On 16 May 2017, the sports team held its latest sports seminar, featuring three panel discussions, including one on the latest developments on image rights. We were fortunate to be joined by Aidan Mullally, Head of Business Development at Tottenham Hotspur, Pete Hackleton, Partner at Saffery Champness and Julia Rangecroft, Tax Partner at Mills & Reeve. The session was chaired by our Sport Team’s Carol Couse.
Given the high profile criminal action taken by Spanish tax authorities against the likes of Messi, Ronaldo and Mourinho in respect of image rights structures adopted by these individuals (who unquestionably have substantial commercial value in their image), some have questioned whether this is the death knell for image rights across Europe. The consensus of our panel was that the commercial exploitation of image rights in the UK is alive and well and can be tax efficiently structured.
We discussed the expiry at the end of this season of the ‘Protocol’ which has been in force for the previous 3 seasons, setting out HMRC’s permissible parameters in which clubs, players and managers may agree to image rights deals. The view of Pete Hackleton and Aidan Mullaly was that the Protocol had generally been well received by clubs, and provided some clarity on HMRC’s tolerance of image rights arrangements. We still await confirmation of the terms of a revised Protocol which is expected in advance of the forthcoming football season along with HMRC’s guidance on the taxation of image rights.
Aidan confirmed that Spurs’ policy with regard to agreeing to image rights deals with players was based on case by case basis assessment of each player to ensure the commercial rationale behind such deals. Whilst Spurs acquire players’ image rights in a club capacity, he highlighted the delicate balance to strike between the needs of the club and its sponsors and existing endorsement agreements that the players may have with their own personal sponsors (who may compete with those of the club). He also highlighted how varied sponsorship activation may be, depending on the territories and target markets, (by way of illustration how the official website of the club was appropriate for the traditional fan base who tend to attend matches, whereas social media platforms like Facebook and Twitter were more popular with the younger demographic ‘followers’ of the club, particularly overseas, who may not attend matches in the UK).
Julia and Pete debated the merits of setting up an image rights company for a player, on the verge of becoming a first team regular of a Premier League team (when the value of the image rights to transfer to the company is likely to belimited and consequently any CGT liability, if indeed there is one, smaller than if the rights were transferred when the player is already a household name). Whilst there would be some professional costs to be incurred in setting up such companies, the consensus seemed to be that such future planning was worthwhile.
We also discussed the future of off shore structures, given HMRC’s stance in respect of the source of image rights income (namely that if monies are paid to an image rights company by a UK club this is UK source revenue, notwithstanding that some promotional activities may take place outside of the UK and much of the club’s commercial may derive from overseas sponsors etc.). As such, careful consideration should be given to the use of off shore structures going forward and that these should be properly used for revenue of a purely international nature so as to benefit from the remittance regime (i.e. if it is not brought into the UK it will not be taxed in the UK).
Finally, we agreed that athletes would be well advised to protect their image rights with enforceable intellectual property rights, such as trade mark registrations, which may also support the tax efficiency of an image rights company in the event of a future challenge by the tax authorities.
Mills & Reeve specialises in advising sports and other rights holders on commercial matters, including image rights, sponsorship and endorsement. If you require any assistance with image rights, please do not hesitate to contact Carol Couse or Chris Belcher.
This is part 2 of a 3 part series summarising the panel discussions held during the sports seminar on 16 May 2017. Make sure you also read our summaries on the panel discussions held on brand engagement in a digital era and the opportunities and pitfalls in sponsorship deals.