Update | Sport: rugby transfers, Pay TV

Feature | 8 March 2013
rugby

Oliver Hunt and Simon Thorp consider the transfer of rugby players before their contract has ended and the future of Pay TV

Player transfers in rugby are less commonplace than those in football. Many followers of rugby may even be unaware that transfer fees are sometimes paid by rugby clubs acquiring players, unlike in football where each transfer window generates a huge fanfare as to the number of transfers and the size of transfer fees paid.

In rugby, there is less of a transfer culture and rugby clubs have less financial resources at their disposal to facilitate the transfer of players. However, inequalities in the salaries that rugby clubs are willing and permitted to pay in different national rugby unions has led to more transfer activity in recent seasons. Notably player moves from the home nations to French clubs and from other national rugby unions to countries such as Japan, who are not fettered by salary caps, has led to a growing number of high profile transfers, and associated publicity.

Under RFU regulation 7.1, “no club… may directly or indirectly approach any player who is under contract with a club… or Union to induce or attempt to induce such player to leave that club… or Union unless such approach is made in the final… six months in the case of players playing for premiership clubs of the term of that player’s contract”. While a player himself may negotiate an early release from his club outside of this window, the restriction imposed by RFU Regulation 7.1 helps to confine transfer activity to a limited period within a player’s contract.

This restriction is reinforced by obligations upon player agents to not induce breaches of RFU regulations, including regulation 7.1, pursuant to RFU regulation 8.10.

It should also be noted that there are also various registration requirements that a player and his new club must comply with (see RFU Player Registration Regulations) in the transfer of a player. Should the transfer be between different national rugby unions, clearances are also required from both the union from which the player is leaving and the one that he is joining (RFU regulation 7.5).

Compensation

While ‘transfer fee’ is the term typically used in football, ‘compensation’ is the term more generally used in rugby, but these terms are often used interchangeably. In short, a player is contracted to his club for the duration of his playing contract. Should a club wish to ‘acquire’ a player before that player’s contract has expired with his club, the acquiring club and the player will have to negotiate the terms upon which the selling club will agree to the early termination of the player’s playing contract allowing that player, subject to RFU Regulations, to move to the acquiring club. Typically this means the payment of a ‘transfer fee’ by the acquiring club to the selling club to compensate the selling club for the early departure of their contracted player and pursuant to which the selling club agrees to such departure.

Recent examples of the payment of transfer fees include Hendre Fourie’s move from Leeds to Sale in 2011, a transfer fee being paid by Sale to Leeds in return for Leeds agreeing to his transfer with one year left on his contract. More recently, it has been rumoured that Richie Gray may move from Sale to Castres in France for which one would expect Castres to pay some form of transfer fee to Sale, should it require the early termination of his playing contract with Sale outside the terms of 
that contract.

Besides transfer fees, compensation may also take the form of Academy Player Compensation under regulation 7.6.3 of the RFU Regulations should an academy player move Clubs. The purpose being to compensate the club who has developed that player for each year that the player has been an England academy player or Elite Player Development Group member with the club from whom the player is moving (akin to solidarity payments in football).

The recent purported dealings of Bath with George Ford in his proposed move from Leicester are likely to entitle Leicester to Academy Player Compensation in consideration for Leicester’s development of George Ford as a player. Interestingly in this case, there have been allegations that Bath may have failed to approach George Ford in accordance with the permitted regulations (although quite specific facts apply in this case), which may entitle Leicester up to twice the level of compensation that would normally apply (RFU regulation 7.6.4).

Going further afield

There are, of course, many reasons on a case by case basis as to why a player might move clubs. One such reason in English rugby, is that clubs have salary caps meaning that they can only spend up to a certain figure on players’ salaries. Currently, clubs in the Aviva Premiership can spend up to £4.26m on players’ salaries before academy credits and up to £4.5m with credits (set by the Premiership Rugby Board).

The salary cap in English rugby has helped the financial sustainability of English rugby clubs by limiting their spend on salaries and transfer fees.

However, not all rugby unions impose salary caps on their clubs and accordingly a number of English players (famously Jonny Wilkinson to Toulon), among others from other home nations, have been enticed to play for foreign clubs, which are able to offer greater salaries. In recent seasons, this has led to greater transfer activity and payment of transfer fees by acquiring clubs in France to the selling club in England and other home nations. Premiership Rugby in England has sought to address this problem by now allowing one qualifying player for each club to be excluded from the cap.

The player transfer culture in rugby is different to that in football for a variety of reasons, and it is more likely for player contracts in rugby to be seen through to the end. Nonetheless, transfers and the payment of transfer fees are becoming more common in rugby. While salary caps in English rugby make it unattractive to English clubs to pay transfer fees, those same salary caps are inducing more players in English clubs to consider moving to other national unions where such caps do not apply. Whether this trend will change, given indications that players are less likely to play for their national team should they play abroad and clubs being able to pay one player outside of the salary cap, remains to be seen.

Offering wholesale

In October 2011 we reported that in May and June 2011 the Competition Appeals Tribunal (CAT) heard four appeals against the 2010 decision by the UK Office of Communications (Ofcom) to force regulated wholesale supply of pay television (Pay TV) channels by British Sky Broadcasting Limited (Sky) to other Pay TV retailers on terms set by Ofcom.

The CAT handed down its judgment on 8 August 2012 and issued a ruling on 27 February 2013 dealing with matters arising out of its judgment.

The appeals arose out of the decision by Ofcom to vary, pursuant to section 316 of the Communications Act 2003, the conditions in the licences granted to Sky under Part 1 of the Broadcasting Act 1990 for its core premium sports channels (Sky Sports 1, Sky Sports 2, Sky Sports 1 HD and Sky Sports 2 HD). The new licence conditions required Sky to offer to wholesale the core premium sports channels to retailers on other broadcasting platforms, and in the case of Sky Sports 1 and Sky Sports 2, to offer them at wholesale prices set by Ofcom, the “wholesale must-offer obligation” (WMO Remedy).

In April 2010, the CAT imposed interim measures varying the WMO Remedy by requiring BT, Virgin Media and Top-Up TV to pay the difference between the wholesale rates set by Ofcom and Sky’s ratecard into an escrow account (Interim Relief Order).

Each of Sky, The Football Association Premier League (FAPL), Virgin Media Inc (Virgin Media) and British Telecommunications Plc (BT) brought appeals challenging Ofcom’s decision in April 2010. Various additional parties, including many sports governing bodies, were granted permission in June 2010 to intervene in the four main appeals.

Misinterpretation

In its judgment, the CAT found in Ofcom’s favour, on the arguments made by Sky and FAPL as to the scope of Ofcom’s jurisdiction to take action under section 316 of the Communications Act 2003.

More importantly however, the CAT upheld Sky’s challenge to the key findings on which Ofcom’s exercise of that jurisdiction was based.

The Tribunal concluded that Ofcom’s core competition concern, that Sky deliberately withheld from other retailers wholesale supply of its premium channels, and that in doing so Sky was acting on strategic incentives unrelated to normal commercial considerations of revenue/profit-maximisation, was unfounded.

The CAT considered that Ofcom misinterpreted the evidence of Sky’s negotiations with the other retailers and that Ofcom had made findings of fact that were inconsistent with the evidence. In contrast to Ofcom, the CAT considered that on the whole, Sky engaged constructively during commercial negotiations with other retailers for access to the core premium sports channels and that Sky was willing to wholesale supply these channels to retailers who did not want Sky to retain the retail role when supplying its channels to third party platforms.

The CAT also considered that Ofcom’s other competition concerns, relating specifically to the prices for the existing wholesale supply of the core premium sports channels to Virgin Media, and the non-supply to the cable companies of certain new services, were also unfounded. The CAT did not find any evidence to justify Ofcom’s finding that Sky had (or acted upon) an incentive to weaken Virgin Media or its corporate predecessors 
as competitors.

The CAT did not consider it necessary to determine the other issues raised in the appeals of Sky and FAPL, challenging the validity, effectiveness and proportionality of the WMO Remedy imposed by Ofcom. Similarly, the CAT did not determine the appeals of BT and Virgin Media, as these were exclusively concerned with the 
WMO Remedy.

BT has since sought permission to appeal against the judgment. The CAT refused BT’s application in a ruling dated 7 February 2013, concluding that BT’s proposed grounds of appeal did not disclose any point of law with a real prospect of success or any other compelling reason for the appeal to be heard.

BT has now applied to the Court of Appeal for permission to appeal, and it is expected that permission will be dealt with by June 2013. On 27 February 2013, the CAT issued 
a ruling dealing with matters arising out of 
its judgment and BT’s application for the CAT to ‘stay’ its final order pending BT’s application to the Court of Appeal for permission to appeal.

Uncertainty

The CAT ruled that Ofcom should be directed to withdraw its decision to insert licence conditions into Sky’s licences and to remove those conditions from the licences. It also ruled that BT and Top-Up TV, the parties who took supply of Sky’s core premium sports channels pursuant to the Interim Relief Order, should be ordered to arrange for the sums paid into escrow to date to be paid out to Sky (with interest) and that the Interim Relief Order should cease to have effect.

The CAT further ruled that in respect BT’s application for a ‘stay’, the CAT’s final order as set out above should only come into effect 14 days after the Court of Appeal has finally determined BT’s renewed application for permission to appeal (or 14 days after any withdrawal by BT of its renewed application) and that notwithstanding the CAT’s final order, in the meantime, the WMO Remedy, as modified by the Interim Relief Order, should remain in place and the Interim Relief Order itself should also remain in place so as to preserve the escrow arrangements.

The CAT’s judgment was positive news for Sky and those who opposed the WMO Remedy. However, BT’s appeal means that there is still uncertainty with regards to the future of Pay TV channels.

Issue: 
Vol 157 no 10 12-03-13

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Pay TV is really good. Something has to be done about this situation right now. - Richard E. Dover
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