Restraint of trade and contracts in sport: lessons from the Rooney case

Published 14 December 2011

On 1 December 2011, footballer Wayne Rooney won the latest round of a legal battle with his former agency. The Court of Appeal handed down judgment in the case of Proactive Sports Management Limited v Rooney [2011] EWCA Civ 1444, an appeal by Proactive in a dispute concerning a contract to exploit Rooney's image rights. 

The case is a warning to agents that overly restrictive contracts may be unenforceable and provides lawyers and agents alike with guidance on avoiding this outcome.

Background

The case relates to an image rights representation agreement entered into by Rooney in January 2003, when he was a seventeen year old player with Everton FC. Rooney had vested his image rights in Stoneygate, a limited company, and entered a contract that appointed sports agency Proactive as Stoneygate's sole and exclusive representative for the exploitation of his image rights. Proactive received 20% commission of all gross fees received for any promotion, endorsement or advertisement deal for a duration of eight years. The arrangement was exceptionally successful for all parties and positive relations continued until 2008 when director Paul Stretford, Rooney's trusted advisor, left Proactive in acrimonious circumstances and signed Rooney to his new agency, Triple S. Rooney stopped paying commissions to Proactive and purported to terminate the agreement in 2009. Proactive sued Rooney for commissions allegedly owed under the agreement.

Restraint of trade

The legal issues in the case centred around restraint of trade; the doctrine which provides that a contract may be unenforceable if, contrary to public policy, it places unreasonable restrictions on a party's freedom to carry on business. This doctrine is balanced with that of freedom of contract, where parties are free to enter a lawful bargain and the restrictions each party agrees are enforceable. A contract will only be unenforceable if the restrictions are unreasonable, taking into consideration the circumstances at the time at which the bargain is made. An inequality in bargaining position, as is often the case between legally sophisticated sports agencies and young sportsmen, will therefore be highly relevant and impact on the reasonableness of any restrictions.

Assertion of unreasonableness

Despite the agreement proving extremely lucrative for all parties from 2003 until 2008, Rooney's legal team argued that the agreement was a restraint of trade in defence to Proactive's claim for commissions owed following the breakdown in relations. Aspects of the agreement and circumstances raised in this regard included: Rooney being seventeen when he signed the agreement and was relatively new to football; that he was unsophisticated in legal matters and did not seek independent legal advice; the eight year term of the agreement being highly unusual; and the imbalance in bargaining positions resulted in an agreement that was not negotiated.

In response, Proactive argued that a long term contract was necessary given Rooney's age and the need to develop a long term marketing strategy. Furthermore, the agreement contained obligations on Proactive to use 'best endeavours' to promote Rooney's image rights exploitation and to negotiate contracts only in accordance with Rooney's instructions and on terms he agreed. Proactive argued that these factors imposed duties on Proactive and gave control to Rooney, which precluded a finding that the agreement was an unreasonable restraint of trade.

Application to image rights

The judgment clarified that image rights are capable of protection under the restraint of trade doctrine, despite the fact that exploitation of such rights is merely ancillary to another profession. It was argued by Proactive that Rooney's trade is as a footballer and that the agreement did not in any way affect his freedom to pursue this trade. Rooney derives most of his income from his contract with Manchester United, although a significant proportion does come from sponsorship agreements of the type covered by the image rights agreement.

The judgment clearly stated that it was irrelevant that image rights were ancillary to another profession, indeed these rights would always be incidental to some other profession, and therefore, image rights were capable of protection under the doctrine of restraint of trade. The doctrine is designed to protect freedom of trade in the interests of public policy and it could not logically matter whether the occupation concerned was a person's primary activity or not. The fact that the activity concerned was ancillary could be such to make the restriction on trade insubstantial and thus justifiable. The basic premise of the doctrine remained; if contractual restrictions are reasonable, they will be enforceable.

What terms were unreasonable?

The Court of Appeal affirmed the earlier judgement of the High Court by stating that the agreement was an unreasonable restraint of trade. The judgment relied upon the following issues;

  • Age and inexperience – Rooney was only seventeen when he signed the agreement, and new to the football world, which framed the circumstances of the contract and how its terms were viewed.
  • No independent legal advice – there was no indication that Rooney or his parents had taken legal advice before entering the contract. This was crucial to the finding of unreasonableness. The contract did in fact contain a statement that Rooney had sought independent legal advice, but with evidence to the contrary the judgment disregarded this provision.
  • Length of contract - the eight year term of the contract was described as 'unique' and a significant restriction given the average length of a playing career is ten to fifteen years. The court found that Proactive had acted out of a desire to 'tie up' Rooney for a long period rather than the legitimate need to develop a long term strategy.
  • Commission rate – the flat 20% of commission was described as unusual, given there was no tapering of the rate dependent on future success. The court found that this would not have been the result of free and equal negotiations. One may see this as surprising given that Rooney's subsequent contract with Triple S, which Rooney signed as a hugely successful international footballer and remains satisfied with, contained exactly the same commission terms. This emphasises that an agreement will be assessed in light of the circumstances at the time it is signed.
  • Termination rights – the agreement did contain the right for Rooney to terminate the agreement early, however, exercising this right would result in liquated damages and prohibitive costs and expenses paid to Proactive. This rendered the provision redundant in providing a real right of termination.

When all of these factors were considered, the court found that the contract was capable of protection from restraint of trade and that the restrictions were not justified as being reasonable.

Lord Justice Gross did express reluctance at making this finding on the basis that the contract was very lucrative and Rooney was in no way dissatisfied with the performance of the agreement. In the reality the dispute was between Proactive and Paul Stretford for the right to represent Rooney. Nonetheless, as a matter of public policy and due to the restrictions that could not be justified (when viewed at the time the contract was formed), he found in favour of Rooney.

The judgment did find that Proactive was due commissions for contracts concluded by Proactive prior to the breakdown in relations. Furthermore, Proactive was due a sum in restitution for work undertaken prior to Rooney's departure. However, these sums are likely to be insignificant compared to the commissions due, or damages for breach of contract, had the contract been enforceable.

Lessons for sports agents

The case is important for practitioners and sports agents as it illustrates vividly the dangers of concluding unenforceable agreements. Aside from legal costs in disputing a contract, an agent may suffer significant loss of revenue if a client successfully disputes the validity of a contract. This may be particularly significant early in the term of an agreement, rather than towards the end as was the case with Rooney's dispute.

Sports agents will therefore need to be mindful, especially when signing young sportsmen to any agreements, that contracts are not unduly restrictive and run the risk of being unenforceable. The key to this assessment is whether the restrictions are reasonable. The following practical guidance can be derived from the decision regarding Rooney's agreement;

  1. Consider age and experience of client – the experience and bargaining position of a client will be highly relevant to an assessment of the contract terms. Where a sportsman is signing his or her first representation agreement an absence of negotiation may be indicative of a one-sided and oppressive agreement. The fact that Rooney had many suitors when he signed the agreement was not determinative as the agreement he did sign was not negotiated and contained oppressive terms.
  2. Ensure independent legal advice is sought – this factor was crucial in the finding that Rooney's contract was an unreasonable restraint of trade. Agents should ensure that a young player signing a representation agreement does actually obtain legal advice, a mere statement in an agreement that such advice has been obtained, or obtaining advice from the agents lawyers, will not be decisive. Organisations such as the Professional Footballers' Association can be contacted to help provide such services to young players.
  3. Consider length of contract – Rooney's eight year contract was said to be 'unusual', and in light of the two year limit for on-field representation agreements prescribed by FIFA, could not be justified. A contract length of five years was more prevalent in the market and may have been reasonable. Agents may wish to resist the temptation to tie up young players to longer agreements due to the danger of unenforceability. A longer contract may be reasonable with an older sportsman experienced in contractual negotiation.
  4. Assess impact of legal advice – Proactive had received legal advice prior to entering into the agreement with Rooney to the effect that the proposed agreement may have been an unreasonable restraint of trade. The judgment took this knowledge into account in its finding that the restrictions were unreasonable. Agents must therefore be wary of using a strong bargaining position to impose overly restrictive terms.
  5. Real right of termination – significant restrictions may be reasonable if the client has a real right of termination under the agreement. Agreements where the client has no right of termination, or only an economically prohibitive right, are more likely to be unreasonable.

It is evident that this is not an iterative process with clearly defined margins. What is reasonable will always depend upon the circumstances of each case. It is clear however that actions to vitiate an inequality in bargaining position, such as ensuring independent legal advice is obtained, will go some way to demonstrating that an agreement is reasonable. These concerns will be most prevalent when dealing with young sportsmen.

Rooney's contractual legacy

In the event, Rooney's agreement with Proactive was incredibly lucrative for all concerned until 2008, when Proactive suffered a loss of revenue due to the problems with the agreement as initially formed. Moreover, the outcome of Rooney's legal action may encourage other sportsmen, presently and in the future, to review the validity of their agreements. Agents should be particularly aware of the consequences of contractual restrictions that go beyond what is necessary and reasonable to protect their interests.

Richard Davies, SJ Berwin LLP

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