Image rights in sport: Structuring deals, managing risk and maximising value

Hi, and welcome to Mills & Reeve's Sports score shorts. I am Sarah Atwood. I am a solicitor and principal associate here at Mills & Reeve in our sports team. I’m joined today by Vyara, my colleague, who is in the sports team in Birmingham. We work together on quite a lot of commercial sports matters. And we’re really delighted to be joined today by Pete Hackleton.

Pete is a partner and head of sports and entertainment at Saffery. Pete, give us a bit of an introduction to the work you do.

Thanks Sarah. Hi. Good morning, good afternoon, or good evening, depending when you're listening to this. As Sarah said, I'm head of sports entertainment at Saffery and I'd probably spend 80% of my time on football matters, players, agents, clubs, governing bodies across the range of sports entertainment, Saffery look after clients across Formula One, golf, tennis, as well as music and the whole range of entertainment. 

Thank you and delighted to be joined by you because obviously we, Vyara and myself, kind of look at the legals at Mills & Reeve, but it's great to get a tax perspective as well. 

So just to give you a bit of background on these podcasts, we'll be shining a light on the legal and regulatory aspects of some of the stories behind the headlines. We are going to take a deep dive really into image rights today.

We're going to be looking at image rights in the UK, specifically football, but also image rights are in other sports such as rugby and cricket. But we are starting off by looking at some of the basics around what image rights are going on to look a bit more around the structure and some recent trends, and then focusing on some of the tax announcements that we've had at the end of last year with the budget from HMRC.

So, let's get started.

Very nice to meet you all and, as per Sarah's introductions, I'm Vyara. I'm a senior associate in the commercial team, so very excited to be discussing this topic today. So let's start with the fundamentals, from like a legal perspective, and then we'll bring Pete to talk more about the tax implications.

So when we talk about image rights, what we are actually referring to is a good place to start with. For those of you who don't know, image rights are the athlete's personal characteristics. So, we're looking at everything really real, really wide scope of things from their name, their voice, their signature, their likeness, their tattoos. That was a claim in the last couple of years and also, anything around like their stats, really, it goes as wide as that. And ultimately with image rights, companies monetise those rights, whether that be through commercial sponsorship agreement, through merchandise, through personal appearances.

So, for example, I think it was in the news recently around David Beckham, he's going to make more from this next World Cup than he did in his 20s. And that's obviously brands in the US using his image through lots of different sponsorship agreements that he's got. You've got Leah Williamson – she's appeared in a Gucci advert. She's got a big Nike agreement, so that's ultimately using their image for a commercial value.

Yes, that's very right. And I think increasingly, as you say, as athletes are recognising the value of those rights and they're actively seeking to exploit them commercially, and not just through club deals, but also through personal brand endorsements and partnerships, and I guess these top superstar athletes and players, those image rights contracts have become central to the whole package of the playing contract as well. And I think in the UK, well, we don't really recognise image rights, I guess, as a standalone right, it's more like a bundle of rights that work together.

So Pete, have you seen an increase over the past decade of these types of arrangements being entered into?

I think the past decade is quite a good frame of reference because if I think back maybe longer, like 20 years, when image rights started to become popular, they became hugely popular and all clubs were entering into deals with all players and they got carried away and the amounts that were being paid to image rights companies were over the top and HMRC clamped down on it. And if I think about ten years ago, there were probably less image rights contracts than any other time clubs had looked at. Alternative arrangements, but they came back round to thinking, well, image rights when done properly, always worked. The player's commercial value has a separate value to us than their employment contract.

And therefore, if it's structured in the right way, it does work. So, ten years ago, HMRC did agree a deal with Premier League clubs, which said as long as you stick to certain parameters, broadly paying the players less than 20% of their overall contract value, then we are satisfied that as long as you, you know, I think it was you had to do three relevant activities a year of which one could be a tweet, you know, it wasn't particularly onerous, then we're satisfied.

HMRC decided not to renew that agreement after 2017, but that is the parameter to which clubs have stuck and you get to current day where most of the top clubs will do image rights deals with the majority of their players because they have huge numbers of commercial partners to satisfy, and they do need to use those additional rights.

It does stack up commercially in terms of personal deals. I think what we've seen over the last three or four years is we've gone away from. Every player having a boot deal now. The top players have some incredibly good boot deals and other commercial contracts and lower down. It is more difficult to source individual commercial deals. I think that's what has happened in the market.

Have you found, Pete, that because image rights are so much more in the press and on footballers radar now, are you finding that players that are younger are coming to you now wanting advice when they don't necessarily have their image has value at that point?

Yeah, absolutely. And we're always open to that conversation at any age. I think it's important that players understand their commercial value and the value those rights have. The question as to when they should put those rights into a company is a good one. And you know, it will depend on various things.

You know, how much the player's going to earn from their image. A recognition that there is a running cost to having a separate image rights company structure. But also, the players thinking through things like how much am I earning personally at the moment and can I live on that money?

Because we'll come on to later – the tax benefits. One big part of that is not spending the money that goes into it.

Yeah, absolutely. So just going back to obviously mentioned the structure. So that's something that Vyara and I advise on, a lot with the legal side of things. So, what we tend to see is that an image rights company, or an IRC as it actually is named, it is set up and then, so we drop the documents for that alongside our corporate colleagues. And then the image rights are then assigned over from personally from the player to the image rights company. And then that company then contracts with the footballer’s club various sponsors as opposed to, you know, personally and I think we've seen, obviously in the press over the years, how important that structure is. We saw the Paul Collingwood case recently, the ex-cricketer, he hadn't actually got those assignment documents in place properly. So, it ended up being the case that HMRC decided that he had to pay higher tax purely because his image hadn't been assigned over correctly.

So obviously that's where we all come in to make sure that the advice is correct. There are other advantages, isn’t there Vyara, with setting up an image rights company for players and clubs?

Yeah, absolutely. And I think obviously that links back, but usually when a player is directly paid as an individual, those payments will fall on the income tax. And for example, the top earning players, they would most definitely hit the 45% personal income tax rate. Now if the clubs pay the players image rights company instead, and obviously that's on the basis that they have entered into a genuine commercial arrangement that falls within the legal and tax side, then that money could be taxed on the corporation tax rate, which is a lot less in comparison, around 25% for most companies. And obviously that's subject to some reliefs or profit bans, et cetera. So, that could be an advantage. And I think, well from a club's perspective as well, if they make a payment to the player's image rights company, then they don't need to pay the employer's national insurance contribution, which I think has risen to 15%.

Those structuring these genuine deals through an image rights company could be tax efficient for both sides of the deal actually. And I think Pete mentioned in terms of, well, when clients typically come to you to set up those image rights company and what's important.

So, Pete, if you want to add anything onto that.

Yeah, I think you're absolutely right about the tax savings. There are benefits for both sides, and I think that's why, you know, like I said, 20 years ago, HMRC cracked down quite hard on this because we saw examples of clubs entering into contracts where 50% was for playing football and 50% was for use of the image.

And the image was barely used. You know, it just didn't stack up commercially, I think. Like I said, we've got clubs with over a hundred commercial partners now. They need the use of the players over and above the minimum rights set out in clause four of the Premier League contract. And therefore, the arrangements now for the top clubs stack up more commercially than ever before.

I think in terms of when clients come to set up image rights companies, typically, you know when, when players are moving to the UK from overseas, because in lots of other countries, image rights do not work efficiently, and again the question Sarah asked earlier about young players on when is the right time to set them up, I think just it's worth remembering on the tax savings. That the tax savings are relevant whilst the monies in the company. But if the player then takes the money out of the company, they will pay tax on the dividends when they extract the money, in which case it's even less tax efficient than earning the money personally.

So, yeah. There are further considerations over and above simply setting up image rights company from a tax perspective.

Yeah, and we talked about clause four of the standard Premier League contract. So, for those of you who don't know, that's ultimately the way that clubs have been using outside of image rights, the use of player in a club capacity, and there's various restrictions around that.

So, for example, one player can't appear more than other players and players need to be used collectively. That's obviously why we have the image rights agreement in place to kind of set out more specific stuff around how the players image can be used with the club. Yeah. And I don’t know if you've seen this, Pete, but from our practice we've seen that fans are following players more now as opposed to the club. And I think that's why this kind of whole idea of image rights has become so big really and so has so much value.

Exactly. And that's why I keep referring to how well it stacks up commercially. I think that's one of the main things. Without an image rights agreement, as you said, Sarah, you could only use any player in the squad, you know, the average of the first team squad. So, you know, if you are Man City signing Erling Haaland, you probably want to use Erling more than the average of the first team squad. And crucially, most of your main commercial partners probably want to use Erling and therefore entering into this separate agreement is absolutely the right thing.

Yeah, sure. And then we've seen, in our work haven't we, Vyara, around this idea of a club capacity and a personal capacity and making sure that works legally.

Yeah, definitely. And I think we've got the club capacity, which is referring to the use of the player's image in connection with the club's identity.

So, anything involving the club's name, the colours the logos, etc, the player will be representing the club as part of the squad, and there could be, I guess, matchday posters. There could be some team announcements or promotional materials that are being prepared. But generally, the player will be doing those as part of other two, three, four players together.

And you're right that clause four is usually from the Premier League standard playing contract sets out that club capacity right. And usually, I think the club wouldn't be able to use the player's image more than what they use other players’ image for. So that's really the club capacity concept.

And I think we've got the personal capacity as well which, as you're saying, it's becoming more and more popular and that's different. So that's when the players conducting themselves outside of the club activity. So, they would appear in their own attire. They perhaps could do some commercials.

They could do a photo shoot promoting a product, but they will be associated with the individual brand, not with a club brand as such. And I guess with these top players that we've mentioned, as well and other top players, they would have quite a lot of coverage and commercial value in the UK.

But it's also good to remember that they could also be very popular in other jurisdictions so they could monetise and exploit their value commercially across different jurisdictions. And they do have commitments and their national teams as well.

Yeah, sure. So, it's getting all those legals right, isn't it? Where does one capacity end, where does another begin?

Exactly. I guess that's something you see a lot in the legal advice that we give players. Don’t know, Pete, does that kind of club play personal capacity impact some of your work?

The tax position will always follow the contractual position. So, I suppose we don't get too involved in all of that, but we clearly recognise the value. And if you look back, I know Sarah, you mentioned David Beckham, and David's probably the most successful commercial proposition in the history of football. I do remember, you know, speaking to some Spanish lawyers when he joined Real Madrid, and obviously David's been a long-time brand ambassador for Adidas. A huge personal brand ambassador of their brand over many years. But him moving to Real Madrid, who were an Adidas club, that multiplication effect of the brand was huge. And I know Real Madrid over the years had a long association with Adidas and players wearing Adidas boots helps as well.

The one thing I was going to pick up here actually on ensuring the contracts are properly entered into by the right entity. And, you know, even using the rights in the club context is we, for many years, had players who would move to the UK and join a club, and obviously the contracts signed pretty quickly.

The club wants to secure the deal. So let's say the players signed the 15 July, and then we are contacted in August to say an image rights deal has been agreed but the company needs to be set up and we need to enter into the contracts and we'll work with Mills & Reeve and help to get that company set up.

It might take two months, 10 weeks before the company's set up and the contract can be entered into with image rights company. We had various instances with HMRC, probably rightly inquiring into, well, this agreement is seemingly from the 15 July, but the company was only set up on the 1 September, and the contract was only signed on the 15 September. So how can the company have earned those revenues? So, there is a point about making sure the right contracting parties entered into. Having agreed that now with HMRC, clearly until the company is set up, we can't enter into an image rights agreement with a company. So, there is an order and a sequence to these things that we do need to get things set up properly and on a timely basis.

Yeah, we've seen that, haven't we Vyara, with some of the clients that we've helped for making sure that kind of everything flows well. And I think it links back as well to those HMRC manuals about having a proper commercial plan in place.

Yeah. Making sure there's an audit trail. Yeah. And also, getting rights value evaluated as well. Which I guess is something, Pete, you've helped with?

Yes. And again, going back maybe 10 years, HMRC used to suggest that when you set up the image rights company and transfer the rights into that company those rights have a value and that value should be subject to capital gains tax. It was 2016 or 2017 when HMRC changed guidance on that and said, where you are transferring those rights into a company that you own, we believe they have no separable value and therefore you can transfer in at nominal value. But it's still really important to have valued those rights for the player for the rights being transferred in and for the clubs themselves to have a view on how valuable the rights that they're paying for are.

Sure. So just going back to some of those trends we're seeing, Vyara, we've seen a lot of those kinds of joint venture arrangements, haven't we, between clubs and players?

Yeah, exactly. I think we're seeing situations where clubs want to do something more bespoke around specific player, or the player also wants to protect their brand, rightly so. So, they sometimes go to market jointly. They would go out and try to seek and find personal endorsement deals, and I think from like a fee structure, what we've seen is that players won't be paid in those cases, an image rights fee as such, but potentially there will be a bit of a split.

So, the club and the player will split revenue from the sponsorship deal, and it almost feels like an informal joint venture type of thing, where clubs would bring the brand and the platform, but the player will then bring their image, their commercial pull. I guess Pete, from your perspective, that sort of arrangement from a tax perspective, would that be more akin to a genuine commercial partnership, therefore?

Yeah, absolutely. And that's something that we've made to HMRC a lot over the last couple of years. A lot of the top clubs now are looking at these arrangements, whereas back in the old days, you might pay the player a million pounds a year for their use of their image rights, and then the club would either use it well, or not as well in some instances.

Now they will pay a base fee for the image rights, but over and above that there'll be a revenue share on any personal deals. So, the basic contract is for the players rights in a club context over and above the average in the first team squad. But then there's the potential for the club to go and source additional deals.

And bring them to the players and in, you know, the world of PSR when there is a restriction on how much clubs can spend and when the three historic revenue streams for football clubs of match day, which are under pressure because of ticket prices broadcast, which you can't influence other than by playing better on the field and finishing higher up the league.

Commercial is the one revenue stream you can really influence. So, if you can leverage those individual players and their commercial value, increase your revenue, then that increases your spending power from a PSR perspective. So, it all makes total sense to me.

Yeah, sure. I guess, as we've said, the key, and we'll come onto that HMRC stuff in a bit more detail in a minute with one of the big cases, but I guess the key is making sure that payment isn't just a disguise to pay players more and to avoid tax. Otherwise, like Pete said, that it would be taxes, employment related income, and HMRC would look into that.

Vyara, we've been talking a lot recently, haven't we, about the updates, which we'll get onto in a minute with the recent budget, but I don’t know if you can give us a bit more background about the actual HMRC side of things.

Yeah, I think, well, it's very important in those cases to bring HMRC back into the conversation just because clients will want to make sure they get those deals right.

There could be potential fines, there could be additional tax payments, negative media coverage if HMRC starts inquiring or raising issues and disputes. And I think, from like a legal perspective, we've got the sports club case, which set out the whole principle of if you build up a genuine and commercial arrangement that could be identified as sitting separate from your employment income so that could sit outside a payee.

Now we'll get into the conversation of this budget announcements that we've heard about and some commentators effectively saying that this case potentially may be overridden in the future because of that. So, it will be interesting to see what further guidance HMRC would be able to provide in that. And also, you know, more details on the budget announcement, the legislation that will potentially follow in April next year. So as in when for the updates given will be able to post more comments on that. That would be interesting to see from that perspective how things would work.

Yeah, sure. And we'll move on to that in a little bit more detail. Going back to what you were discussing earlier, Pete, about this kind of idea of what we call the 80:20 split. So, we've got that idea of 80% of the income will be related to players’ income will be related to the kind of playing duties, but I guess 20% has been agreed with HMRC to relate to kind of image rights payments. Have you seen kind of where clubs have asked for more than 20% in certain situations?

Yeah, so just on that 20%, this was an agreement between effectively the Premier League and the top six clubs at the time where HMRC said there were two caps (tier one cap, tier two cap). The tier one cap was that the clubs would pay no more than 15% of their commercial revenues out to the players image rights companies combined. And then the tier two cap was the player cap, which said the players should receive less than 20% of the overall package as an image rights payment.

I think the old head of the sports unit Simon Randall agreed that it was a great arrangement because it meant everyone knew where they were. It meant that clubs weren't taking the mick anymore. They were making sure the amounts were proportionate to the commercial contracts.

I think it was just pressure from public accounts committee doing deals with millionaire footballers that meant HMRC decided to remove that. I think broadly since then, clubs have stuck to those parameters. There are a couple of clubs that take a bit more of a scientific approach to it and they'll look at players' social media profiles and they've got an algorithm which determines what the percentage should be, which I think is a great approach.

But even back then under the old rules, there was an exceptional player clause which said if you believe that a player's commercial value is in excess of 20%, that's fine, but HMRC might inquire and come and look at it. And we have seen a couple of examples since. Even back then, it wouldn’t have been the superstar players back in 2015 who I would've thought could have exercised that clause. The great example was always Ji-sung Park at Manchester United, who was a great squad player for them, but not one of their playing stars. But commercially huge in the growth of Manchester United in Asia as a South Korean international made a big difference. And so, you could really justify that kind of split.

And I think where the justification is there, there is still an argument that the reality is the players commercial value is huge. As a proportion of the employment contract, you could look at greater than 20%.

Yeah, absolutely. Let's see then with, you know, we're talking about all the things that have happened to date.

Let's come on to this big budget announcement that happened in November last year that we've been discussing quite a lot in the last few months. We obviously had the sports club case and everything that was set out in that. The government is basically saying that they will legislate the image rights. Payments that are connected to employment will now be taxed as employment related income. So that would be, you know, your four to five per cent income tax and your employer and employee national insurance contributions. So quite a big announcement to be made. I think it's interesting that you say legislate because we've obviously talked about the fact that image rights are not in law, so it'll be interesting to see what happens with that.

And obviously it'll mean that players and clubs will face high tax liabilities. Do you think with these announcements, image rights will be gone in the next five years? Is that too extreme?

I wouldn't have thought so. There are two big tax issues in football and there have been since 2005 when I went to my first Premier League board meeting. The two issues are image rights and agents’ fees and the benefiting kind on agencies. And over the last four or five years, agents’ fees have been such a huge area of focus and image rights has kind of just trundled along. It does stack up commercially more than ever. The clubs do need the additional rights. The use of overseas companies for image rights, so players using companies in Dubai and Guernsey, has been ruled out by the transfer of assets abroad legislation. Players have UK companies which pay UK Corp tax, and when they take the money out, they pay UK tax at that point if they sell residence, so it doesn't seem to me that there's a huge amount that HMRC are missing out on here, and it really does feel like a sledgehammer to crack a nut situation in terms of the additional revenues that have been raised.

But we had the announcement back in November, which was a real shock. I think. We are five months on. We've heard nothing further that they've said. The rules will come into effect from 31 March 2027. In a year's time, and it feels to me like a really, really difficult bit of legislation to write.

Yeah, I don't really know how you do it because the sports club case made it clear that where you have contracts entered into with separate legal entities, it is not a smoke screen for additional remuneration.

Yeah. I'm really interested to see how it's drafted and then, however it's drafted, I think we'll find people looking at alternative structures because players will still have image rights structures which enter into contracts with Nike and Adidas and Pepsi and Beats, and all of those things which are not contracts with employers. Image rights companies will still work for those contracts. But whether there clubs would look at ways in which they enter into commercial contracts at the moment, so that commercial partners might contract with players separately, which will cause additional work but maybe is the way forward. We just have to see what the legislation says. I think.

Yeah, absolutely. And I think from a legal perspective, we obviously advise clients on entering into these image rights agreements and the questions we are getting asked by clients is what happens to that current agreement? Is it just going to run on? Is it going to be evaluated by HMRC and terminated? We don't know, but I think, like Pete said, every hour it's clear that activities that aren't related to club.

Yeah. Club activities will fall outside that regime.

Sorry to just to jump in, Vyara, we did a deal last month with a club finalising an image rights agreement that should have been finalised before now but cognisant of the budget announcements. And we just entered it into a best endeavours clause with the club in the image rights agreement to say: if the legislation changes the arrangements, we will look at how this is structured and what we should do going forward, which I think is the best you can do at the moment.

Yeah, completely. No, I think that sounds good and, also, I think that's what we were talking in the background in terms of what happens with those standalone sponsorship deals that are entered into between a sponsor and an athlete? Clearly that is likely to be separated, but we shall see exactly for the details they provide so that we can be in a position to assess a bit more and see how the structure would work in the future.

And I think there was one point around defining what the club can use the image for and then what rights I guess the players want to retain for personal deals.

And I think that goes on the back of this point that Pete, you mentioned, you know how high profile players, they will come into a new club, but they will have their multiple existing endorsement deals like boots deal, clothing, drinks, personal sponsors, et cetera. Now, negotiation is really key on that because players would want to carve out those deals so that they're not part of the license and the club can't, for example, say, no, you can't do the deal because it's an existing deal, isn't it? That they've entered into already and they want to make sure that they carry out with their obligation. Yeah. So I guess one point that is going on the back of the fact that so far you've got to have sophisticated rights agreement, especially for those top players where you specifically set out those carve outs to make sure the player can satisfy their obligations and their existing sponsors. And that doesn't fall into a conflict with the club license.

That's right. And that's part of the difficulty that you face in that the players will have club rights, personal rights, national team rights, and all of that needs to be carved out properly. I think the one bit we haven't touched on in terms of the rights of the club context so far, we talked about the commercial partners they have to service and we talked about using the player in excess of the average of the first team. There's also that restricting competitor's angle as well. And you know, for Manchester City, with their long association with Etihad Airways, you wouldn't want one of their top players doing a BA advert. And being able to restrict that is really powerful and has a value in its own right as well.

Yeah, absolutely. And we've seen also with, I think Pete, you mentioned earlier like the, the boots deals. We have the idea of the tools of the trade. So, we carve out in the image rights agreements where the players come to the club with say a boots deal with Nike, and that would include goalkeeper gloves, in the case of goalkeeper, and then we exclude that so that they can wear those Nike boots, but it may be that the club is sponsored by Adidas. So yeah, it's just a case of making sure that all aligns, and also, like you said, Pete, aligning that with clause four of the standard Premier League contract.

It's very clear that top players, they’re becoming a lot more brand aware so they would look to build their personal brands on social media. They would potentially look to launch their own product lines. They could engage with funds directly. And also, one big point is they are now protecting their trademarks. So, for example, we have recently advised one of our clients Cole Palmer on this, where he's registered his IP, for example, his name, nickname, likeness, goal, celebration. And we actually expect this trend to continue to grow actually. And I think some other players are looking to enter into equity deals, for example, with sponsors where they take shares in that business that they endorse rather than a flat licene fee.

So that's very interesting to see in terms of how that would look like in the future, whether there's going to be more trend on that and more athletes looking to engage into those equity deals or protecting their trademarks. Pete, from your perspective, what trends are you seeing in the industry on that?

Yeah, I mean, I saw the work that you guys did with Cole Palmer on socials and, I think it's really important to recognise, and try and protect, the things that you create that have a value. And Cole's obviously iconic goal celebration is a big part of that. And I think we'll definitely see other players looking at those kind of things as well.

The equity deals are interesting. We've seen quite a few of those. And there is a question about whether the players would want to hold that equity through the image rights company, or personally, there's a valuation piece as well, because there's a tax implication of receiving the equity incentives.

So that's something that we've been advising on quite a lot. I think the last thing I would say is on image rights generally, and we talked about, you know, the tax advantages during a player's career of having that structure and setting it up and running it properly. I think what you find with the top players is whilst retirement might mean an end to their employment income, unless they go onto a managerial career, the commercial opportunities are still there and actually having that structure in place is really helpful. And we've got one, I'm thinking, who has been retired for 10 years now and still generates a huge amount of commercial income. And the company can continue to run and hold the IP and generate the income.

Absolutely. It's all about the planning, isn't it? Just a quick final note. At Mills & Reeve, we advise a lot of the Lionesses and we've seen a massive increase in those image rights, deals and also the commercial partnerships for the female players. And I think that's something we're probably going to see continuing for the next decade, hopefully as women's football grows.

Yeah, I mean we've definitely seen on the women's football side, the huge value of the commercial rights actually as a proportion of employment income, hugely in excess of some of the male players. These structures do work for female athletes who are perhaps earning less under their employment contracts, but being able to have the tax efficiency of this structure and looking at the longer term.

So again, in seeing what the budget announcement and what changes happen in the image rights structure, it's really important on the female side as well as the male.

Yeah, absolutely. And, for those listening, we'll keep you posted over the next few months about what's going to happen with the budget.

Thank you so much for listening to our Sports score shorts podcasts. Thank you so much to our guest speaker, Pete, for joining us and for your invaluable input. You can find other episodes on Spotify, Apple Podcasts and YouTube. But thanks for listening. If you've got any questions, feedback, or topics you'd like us to cover in the future, please feel free to get in touch.