“What’s in an image?” – HMRC attacking image rights in football

editor

These are a form of intellectual property (IP) designed to protect the use of an individual’s name, image, likeness or other aspect of his/her distinctive personality. This is a valuable commodity in today’s society where celebrity status is sought after and where a sports star’s image is a highly valuable asset, at time generating more income than on-pitch performance. Think David Beckham’s lucrative product endorsements that reportedly earn him $20 million per year compared to his soccer salary that earns him $6.7 million.

However, whilst image rights form an important part of commercial agreements within the UK, there is no specifically recognised basis for image rights as a separate IP right. This has led to uncertainty which HMRC started challenging in 2012, at first tackling image rights within rugby league and rugby union, before turning its attention to football where monthly wage bills in the Premiership can exceed the salary cap of both rugby codes.

Many football clubs like Newcastle United FC remunerated their players via a salary with a percentage paid to the players’ image rights company which were and still are legal. The percentage could vary anything from between 10% to as high as 40% and these image rights companies were typically established off-shore, saving national insurance for the clubs and income tax for the players. Whilst this is a tax efficient method, HMRC have viewed this as “disguised remuneration.” In some instances they may argue that the player in question does not have an image right – for example the player may be at the start of his career and is not well known and so his image does not attract fans to the stadium or add value to the team’s sponsorship deals. It is only the elite players that can capitalise on their success as footballers and so it logically follows that the whole squad should not necessarily have an image right.

As with anything, this is likely to be an instance whereby the minority have spoilt it for the majority, with a small number of clubs abusing image rights, probably so that the money which they saved on paying national insurance could be utilised towards salaries to attract better players to allow them to compete. In an industry where success is dependent on the depth of a club’s war chest it is hardly surprising that clubs are looking for ways to maximise revenue available. Whether Newcastle were one of these minority clubs is uncertain, though the more likely position is that they have agreed a deal with HMRC in respect of past and future image rights payments. A majority of Premiership football clubs have agreed similar deals in order to avoid a thorough investigation into their tax positions and it is here where HMRC have been able to attack.

Whilst HMRC want to tighten the use of image rights, a player’s image changes as their career progresses and there is an argument that image rights should be determined on a case by case basis and reviewed annually. A player’s image at year one of a three year contract may dramatically change at the start of the third year and it logically follows that there should be flexibility that enables the club to vary the percentage, benefiting both the club and the player. Whilst the majority of Premiership football clubs have agreed image right deals with HMRC, it would be interesting to see whether any clubs are prepared to challenge HMRC’s position in relation to image rights, which in my view, there is scope to review. There is also legislative change on the horizon in Guernsey which will be the first jurisdiction where it is possible to register an image right on a central register, the implications of which are as yet, unprecedented.

Katie Simmonds, Partner & Head of Sports Law at Burlingtons Legal LLP

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