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Using Image Rights Contracts in the Sports Industry
13 April 2021
Since the inception of the Premier League in 1992, English football clubs have had a higher degree of exposure to an international fan base. This requires them to not only compete on the football field but also commercially, to entice the right strategic business partners to increase their appeal and revenues from ‘off the field’ activities.
Football Clubs have traditionally paid their players solely for playing football. This relationship has evolved however. As commercial drivers push football into the entertainment and brand space, clubs are looking for a variety of ways to ‘monetise’ and grow their revenue base.
Today, a key part of most clubs’ strategies is to attract players, not only in terms of footballing performance, but also likeability and appeal to the public and commercial partners. Clubs are required to outbid each other to attract new signings, and part of that strategy’s to attract players through image rights contracts, rather than by simply paying the players a higher salary.
As such, image rights contracts have been used by football clubs with increasing popularity over the years.
What are image rights?
A player’s image can include their name, nicknames, likeness, image, photograph, signature, autograph, initials, statements, endorsement, physical details, voice and other personal characteristics.
The idea behind this is the above descriptions include everything that may form part of that player’s image for the player and/or his club to then market accordingly.
Taxation of image rights
Image rights payments, it’s argued, reflect a commercial arrangement between the club and a player for non-footballing services. Therefore, image rights payments shouldn’t be considered to be remuneration from a UK employment and shouldn’t be subject to income tax and National Insurance deductions at source.
However, payments could be taxed on the recipient or the tax avoided altogether, depending on how the arrangements were structured and the domicile of the player.
Image rights structures
Establishing up an image rights structure’s a great way to keep employment income and image rights payments segregated.
The money earned from the use of image rights can be paid directly by the club into a company, rather than to the individual. It could then be taxed at the corporation tax rate of 19% rather than the 45% income tax rate paid for additional rate tax payers. This can provide a low tax environment to build up income from image rights payments.
HMRC started to crack down on certain arrangements in the mid to late 2000s, undertaking wholesale enquiries into the top UK football clubs. These resulted in substantial settlements from many clubs, and an informal understanding between HMRC and the Premier League (on behalf of its members) to provide broadly acceptable parameters within which clubs could operate image rights arrangements.
Today, HMRC’s observing very carefully how clubs pay players. A recent ruling found payments made by a football club to an offshore service company in respect of image rights were to be treated as the player’s earnings.
As such, whilst there could be a better structure in respect of image rights payments, any decision should be taken with caution, especially given the media attention that this topic has received over the years.