How agents are regulated in the NFL and the potential lessons for FIFA
Published 07 December 2018 By: Jodi Balsam
American football differs in countless ways from the sport the rest of the world calls football and Americans call soccer. One difference that invites further examination is the approach the two sports have taken to regulating those who represent players in contract negotiations, known as “player agents” or “contract advisors” in the U.S. and restyled as “intermediaries” according to FIFA. In the U.S., player agents are regulated principally by the players’ unions, which possess the legal authority, incentives, and resources to develop the regulatory competence needed to improve the quality of agent representation.1 By contrast, FIFA deregulated the agent industry in 2015, withdrawing from licensing intermediaries and instead deputizing its 211 affiliated national football associations to regulate in this area.2 It has been reported that the resulting system exposed FIFA players and clubs to grossly permissive standards and wildly inconsistent enforcement approaches, and decreased the quality, transparency, and ethics of the services provided.3
In anticipation of FIFA governance reforms to be implemented over the next two years, including revisions to the transfer system and to intermediary regulations, this article examines the agent regulatory scheme considered a model across U.S. professional sports: namely the National Football League Players Association ’s Regulations Governing Contract Advisors (NFLPA Regulations).4 Despite differing legal regimes that shape how these entities respectively may operate, it is suggested that FIFA can draw some valuable lessons from the NFLPA approach. The article outlines the legal framework within which players’ unions such as the NFLPA may regulate agents. It describes current NFLPA Regulations and considers recent amendments that have stoked U.S. agent resentment, provoked threats of legal challenge, and exposed the tension between athletes’ rights to select the agent of their choice and players unions’ authority under U.S. law to regulate agent qualifications and conduct. It concludes with a comparative law perspective on how the NFLPA experience predicts significant gains in intermediary service standards, should the proposed FIFA reforms be implemented.
U.S Labor Law and Players’ Unions’ Regulation of Agents
To understand how U.S. player agents are regulated, it is necessary first to understand some key principles of U.S. labor law. Under U.S. law, once a workforce unionizes, the union becomes the “exclusive representative of all the employees in the unit for purposes of collective bargaining.”5 Recognition of a union as an exclusive bargaining agent imposes duties on both the employer and the union to bargain with each other as to all terms and conditions of employment for all members of the bargaining unit.6 A union vested with exclusive bargaining authority is entitled to eliminate all individual bargaining, even if the purpose of such bargaining is to secure better terms than the collectively negotiated minimum. Indeed, in most unionized U.S. industries, individual bargaining is unthinkable.
Not so in U.S. sports, however, where collective bargaining has followed a different path.7 Professional athlete unions have traditionally exercised their statutory authority as the exclusive bargaining agent only to the extent of negotiating minimum salaries, benefits, and job protections—i.e., a “baseline” level of basic rights that is guaranteed to every player, whether a rookie or a superstar. The collective bargaining agreement (CBA) in each unionized U.S. team sport allows every player to try to individually negotiate whatever extra remuneration the market will bear. Such individual freedom of contract operates at the sufferance of, and within parameters set by, the collective bargaining agreement, including whether to permit delegation of that bargaining authority to individual player representatives, that is, agents.8
In other words, U.S. law allows the players’ union to delegate its statutory prerogatives conditionally, and only in favor of agents approved by the union. Over time, the players’ unions have developed certification programs for player agents, enforceable through a CBA provision that prohibits teams in the league from negotiating individual player contracts with agents who are not union-approved. The first U.S. players’ union to regulate sports agents was the NFLPA in 1983, followed by the National Basketball Players Association (1985), the Major League Baseball Players Association (1987), and the National Hockey League Players Association (1995). All four unions have adopted comprehensive regulatory schemes that address agent competence, ethics, and fair competition for athlete-clients. Most require agents to submit to a union certification process that can include meeting minimal education requirements, attending seminars, and passing a written examination.
The Model: NFLPA Regulation of Player Agents
A close look at the NFLPA Regulations reveals why it has set the standard in this field.9 To become certified by the NFLPA as a “contract advisor,” an agent must:
possess both an undergraduate and a post-graduate degree;
file a detailed application form during the designated time period;
pay a substantial, non-refundable application fee;
pass a character and fitness review that includes a credit evaluation and background investigation;
attend a two-day mandatory seminar for new agents; and
pass a written agent exam.10
The NFLPA may deny an application based on any information which adversely impacts the applicant’s “credibility, integrity or competence to serve in a fiduciary capacity on behalf of players.”11
After the initial NFLPA certification, in order to maintain that status, the agent must:
pay an annual fee;
attend in person an annual continuing education course;
pass a bi-annual re-certification exam;
submit an annual, notarized, updated application for certification;
attest to compliance with NFLPA Regulations and all federal and state laws;
maintain professional liability insurance; and
have negotiated and signed a player to an NFL player contract within the past three years (the “three-year rule”). Notably, if an agent fails to comply with the three-year rule, the certification lapses and the agent has to re-start the process from the beginning.12
Once certified and working as an NFLPA contract advisor, the agent must maintain good standing by adhering to detailed standards for performance of that role. Agents must execute and abide by a standard representation agreement with each player represented, filing a copy of that agreement with the NFLPA. The agreement sets a maximum fee of 3 percent for negotiating the NFL player contract, which is lowered in special situations where, for example, the player is a restricted free agent. The recommended default fee is 1.5 percent.13 Agents are required to act as “fiduciaries” toward their player-clients, with concomitant duties of loyalty, confidentiality, obedience, competence, diligence, and accountability. Accordingly, agents may not borrow from clients, engage in self-dealing, or undertake relationships that would create an appearance of or actual conflict of interest.14
Disclosure and reporting obligations are copious, including an annual itemized statement describing fees and expenses charged to every player-client, copies of side agreements such as marketing guarantees and loans that agents have with players, identification of anyone who assisted in recruiting the player, identification of any NFL management personnel or coaches whom the agent also represents, and self-reporting of any violation of NFLPA Regulations or other misconduct.15
With respect to player recruitment, an agent may not use improper inducements, including monetary gifts, to sign a player. Doing so releases the induced player from any obligation to repay a loan or pay the agent’s fees. Agents may not engage in behavior or communications to “poach” players from another agent, unless the player has less than 60 days remaining on his standard representation agreement.16
Arbitration is the only recourse for virtually any dispute that might arise in this setting, including between an agent and the NFLPA over agent certification, discipline, or application of these rules; between an agent and a player-client over any aspect of their relationship; and between two agents regarding distribution of fees or interference with a contractual relationship.17
Notwithstanding the onerous requirements to become and remain certified as an NFL contract advisor, at this writing the NFLPA’s website lists 800 certified agents.18 This number is remarkable in that the union’s current workforce numbers about 1700 active NFL players, and about 1200 of those players are represented by only 17% of the agents.19 But, as described below, increasingly stringent NFLPA agent rules may induce some to leave the business.
NFLPA Recent Amendments to Agent Rules and Agent Response
In the last five years, the NFLPA has adopted even more stringent agent rules. Observers have attributed this development to the 2011 NFL CBA which imposed wage scales and other terms that narrowed the room for financial creativity and thereby lessened the need for agent negotiation skills.20 As the agent’s role as contract advisor narrowed, some players began to forgo agents completely, hurting agents’ revenue.21 Financial pressures on the agent business were compounded in 2016 when the NFLPA amended the standard representation agreement to lower the default fee to 1.5 percent unless the player agrees to a different amount, which may not exceed 3 percent. No other American professional league imposes such a strict cap.22
In 2018, the NFLPA further amended the agent rules to reinforce agent duties of competence and honesty. Agents now must satisfy a continuing education requirement that includes an online multiple-choice test given every two years. Agents must also disclose in writing to all players their representation of college coaches or professional coaches in other leagues, and have a continuing duty to inform the NFLPA when charged with a crime or named in a civil complaint involving dishonesty.
The 2018 round of rules changes brought the agent community to a boiling point, expressed in agent meetings and conference calls throughout the year.23 Agents have threatened legal action and are discussing the creation of an agents’ association to advocate for their interests.24 But neither of those approaches is likely to gain traction.
On the litigation front, agent lawsuits against players’ unions have sputtered in the face of the unions’ federally-granted “exclusive bargaining authority,” which empowers a union to unilaterally regulate any bargaining representative. Agents have attempted to challenge these private regulatory regimes under U.S. antitrust laws, arguing that the unions are stifling competition in the market to provide representation to athletes. Those challenges have all succumbed to U.S. labor policy’s inherent antitrust exemption for union conduct.25 Labor law has similarly preempted an agent’s claim that union discipline tortiously interfered with his contractual relationships with players.26 At most, a union’s regulatory discretion regarding agents is constrained by the prohibition on acting in a manner that is arbitrary and capricious. For example, the MLB Players Association was held to have acted arbitrarily when it refused to certify an agent as lacking in integrity because he had previously served as general counsel for the league’s collective bargaining efforts.27 On the other hand, an arbitrator upheld the National Basketball Players Associations decertification of an agent who had publicly and fervently dissented from the union’s negotiating strategy and even filed unfair labor practice charges against the union.28
One litigation strategy contemplated by the disgruntled agents is to argue that the NFLPA’s “duty of fair representation” to union members extends to the agents who represent those members. Under U.S. law, a union has a duty to represent all members fairly; no individual may be treated in an arbitrary, discriminatory, or bad faith manner.29 However, that duty applies only to employees in the bargaining unit; an agent is in no sense an employee of the sports league or its teams. Furthermore, the duty ordinarily does not apply to a union’s internal affairs, such as the right to establish and enforce rules as to the conduct of union business.30 Rules governing agents—who serve as the union’s delegates in representing players—are a quintessential exercise of the union’s right to self-governance, and thus a “fair representation” claim is unlikely to prevail.
Organizing an “agent association” also seems antithetical to the agent’s role and obligations under U.S. law, at least to the extent that such an association works to countermand the union’s efforts to protect players from incompetent or corrupt agents. Sports unions are comprised exclusively of players who elect and serve as union officials, and otherwise call the shots as to agent regulation. Thus, an agent association’s self-aggrandizing lobbying efforts would likely contravene the agents’ fiduciary duty of loyalty to their principal. Further, at least one labor arbitrator has concluded that a certified player agent owes a separate fiduciary duty of loyalty to the players’ union.31 At the moment, the objectives for a proposed NFL agent association include obtaining a place at the table at union business meetings and revoking the 1.5 percent default fee and continuing education test.32 To comply with their duty of loyalty, agents would need to make the case that this agenda advances the players’ interests.
One argument in support of the agents’ position is that players are disserved if the agent business model is no longer viable and competent agents walk away from representing players. Players should not be deprived of their choice of agent, or a wide and diverse selection of potential agents, by unnecessarily onerous certification requirements and financial constraints. But in unionized U.S. sports, it is up to the players, not the agents, to calibrate the degree of regulation that incentivizes a healthy population of competent and ethical agents to serve as their representatives. The NFLPA believes it has done so.33
What FIFA Can Learn from the NFLPA Model
FIFA now concedes that its deregulation of intermediaries in 2015 lowered standards of agent performance.34 At the moment, intermediaries who provide services in connection with employment contracts or transfer agreements must merely register with the relevant national associations and comply with those associations’ minimal standards. Gone is the licensing exam and requirement to maintain professional indemnity insurance. Instead, at a FIFA regulatory level, intermediaries must only certify that they do not have “a potential conflict of interest” and that they possess an “impeccable reputation.”35
The contrast with NFLPA agent rules is stark. First, the FIFA intermediary registration system is far more permissive, potentially inviting anyone to register with national associations, regardless of experience or scruples. In a self-certification system, little deterrent exists for individuals to misstate their qualifications, to the detriment of the service standard offered to players and clubs.36 At the same time, the FIFA system imposes real burdens on scrupulous intermediaries who properly register with every national association where they provide services, and comply with overlapping, repetitive, and sometimes inconsistent regulations. Contrast the position in the U.S., where once an agent has learned and complied with a union’s requirements, he or she can represent any player and deal with any team in that sport. While FIFA must contend with materially different domestic labor laws across member associations, it could nonetheless mandate uniform certification standards and rules of conduct for all intermediaries working in any association and provide a default of global certification. In recognition of national differences, FIFA could give member associations the option to adjust or add a requirement upon showing that it is necessary to accommodate local law, in which case an intermediary who wanted to operate there would need to obtain an additional local certification.
Second, FIFA has always allowed intermediaries to represent both the player and the club in the same transaction, and the 2015 revisions did nothing to curtail this practice or mandate disclosure to and consent by the parties. This laissez faire approach differs strikingly from U.S. fiduciary law that more closely polices such conflicts of interest. U.S. courts have held agents to a high standard of informed consent from an athlete-client to permit the agent to represent other clients or pursue opportunities that pose a conflict of interest.37 Accordingly, the NFLPA expressly prohibits three categories of conflicts of interest, and even requires the agent to complete a disclosure form of all potentially conflicting clients s/he represents prior to obtaining an athlete-client’s signature on the standard representation agreement.38
Third, FIFA’s existing “benchmark” and proposed hard cap of 3 percent for agent commissions aligns with the NFLPA in attempting to protect players from overreaching agents. However, if FIFA actually adopts the cap, it is likely to be subject to competition law scrutiny on the grounds of price fixing (unlike in the U.S., where player unions may freely set commission caps under the labor antitrust exemption).39
Enforcement mechanisms are another point of distinction. Great variation in the enforcement of intermediary regulations exists across FIFA’s 211 national associations, corresponding to the associations’ disparities in authority, integrity, resources, and capability. As a result, unregistered agents continue to operate in many markets and misbehaving registered agents are punished haphazardly. A centralized enforcement apparatus—the role played by unions in the U.S.—would at least ensure that all participants are playing by the same rules and will receive equitable and predictable treatment.
The FIFA Council has now endorsed a reform package that includes significant changes to the transfer market.40 The package includes changes that will address concerns about the behavior of intermediaries in that process, in particular an epidemic of conflicts of interest.41 A clutch of proposals reintroduces some degree of centralized oversight of agent certification and performance, including an accreditation exam, a global licensing system, and a fixed cap on commissions. Another recommendation is to create a central clearing house that would be responsible for processing payments for all cross-border transfers, including commissions paid to agents. FIFA’s proposed return to centralized self-regulation, akin to U.S. players’ unions, is likely to improve the quality and ethics of intermediary service, but it does not go far enough.
As the implementation process moves forward, it would be wise to learn from the NFLPA’s experience, especially the emphasis on uniform high standards and consistent and transparent application of those standards. In particular, requiring a certain level of education and passing a knowledge-based exam would establish minimum levels of competence to perform intermediary services. Financial protections, including maintaining professional liability insurance or a surety bond, would backstop players victimized by agent malfeasance. Disclosure requirements and conflict checks should be more robust. For example, intermediaries should be required to disclose conflicting interests and clients, and be prohibited from representing more than one party to a transfer. In all, the concept of intermediary as fiduciary needs to be reinforced, along with empowering a centralized agency to certify, investigate, and enforce ethical performance.
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- Tags: Agents | American Football | Collective Bargaining | Employment | FIFA | Football | Intermediaries Regulations | Labour | National Football League (NFL) | National Football League Players Association Regulations Governing Contract Advisors (NFLPA Regulations) | NFL Players Association (NFLPA) | United States of America (USA)
Associate Professor of Clinical Law/Director of Externship Programs, Brooklyn Law School at Brooklyn Law School
Professor Jodi Balsam is a member of the faculty of Brooklyn Law School, New York City. She teaches Sports Law there, and at NYU School of Law. She is a co-author of the leading Weiler Roberts Sports Law casebook, and frequently appears in the media commenting on sports law developments. Prior to joining academia, she was Counsel for Operations & Litigation at the National Football League. She received her J.D. from NYU School of Law, and her B.A. in History from Yale College.