust – in July 2014, the Supreme Court held that an agent holds all bribes and secret commissions received on constructive trust for the principal. Accordingly, the principal has a proprietary right to the sum and any property acquired as a result of it (even if that property has increased significantly in value in the meantime – the windfall is for the benefit of the player)

Remedies available against the payer of the bribe include:

  • rescission – the principal is entitled to rescind (undo) any contract entered into as a result of the bribe;
  • account of profits or equitable compensation – a briber may be liable in equity for dishonest assistance in breach of fiduciary duty, leading to either an account of any profits made or equitable compensation.
  • money had and received.
  • an action for damages for fraud for any additional losses suffered.

If you are a player who thinks that your agent may have been involved in this sort of conduct – taking money from both sides of a deal involving you without you being fully informed of this – then please don’t hesitate to contact us to see if we can help you.

If you’d like to speak to Rudi about this topic, please contact him here.

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