SPORTS CLUBS AS EMPLOYERS IN A COVID-19 WORLD
We are obviously living during unprecedented times as the COVID-19 pandemic has stalled many of the UK’s major industries. One of the worst hit is the sports sector, not least because it is, fundamentally, an event based industry.
Much has already been written and said about the impact of COVID-19 on sport and entertainment, and we would recommend reading these articles by Jonny Madill and Alex Harvey, as well as listening to these podcasts, also featuring Jonny and Alex alongside Daniel Geey.
In this brief article, however, Sheridans’ Head of Sport, Andrew Nixon, and Chris Braganza, a Partner in the Sheridans Employment Team, specifically explore the challenging issues faced by the professional sports clubs in the major professional team sports (Football, Rugby Union, Rugby League and Cricket) as key industry employers and why as employers, they are in a unique position compared to other industries.
Clearly, the issues vary not just sport to sport, but within the respective sports themselves: it is reasonable to state that Premier League clubs are better placed to ‘ride out’ the COVID-19 pandemic without having to make the sort of decisions forced upon football clubs further down the pyramid (albeit that status may be contingent on matches for this season resuming at some stage, even if behind closed doors, so as to protect the lucrative broadcast deals which provide the main revenue flow for clubs).
What is clear, however, is that non Premier League clubs (EFL Championship and below), Rugby League clubs, Rugby Union clubs and Cricket clubs have had to make, or are in the process of making, very difficult decisions, both in relation to the playing and non playing staff. Indeed, when the EFL announced the temporary cessation of the Championship, League One and League Two, Barnet immediately placed its entire non playing staff, including its manager, at risk of redundancy.
Those difficult decisions have included redundancies, such as the Barnet example, but also a suite of other responses, including hiring freezes, deferred starts, withdrawn playing offers, losing non-permanent staff, secondments, withdrawal of benefits, lay-offs, reduced salaries (hard or soft), voluntary or enforced holiday, early retirements, sabbaticals, unpaid leave, and of course now ‘furloughing’. This is due to the announcement of the Coronavirus Job Retention Scheme (“CJRS”) which numerous sports club employers will now be accessing.
Furloughing in sport
Furloughing is a term which, until a week or so ago, many in the sports industry would have had little or no knowledge of. But for those with longer memories, it is akin to the somewhat dated (though still legal) concept of lay off: in effect a temporary suspension of the employment contract during a downturn.
It is for the employer to designate who is a furloughed worker, and for many industries identifying who is to be furloughed, and who is to remain as a ‘core worker’, is a difficult process. It is probably clearer for sports clubs, however. The main purpose of playing staff, and coaching staff, is to prepare for and win matches, and with the temporary ‘closing down’ of all matches our view is that playing staff are capable of being furloughed. The same no doubt will apply to marketing and commercial staff who will have nothing to market or sell during the period in which leagues and competitions are closed down.
One of the requirements of receiving government support is that furloughed employees must not work. There are, however, exceptions:
First, it is likely that simply keeping in touch with an employee, for example keeping them abreast of how matters are progressing generally, would not breach the furlough leave requirements. Indeed, as we note later, it is probably advisable to do this in the context of professional sport.
Second, there is a carve out for ‘training’ in the government guidance - it states “that a furloughed employee can take part in volunteer work or ‘training’, as long as he/she does not provide services to or generate revenue for the employer”. For professional athletes, this poses a conundrum. Physical training, in the context of what a professional athlete does week to week, is without doubt part of their work. On the other hand, the point of the furlough policy is that the economy (including the sporting economy) is ready to go when public health circumstances permit. There would be little point in restrictions being lifted and players being further from match fitness than is inevitable. In this light, our view (pending further detail on the CJRS) is that general fitness and conditioning for professional athletes ought to be permissible, and indeed encouraged. It is also possible that players may be brought back from furlough earlier than their non playing colleagues in order to start preparation when it becomes clear when leagues will restart. This may in particular be the case for the Rugby codes and Football as physical conditioning needs to be at the right level to compete and players may need to return early for, say, appropriate physical testing: it may, for instance, be unrealistic to come off furlough on the Monday and then play on the Saturday.
We would, we should say, have a different view on (for example) commercial (presumably online) activities by players on the club’s behalf for sponsors and so on. In our view, this would be a player providing services to a club, albeit we also think that a more lenient approach, particularly in the prevailing circumstances, might well be taken to more "community" focused activities. It is possible that this may be slightly more nuanced, however, if the services are being provided by an image rights company, to which the relevant player’s image rights have been licensed or assigned (as this is a separate contractual relationship): in this regard, clubs should consider each scenario carefully and on a case by case basis, and any such use should in any event, we think, be focused on community projects, possibly connected to COVID-19 charities and relief.
The situation may be different for coaching staff, particularly senior coaches, and sporting directors, who may have a much broader job than just on field coaching and training: often these roles extend into operational, administrative and management roles, and if those staff continue to perform certain functions for the club during the ‘closed down’ period, then they will not be furloughed employees. If clubs get this wrong, it is possible that (at the least) any CJRS grants claimed may need to be repaid, which could in some instances be considerable.
Who remains as a ‘core worker’ at clubs will be contingent on the sport, and the particular structures adopted by the clubs. Ultimately, like any business, critical functions will need to carry on (e.g. board or management oversight, IT support teams, finance teams etc). The starting point is to consider business needs: which roles are critical to the business functioning during the next three months or longer? Based on what we have seen, the critical roles that will tend to (albeit not necessarily always) remain operational within sports clubs, and are not therefore furloughed, are the senior executive roles (so CEO, MD, Executive Chairman (if applicable)) and sporting directors, as well as senior financial staff, HR and IT.
Another key point for clubs to consider is the 80% wage cap for furloughed workers; and the secondary cap of £2500 per month. Clearly, many professional athletes will be on salaries of more than £2500 per month, often considerably more. We have already seen a number of professional sports clubs bring in salary reductions for playing staff, and clubs will now be able to seek access to the CJRS up to the cap of £2500 (assuming the relevant members of staff are genuinely furloughed), and then ‘top up’ to the agreed, reduced salary. Clubs will therefore still have very significant outlays on playing staff who are not working for this period, but CJRS will at least mitigate some of the damage and give clubs an important life line.
Even though speed is of the essence as clubs battle to stabilise their businesses, it is still crucial to ensure that furlough arrangements are documented and notified to playing staff (and relevant non playing staff), including clarity on the start date of the furlough period, when it will be reviewed and the means for the furloughed employee to keep in touch with the club during this period. We touched upon the latter point (staying in contact) above and we think this is particularly important: obviously, the player cannot work during this period, but clubs still have a duty of care to at least monitor the physical and also mental health of players, some of whom are young and may be self isolating away from family members. Given that the day to day, week to week life of a professional athlete is so structured, losing that structure, particularly for an uncertain period of time, can have an effect on the athlete’s mental health. All clubs placing playing staff on furloughed leave during this period should be cognisant of that and should take all necessary steps to regularly ‘check in’ on players.
Comment
The sports industry is undoubtedly unique, in that whilst there is a lot of money in sport, mainly driven by media rights, that does not necessarily mean that sports clubs are always profitable businesses.
And indeed profitability is not (and cannot be) the only objective for sports clubs as they have much wider roles in society: a sports team or club is often the hub of a community. That means many clubs do not necessarily possess the cash reserves that other businesses may have to simply ‘ride out’ such an unprecedented business interruption.
The reality is that this financial impact is likely to be felt by clubs for a significant period of time after the recommencement of professional sport, especially if remaining fixtures are played out behind closed doors: it will not be a case of ‘back to normal’ when the first ball is kicked or bowled. And that is why sports clubs have had to make swift and tough decisions to underwrite their future.