The High Court has ruled that an image rights representation agreement tying Wayne into an 8 year exclusive relationship with a management agency on unfavourable terms was in restraint of trade by unreasonably restricting the footballer’s ability to exploit his earning potential. Jonathan Mayner is on the ball.
Topic: People in advertising
Who: Proactive Sports Management Ltd v Rooney & others
When: July 2010
Law stated as at: 15 July 2010
The High Court ruled that an Image Rights Representation Agreement (the Agreement) between footballer Wayne Rooney (Rooney) and Proactive Sports Management Limited (Proactive) was void and unenforceable as it represented an unreasonable restraint on Rooney's capacity to earn money from exploitation of his own image rights. The Agreement had been entered into by Rooney through Stoneygate 48 Limited (Stoneygate) a company which he owned and to which he had assigned his image rights.
Since the 1990's image rights have been recognised as a potentially lucrative source of revenue for footballers and clauses dealing with image rights are standard in most contracts between footballers and the clubs that employ them. Additionally, footballers commonly enter into agreements with third party agencies who will negotiate sponsorship deals on their behalf in return for a commission over the course of a defined term.
Stoneygate entered into the Agreement with Proactive in early 2003, when Rooney was 17 years old and playing for Everton Football Club. Rooney would enjoy subsequent success playing football for Manchester United Football Club and the England national team. Under the terms of the Agreement Proactive would exclusively negotiate and enter into sponsorship deals for Rooney. Notwithstanding the fact that the Agreement was entered into by Stoneygate, in reality it seems that it was negotiated by Rooney and his family, who benefitted from little or no legal advice at the time.
The standard term for such agency agreements involving footballers is around two years, and usually the commission payable to the agency, while often expressed in terms of a percentage of revenue generated, will be capped or adjusted by reference to the amount of revenue generated. The Agreement between Stoneygate and Proactive however was for eight years (a sizeable proportion of any footballer's playing career), with no clear right for Stoneygate to terminate the contract earlier, and entitled Proactive to 20% of all revenue generated by sponsorship deals it arranged for Rooney, no matter how much revenue was in fact generated.
Relations between Stoneygate and Proactive deteriorated in late 2008, following the departure of the Proactive director who had been instrumental in signing Rooney to the agency. Stoneygate subsequently sent a letter terminating the Agreement in December 2009, although not before appointing another agency to handle Rooney's sponsorship deals.
Proactive alleged that Stoneygate was in breach of the Agreement and brought a claim for arrears of commission which it claimed were owed. Stoneygate argued that the parties to the Agreement had made either some common or mutual mistake as to the content of the Agreement and, more importantly that the Agreement was unenforceable as it represented a restraint of trade.
Restraint of Trade
The doctrine of restraint of trade holds that a covenant or contractual provision which restricts the freedom of a party to do as it pleases will be void unless that restriction is designed to protect legitimate business interests and goes no further than reasonably necessary to protect those interests. In cases where a contract is claimed to be in restraint of trade, the party which benefits from the complained of restrictions has the burden of proving to the court that the contract was reasonable with regard to the legitimate interests of the parties.
In this case, after detailed consideration of the case law, the judge held that agency agreements such as the Agreement complained of were indeed capable of falling under the doctrine of restraint of trade. Moreover the judge was not satisfied that Proactive had discharged its burden of proving that the restrictions imposed by the contract were reasonable. The Agreement was therefore held to be void for unreasonableness and Stoneygate was not entitled to all of the arrears of commission it claimed (although it was entitled to payment for services it had rendered prior to the deterioration in relations between the parties).
Significant points to note in this case are:
- The Agreement was not the outcome of negotiation between equals. The Agreement had been dictated by Proactive while Rooney and his family had not received independent legal advice.
- The fact that the agreement was entered into by limited company Stoneygate for Rooney was of little relevance: Rooney and his family negotiated the Agreement and it was Rooney who was personally restricted by the terms of the Agreement.
- The fact that Rooney was free to earn substantial sums from his footballing activities was not relevant: there is no distinction in the doctrine between partial and total restraint.
- Exclusivity in the Agreement was not an issue, as exclusivity is a common feature of agency agreements.
- The fact that the 8 year duration of the Agreement would likely cover at least half of Rooney's footballing career was deemed unreasonable.
- The 20% rate of commission payable to Proactive, in particular the absence of any cap or tapering provisions in respect of the commission, was unreasonable.
- Solicitors acting for Proactive had warned of the risk of the Agreement being found to be restraint of trade.
Why this matters:
The ruling will be of particular interest to celebrities, sporting and otherwise, and advertisers or agencies who enter into or negotiate sponsorship deals for them.
Advertisers and agencies should be careful if seeking to impose or rely upon unusual or onerous contractual provisions (such as on duration of contract, penalties for early termination, and rates of commission) as they may constitute a restraint of trade.
Furthermore, the case highlights the importance of caution on the part of advertisers and agencies when entering into an agreement with a young or emerging celebrity where the celebrity's potential to earn significant revenue from their image rights in the future is not reflected in their negotiating power at the time the contract is entered into. Commercially sophisticated parties such as advertisers and PR agencies should also ensure that young or emerging celebrities, particularly those who may not be commercially sophisticated, receive appropriate and independent legal advice before entering into any contract with them.
By the same token, advertisers and agencies should always seek (and preferably heed) legal advice as to whether or not their agreements are appropriately drafted and must be aware of the risks associated with imposing terms which do not conform to industry norms.
At the time of writing Proactive had indicated that it may appeal the High Court's decision.