France's sports code makes it possible for players’ image rights licensing alongside employment contracts

Published 26 July 2017 By: Grégory Basnier

French national flag on football

A Law dated 1 March 2017[1] has introduced a new article into the French sports code[2] that provides sports clubs and players the possibility to enter into a separate image rights agreement alongside the main employment contract. Provided that certain conditions are met, the remuneration paid under a separate image rights agreement will not be classified as a salary and thus will not be subject to the social tax paid by the employer and employee under an employment agreement.

This article explains what the new law says and identifies a number of issues that will require further clarification and careful attention by the parties when drafting such agreements.  Specifically, it looks at:

  • The background to the new law and why it was necessary

  • What the new provision introduced into the French sports code says

  • Points that may need clarification to avoid any reclassification as a salary

    • What if clubs and players manage their image rights through separate companies?

    • What image rights may be governed by a separate licensing agreement?

    • How will the royalties be calculated?

    • How will the royalties be paid?

 

Background

As far as team sports such as football or rugby are concerned, clubs pay their players typically for training and playing on the field under an employment contract and against a salary. In addition, clubs can use a player’s image right (e.g. physical characteristics, name, personal likeness or personal marks such as their signature, voice) to generate revenue deriving, among other things, from sponsoring and merchandising agreements, which also attracts some level of remuneration.

The term “associated image right” is often used, for the sake of simplicity, to refer to the situation where the image of the player is associated with the image of the club; as opposed to the case where it is used to the sole benefit of the player’s own sponsors and partnerships.

The use of the player’s image by the club may then differ according to whether the image is of just one player (“individual image right”) or the player is amongst other players (the “collective image right”).

Until recently in France, the remuneration of the entire associated image rights was supposed to be covered by the employment contract. For example, the collective bargaining agreement[3] applicable to the French sports industry requires that the use of the collective or individual image of the player once associated with the image of the club shall be governed by the employment contract. The remuneration of this commercial use thus formed part of the salary that is subject to the payment of social tax both from the employer and the employee.

The social tax paid on players’ remuneration is a significant cost for French clubs.  The employer’s share of the social security contributions is on average around 42% of the gross salary.  This is perceived as affecting French clubs’ competitiveness.  By way of illustration, a report[4]  dated 29 January 2014 on French football indicated that the employer’s part of the social tax paid by French companies for a €1.8 million wage is €504.000, whereas in Germany it amounts to only €12.000.

In order to increase the competitiveness of French professional sport, this report has suggested aligning the social tax regime applicable to sportsmen and women with the provisions applicable to artists. In relation with the latter, the French labour code provides that:

the remuneration payable to the artist in connection with the sale or exploitation of the recording of his/her performance, execution or presentation by the employer or any other user shall not be considered as a salary when the physical presence of the artist is no longer required for the exploitation of such recording and when such remuneration does not depend on the salary received for the production of his/her performance, execution or presentation, but rather on the proceeds of the sale or exploitation of such recording”.[5]

Thus, when this twofold condition is met, the remuneration paid for the commercial use of an artist’s performance under a separate image right agreement is not classified as a salary and accordingly does not trigger any liability for social tax for the employer/licensee.

The Law of 1 March 2017 has introduced a new article into the French sports code specifically providing for this exemption, subject to certain conditions.

 

What does the new provision introduced into the French sports code say?

Now the employer of professional sportsmen/women and coaches may enter into a commercial contract governing the use of their image rights alongside the employment contract. The professional sportsmen/women and coaches (the licensor) can not be regarded as being bound to the club (the licensee) by a legal subordination relationship characteristic of an employment contract, and the royalty fees paid under this contract can not be regarded as a salary, provided that:

  • The physical presence of the sportsmen/women and coaches is not required for the commercial use of their image, name or voice;

  • The royalties do not depend on the salary received under the employment contract but rather on the proceeds of the commercial use of their image, name or voice.

The image rights arrangement should specify the following, otherwise it would be considered null:

  • The extent of the image rights licensed, including duration, purpose, context, means of exploitation and territory;

  • The royalty calculation method, which should be a function of the revenues derived from the commercial use of the image rights;

  • The cap of the royalty fee that can be paid to the licensor and the minimum wage – i.e. under the employment contract - beyond which a separate image rights agreement may be concluded.

Finally, clubs should immediately submit a copy of the relevant contract to the financial supervisory body for each sports federation.

 

A need for clarification on some issues to avoid any reclassification as a salary

The consequences for nullity of the image rights agreement are not defined. The tax authorities may be keen to reclassify the agreement as an employment one in order to claim social taxes should one or several strict conditions governing the image rights agreement not be met. In the UK, it has been reported (for example here[6] and here[7]) that HMRC has often sought to scrutinise the image rights deals reached between players and clubs, claiming that these are simply “disguised remuneration”. Therefore, it is in the interest of the parties involved in deals with French clubs to get as much legal certainty as possible to avoid any pitfall.

As is provided by the new provision of the sports code, a decree will be adopted to provide clarification on the club’s base commercial income that will be used as reference for the image rights remuneration. In the above-mentioned report dated 29 January 2014 it was stated in this respect, “Would be concerned the club’s revenues deriving especially from sponsoring, image, merchandising and non-live broadcasting agreements”. Also the royalty cap and the minimum salary threshold remain to be defined in the national collective bargaining agreements to be reached by each sporting discipline.

But other questions remain unclear when reading the new article of the French sports code, some of which are listed below.

What if clubs and players manage their image rights through separate companies?

Clubs may manage the licensing of image rights through an affiliated entity. Equally, high-profile players may also license their image rights to a dedicated company they control (an “image rights company”).

The new article introduced into the French sports code is not explicit as to whether a separate image right agreement may be concluded between a club’s affiliated company and a player’s image right company. However its terms appear to be broad enough to embed this possibility. A clarification on this point by the upcoming decree and/or during the renegotiation of the collective bargaining agreements would be useful.

What image rights may be governed by a separate licensing agreement?

The question arises as to what image rights may be covered by a separate agreement and what should be governed by the employment contract.

The new article introduced in the French sports code refers in very broad terms to the image rights related to players without making any distinction between collective and individual ones. It would thus appear to be consistent that only the training and playing work remain covered by the employment contract whereas any uses of associated (both collective and individual) images that do not imply any physical presence on the field would be governed by the image rights agreement. However, during the discussions on this new device held before the French Parliament, the Ministry of sports stated, “We are talking here about the individual image right and not the collective one (…)”.[8] Clarification on this point is thus needed and the collective national bargaining agreements will need to be amended to take into account this new legal scheme.

In any case, it will be essential for the parties to draw a clear line between what is covered by the employment contract and by the image rights agreement to avoid any overlap. In assessing the genuineness of the contractual arrangements, tax authorities might indeed scrutinise whether there is an overlap between the scope of the employment contract and what is remunerated in the separate sports image rights agreements. If so, they might be keen to consider that part of the image rights remunerated under the separate image agreement have in reality no value and thus should be reclassified as a salary. For instance, as it has been reported in the UK[9], HMRC would have argued in the past, through correspondence with various football clubs and image rights companies that the standard Premier League employment contract covered all the services provided by players and therefore that clubs already hold the right to utilise a player’s image.

How will the royalties be calculated?

The new article of the French sports code is silent as to how exactly the royalty calculation method should be defined and does not provide explicitly that clarification of this point by the upcoming decree should be expected.

In any case it is clear that the sum paid for the image rights should be a true and accurate reflection of the value of those rights.

In this respect, the above-mentioned report stated: “Each club might define a royalty rate applicable to the remuneration of players. This royalty rate would be calculated based on the ratio between the eligible revenues and the total revenues. It would be collective and not individual.[10] These orientations do not answer all the questions. But it is true that applying a collective royalty rate at the club level to the revenues derived from the associated image rights related to each player would appear to be on commercial terms because this would factor in the specific added value of each player. Other methods might certainly be envisaged provided the parties can objectively justify them.

How will the royalties be paid?

The new article introduced into the sports code is also silent as to how the royalties might be paid by the licensee (club) to the licensor (player).

Regarding this point, the authors of the above-mentioned report have suggested,

the royalties might be defined at the beginning of the season and paid under the form of an advance fee. They might be adjusted at the end of the season in the event of over- or an under evaluation.

This is in line with what has been judged in the past by the French highest court of appeal (Cour de cassation) regarding arrangements with artists. For example, in a judgment dated 3 December 2008[11], the social chamber of this court has ruled that advance fees should be reclassified as salary when the contract does not provide for any reimbursement clause in the event that their amount is above the proceeds of the sale or use of the artist performance’s recording (in which case these fees are actually a guaranteed minimum).

Therefore, in the context of separate sports image rights agreements, it can be reasonably anticipated that advanced fees might be paid to the players without putting at risk their royalties qualification. However the contractual arrangements should contain appropriate adjustment clauses to reflect ex post (e.g. at the end of the playing season) the real value of the revenues derived from the exploitation of one player’s image. These clauses should be carefully drafted so that the calculation method of any upward payment or reimbursement is crystal clear, workable and made on commercial terms. For example they should list the financial keys to be taken into account to determine whether there must be an adjustment.

 

Final thoughts

Overall the new Law on separate image rights agreements should prove positive for the competitiveness of French clubs since they should pay less social tax than for an equivalent level of salary paid to players and coaches.

However, given the number of questions that remain unanswered when reading the new provision introduced into the French sports code, the upcoming decree and the national collective bargaining agreements to be reached by each sporting discipline will need to provide maximum clarity as to how this may be implemented in practice.

At the time of writing this article, there is no specific timetable announced for the release of the decree and the renegotiation of the collective bargaining agreements.

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Author

Grégory Basnier

Grégory Basnier

Grégory Basnier is a member of the Paris Bar (Avocat à la Cour). He provides legal advice and litigation assistance in a number of business law areas and in administrative law/regulatory issues, including in the sport sector. In relation with sport, he intervenes by providing legal assistance to players, agents, clubs and stakeholders at the federal level. He is also a member of sports federations’ disciplinary and regulations panels.

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