The New Sports Regulations in Colombia

International Sports Law Review Pandektis (IRLS/Pandektis), Vol. 11: 1-2, 2015
By: César Giraldo – Lawyer, Socio En GHER & ASOCIADOS, Colombia

Introduction

Colombia is a country located in South America with 48.000.000 people which is really involved in the world of Sports. People love sports there; they really feel a passion when the Colombian Football Team plays against other country, or when any athlete from the country competes representing them.

It is not a secret that Colombia is famous around the world not precisely for sports The violence lived in Colombia a few years ago due to the drugs war, is the image that most of people have about this country. During that period, Colombians suffered a lot; problems like terrorism, kidnapping, extortion, tort among others were growing across the country affecting the population feelings.

For this reason, during the last 10 years, the main aim of the Colombian Government was to attack the Drug Cartels and the Guerrilla. It was hard work but they really did a very good job. The Colombian Army reduced the violence in a considerable way and now, Colombia is a safer place to live and to visit.

During this process, sports took an important role in Colombian society. As I mentioned before, Colombian people is very passionate, that’s why they live sports with a special manner, in particular because it is an “escape” for millions of people around the country who want to forget the social problems they suffered in the past.

Sports events such as the “Copa América 2001” which was organized and won by the Colombian Football Team, the “Copa Libertadores” achieved by Once Caldas in 2004, the participation of Juan Pablo Montoya and Camilo Villegas in the Formula 1 and the PGA tour respectively, gives to Colombians some reasons to forget for a moment the social problems they had.

Nowadays, when the economy and the hope of the people are growing, Sports are having an important role in society. An example of this is the organization of the “Under 20 FIFA World Cup” which was a great opportunity to show peoples around the world how things in Colombia are getting better.

For the reasons mentioned above, the Colombian Government observed the importance of sports in its society and how some important issues related with them were never been regulated in a serious way. In this order of ideas, this year the Congress decided to amend sports law regulations, which exist since 1.995.1.

One of the main considerations that the national government takes into account to modify this rule was: (i) the economic situation of the athletes; (ii) the corporate structure of the football teams; and (iii) the violence in the stadiums.

The main aim of this document is to show the main amendments regarding the Sports Regulations in Colombia, its effects, how this new rules will help the economic conditions of the athletes and how they can improve their skills in order to be more competent in front of other athletes around the world.

1. Development
Comparative legal studies regarding Sports around the world

Before to study the main amendments of the rule, below I will specify some examples of foreign law which were helpful to the Colombian Congress in order to amend the existing regulation.

The majority of the most prestigious sports organizations in the world which compete in the professional leagues nowadays, born as non-profit associations. In the beginning, these associations, composed in its majority by family members and friends, were created with the only purpose to practice their favourite sport. Just to mention, some of the most important football teams as Manchester United in England, Real Madrid in Spain and Boca Juniors in Argentina are born with the sole purpose to play football between their members.2

Over the years, these organisations due to its popularity, starting to have an increase in its economical profits. People started to spend money just to obtain a ticket for a game, for buying a jersey of his favourite team etc. Also, companies began to pay huge amounts of money just to be an official sponsor of an athlete or a club.

Hence, sports organizations were not prepared to handle with this situation. As stated before, this clubs were created with the only purpose to have fun between their members, not to be a corporate companies with profits, loses, liabilities etc.

Regardless of, since approximately 40 years ago, governments were concerned about this situation. For this reason, they started to establish national and international mechanisms, in order to “legalize Sports”3

The majority of sports organizations were obliged by the rules of their countries to change its corporate object, just to get ready for this new environment. Also, the governments with the proposal of this amendments were looking to supervised sports clubs.

According to the above, here are some examples:

(a) Italian Case

The first attempt taken by Italians to legalize Sports Activities took place in March 23rd 19814, with the creation of the rule 91. This national law imposed to the sports clubs in Italy to get into legal companies. Since then, the majority of these institutions were constituted as Limited Liability Companies or Shares Companies (S.P.A.).

It is important to highlight that this rule did not allow the teams to share their profits with their partners or shareholders. This decision taken by the Italian government was strongly criticized for the owners of the teams because in the case that sports organizations had financial or legal matters, their associates are the first who are obliged to respond for any requirement requested for the legal authorities.

Additionally, if the judicial authority found that the company is liable for something against the regulations (i.e. nonpayment of players, bankruptcy), partners are the first who are in the obligation to respond with their own personal assets.

For this reason the Italian Government in 1996 took the decision to amend the rule, allowing them to receive earnings after the fiscal year. Since then, professional clubs in Italy had the same rights and obligations as a normal company.

It is important to highlight that this rule permit to the F.I.G.C.5 remove Italian football clubs for any competition, in the case they are not able to respond for its legal obligations (i.e. salaries, taxes) before the beginning of the league, which generates the removal of its “titolo sportivo”.6

In Europe, this case is similar of the rule that UEFA is trying to implement since 2014 (UEFA Financial Fair Play), in which all teams who will make part of any European Competition during that year, are obliged to have a good financial conduct in order to obtain its permission to make part of any event organized by UEFA.

(b) German and English Case

The main aim of this two countries, when they decided to establish their sports organizations as legal companies, was their interest in obtain more profits for their members.

In these order of ideas, since the early 80 ́s, sports clubs were obliged to assume the role of shared companies. With this new model, the football teams were allowed to sell their shares in the stock exchange market.

As we all know, the stock exchange market in England and Germany is very strong. Based on this, some football teams decided to take advantage of this situation offering their shares in this market.

In the majority of cases, the profits obtained by some clubs were huge. It is not coincidences that, according to the “2010/2011 Deloitte guide to the world’s top 20 revenue-earnings”, 11 of the 20 most powerful football teams around the world are from the countries mentioned.7

(c) The Spanish Case

During the 80 ́s, the majority of football teams in Spain suffered an economic crisis. This situation obliged to the Spanish government to take control of this situation.

It is important to highlight that, sports clubs in Spain were not supervised by the government just because they were constituted as non-profit associations.

In these order of ideas, Spanish government created the Rule 10/1990 in order to give to local authorities the enforcement to control these associations.

One of the most important things that this rule created was the SAD (Sociedades anónimas deportivas 8), which is a special type of company designed only for sports clubs.

When the rule was sanctioned by the Spanish Parliament, all football teams were obliged to change their corporate purpose into SAD, except those teams which during the 5 years before the enforcement of the rule have obtained good financial results.

The only professional football teams who fulfilled this requirement were Real Madrid, Osasuna, Barcelona and Athletic de Bilbao. The other teams which made part of LFP9 in that time were obliged to change their corporate structures into SAD.

As a result of this decision, these 4 teams until the day of today retain its corporate structure as non-profit associations.

Unfortunately, this system was not helpful for the majority of the teams. In 2007, the 20 teams which made part of the LFP, had accumulated a debt around EUR 3,500,000,000 and most of them in the present days are in Bankruptcy process.10

(d) Some Latin-American cases

In Latin-America, some countries as Colombia, Uruguay and Chile adopted some rules which permitted the football clubs transform its corporate object into shared companies. In Colombia for example, the rule 181/1995 sports clubs had the possibility to become into shared companies. Nevertheless, nobody was interested to do it.

This situation occurred because during that period of time, Colombian Football Teams (i.e. Millonarios, Nacional, Cali, América among others) were receiving money from the Drug Cartels. Therefore, if in that moment they had taken the decision to change their corporate object, the Government would have the enforcement to investigate where those resources came from.

Concerning the case of Uruguay, their system is pretty the same as the Spanish legal rule mentioned above. The only difference with them is that sports clubs are free to decide if they want to convert its corporate object into SAD or not.

In the case of Chile, the Government implemented as obligatory the SAD model. With this order, Colo Colo, one of the most prestigious team in that country, changed its corporate object in order to participate in the Stock Exchange Market.

This administrative movement increases in a considerable way the profits of the club turning Colo Colo in one of the richest football clubs in South America.

(e) Principal amendments to the existing rules in Colombia

Transformation into Companies

The rule 1445 of May 12th /2011 modified the rule 181 of 1.995 (first sports rule).

The first important modification regarding the mentioned rule was the organization of the clubs with professional athletes.

The modified article provides as follows:

“Article 29: Organization of the clubs with professional athletes. The clubs with professional athletes shall be organised as Corporations, Sports Associations or as Shared Companies under the rules given by the Civil and Commercial regulations.” 11 (Emphasis added)

As we can observed in this paragraph, this article obliged to clubs with professional athletes to get organize as legal organizations. It is important to add that these clubs counts only with 6 months since the rule were issued by the Colombian Congress. Therefore, all of them shall be transformed before November 12th 201112.

Furthermore, the same article in paragraph 2 indicates that any natural or legal person who owns shares in one team is not allowed to invest in other club related with the same sport.

The mentioned paragraph was strongly criticized in Colombia because it is against the free market conditions. Some of the most important jurists in Colombia justified this argument stating that anyone is free to invest their money in any legal business, even if the business is related with sports or not13. As a result of these critics, the Constitutional Court is checking if this paragraph is against free trade or not and the special conditions given by the Article 28 of the Colombian Constitution.14

Also, Paragraph 3 of the mentioned article established that clubs with professional athletes which decide to participate in the Colombian Stock Exchange Market are going to be under the special regulations created for this type of business.

This restriction means that, if a club decides to participate in the stock exchange market, it is obliged to respect the standards for this type of operations, and also, they have to accept the supervision of the “Superintendencia Financiera de Colombia”15, which is the responsible to supervise all the transactions of the companies listed in this market.

Number of members

The article 2 of Rule 1445 of 2011 provides:

“Article 30: Minimum numbers of partners or associates and corporate capital: The clubs with professional athletes organized as shares companies are in the obligation to count with at least 5 associates.

The minimum number of associates of the clubs with professional athletes

constituted as corporations or sports associations will be determined for the amount of the first capital contribution, according to the following amounts:

Social Fund

Number of Associates

from 100 to 1.000 minimum wages

100

from 1.001 to 2.000 minimum wages

500

from 2,001 to 3.000 minimum wages

1.000

From 3.000 onwards

1.500

Paragraph 1: The clubs with professional athletes organized as corporations or associations are obliged to have as minimum 500 affiliates or contributors.

Paragraph 2: Subject to the amount of the authorized capital16, the clubs with professional athletes no related with football, organized as shares companies, are not allowed to have fewer than 100 minimum wages on their subscribed and paid capital.17

Paragraph 3: Clubs with professional football athletes organized as corporations, in any case may have a subscribed and paid capital less than 1.000 minimum wages. Paragraph 4: The minimum amount required as social fund or subscribed and paid capital for the clubs with professional athletes, no matter how it is organized, should be maintain during its operation. If the clubs not-comply with this requirement, they are able to lose their sport recognition18. The recidivism in this attitude allows revoking the mentioned recognition.”
Regarding this article, it is important to take into account the following aspects:

a. This article wants to protect the creditors of the teams, in special the athletes. In Colombia, when the teams had financial issues, the players are really the first persons to note that situation because they don’t receive their salaries. It is common how football teams owns 3 or 4 months of salaries to their players with the excuse that they don ́t have money to afford this obligation.

b. If the teams are not able to fulfil the requirements mentioned above, they can enter into a Bankruptcy process where the government is enforced to check the financial statements. With this information, they named a liquidator, which is a person in charge of winding up the company.

c. Sports recognition: It is clear in this article that, if the sports club doesn’t fulfil the requirements regarding its minimum amount required as social fund, or subscribed and paid capital, the teams are able to lose its sports recognition.

This decision is one of the most important amendments of the rule because is the first time in Colombia that teams can be sanctioned. Also, if the sports clubs doesn’t have the money to cover its obligations, they cannot obtain their sports recognition either, taking out its possibility to participate in any local tournament.

In addition, if sports clubs doesn’t pay its labour obligations, the social security of its members or the Parafiscal payments for a period exceeding 60 days, Coldeportes19 has the enforcement to suspend the Sports Recognition of the team. This suspension has to be accomplished by the team unless they can demonstrate the payment of these obligations.

The origin of the money

This point was one of the most difficult in the last round of conversations which took place in the Colombian Congress. As I mentioned before, the majority of football teams were sponsored by the drug cartels.

Just to mention some examples, Atlético Nacional and Deportivo Independiente Medellín were sponsored by Pablo Escobar. In the same direction, Millonarios was sponsored by Gonzalo Rodríguez Gacha A.K.A. “el Mexícano” and Deportivo Cali and América were sponsored by the Cali Cartel.

As a result of this situation, the Government was obliged to control this illicit money because: (i) this money laundering affects the national economy; (ii) under this “dirty money” there are a lot of illicit activities which took many lives and (iii) this practice is forbidden under the Colombian regulation.

For the reasons mentioned above, the Colombian government in the article 3 of the rule, pointed:

A. Origin and Capitals control: regarding this matter, all natural or juridical persons who wants to invest in sports clubs, are obliged to prove the origin of their funds in front of the club, which in the same way, is obliged to send this information to Coldeportes.

B. Ways to control the funds of the clubs: Moreover, The Sports clubs are obliged to send to a special unit, the following reports: (i) Suspicious transactions report: This reports has to be used by the sports clubs just in case If any fund received by team don’t have any relationship between the economic activity of the sports club and its partners, shareholders, CEO, workers, players, among others, and if there are any suspicious movement of money which can be used in illegal activities.

C. Report to control the transfer and sport rights of players: Sports clubs with professional athletes shall report to the “Unidad de Información y Análisis Financiero (UIAF)20 all the transfer operations (including national and international) and its corresponding amounts. Please take into account that, after 30 calendar days of the transfer, the information shall be submitted by the club.

D. Partners Report: In the same way, clubs are obliged to send to the “Unidad de Información y Análisis Financiero (UIAF)” all the information regarding its associates. For that purpose, they had to send their names, Identification card numbers, Tax Number, the total amount of money invest by each one and the percentage of its participation in the Sports Club.

As we can see, with these obligations given to the clubs, the government is trying to fight against “illegal money”. Also, with this reports, the government will be inform about the movements of the sports clubs and how they obtain their resources. This is a huge step for the Sports in Colombia because the rule is trying to “clean” the finances of the teams.

Violence into Sports

One of the most important innovations treated in this rule was the chapter related with the violence into the stadiums.

Taking as example English and Argentinean supporters, some Colombians fans started to combine their passion for a team with violence. Inside the stadiums, the extreme supporters started to use violence as a way to support their favorite teams.

For this reason, the new rule implemented some topics in order to fight against this behaviour into the stadiums.

The first thing that Colombian Congress ruled was the joint and the several liabilities between the police and the sports clubs when they organize sports events.

According to the rule, these two are jointly liable for the supervision, control and prevention of any event inside the stadium. In addition, the mentioned rule imposed fines21 to the people who commit the following behaviours inside the stadiums or during a Sport event:

A. Any intend to enter to the stadium any kind of weapon.

B. Try to access any kind of drug.

C. Promote violence against the police.

D. Pitch invasion.

E. Unrespectful behaviour under the recommendations given by the logistic staff regarding the places and authorized seats to the public.

Additionally, the mentioned conducts can be sanctioned as an aggravating circumstance if the person who commits the infringement is:

A. The event organizer;
B. a sports club manager; or
C. If the infringements was committed under the influence of alcohol or drugs.
Additionally, if the person is in front of any aggravating circumstance, he can be sanctioned with a fine from 8 to 15 minimum salaries wages and a prohibition to assist to any event for 1 to 6 years.

Moreover, the next behaviors will be punished by the authorities according to the following chart:

Misconduct

Fine
(Minimum salary wages)

Suspension Period Stadiums

Additionally

Physical Aggression

20 to 100

3 to 5 years

Verbal Aggression

1 to 20

1 to 3 years

Pedagogical formation

Stadium Damages

20 to 100

2 to 4 years

Last but not least, all the money collected for violence acts mentioned before will be given to social programs in order to improve the education and peace inside the stadiums.

Conclusions

This intention of the Colombian Government, trying to legalize Sports it’s a good presage that things in Colombia are getting better.

Nevertheless, the main challenge of the authorities now, is to enforce the people linked with sports to respect the rule.

We have to take into account that this process will take a long time. It’s not a secret that the majority of institutions in Colombia don’t count with the resources and the knowledge to fulfil all the requirements. On the other hand, the authorities are not prepared for this change either.

For the reason mentioned above, in my opinion one of the problems that the government will face with this rule is the ignorance of the people linked with sports. Therefore, government and sports clubs have to work together in order to prepare everybody for this change.

On the other hand, the owners of the sports clubs have to change their mentality if they want to obtain profits in this business. Is true that the professionalization of sports can be wealthy, but on the same way can be dangerous for any organization if you don’t have the experience to act properly.

For this reason, in the beginning of this process, the owners of the teams should be invest some money in consultancies in order to fulfil the rule requirements. Then, after the transformation of the clubs into a companies with a good management (marketing plans, innovation) they can obtain the expected profits for their own benefit.

Finally, according to IMF (International Monetary Fund), Colombia was the third most powerful economy in South America with an increase of the 4.6 percent. With this perspective, sports clubs has a strong advantage to strength their institutions in order to obtain profits and help to improve the quality and skills of our athletes, giving more economical support to this people, which in the end are the most important asset in this business.

Bibliography and Internet web pages

  • RULE 181/1995
  • RULE 1445 /2011
  • VILLEGAS LAZO, ANTONIO. LAS SOCIEDADES ANÓNIMAS  DEPORTIVAS EN DIFERENTES PAÍSES
  • Carlo Guglielmo Izzo, Le società sportive professionistiche, in Izzo, Merone, Tortora, Il diritto dello sport. Giurisprudenza sistematica di diritto civile e commerciale, Torino, UTET giuridica, 2007.
  • 2013/2014 Deloitte guide to the world’s top 20 revenue-earnings.
  • Aguilar Antonio, el Fracaso del actual modelo de sociedades anónimas deportivas.
  • www.iusport.es/php2/index.php?option=com_content&task=view&id=715&Itemid=33
  • COCCIA MASSIMO, Codice di diritto sportivo, edditoriale scientifica 2008.
  • http://uk.reuters.com/article/2011/05/24/uk-soccer-latam-colombia-law idUKTRE74N80B20110524
  • http://www.imf.org/external/country/col/index.htm

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1. The “Ley 181 de 1995” is the rule which promotes the sports, free time use and the physi- cal education In Colombia. Also, the rule established the creation of the National System of Sports.

2. Villegas Lazo, Antonio. Las sociedades anónimas deportivas en diferentes países.

3. Sports are a huge Business. The commercialisation of teams, sponsorship, image rights, broad- casting, among others are some of the matters why governments started to create regulations in order to take care about sports in the different countries.

4. Carlo Guglielmo Izzo, Le società sportive professionistiche, in Izzo, Merone, Tortora, Il diritto dello sport. Giurisprudenza sistematica di diritto civile e commerciale, Torino, UTET giuridica, 2007. p.63-64

5. F.I.G.C. La Federazione Italiana Giuco Calcio (Italian Football Federation)

6. The “titolo sportivo” is the sports certificate who gives the chance to football teams to participate in a league. Also, keep in mind that this enforcement is given by the article 52 of the Internal Organization Rules of F.I.G.C.

7. According to this document, Manchester United, Bayern Munchen, Arsenal, Chelsea, Liverpool, Manchester City, Spurs, Hamburger SV, Shalke 04, VfB Sttutgart and Aston Villa are part of the 20 richest teams in the world. All this information is based in their profits during the season 2010/2011.

8. Shares Sports Company is the English translation for SAD.

9. Is The Professional Football League in Spain.

10. Aguilar Antonio, el Fracaso del actual modelo de sociedades anónimas deportivas. www.ius- port.es/php2/index.php?option=com_content&task=view&id=715&Itemid=33. Also, according to José María Gay de Liébana, Barcelona University professor, 9 of the 20 teams which make part of “La Liga” are in a Bankruptcy process (Zaragoza, Mallorca, Hercules; Betis, Malaga, Real Sociedad, Sporting, Racing de Santander and Getafe)

11. Please take into account that all the articles related with the rule 1445 of May 12th/2011 are freely translated.

12. The Article 1 Paragraph 1 of the rule 1445/2011 established this deadline.

13. Please note that this argument is with the understanding that we are under competition law and Anti-Monopoly rules frame.

14. One of the paragraphs of the article 28 of the Colombian Constitution states: (…) “Anyone is free. It means that all people are free, independent and autonomous. Anyone in the territory is free to do anything they want inside of law framework.” (freely English translate).

15. The mission of this entity in Colombia is to preserve public confidence and financial stability, maintaining the integrity, efficiency and transparency of the stock market and other financial assets and ensure respect for consumer rights and the proper financial service.

16. The authorized capital is the amount agreed by the associates in order to develop the social object.

17. The subscribed and paid capital is the amount of money given by the associates which will be used to develop the corporate object. This account makes part of the assets of the company.

18. This Sport recognition is the same as the “titolo sportivo” in Italy.

19. As I mentioned before in the abbreviation list, Coldeportes Agency responsible for formulating, coordinating and monitoring the practice of sport, recreation, physical education, the use of leisure time and physical activity, aimed at improving the quality of life of Colombian society. Also, regarding this case, they are enforced to retire the sports recognition to clubs according to the rule.

20. The Information and Financial Analysis Unit – UIAF is a special Administrative Unit ascribed to the Ministry of Treasury and Public Credit in Colombia, which its purpose is preventing and detecting Money Laundering in the different economy sectors.

21. The amount of the fines imposed by the authorities can vary from 5 to 10 minimum salaries wages per month. Also, the authorities are enforced to forbid the entrance into the stadiums (6 months to 3 years) for people who incurred in any violence act.

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