The Taxman is Tackling Sporting Image Rights Again by Jeremy Drew, Partner and Head of our Intellectual Property & Technology Group, and Nicole Mellors of Reynolds Porter Chamberlain LLP
Image rights are big business, in some cases doubling an athlete’s earning capacity. Last year, Sol Campbell successfully sued Portsmouth Football Club for almost £1.7m for unpaid image rights payments.
Image rights arrangements can be used to reduce a player’s Income Tax bill and the club’s National Insurance contribution costs. Wayne Rooney recently attracted criticism for utilising such arrangements. In 2000 HMRC challenged the image rights arrangements entered into by a Premiership football club and how the value of image rights is assessed. HMRC was unsuccessful on that occasion, but given the current economic climate and in the spirit of tightening the national belt, rumour has it that HMRC is gearing up to tackle the issue again. What will be the outcome this time round?
Image rights law
‘Image rights’, ‘personality rights’, or ‘publicity rights’ all refer to an individual’s proprietary right in their personality and the right to prevent unauthorised use of their name or image or a style associated with them. Athletes will either profit from selling their own image rights or will licence their rights for use by a club for an annual payment, as if they were to agree an advertising contract with the club. Generally, football clubs pay a proportion of a player’s remuneration for the right to use their image, which can be as much as a fifth of their salary. Portsmouth Football Club’s arrangement with Sol Campbell almost doubled his reported basic salary of £30k a week with image payments of £20k a week for the first year and £30k for the last two years of his contract for using his image in commercial, sponsorship and endorsement deals.
There is no codified law governing the exploitation or protection of image rights. In fact, in the UK there is no such recognised right. An image right is a contractual right set out in the agreement between club and player. However, guidance on the protection of image rights can be drawn from various areas of the law, including the following:
• Law of privacy: Article 8 of the European Convention of Human Rights provides that everyone has the right to respect for his private life and Article 10 provides that everyone has the right to freedom of expression, subject to any restrictions prescribed by law and necessary in a democratic society, for (among other purposes) the protection of the reputation or rights of others. However, there is no law of privacy as such in the UK (Wainright v Home Office 1 ) although, in an effort to give effect to the rights under the Convention, UK courts are gradually evolving laws to protect privacy by way of the tort of breach of confidence.
• Breach of confidence: protects information which is confidential in nature and disclosed with an obligation of confidence.
• The Data Protection Act 1998: imposes broad obligations on those holding personal data and can be used to prevent publication of images which constitute personal data (such as photographs or film).
• Advertising standards codes (such as those for non-broadcast and television advertising): include specific provisions regarding the use of images of individuals and can be used to protect the use or association of a person without their permission.
• Trade mark rights: names or images can be registered as a trade mark and acquire the protection afforded to such a right. For example, Tiger Woods registered his name as a Community Trade Mark in respect of goods including sportswear and golf balls, golf clubs, golf gloves, golf tees and golf club protectors.
• Tort of passing off: protects the commercial value of an individual’s reputation. The case of Irvine v Talksport 2 established passing off as a means of relief where a name, image or likeness has been used to suggest an endorsement without permission.
It is likely the protection of image rights will be a developing area of law, driven by European privacy legislation and high-earning celebrities wanting to benefit from licensing the use of their image.
Image rights arrangements
It is common practice for players and clubs to enter into a structure whereby a payment is made by the club in return for the right to exploit the player’s image rights. The sum paid to acquire the image rights should accurately reflect the value of those image rights. High-earning players will pay 50% Income Tax on their earnings. However, players frequently transfer their image rights to ‘image companies’, which receive the image rights payments and pay Corporation Tax at 28%, saving the player significant amounts in tax. Such a saving is often factored into the player’s remuneration package and allows the clubs to offer greater remuneration and attract better players.
HMRC is concerned that some sports clubs may be ‘disguising’ salary as image rights payments in order to reduce the overall tax burden for the player and the club.
HMRC’s concerns have been increased by the fact that player’s ‘image companies’ are often based offshore and payments to nondomiciled players paid to offshore company accounts may not be taxed provided these sums are not remitted to the UK.
Sports Club plc v Inspector of Taxes 3
10 years ago, HMRC challenged the image rights arrangements entered into by a Premiership football club and two of its players. HMRC argued that overinflated image rights arrangements had been created as a way to enable the club to pay players a higher salary by supplementing this with a tax savings. HMRC’s arguments were unsuccessful and the Special Commissioners allowed the taxpayer’s appeal.
The following points were considered when assessing the proportionality of image rights payments:
• the value of the player’s image – is the sum paid for the image rights a true and accurate reflection of their worth?
• is the percentage attributable to image rights proportionate considering the player’s on-field value?
• the club’s intention to exploit the player’s image
• any other factors, such as salary caps, which would restrict the club paying a higher salary.
The Special Commissioners held that the contracts were genuine commercial arrangements and were not merely an attempt to disguise salary payments as image rights payments. This case confirmed that some athletes will command much larger proportions of their salary as image rights depending on their profile and this is acceptable as long as it is commercially justifiable. For example, David Beckham’s image rights would be valued at a much greater proportion of his salary than other players and perhaps even be worth more than his value as a player. The percentage salaries paid as image rights must reflect this division of value and this case held that each matter must be decided upon its individual facts.
Since the decision in the Sports Club case, there has been no material change in image rights law. However, it is understood that HMRC is currently investigating all 12 Guinness Premiership Rugby Union clubs and it is rumoured that they have an eye on county cricket and rugby league clubs. It would seem that HMRC is positioning itself to mount a further challenge to image rights arrangements.
This time round, HMRC is likely to focus on the commercial justification for the image rights arrangements, using the guidance provided by the tribunal in the Sports Club case. It is likely that HMRC will challenge image rights payments which do not reflect an athlete’s profile, exposure and corresponding off-pitch value. In the event that HMRC is successful in challenging image rights arrangements, this could have serious consequences for cashstrapped clubs, particularly those clubs already facing winding-up petitions for unpaid taxes.
From a regulatory point of view, there has also been much speculation as to the outcome of HMRC’s investigations. There has been speculation that the FA might impose a cap on the amount paid to players for their image rights determined as a maximum percentage of their salaries, similar to that agreed in Rugby’s Super League last year.
1  3 WLR 1137
2 Edmund Irvine & Tidswell Ltd v
Talksport Ltd  2 All ER 414
3 Sports Club plc and others v Inspector of Taxes  STC (SCD) 44
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