Abramovich sanctions and Chelsea Q&A

Article 14 March 2022 Experience: Sport
Corporate
Employment

This article was originally published on Friday 11 March 2022, but has has been updated on Monday 14 March 2022 from the heading ‘Payments to contractors as well as employees’ downwards.

With Roman Abramovich being subjected to sanctions by the UK Government on 10 March his UK assets, including Chelsea Football Club (the ‘Club’) were frozen. A General Licence has been granted by the Office of Financial Sanctions Implementation that will allow the Club to carry out certain football related activities. This licence will remain in place until 31 May 2022 but may be revoked or varied at any time.

Chelsea were not told about the sanctions or the terms of the licence before they were implemented. However, the Government have said they will work closely with the relevant football authorities and the Club to protect it from irreparable damage that would prevent it from competing.

Below we answer some of the key questions arising out of the sanctions and general licence.

Will players and other staff be paid?

Yes, this is permitted under the terms of the licence. However, the Club’s activities will be restricted and this may have an effect on the Club’s ability or willingness to continue employing staff in the short term when they are not able to perform their roles. For example, Club shops and websites are not able to make sales. If cash flow becomes very tight then the Club may not be able to pay salaries, although given the length of the initial term of the licence it may be that this effect is not seen unless the sanctions are continued beyond the end of the licence period and/or any new licence includes measures intended to prevent this effect.

What may not get paid are image rights payments paid to a player’s image rights company and not to the player himself as the general licence only permits payments to employees and the terms of the licence will be construed strictly.

Scouts and other contractors may also not be able to be paid unless they are employees or fall within the categories of expenses permitted within the licence (e.g. match day stewards, catering and security). With fewer spectators there may be a reduced requirement for such matchday staff, and there is a cap on expenditure in place. As such, some contractors may find they are not required to work as much as previously which would have an effect on what they are paid.

What about payroll deductions?

Tax and pension contributions are expressly permitted within the general licence. Other payroll deductions required by law such as student loan repayments and sums under a deduction of earnings order or attachment of earnings order (e.g. for child maintained or to satisfy court judgments) would also likely be permitted.

However, voluntary deductions such as payments to charities may need further guidance from the Office for Financial Sanctions implementation.

What about player contracts and transfers?

The transfer window is not open presently and will not open until after the expiry of the general licence. However, if the general licence remains in place as it is, the Club will not be able to enter into new transactions involving the loan or transfer of a player. New payments to other clubs would not be permitted and nor would receiving funds from other clubs. Payments can continue to be made for arrangements that were in place prior to 10 March 2022. This means that any instalments due from Chelsea to other clubs can be paid and that Chelsea is permitted to receive payments due to it.

Andreas Christensen, Antonio Rudiger and Cesar Azpilicueta are all out of contract at the end of the current season and so under the current licence, Chelsea would be unable to sign contract extensions with any of the players and they will be able to leave the Club at the end of the season and sign for any other club without any fee being paid to the Club.

The sanctions may also prohibit Chelsea from triggering any unilateral options it may have to extend other players’ contracts. Whilst these contractual options would have been agreed before the implementation of the sanctions against Abramovich, any exercise of them could be considered to be dealing with the frozen assets and therefore not permitted. There is nothing expressly in the general licence to allow this.
If the sanctions remain in place players may well wish to leave the Club. However, their only option will be to try to argue that Chelsea has breached their contracts and they are therefore free to leave. If Chelsea continues to pay the players on time this could be a risky argument in what is an unprecedented set of circumstances. If a player is not successful in such an argument, they could be liable to the Club for substantial sums.

What about agents’ fees?

There is no carve out in the general licence to allow these to be paid. Whilst the Club can continue to receive sums due to it provided these are not available to Abramovich and can continue to make and receive payments from other clubs, there is nothing specified regarding agents.

Players who pay agents fees directly from their own salary will be able to continue to pay these. However, it is unlikely that fees due to agents either as club fees paid directly by the Club or as player fees paid by the Club as a benefit in kind to the player can continue to be paid. If fees are paid to agents following a deduction from a player’s net salary, this is also likely to not be allowed. The Club will also not be allowed to pay this previously deducted element to the player to pay on to the agent himself.

Agents’ fees have not been addressed in the general licence and therefore the Club and/or agent may want to approach the Office for Financial Sanctions Implementation to seek a specific licence in respect of these payments if fees are due soon.

What will happen to sponsorships?

Shirt sponsors Three have suspended their shirt sponsorship deal with the Club worth £40 million a year. Under the existing licence, Chelsea will be unable to receive funds from Three or sign any new sponsorship deal with another party. Three have asked for their logo to be removed from shirts and so Chelsea will need to either cover this up or find some unbranded shirts to play in. They will not be able to purchase new unbranded shirts and the kit supplier Nike may need to take advice if it proposes to provide unbranded shirts at no cost.

Can the Club be sold?

Under the current licence, the Club cannot be sold. However, the Government has indicated that the Club could apply for a specific licence which would allow for a sale on the basis that Abramovich himself cannot receive any proceeds from a sale whilst still subject to sanctions.

If the Club were to be sold then it would no longer be subject to the freeze and the restrictions would be lifted. With the Club already up for sale prior to the sanctions being imposed this seems like the likely next step given the potential issues identified above and the Club are likely to want such a sale to have completed prior to the transfer window opening.

The below updates have been added to this article on 14 March 2022.

Payments to contractors as well as employees

The updated licence makes it clear that agency workers, temporary workers and contractors can be paid in addition to employees. However, those on more flexible contracts may find that their services are not needed or not needed as much at present due to the other restrictions on club activity and as such pay may be reduced or work may not be offered.

The updated licence also clarifies that payments can continue to be paid to employment benefit providers where obligations existed prior to 10 March 2022. Payments can continue to parents or host families of academy players.

Other payments

The scope of the licence has also been extended for other payments. Costs associated with the ‘regular maintenance’ of the club now expressly include IT services and costs in respect of capital projects agreed prior to 10 March 2022.

Costs of travel to training or practice are now also included as well as costs to travel to and from matches. The limit of expenditure per home fixture has been increased to £900,000 from £500,000 and now expressly includes a broader range of relevant services.

Payments to third parties

The Club is also permitted to make payments to third parties in respect of obligations existing before 10 March 2022. This would the payment of fees to agents, to image rights companies and to any other third party by way of a deduction from net salary of the players (e.g. to charities).

What is still not permitted?

The Club cannot enter into any new contracts. This will include any new sponsorship agreements. The licence does not expressly permit the Club could order new kit that does not feature former sponsor Three so this could remain a potential issue for the Club and kit provider Nike. Chelsea wore shirts bearing the Three logo at their match with Newcastle on 13 March. This may need to continue for some time yet as it appears there are no blank kits that the Club can use.

Transfers of players are also not permitted still, albeit the transfer window is not yet open. More problematic is that contract extensions are also not permitted leaving the fate of a number of players in doubt.

What about a sale of the club?

Late on Friday 11 March 2022 it was reported that the Raine Group have agreed a way to progress the sale of the Club with the UK Government with bids expected this week. However, a special licence will still need to be granted by the Office of Financial Sanctions Implementation to allow any sale to proceed.

For further advice on any of the issues raised above please speak to your usual Withers contact, or any of the authors of this article.

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