I organisation of sports clubs and sports governing bodies
i Organisational form
The Sports Act2 regulates in which legal forms sports may be performed and organised in Hungary. Non-professional clubs may be either:
- a sports clubs
- b sports foundations; or
- c sports schools.
Professional sports clubs may only be either limited liability companies or companies limited by non-publicly traded shares.
Similar to other European jurisdictions, sports in Hungary are organised on the basis of the ‘single place principle’ (i.e., there may only be one sports federation for a given sport). The national sports federations govern the sport concerned. The Sports Act sets out the prerequisites for a federation to be qualified as a sports federation (such as the minimum number of members, organisation of competitions and membership of the International Olympic Committee or Sportaccord). Membership in sports federations is restricted to the above-mentioned sports entities only. If they acknowledge the statues of the sports federation as binding they are automatically admitted to the sports federation as members.
The Sports Act recognises spare time sports federations, sports federations for disabled people, and sports federations of student and university sports as special types of sports governing bodies. The Hungarian Olympic Committee is the public body responsible for all matters related to the Olympic movement in Hungary.3
ii Corporate governance
The Sports Act sets forth in detail the requirements sports federations need to comply with. There are specific rules in relation to the organisation, powers and quorum of the sports federation’s general meetings or the local bodies. Each sports federation must adopt specific governing regulations (e.g., on organisation and safety of sporting events, disciplinary proceedings, anti-doping, as well as strategy and development).
The Department of Public Prosecution exercises statutory supervision over the operation of sports federations. In case of financial mismanagement, upon the request of the prosecution, the court may suspend the board of the sports federation and appoint an independent officer. If standard operations cannot be restored the prosecution may initiate liquidation of the sports federation.
Under the Sports Act, a sports organisation may only be granted public funds if it does not have any overdue public debts, its financial operations comply with the laws, and it has properly accounted for the public funds it was granted earlier. There are further cases also when a sports organisation may not be granted any public funds (e.g., in the case of liquidation or bankruptcy).
iii Corporate liability
The general rules of the Civil Code4 apply to the liability of managers and officers of sports organisations.
The sports organisation is liable for the damage caused to a third person by the executive officer acting in his or her capacity as the sports organisation’s executive officer. The executive officer is liable jointly and severally with the company, if he or she caused damage deliberately.
If there is no contractual relationship between the sports organisation and the third party, the injured third party is entitled to full damages, if it is able to prove that:
- a the other party unlawfully caused the damage;
- b the injured party incurred damage;
- c the other party’s unlawful act or omission caused the damage incurred by the injured party; and
- d the other party is not able to excuse itself by proving that it proceeded as generally expected under the given circumstances (i.e., acted according to the applicable standard of conduct in the particular situation).
If there is a contractual relationship between the sports organisation and the third party, the injured third party is entitled to damages if it is able to prove that:
- a the sports organisation unlawfully caused the damage;
- b as the injured party it incurred damage;
- c the sports organisation’s unlawful act or omission caused the damage incurred by it; and
- d the sports organisation is not able to prove that:
• the circumstances causing the damage were beyond his or her control;
• such circumstances could not be foreseen by him or her upon the conclusion of the contract; and
• it could not be expected that he or she prevented such circumstances or the damage.
In a deliberate case the sports organisation is liable for the full amount of damage caused. In case of negligence, the sports organisation is liable for the damage caused in the subject matter of the contract, and can only be liable for further losses and lost profit, if the injured party proves that such further losses and lost profit were foreseeable by the other party upon the conclusion of the contract.
If the executive officer has a service contract with the sports organisation he or she can be liable towards the sports organisation, if the same conditions for damages are met as set out above in case of the sports organisation’s liability. If the executive officer performs his or her tasks based on an employment contract, the Labour Code5 applies to his or her liability. The executive officer as an executive employee is liable for the full damage he or she caused by unlawfully breaching his or her obligations under the employment contract, provided that he or she did not proceed as it was generally expected in the given situation. The sports organisation as employer must prove the breach of obligation, the damage and the causal link. The executive officer is not liable for the damage that:
- a he or she could not foresee upon causing the damage;
- b was caused by conduct attributable to the employer; or
- c was caused by the employer not fulfilling its obligation concerning mitigation of the damage.
Finally, the Civil Code also provides certain rules on executive officers’ liability in case of termination of clubs.
II THE DISPUTE RESOLUTION SYSTEM
i Access to courts
The Sports Act expressly mentions the following cases when decisions of sports federations may be challenged before court or arbitral tribunals:
- a if the sports federation does not grant, or revokes, the competition licence of athletes (ineligibility decision);
- b in the case of transfer disputes;
- c in the case of certain disciplinary decisions rendered by the sports federations; and
- d if the club is not granted a licence to the competition organised by the sports federation.
Clubs and sports federations may provide in their statues that their members shall have recourse to arbitral tribunals in disputes among themselves. Professional sports clubs, which may only be either limited liability companies or companies limited by non-publicly traded shares, may also provide in their deed of foundation or articles of association that ‘corporate law-related disputes’ shall be decided by arbitral tribunals.6
Under the general rules of the Civil Code, a member of the legal person may have recourse to the court in order to ask the court to repeal the decision rendered by the members or organs of the legal person if the decision is unlawful or violates the deed of foundation. In each of the above cases the person concerned may ask the court or arbitral tribunal to repeal the decision of the sports organisation within 30 days of obtaining knowledge of the decision subject to a one-year preclusion term. Initiating court proceedings does not delay the enforcement of the decision; however, the court may decide on the suspension of the enforcement if there are justified grounds upon the plaintiff’s request. If the decision violates the law or the statutes or articles of association, the court repeals it and, if necessary, orders the rendering of a new decision.
ii Sports arbitration
The Sports Act regulates the Permanent Court of Arbitration for Sport (PCAS), which operates within the Hungarian Olympic Committee.
Upon the parties’ mutual submission statement, the PCAS has jurisdiction in sports-related disputes between sports federations and members, between sports federations and athletes and sports practitioners, between sports organisations and athletes and sports practitioners, as well as between the Hungarian Olympic Committee and its members. In these disputes the PCAS convenes a hearing within 30 days of the arbitral tribunal being set up, and issues its decision within 15 days of the hearing.
By force of the Sports Act (i.e., without a mutual submission statement), the party concerned may have recourse to the PCAS regarding ineligibility cases, transfer disputes, disciplinary decisions and licensing cases as mentioned above in Section II. i. In these disputes, the chairman of the PCAS appoints an arbitral tribunal within eight days of receipt of the statement of claim. The arbitral tribunal holds a hearing within 15 days of its appointment, and within 15 days of the hearing either repeals or reverses the sports federation’s decision or rejects the statement of claim. It is worth noting that in these cases, unlike in proceedings before ordinary courts, the PCAS may not only repeal or uphold the sports federation’s decision, but may also reverse it. Further details of the PCAS proceedings are set out in its arbitration procedural rules. In these cases only the PCAS had exclusive jurisdiction until 31 December 2016. Since 1 January 2017, however, the party concerned may also have recourse to any other court of arbitration. In practice such court of arbitration should be the Permanent Court of Arbitration attached to the Hungarian Chamber of Commerce (PCA HCC).
If there is a dispute that is not covered by the Sports Act as described above, the parties may only have recourse to arbitration if:
- a one of the parties is engaged in economic activity and the dispute is connected to this activity;
- b the parties may freely dispose of the subject matter of the dispute; and
- c the parties have contractually agreed on the arbitration.
It is not necessary that the parties have expressly agreed on the arbitration clause in writing. It is also sufficient if one of the parties brings the dispute to a court of arbitration, and the other party does not contest the jurisdiction of the court of arbitration.
Both the PCAS and the PCA HCC may render interim measures if their application is justified.
It is important to note that employment-related disputes may not be brought to courts of arbitration (i.e., only the ordinary courts may decide any disputes of professional athletes with their clubs arising out of the employment relationship).
An award has the same power and may be enforced as the final and binding judgment of ordinary courts. Enforcement of awards may only be refused if the subject matter of the dispute may not be subject to arbitration, or if the award violates the public order of Hungary. Decisions of sports governing bodies are enforced internally or, if necessary, via the public enforcement system as judgements and awards.
III ORGANISATION OF SPORTS EVENTS
i Relationship between organiser and spectator
Upon purchasing a ticket the spectator enters into a contract with the organiser of the sporting event.
Pursuant to the Sports Act, the organiser is obliged to display the rules of attendance at the entrances of sports venues in a prominent location, which shall also be summarised as the terms and conditions (T&Cs) on the ticket. Upon its own discretion, the organiser can decide to implement a system verifying the spectator’s identity upon entry into the venue in which case further specific rules apply.
ii Relationship between the organiser and athletes or clubs
In case of competitions organised by sports federations the competition rules usually set out that participation in competitions is mandatory. The competition rules are binding on athletes and clubs. According to the Sports Act, clubs shall recognise the statues and consequently any other internal regulations of the sports federation as binding upon admission to the relevant sports federation. In the case of athletes, the Sports Act provides that they shall adhere to the domestic and international regulations of the sport. Furthermore, upon obtaining their first competition licence athletes declare that they recognise the rules of the given sport as binding. In case of competitions organised by persons other than sports federations the provisions of the participation agreement prevail.
iii Liability of the organiser
The Sports Act expressly provides that the organiser is liable for the proper organisation of the sporting event. The liability of the organiser commences upon the arrival of the participants of the sporting event at the venue, and ends when they leave it. In case of sports entailing increased risks, as well as martial arts sports, the Sports Act sets out further liability provisions. The organiser is obliged to initiate any measures with the competent authorities that may contribute to the safety of spectators and the prevention of violations. In certain cases organisers need to have liability insurance.
If the organiser fails to comply with the above provisions the sports federation may apply various legal measures, such as fines or decrease of funding. Anyone who suffers damage in contract or in tort because of the organiser’s conduct may claim damages from the organiser, based on the general rules of civil law.
In case of a criminal offence by the organiser, either the injured person or the authorities ex officio, depending on the nature of the criminal offence, may initiate criminal proceedings and establish criminal liability. In specific cases the police may impose administrative fines on the organiser.
iv Liability of athletes
The Sports Act does not provide any specific provisions on the civil or criminal liability of athletes. Therefore, the general rules of civil and criminal law liability apply. If the damage has been caused upon the consent of the injured party, civil or criminal law liability of the aggrieving party may not be established. The application of these general legal principles can help to consider the specificity of sports in case of accidents or injuries caused or suffered during sporting activity.
v Liability of spectators
The Sports Act expressly states that spectators must obey the safety rules specified by the organiser. Spectators may not conduct themselves in a way that would disturb or frustrate the sporting event, or infringe the personal rights or property of other participants. If spectators fail to comply with these provisions they may be held liable based on general rules of civil law. Spectators may be prohibited from attending sporting events due to a criminal offence committed in connection with a sporting event.
vi Riot prevention
The Sports Act contains detailed provisions aimed at preventing riots at sporting events, such as travel and separation of spectators, involvement of police or classification of events from a safety and risk point of view. Furthermore, Government Decree No. 54/2004 on the safety of sporting events, which applies to first division clubs and national matches of football, handball, basketball, water polo and ice hockey, sets out specific rules on riot prevention and collaboration of organisers and the police. With certain exceptions, the organiser shall pay the costs of police involvement.
IV COMMERCIALISATION OF SPORTS EVENTS
i Types of and ownership in rights
The Sports Act expressly sets out the sports-related rights that can be exploited, and defines who owns them. The rights can be divided into three main categories as set out in the following table:
Event right (i.e., announcement, organisation and conducting of sporting events (championships)), including the licensing of online betting rights, plus rights related to competitions (matches) of national teams
Sports federation (and clubs in special cases regarding the licensing of online betting rights)
Pecuniary rights related to the athlete’s sporting activity (such as likeness, name, logo, goodwill and other intangible assets of athletes)
Athlete, or in case of a membership or contract with a club, the club where the athlete’s pecuniary rights are automatically transferred to the club
Commercial licensing, transmission, broadcasting and recording of sporting activity and sports competitions via TV, radio and other electronic means (e.g., internet)
Athlete, or in case of a membership or contract with a club, the club where the athlete’s pecuniary rights are automatically transferred to the club
No transfer of title to the above-mentioned rights is possible. Therefore, licensing is the common practice through concluding various agreements on the use of sports rights.
ii Rights protection
Rights holders may in practice rely on different forms of legal protection as follows.
In terms of the broadcasting, recording and transmission of sporting events the right holders can rely on copyright protection. The sports performance itself is not protected by copyright, but parts of its broadcast and the signal of a broadcast are. Remedies based on the ownership or exclusive use of the venue in combination with T&Cs when purchasing tickets could physically exclude access of infringers to the sporting venue. The event right is a sui generis and enforceable proprietary right against any infringer. Significance of infringement of broadcasting rights has not been important in practice so far as the most popular Hungarian sports can be viewed on free TV or are freely available online.7
Athletes, clubs and federations can rely on trademark, copyright, passing off and personal rights protection if their images, logos or other pecuniary or personal rights are infringed.
Online betting rights
The licensing of online betting rights is part of the event right and federations and clubs may likely invoke and enforce this right against online betting service providers if they offer bets online on matches of federations and clubs without their consent.8
The Sports Act or other laws do not provide specific sports-related enforcement procedures in case of infringement. Therefore, stakeholders must enforce their rights before a court or an arbitral tribunal. If the rights holder concerned claims for damages in tort, it must prove that:
- a it has incurred damage due to the infringer’s activity;
- b the infringer acted in bad faith; and
- c there is a relation of cause and effect.
iii Contractual provisions for exploitation of rights
The Sports Act provides an express definition for sponsorship and merchandising agreements. The use of the name or likeness of athletes by any sports organisation is subject to the athlete’s prior written consent. In practice sponsorship and merchandising agreements deal with the scope of image transfer or logos to be licensed, meet and greet and other obligations in relation to public conduct in addition to the usual exclusivity provisions.
The Sports Act expressly regulates the joint selling of media rights. Sports federations, on behalf of clubs and athletes, are entitled to commercially exploit the media rights to competitions organised by them for a definite period and to enter into agreement(s) on their exploitation. In return for authorising the sports federations to preserve the right to exploit the media rights, the Sports Act obliges the sports federations to pay athletes and clubs appropriate consideration. The amount of this consideration must be determined in advance and equal to the market value of broadcasting rights. Subsequent distribution of money generated through joint exploitation of media rights must be based on criteria set forth by the Sports Act. In practice, most relevant contractual issues of media rights agreements grant exclusivity to the licensee (rights, term, platform and territory), access to venue, quality, provision, distribution and ownership of the signal, content and related copyright, dissemination and sublicensing of the created content, marketing of sporting venues, selection methods of the matches by the broadcaster, and consideration mechanisms for granting the rights.
In practice it is important that all agreements on exploitation of rights properly consider the internal relations of sports stakeholders within the sports pyramid in order to avoid any conflict between the various licensing agreements.
V Professional sports and labour law
i Mandatory provisions
The Sports Act sets out certain mandatory provisions that apply in case of professional athlete employment agreements. Professional athletes may conclude employment agreements with professional clubs only unless the internal regulations of the sports federation concerned provides otherwise.
Employment agreements will only be valid if they provide for the scope and remuneration of work, manner of working, work and rest time, and the provision of annual leave. There are further requirements in the Sports Act (e.g., employment agreements may be concluded for a definite period only, probation is not allowed, and professional athletes may only enter into other contracts upon the club’s prior consent). Any other agreements concluded with athletes in addition to employment agreements that remunerate them for their sporting activity are null and void. In terms of salary protection the general provisions of the Labour Code apply.
ii Free movement of athletes
The Sports Act introduces the term of player right (i.e., the right to use the athlete’s physical and psychical ability for sporting activity). Upon concluding an employment agreement with a club the player right of the athlete will automatically be transferred to the club for the period of the term of the employment agreement. If the employment agreement is lawfully terminated, or expires, the athlete’s player right will automatically return to the athlete. The player right may not be alienated or encumbered. Any arrangement violating these rules is null and void.9
iii Application of employment rules of sports governing bodies
The Labour Code does not exclude the possibility that employment-related provisions of sports governing bodies may be incorporated into employment agreements with athletes. For example, the Hungarian Football Federation expects clubs and players to apply a sample agreement that is provided in the transfer regulations. Limits of such employment-related rules are the mandatory provisions of the Labour Code. Compliance of the employment rules of sports governing bodies may be established on a case-by-case basis.
VI SPORTS AND ANTITRUST LAW
Although market behaviour (e.g., the joint selling of media rights) of Hungarian sports federations has not been subject to any antitrust procedure to date, the Hungarian Competition Authority has constantly held in its relevant decisions that any association may be deemed to be an association of undertakings if it engages in economic activity. Consequently, this view can also be applied to sports federations when they engage in economic activity by jointly exploiting the media rights that result from the decision of their members (i.e., the clubs) as undertakings.
Because of the single place principle, as outlined in section I.i. above, a sports federation is in a monopoly on the relevant product market of exploitation of (event, media or online betting) sports rights for there is no other undertaking from which these rights can be licensed. So sports federations might be able to abuse their dominance against content distributors, online betting service providers or other third parties.
Considering that antitrust law fully applies to the sport sector, especially in case of joint exploitation of media rights, sports federations should consider the requirements of antitrust laws, including the relevant case law of the European Commission, and should endeavour that their practice does not qualify as infringement of antitrust law or such practice is duly justified.
VII SPORTS AND TAXATION
In 2011, Hungary adopted a comprehensive and unique state funding scheme that operates to date. In essence any organisation can freely decide to pay a certain percentage of its public tax to a sports organisation and it therefore will be entitled to a tax reduction. The funding scheme focuses on the five most popular team sports in Hungary, namely: football, handball, basketball, ice hockey and water polo. In order to receive funding under the scheme, clubs have to design an annual strategy that includes initiatives for the public, such as providing sports equipment to grassroots or developing sports infrastructures, or covering costs of participating at sports competitions. If the strategy is approved by the competent sports federation or public body, the club can receive the funding. The sports federations and public bodies have strong monitoring and control mechanisms to ensure the proper implementation of clubs’ programmes. Before implementation the scheme was reported to and approved by the European Commission.10
Regarding the taxation of athletes, coaches and further sports professionals, they can pay their taxes according to the simplified contribution to public revenues if certain preconditions (e.g., thresholds concerning the salary) are met as set out in the act on the simplified contribution to public revenues.11
VIII SPECIFIC SPORTS ISSUES
Doping is not a criminal offence in Hungary. However, according to the Criminal Code,12 the production, circulation and ordering of prohibited substances suitable for increasing sports performance are a criminal offence. Further, it is also a criminal offence if a person over the age of 18 persuades or assists a person under the age of 18 to use prohibited substances suitable for increasing sports performance.
Betting on sports events is a common and permitted practice in Hungary.
As explained in section IV. i. above, the Sports Act expressly provides that the licensing of online betting rights is a sports-related right. For example, both the Hungarian Football Federation and the Hungarian Handball Federation entered into an agreement with Szerencsejáték Zrt13 on the exploitation of the sports betting rights of matches organised by them.
Further, the Sports Act sets out that 12 per cent of gaming tax of draw gambling games; 50 per cent of gaming tax of fixed-odds betting, the full gaming tax of remote gambling and of sports betting called TOTÓ14 must be spent on supporting sport across all disciplines; with the exception that the gaming tax of fixed-odds betting, TOTÓ and remote gambling must be spent on supporting football via the Hungarian Football Federation.
Regarding cross-border online betting, under the Gambling Operations Act,15 remote (i.e., online) sports betting is a non-liberalised activity that may only be organised by a fully state-owned company, Szerencsejáték Zrt. The Hungarian tax authority, as the competent public body, may block any non-authorised online betting site. This legal framework is heavily challenged by online operators having their registered seat in other Member States of the European Union before the courts as being incompatible with the TFEU.
Match-fixing is a criminal offence. Pursuant to the Criminal Code, whoever makes an arrangement as a result of which the result of a match or competition organised by a sports federation will not occur according to the competition rules, and the principle of fair play, will be penalised by imprisonment of up to three years. A penalty of imprisonment of one to five years may be imposed if the match fixing is committed in a criminal association or on a commercial basis.
iv Grey market sales
The sale of sports events tickets in the grey market is not explicitly illegal in Hungary. It is common practice that spectators may only buy tickets upon showing an identity card and their name will be printed on the ticket. Also, selling of tickets at the venue is rather restricted and spectators usually buy the ticket online where the number of tickets available for one person is limited. In these cases the organisers may identify the spectators at the entrance, and entry can be denied. Sold-out matches are rarities (except certain matches of the national teams) therefore, the significance of grey market sales is low.
IX The Year in Review
Last year there was no watershed decision made by arbitral tribunals or ordinary courts. The most significant change was that the public financing of sport was completely restructured as of 1 January 2017. As a result, the Ministry responsible for sport has the power and competence to decide about funding, and to supervise how the provided funds were spent, whereas the Hungarian Olympic Committee that was formerly responsible for public financing was deprived of its powers and now focuses solely on the support of the Olympic movement.
X OUTLOOK AND CONCLUSIONS
The legal framework for sporting activity is clear and straightforward in Hungary. The Sports Act regulates all the important aspects of sporting activity in a practical manner. Interesting developments in the near future could concern how the future of online sports betting will evolve, and whether foreign-based operators can enter the Hungarian market lawfully; whether certain provisions of the sample employment agreement of the Hungarian Football Federation may be tested before the courts; whether the significance of arbitration will increase as the parties now have recourse to any arbitral tribunal; and how the planned national sports information system containing all athlete data will work in practice.
1 Péter Rippel-Szabó is an associate at Knight Bird & Bird Iroda.
2 Act I of 2004 on Sport.
3 In addition to the Hungarian Olympic Committee there are three further public bodies: the Hungarian Paralympic Committee, the National Federation of Competitive Sports, and the National Student and Free Time Federation.
4 Act V of 2013 on the Civil Code.
5 Act I of 2012 on the Labour Code.
6 A corporate law-related dispute may be a dispute between the shareholders of the company, such as initiating court supervision of the decision rendered by the general meeting.
7 If there was an infringement of exclusive broadcasting rights one possible solution to prevent it could be to obtain server blocking (as in the United Kingdom); however, this must still be tested under Hungarian law. Effectively targeting the advertising revenues of illegal streaming sites would make their business model untenable. The sui generis event right could prove effective in practice in order to combat any misuses, although it is yet to be tested before the courts.
8 No public court decision has been made so far as to whether any federation has invoked this right against online betting service providers.
9 The same rules apply to amateur players.
10 The relevant press release of the European Commission can be accessed here: http://europa.eu/rapid/press-release_IP-11-1322_en.htm (last accessed on 2 October 2017).
11 Act CXX of 2005 on the simplified contribution to public revenues.
12 Act C of 2012 on the Criminal Code.
13 Szerencsejáték Zrt. is a 100 per cent state-owned gambling operator in Hungary.
14 TOTÓ is a pari-mutuel sports betting in which the bettor bets on results of matches played by football clubs (Section 37(10) of Gambling Operations Act).
15 Act XXXIV of 1991 on gambling operations.