Current Developments in the Chinese Sports Law Market 2018/19
As China closed the door on the Year of Dog and looks forward to the Year of the Pig, here’s a snapshot of significant issues in China sports law for 2018 and where we may be going in 2019.
BROADCASTING AND COPYRIGHT IN LIVE SPORTS EVENT
Perhaps coming as a shock to most of the sports and media world, whether live sporting events are protected by copyright is still not a settled issue in China. The Beijing Intellectual Property Court in April 2018 overturned a district court judgment to find that live football broadcasts are not copyrightable due to lack of originality. The case was brought by Sina.com, which had exclusive rights from the Chinese Super League to stream games on its website. Sina.com sued Ifeng.com , which had placed links on its own website to show the same games. The Beijing IP Court ruled that a live broadcast did not meet the criteria as a copyrightable “movie” because the simultaneous transmission of a live game did not require creativity on the part of the broadcaster and that no work was reduced to a fixed form before broadcast.
Meanwhile, the Shanghai First Intermediate People's Court has found that because the flow of a sports match could not be controlled, predicted, and copied, and the creative aspects of a broadcast, such as the camera work and commentary are limited, a live match broadcast is not an "artwork" under the Copyright Law. Still, other courts have indicated that live broadcasts may be protect as “audio and video recordings”, but not as creative works.
Rebroadcasters have also challenged the ownership of the broadcasting rights, arguing that Article 67 of the FIFA Statutes is not legally binding (in contrast to the Berne Convention). As a result, FIFA, its member associations and confederations arguably are not the original owners of broadcasting rights of competitions and therefore do not have licensing rights.
CRIMINALIZATION OF DOPING VIOLATIONS
The Supreme People’s Court and the General Administration of Sport are reportedly1 drafting an interpretation to the Criminal Law that would make doping a criminal offense. The criminal penalties, including jail terms, would supplement existing fines, bans and administrative penalties that can be imposed for doping violations. It is unclear whether mere possession of performance-enhancing drugs as well as their use and sale could be subject to criminal penalties. Also unclear is which drugs would be covered under the interpretation.
The change to the Criminal Law is expected to be in place in early 2019.
NATURALIZATION OF ATHLETES
In an effort to boost the competiveness of national teams, China is finally opening the doors to naturalizing foreign athletes who have Chinese ancestry. The threat of China not being able to participate at home in ice hockey at the 2022 Winter Olympics games and the continued struggle of the men’s national football teams has led to the first high-profile granting of citizenship2 to athletes of Chinese ancestry.
Several naturalized players are set to make their Chinese Soccer League debuts in early 2019, with Nico Yennaris (originally a UK national) and John Hou Sæter (Norway) joining Beijing Guoan and Roberto Siucho (Peru) at Guangzhou Evergrande. The Chinese Football Association has yet to issue a ruling regarding how many naturalized players each CSL team can field and the eligibility of these players on national teams. Clarification on such issues by the CFA is expected after the Chinese New Year break in mid-February.
A major stumbling block to a large number of elite athletes being naturalized is that Chinese law expressly does not recognize dual nationality, meaning foreign athletes who obtain Chinese nationality would need to give up their foreign nationality. The concern is that many athletes would not be willing to do so merely for the right to represent China in international competition, and possibly to play as local players in domestic competition. Still, some flexibility may exist to alleviate concerns about giving up their foreign nationality. Some countries may permit former citizens to quickly regain citizenship, China may not in fact require the renunciation of foreign citizenship for all elite athletes, or China could amend the Nationality Law to recognize dual nationality.
OVERSEAS INVESTMENT RULES
The recent frenzy of Chinese investors snapping up overseas football clubs damped in 2018 as national rules3 took hold aimed at limiting outbound investment and capital outflow. Although the rules do not specially list overseas sporting clubs as a “sensitive industry” in which investment is prohibited or banned, they could still fall under a catch-all category of investments that could be restricted according to macro-control policies of China. If so, investment could be subject to central government approval.
With mixed success of overseas purchases of clubs, uncertainty over investment policies, and the general tension in international trade relations, Chinese investors may be encouraged to focus on the domestic game, following the steps of Wanda Group, which in 2018 sold its stake4 in Atlético Madrid to buy the CSL’s Dalian Yifang.
FIRST CAS AWARD ENFORCED
The Dalian Intermediate People's Court on August 1, 2018 issued China’s first ruling recognizing a Court of Arbitration for Sport (CAS) arbitration award. The judgment enforced a CAS 2015 award under the New York Convention against the CSL side Dalian Aerbin (now Dalian Yifang) filed by two overseas lawyers for non-payment of legal fees.
The dispute involved legal fees the lawyers representing Dalian Aerbin relating to a dispute with Gustavo Canales, a player for Dalian Aerbin. The retainer agreement the lawyers had signed with the club called for CAS dispute resolution.
After the club did not respond to a claim filed by the lawyers, CAS on Sept 17, 2015 awarded the lawyers US$ 441,276 and Euro 50,000 and unpaid fees, interest, and costs. In the enforcement action in the intermediate court, the club argued that the arbitration clause in the retainer agreement was invalid because only the English version of the agreement contained the clause. The club argued that the failure to include the clause in the Chinese version was not in good faith. The court rejected these arguments, finding that the club was aware of the choice of forum clause in the English version and that the English version governed in the case of any inconsistencies. Moreover, any challenge to the arbitration clause required the club to introduce evidence under Swiss law that the clause was invalid.
The club also argued that CAS had no jurisdiction because a dispute over legal fees did not fall within Article 27 of the CAS Code of Sports-Related Arbitration as a “sports-related” dispute that CAS could hear. The intermediate court rejected this argument, ruling that a PRC court under PRC law is not required to make an inquiry whether a foreign arbitration organization has proper jurisdiction to hear disputes.
A BRIGHT SPOT FOR GENDER EQUALITY
The Chinese Football Association on January 14, 2019 released rules5 that will require Chinese Super League teams to field women’s squads starting with the 2020 season. Annual investment in the women’s teams must be between RMB 15 million and RMB 30 million with the teams permitted to play in the Chinese Women’s Super League, League One, or League Two.
Current CSL clubs—and men’s League One clubs aiming for promotion—are expected to start establishing women’s teams this year to prepare for the new requirement. Competition for the men’s teams to tie up with current women’s teams is expected to be fierce. There are a total of 32 men’s teams in the CSL and League One, but only 8 teams in the CWSL, 6 teams in women’s League One, and 16 teams in women’s League Two, 14 of which are university teams
CRACK DOWN ON DUAL CONTRACTS; TAX EVASION
Following high-profile cases of “dual contracts” in the film industry with resulting astronomical income tax fines6 , attention in 2018 turned to whether a similar crackdown would occur in the sporting world when teams and players sign “” . Traditionally, one contract is submitted for player registration while the other details the actual compensation and employment terms. This may be done to obfuscate the compensation being received for taxation purposes.
In the first reported case of a “yin-yang” contract for a PRC national player in Chinese professional sport, the Chinese Basketball Association on 14 December 2018 fined the Qingdao Eagles RMB 150,000 and ordered the team to pay over RMB 5 million to power forward De Lehei.
De, a former national team player, signed with Qingdao for the 2018-19 season after completing a contract with the Bayi Rockets. De and Qingdao has reportedly signed two contracts. The first contract was the CBA-mandated player contract that included “training compensation” that league rules required Qingdao to pay Bayi. The second contract reportedly included a higher salary and the obligation for De to pay part of the training compensation.
The second contract was voluntarily disclosed by Qingdao during a CBA mediation session resulting from a dispute between Qindao and De. Upon discovering the contract, the CBA also barred De from playing the 2018-19 season in the CBA and CBDL, which is the developmental league for the CBA.
A few days later, the CFA took action in the football, issuing a notice7 on 20 December 2018 stating that yin-yang contracts, cash payments, and tax evasion were seriously affecting the sport. In the notice, the CFA admitted that the new rules are aimed at combating the rapid increase in transfer fees, salaries, and bonuses, which the CFA claimed was hurting the development of the leagues. The new rules apply to all clubs in Chinese Super League, League 1, and League 2, as well as to all local and foreign players and coaches.
In addition to the ongoing obligation to accurately declare and withhold individual income tax for players and coaches, clubs were required by 31 December 2018 to file signed contracts with the CFA and the appropriate league. From January through June 2019, the CFA is charged with conducting joint inspections with tax bureaus and other authorities for compliance with CFA financial supervision rules and tax requirements. By March 1, 2019, clubs must make a detailed list of their bank accounts—including overseas bank accounts—used to pay players and coaches.
STANDARDS FOR SCHOOL ATHLETIC SURFACES
While a nationwide building boom at schools of sports facilities was initially greeted with great fanfare, scandal resulted when reports8 started to surface that the running surfaces were constructed with toxic materials In response, the central government on 1 November 2018 issued national standards9 regulating the construction at primary and secondary schools of sports surfaces made of synthetic materials. The standards not only set content and odor limits of harmful substances used in the construction of the surfaces, they also emphasize that the health of students and teachers cannot be ensured until substandard bidding and sub-contracting practices are eliminated.
OLYMPIC SYMBOLS RECEIVE GREATER PROTECTION
In the run up to the 2022 Beijing Winter Olympics, China on June 28, 2018 issued regulations10 protecting Olympic symbols. The new regulations replaced rules issued in 2002 which were generally limited to protecting Olympic symbols in connection with the 2008 Beijing Summer Olympics.
Changes under the 2018 rules include:
- Expanding the scope to cover any Olympics that are hosted or bid for by China (i.e. not limited to the 2022 games);
- Extending protection to symbols related to the Paralympic Games;
- Adding a term of protection of 10 years, which may be extended another 10 years by rights holders;
- Simplifying the registration system with submissions by rights holders to the National Intellectual Property Administration;
- Requiring third parties using Olympic symbols for commercial purposes to enter into license agreements with the rights holders;
- Considering use of similar symbols to be an infringement of Olympic symbols;
- Increase administrative fines for infringement;
- Regulating ambush marketing.
COURT UPHOLDS MANDATORY CFA ARBITRATION TO RESOLVE PLAYER DISPUTE
The Shenyang Intermediate People's Court on April 13, 2018 《（ 2018 ）辽 01 民再 32 号民事裁定书》 reversed two district court rulings that had awarded a player RMB 81,489 in unpaid compensation and interest, finding that CFA arbitration tribunals--not courts--were the appropriate forum for resolution of the dispute for RMB 75,666 in unpaid compensation. The case also highlights the controversy whether generally applicable labor law protections apply to professional athletes.
The five-year saga of Li Gen’s claim against the Shenyang Dongjin Football Club began in 2013 when the CFA arbitration tribunal ruled that his contract had been terminated but he was not owed any compensation. Li’s claim with labor arbitration was rejected for lack of jurisdiction. He then pursued six cases at the district, intermediate, and high court levels before the intermediate court’s decision on April 13, 2018.
The intermediate court’s decision rested upon Article 32 of the Sports Law, which provides that disputes are subject to mediation and arbitration by sports arbitration organizations. The intermediate court decision has been criticized11 because Article 32 of the Sports Law also provides that the establishment method and arbitration scope of these sports arbitration organizations is subject to regulations issued by the State Council (i.e., China’s cabinet). No such regulations have been issued. Moreover, the CFA Arbitration Commission is not an arbitration institution established in accordance with the Arbitration Law
Moreover, the Sports Law was originally promulgated in 1995, well before the 2008 Labor Contract Law, and a 2016 notice12 from the Ministry of Human Resources and Social Security, the General Administration of Sport and the All-China Federation of Trade Unions that specifically addressed the contractual rights of football players. This 2016 notice provides that clubs must sign labor contracts with players “in accordance with the law”. The 2016 notice also cites that it was issued in order to implement the State Council’s 2015 football development plan.
NEW PLAYER INTERMEDIARY RULES
On 5 February 2018, the Chinese Football Association released new player intermediary rules13 replacing the interim rules that were issued on 26 May 2016. The key points from the new 2018 rules are:
- Maximum fees were increased from 3% to 10% of the player’s total base contractual compensation when the intermediary represents the player or club.
- The maximum payment on transfer fees were also increased from 3% to 10%.
- The deposit for foreign national intermediaries was raised from RMB 30,000 to RMB 200,000. Players can have only one intermediary and must terminate an intermediary when signing a new one. A player can have a maximum of three intermediaries in three years. The maximum period of representation remains two years but can be renewed.
- Intermediaries are now required to act with professional ethics and discipline and maintain fairness in the transfer market.
- Intermediaries are now specifically barred from promising to give kickbacks, money, property, and other benefits in order to obtain business, and from engaging in improper business practices that harm the rights and interests of other intermediaries, clubs, and players.
FINANCIAL REFORMS FOR FOOTBALL
In an effort to reign in big spending--and loss creating--clubs, the CFA on 20 December 2018 announced14 a series of steps for the 2019-2021 seasons to help ensure financial stability for CSL, League 1 and League 2. Highlights for CSL clubs include:
Investment, Spending, Loss Limits
Aimed at reducing the clubs’ financial reliance on parent companies, caps on capital injections into clubs are RMB 650 million for 2019, RMB 560 million for 2020, and RMB 300 million for 2021.
Total expenditure for clubs is capped at RMB 1.2 billion for 2019, RMB 1.1 billon for 2020, and RMB 900 million for 2021. Clubs must limit annual losses to RMB 320 million for 2019, RMB 290 million for 2020, and RMB 270 million for 2021.
Penalties include warnings as well as reduction in the numbers of domestic and foreign players than can be registered.
- Domestic players . A pre-tax salary cap of RMB 10 million for PRC national players. The salary cap increases to RMB 12 million for players who are on the national team for the Asian Cup or qualifiers for the 2022 World Cup. The cap does not include bonuses. The salary cap does not apply to foreign national players.
- Game bonuses . A maximum of RMB 3 million per team for each win and RMB 1 million per draw in league matches. The amounts increase to RMB 6 million and RMB 2 million respectively for AFC Champions League matches.
- Team cap . A cap on total salaries of of foreign players, domestic players, and first-team reserve players of 65% of total expenses for 2019. The limit is reduced to 60% for 2020 and 55% for 2021
- Grandfathering . Contracts that have terms which expire after January 1, 2019 will not be subject to the caps but will be subject to registration requirements. Player contracts with terms that begin January 1, 2019 are subject to the caps.
- Penalties . Exceeding the team and domestic salary caps may result in reductions on the number of domestic and foreign players that may be registered. One point may be deducted for each RMB 1 million in excess of bonus limits.
MIXED SIGNALS ON INTERFERENCE IN SPORT
The spectre of state interference in sport erupted in early October 2018 when the CFA announced15 a decision to remove 55 under-25 male players from their clubs and send them to military training until the end of the year. The development meant that clubs were without players for the end of the CSL season as well as the CFA Cup final. While the training was apparently intended to increase the future fortunes of the national squad, there was a concern that the decision threatened progress in China’s stated goal of separating the CFA from government interference. Questions also arose whether the calling up of the players outside a transfer window breached FIFA transfer rules, and why FIFA apparently did not take any initiative to protect the rights of players and clubs.
On the other hand, restrictions on sports promoters in 2018 were relaxed with an opinion16 released on May 2 by the General Administration of Sport. Organizers of sporting events in China no longer require pre-approval for staging competitions. Instead, government authorities will place emphasis on post-event monitoring, which could subject organizations who run afoul of the rules being docked under a social credit system, and possibly be blacklisted from putting on events or having their poor records posted on the internet. Organizers are now held responsible for matters relating to the venue, facilities, personnel, safety, and equipment. National and local sports authorities and associations are also charged with developing standards on running competitions and enforcing obligations.
BLACKLIST ARRIVES FOR SPORTS INDUSTRY
The General Administration of Sports on August 20, 2018 published rules17 stating that companies and individuals who commit “serious” violations of laws, regulations, or rules can be put on the blacklist. The length of being on the blacklist is 3-36 months. Some of the grounds that provincial sports bureaus can put companies and individuals on the blacklist:
- Engaging in sports business without proper authorization;Being responsible for a major doping violation or accident;
- Receiving a heavy sanction from an administrative agency;
- Receiving more than two administrative penalties within one year.
Among the sanctions that can be imposed on those on the blacklist:
- Prohibited entry into professional sports activities and requirement to withdraw from such activities;
- Restricted participation in government procurement and support;
- Increased frequency of inspections.
The blacklist may be released to the public through the news media, provincial sports department websites, and national credit systems
RULES TIGHTEN FOR OVERSEAS NGOS
Foreign non-governmental organizations wanting to host sporting events in China face additional hurdles as a result of rules published on 20 August 2018 by the General Administration of Sports. These rules state that overseas NGOs planning on organizing sporting activities in China must
- obtain approval of the provincial sport administration, and
- establish a representative office in China.
If an overseas NGO has no representative office in China, it then must seek the cooperation of an authorized Chinese organization.
The rules emphasize that overseas NGOs may not sponsor others to organize sporting events in China without following these procedures. Provincial sport administrations are charged with enforcing the rules, which are another step of managing overseas NGOs in China since the adoption of the Overseas NGOs Law in 201718 .
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