Introduction
In order to understand what image rights are, it's probably best to understand where they fit into the wider football industry. Unsurprisingly, clubs have traditionally paid its players solely for playing football. This relationship is evolving. 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. As such, clubs are entering into a multitude of commercial partnerships whereby brands want to be associated with clubs and their high-profile players. Some Premier League clubs have in excess of 70 commercial partners, all seeking the right to use the image of high-profile players in their advertising.
From a variety of commercial deals I have advised on a player's image can include a player's name, nicknames, likeness, image, photograph, signature, autograph, initials, statements, endorsement, physical details, voice and other personal characteristics. The idea is that 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.
Although practically speaking there is no such thing as a specific image right (I'll save the legal detail for another day!), a club and/or brand will be paying a player to endorse and promote a number of specific commercial deals.
Players and their Image Rights
In order to set up an image rights company for a player, it must be clear that the individual has an image that has a value to sponsors. Once the image right is transferred to an image rights company, the company will contract with the player's club and commercial partners. It may well be that any club deal limits a player's personal deal options (i.e. Arsenal may ensure that its players cannot endorse another airline, even in a personal capacity, as Arsenal are sponsored by Emirates) or even seek to share in revenues from personal deals in return for seeking to source individual deals for players.
Once the company is established and the rights transferred, if the player is transferred to another club there will likely be an employment contract and image rights agreement negotiation.
From the outside, it is easy to presume that an agent might say to a club, "we want £5 million a year, £4m as salary and £1m to the image rights company". Based on my experience and dealing with agents and accountants, the deal is not usually structured like that because the player's performance on the pitch will have a value whilst a separate discussion regarding his image rights may factor in an analysis of how much income they can expect to generate for paying the player for those rights. Best practice seems to be to finalise an image rights deal and then begin the on-field salary negotiation.
Clubs Use Image Rights
Under, for example, the standard Premier League employment contract that each Premier League player enters into with his club, certain provisions allow for a club to use a number of its players to promote the club's sponsors. It is however quite limited in scope (for example, the contract typically states "the Club's use of the Player's Image must not be greater than the average for all first team players" ).
So if a club does not have a separate image rights agreement in place with its star players it would be difficult to use, say Harry Kane's image with the majority of the club's commercial partners because that is not generally permitted under a player's standard employment contract. And more importantly, the club's commercial partners would probably want to use Harry Kane's image more than perhaps one of the first team squad players who would be less recognisable in other markets. So the reality is if Spurs want to use the image across a range of sponsorship opportunities, then it becomes pretty vital for the club to contract separately with the player through an image rights deal to have control of those rights to endorse particular products and services – and if the player owns his image through a company, the club will need to contract with that company.
How do these deals benefit Clubs and Players?
Football players are taxed through HMRC's pay as you earn scheme (PAYE). This means tax is deducted at the time of payment by the club. Premier League and Football League players will pay 45% tax on earnings over £150,000 (as well as 2% National Insurance Contributions).. If a club is making a payment to an image rights company rather than a salary payment through the PAYE system, the player is not being taxed on that income at 45% but rather is paying corporation tax of 20% (falling to 18% by 2020). From a club's perspective, it does not have to pay employers national insurance contributions at 13.8% on payments to the player's image rights companies either. The national insurance savings for a Premier League club with 25 first team players with a strong commercial programme and a raft of commercial partners can be considerable.
By way of headline example, and without going into the detail, if a player is paid £1.8m per year before tax is deducted and the club puts in place an image rights structure with its players, the club could save up to £190,000 in tax payments per player per year.
Whilst in the past, many including the HMRC had seen this type of arrangement as a way to reduce tax payable by both the player and the club, more recently HMRC, as will be discussed below, have become more accepting of such arrangements within certain limits.
Why had image rights deals they been seen as controversial?
During the early 2000s many clubs entered into a large image rights contracts but came unstuck. This was primarily because teams agreed image rights deals with players who sometimes did not really have an image to commercialise. It was viewed by HMRC as a ruse for clubs to reduce their tax payments.
If a player had a £1m per year image rights deal, the tax authorities quite rightly were interested to understand how that deal had been valued and how the club had exploited those rights as part of its wider commercial strategy. Similarly, in an extreme example, if a reserve keeper at a Championship club, was being paid a large percentage of his overall package through an image rights deal, questions may be asked as to the commercial justification of such a deal. As such, HMRC investigated a large number of clubs and it is believed that almost all Premier League clubs for the period ending 2010 entered into settlement arrangements. Many clubs paid large sums to resolve the matter.
What's the current state of play?
HMRC recognise that image rights contracts, if properly structured are legitimate ways to structure payments to players in return for endorsing particular products and services. Clubs continue to understand that their star players are marketable assets off the field too. Given the popularity of Premier League and matches being broadcast to almost every country in the world, sponsors and commercial partners are keen to engage with high profile clubs.
HMRC have offered a deal to all Premier League clubs, which contains two "caps". The club cap (Stage 1 Cap) states that clubs can make maximum total image rights payments to all image rights companies of 15% of commercial income. If commercial income is £80m therefore, the maximum payments to image rights companies are £12m. The player cap (Stage 2 Cap) is 20% of the total salary payments made to a player in the tax year. Clubs need to write to HMRC if they want to take up the image rights offer.
The questions HMRC will continue to ask may include the total percentage of the player's overall package that is paid to the player's image rights company and how the club is using those rights accordingly. The days of over 20% of a player's total package being provided by way of image rights payments by clubs to players is long gone in all but exceptional circumstances.
So long as clubs can reasonably justify image rights payments to its players through commercial opportunities, which are likely to be closer to 20% of the players total playing contract, more image rights deals will continue to be entered into, benefiting both clubs and players alike.
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