During the past decade, image rights have become at least as important as trademarks and copyrights to elite soccer (aka football in every country other than Canada and the USA) players as they and their managerial teams become more creative about how they use IP to build brands, as well as earn and keep more of their money. Image Rights have helped famous mononyms like Messi, Ronaldo and Neymar, as well as hundreds of other soccer stars, stash hundreds of millions of tax-advantaged euros, pounds and dollars.
"It's not the salary that's a problem; it's just the image rights that needed a little perking.”
David Beckham discussing in 2002 the reasons why his contract negotiations with Manchester United were taking longer than expected.
To critics, image rights represent legalized tax evasion for millionaire athletes. To accountants and agents, they’re a legal method to convert 15-20% of the player’s salary into dividends or corporate income, which are taxed at much lower rates.
How soccer players make money
Soccer is by far the world’s most popular professional sport; top clubs are huge commercial enterprises and there are hundreds of decamillionaires in cleats. Three of the top five highest paid athletes in the world, according to Forbes, are footballers. The average weekly salary for an English Premier League (EPL) player is over £50,000 ($65,000 USD). Clearly, there’s a lot of money available to players at the highest levels of the sport. In addition to club salaries, bonuses for personal and team success, off-the-field endorsements, sponsorships, and national team appearance fees, players can also earn millions in the form of image rights.
What are image rights?
They’ve certainly become a much bigger part of the contract negotiation process, and a revenue source for both clubs and players. What are they? Individuals have a right of publicity, or personality right, to control aspects of their personal identify. An image right is the right to make money from the commercial use of a player’s name, image, reputation or performance. In the case of a player such as England striker Harry Kane, the contractual definition controls use of his image and likeness; to sell products, adorn merchandise, appear on billboards and magazine ads or or any other kind of promotion.
Companies pay huge amounts to use these property rights because they want to be associated with the success and celebrity of top players. During David Beckham’s time with Real Madrid, for example, the club reportedly saw a 137% percent rise in merchandising profits. Because the owner of a player’s image rights gets paid for their exploitation, clubs, players and third parties try to maximize their ownership stake in those rights.
Image rights compensation arrived in the UK with the EPL’s launch in the 1990s. The gradual influx of top international players led to an increase in their popularity. Many of the elite players who joined EPL clubs from other countries had used image rights compensation structures at their previous clubs, an arrangement they wished to continue. Dutchman Dennis Bergkamp’s Arsenal contract, for example, paid him £2 million in salary and £1.5 million by way of image rights.
The separation caught the attention of the The British tax authorities. Inland Revenue (now called Her Majesty’s Revenue and Customs (HMRC)) investigated and objected to their use by Bergkamp and teammate David Platt, then a high-profile English international. Inland Revenue argued that a percentage of the image rights income paid into offshore accounts for Bergkamp's’ ultimate benefit constituted tax avoidance. The case was decided in 2000 in the players’ favor based on the judge’s conclusion that the structuring of the ‘image rights’ payment was indeed a legitimate commercial contract. It was a landmark decision that established an advantageous precedent and opportunity for players.
Since then, image rights have become massively popular. The Sunday Times reported in December 2016 that close to 200 Premier League players had created image rights companies to reduce their salaries, which are otherwise taxed at the UK’s highest (approx. 50%) rates.
How image rights work
Image rights are as much an asset for a top soccer player as the ability to curl a 30-yard free kick over a wall into the top corner. The process of exploiting them is a five-step process:
- Company registration: Register a company in a low-tax jurisdiction such as Ireland or Guernsey.
- Ownership structure: Decide who owns shares of the corporation entity. At just 18, Real Madrid’s Gareth Bale created Primesure Ltd. in 2007 to manage his image rights and sponsor relationships, and gave his parents 40% ownership of the shares. Bale owns the balance.
- Rights and trademark assignment: Legally transfer image rights to the company.
- Contract execution: Execute contracts and sponsorship agreements between the company, and sponsors and clubs.
- Contract fees are paid to the player’s company, which is subject to a low corporate tax rate. The income is usually invested with a long-term horizon to support the player after his career. Disbursements are usually in the form of dividends.
Types of image rights
Top players with valuable image rights usually have different image rights agreements, depending on the opportunity and situation, with their clubs and national programs. New agreements must be developed for each situation:
- Player as an individual: eg. contracts with personal sponsors, such as agreements with shoe brands like Adidas, Nike and Puma.
- Player as a club player: eg. contracts with club sponsors.
- Player as a national team member: eg. contracts with national team sponsors.
(An intriguing example of the consequences of competing image rights issues between national team players and a national federation was Denmark’s decision to field an amateur team in an international friendly against Slovakia in September 2018. The Danes were without their star players due to a row over image rights with their FA.)
If signed without change or amendments, the basic language of the soccer association’s player contract, for example, will relinquish a player’s rights to outside income. While there’s competition from various constituencies to own those rights, players should do everything they can to retain control of them. While astute agents will prevent players from giving up all of their rights, they also realize the value of partnership, which is why players like Gareth Bale and Cristiano Ronaldo often agree to share a portion of their image rights with their clubs.
Before transferring him to Juventus in July 2018, Real Madrid, for example, owned a large minority of Ronaldo’s image rights. Once his image rights revenue exceeded 15M euros annually, Ronaldo’s contract required him to share 40% of the “surplus” with the Spanish club. Former teammate Bale reportedly shares 50% of his image rights with the club.
Clubs and players usually enter into image rights agreements with the understanding that everyone will make money if the spirit and language of the contracts are respected. Therefore, it’s not surprising that clubs will want players to avoid entering into any other contracts that can harm the club. Some issues are unavoidable, such as the Adidas-Nike fight for world soccer domination.
Lionel Messi has a personal shoe endorsement with Adidas despite the fact that he plays for Barcelona, a Nike-sponsored club for 20 years. Similarly, Cristiano Ronaldo is Nike’s highest profile shoe endorser, despite the fact that both his former and present clubs, Real Madrid and Juventus, are long-time Adidas sponsorees.
Where image rights become criminal tax avoidance is the willingness of payers and agents to simply avoid declaring the income. Elite soccer players are some of the most highly compensated athletes on the planet, earning millions of dollars annually. Their huge salaries are subject to the highest tax brackets, which in some European countries, exceed 50%. Evading taxes on salary compensation is very difficult. Image rights are another story, however. The risk is the enthusiasm with which a country’s treasury department is willing to pursue suspected participants in avoidance schemes.
Spain’s treasury department, in particular, is one of the most enthusiastic. In recent years, it has been extremely busy pursuing La Liga’s most famous players for failing to pay tax on image rights and sponsorship earnings. The legitimate possibility of imprisonment has resulted in many settlements and payment of multi-million euro fines with some of the La Liga’s most famous names, including Messi (twice convicted for unpaid taxes), Ronaldo (investigated for failing to report 65 million euros in the Caribbean) and James Rodriguez. Fines have been paid to the Spanish taxman by Colombian striker Radamel Falcao (8.2 million), Portugal player Pepe (1.8 million), Ángel Di María (1.3 million), Fabio Coentrão (1.3 million) and Ricardo Carvalho (500,000).
Tax breaks for millionaires
For now, image rights taxation in the UK is settled law. Or at least settled in the eyes of clubs, players, agents and business managers. The current practice is to direct 20% of a player’s compensation to an image rights company. But given that non-domiciled EPL players can ultimately receive image rights payments without paying any UK tax, and that HMRC chief executive Jon Thompson referred to image rights payments as the ‘biggest problem in soccer’ in 2016, their acceptance by the keepers of the national purse could end soon. It’s not unforeseeable that a UK politician will choose “No More Tax Breaks for Millionaire Footballers” as a crusade. Until then, image rights remain an interesting intersection of intellectual property rights and tax law in Europe.