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Organisation of sports clubs and sports governing bodies

i Organisational form

Sports clubs and sports governing bodies in Germany are traditionally organised in the form of (registered, non-profit) associations, according to Section 21 et seq. of the German Civil Code (BGB).

For an entity to qualify as an association, the following requirements must be fulfilled:

  1. at the time of its foundation, the entity must be a voluntary organisation of at least seven persons;
  2. it must have a certain purpose that is not only temporary and is independent from any change of members of the association;
  3. it must have a corporate structure and a name; and
  4. it must be registered in a register of associations at the local court.

If the above-mentioned requirements are met, an association has legal personality, meaning it can acquire rights and obligations under the law.

Entities involved in sports choose to be organised in the form of an association for various reasons, one being that an association is generally not dependent on a particular number of members. Financial risks for members are limited, since association members typically are not liable for debts accrued by an association. Moreover, association members are generally equal and have the same voting rights in an association's general assembly, which is its prime decision-making body.

Under German law, associations enjoy a wide degree of autonomy to regulate their own affairs, including the right to draw up internal regulations and set up an internal dispute resolution mechanism. If organised as non-profit associations according to Section 51 of the German Internal Revenue Code (AO), associations enjoy certain tax benefits. To be recognised as non-profit associations, organisations can still engage in secondary commercial activities (renting a stadium, selling tickets to a sport event, etc.), the financial return from which must be used to fund their non-profit activities. However, if an association generates a profit through sponsorship and merchandising, it will regularly transfer its commercial activities to a separate (commercial) legal entity.

Because of this, since 1998, the German Football Association (DFB) has allowed clubs in the German Bundesliga to create commercial entities out of their professional football departments. Most of the clubs have taken advantage of this possibility and have transformed their professional football departments into stock corporations (e.g., FC Bayern Munich (not listed)), limited liability companies (e.g., Bayer 04 Leverkusen Fußball GmbH) or partnerships limited by shares with a limited liability company as general partner (e.g., Borussia Dortmund GmbH & Co KGaA (listed)).

Covid-19 update

Section 5 of the Act on Measures in Corporate, Cooperative, Association, Foundation and Home Ownership Law to Combat the Effects of the Covid-19 Pandemic provides for temporary amendments to the law on associations, including the automatic renewal of terms of office for board members until a board member is recalled or a successor is elected; and that resolutions by the general assembly may be passed in a virtual meeting or by mail-in voting, even if the statutes do not provide for this.

ii Corporate governance

The corporate governance of sport organisations in Germany is not subject to any sport-specific national laws, but is upheld through the interaction of civil, public and criminal laws, and certain corporate governance guidelines of sport organisations such as the German Olympic Sports Confederation (DOSB).

The relevant civil laws include provisions on the internal structure of associations, their liability and that of their representatives. Public laws provide for rules demanding the selfless activity of associations, the use of funds only for statutory purposes and not for the benefit of an association's officials, or that upon dissolution, the assets of an association may not be transferred to one of the association's officials but will have to be used for a specified common public interest.

Relevant criminal matters include:

  1. insolvency offences (Section 283 et seq. of the Criminal Code (StGB) and Section 15(a) of the German Insolvency Code); covid-19 update: Section 1 of the Act to Mitigate the Consequences of the Covid-19 Pandemic in Civil, Bankruptcy and Criminal Procedural Law suspends the duty to file for insolvency until 30 September 2020, respectively until 31 March 2021 under certain circumstances, if the insolvency is based on the effects of the covid-19 pandemic and if it can be reasonably expected that a temporary inability to pay will be overcome;
  2. misrepresentation offences (e.g., Section 399 of the Stock Companies Act or Section 82 of the Limited Liability Company Act);
  3. breach of fiduciary trust (Section 26, StG);
  4. commercial bribery (Sections 299 and 300, StG);
  5. public bribery (Section 331 et seq., StG);
  6. tax fraud (Section 370, AO); and
  7. illegal gambling (Section 284, StG) (see also Section VIII.ii).

Beyond the (general) legal framework set out above, the DOSB has passed the DOSB Good Governance Codex, the DOSB Code of Ethics and the DOSB Code of Conduct for Integrity in Federation Work. The DOSB Good Governance Codex contains binding rules on issues such as conflicts of interest and transparency, and is applicable to the DOSB organs. Compliance is supervised by the Good Governance Commissioner, who draws up an annual good governance report that is published on the DOSB website. The DOSB Code of Ethics claims to define the overall conduct and dealings within German sport and towards third parties. It is binding for volunteers, employees and members of the DOSB. Finally, the DOSB Code of Conduct for Integrity in Federation Work contains guidelines for the conduct of DOSB employees and volunteers in business dealings, including provisions on gifts, invitations, donations or the handling of public subsidies.

iii Corporate liability

Associations are legally represented by their boards. If a board member, while acting for an association, causes damage to a third party, the association is liable for that damage according to Section 31 of the BGB. This liability towards third parties cannot be ruled out in the statutes of an association. Moreover, the Federal Supreme Court of Justice (BGH) has extended the liability of associations to acts committed by managers and officials who are not board members (or who are not authorised to act on behalf of an association) as long as they had a meaningful and independent role within an association.

The liability of an association does not supersede the liability of an individual committing an act that causes damage: the association and the individual will be jointly liable for that damage. According to the general rules of German contract and tort law, such an individual will be liable, inter alia, with regard to the failure to pay social security contributions or to file for the opening of insolvency proceedings in a timely manner. Considering the far-reaching possibilities for individual liability within the sport association context, managers and officials should consider taking out directors and officers liability (D&O) insurance.

The dispute resolution system

i Access to courts

As in many other legal systems, under German law, sports governing bodies are prohibited from preventing an athlete, club or other sports stakeholder from challenging a decision by a sports governing body before a state court or arbitral tribunal. However, the rules and regulations of a sports governing body may prevent direct appeals against first instance decisions before a state court or arbitral tribunal if the sports governing body has an internal appeals body that may rectify the first instance decision. In practice, internal challenges against first instance decisions by sport organisations are hugely important, not least because of the enormous number of first instance decisions produced by sports governing bodies each year.

As a result of this, an athlete or club intending to appeal a decision by a sports governing body before a state court or arbitral tribunal must in general exhaust all (internal) legal remedies available to it prior to the appeal. Sports governing bodies are allowed to set reasonable time limits regarding an internal appeal that, if not observed by the appellant, may lead to the appealed decision becoming final and binding. Only in rare circumstances may internal remedies be disregarded if an internal appeal would be unreasonable or a mere formality. This would be the case if the appeals body of a sports governing body declares that it will dismiss the appeal before the appeal proceedings have even started, if the appellant's right to be heard is violated or if the appeal body is constituted in an improper way.

Once all (internal) legal remedies are exhausted, the question of whether a decision can be appealed before a state court depends on whether the parties have concluded a valid arbitration agreement. If an arbitration agreement does not exist or is invalid, or if a dispute is not arbitrable, an appeal may be brought before a state court.

The scope of review conducted by a state court will typically encompass the following aspects:

  1. Was the athlete, club or other sports stakeholder covered by the scope of the governing body's jurisdiction and sanctioning regime?
  2. Was there a sufficient legal basis for the decision contained in the rules and regulations of the sports governing body?
  3. Were the procedural rules of the sports governing body respected?
  4. Were fundamental procedural rights observed?
  5. Was the decision legal in view of higher-ranking legal principles?
  6. Did the decision-making body establish accurately the facts that form the basis of the decision?
  7. Was the decision legal in the sense that it was neither arbitrary nor unjust?

If the sports governing body in question can be considered a monopoly, the court will also assess whether the rules and regulations of the sports governing body itself are substantively adequate.

Typical requests for relief brought before a state court include:

  1. annulment of a disciplinary sanction;
  2. annulment of a sporting result;
  3. admission of an athlete or club into an association; and
  4. (preliminary) admission of an athlete into a competition,
ii Sports arbitration

The legal framework applicable to arbitration proceedings conducted in Germany is set out in Section 1025 et seq. of the Code of Civil Procedure (ZPO).

Section 1031 of the ZPO provides that the parties need to agree to arbitration in writing, either in a document signed by both parties or by making reference in a contract to a document containing an arbitration clause. The arbitration agreement must be sufficiently clear as to the scope of disputes that shall be submitted to arbitration.

An arbitration clause may also be contained in the statutes of an association. One of the issues in this regard is that the arbitration agreement contained in the statutes of an association is usually not entered into voluntarily by the athletes or clubs affected by it. The argument was raised in the fiercely debated case of German speed skater Claudia Pechstein, who was seeking damages before a German state court against the International Skating Union (ISU) after she had been banned for doping by the governing body and had lost subsequent proceedings before the Court of Arbitration for Sport (CAS) in Lausanne and the Swiss Federal Tribunal. In 2016, the BGH confirmed that, in sports matters, the need for international uniformity of decisions trumps the requirement for a 'voluntary' arbitration agreement.

Sports disputes are arbitrable, according to Section 1030 of the ZPO, as long as they concern pecuniary matters. Labour law-related disputes, for instance between a player and his or her club, are generally not arbitrable under German law. Because the relationship between athletes in non-team sports and sports governing bodies rarely qualifies as an employment relationship, disputes between athletes and sports governing bodies are usually arbitrable.

A sports governing body is generally prohibited from excluding the right of an athlete or club to (also) seek preliminary measures before a state court. Only in those cases where the arbitral tribunal can provide the same degree of legal protection (with regard to preliminary measures) as a state court may the arbitral rules prohibit resort to a state court for preliminary measures. This is the case, for instance, with regard to the German Court of Arbitration for Sport (DIS-Sport), a division of the German Institution for Arbitration (DIS), which has a roster of arbitrators on call any day of the week.

The DIS-Sport, which is the most important sports arbitral tribunal in Germany, was founded in 2008. It is based on a joint initiative of the German National Anti-Doping Agency (NADA) and the DIS. Disputes before the DIS-Sport include:

  1. breaches of anti-doping rules;
  2. disputes arising in the context of sports events;
  3. transfer disputes;
  4. disputes regarding licensing and sponsoring agreements; and
  5. membership disputes.

The DIS-Sport may decide cases as a first instance tribunal or on appeal against a previous decision by a sports governing body, provided that the association has implemented a corresponding arbitration clause in its statutes. In disputes regarding a breach of anti-doping rules, the DIS-Sport Arbitration Rules provide for a review of an arbitral award by the CAS.

iii Enforceability

An arbitral award has the same effect as a final and binding judgment by a state court, and enforcement requires the arbitral award to be declared enforceable by a state court. The recognition and enforcement of foreign arbitral awards is governed by the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Note that disciplinary (doping) decisions of an arbitral tribunal are generally 'self-enforcing', in that the sports governing body has the power to ensure that banned athletes are prevented from competing.

Arbitral awards may be challenged by means of an annulment claim. The reasons for annulment according to Section 1059 of the ZPO are limited primarily to procedural issues. An appeal that the award is 'wrong' will not be heard.