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27 January 2011
Image rights are big business, in some cases doubling an athlete's earning capacity. In 2010 former international footballer Sol Campbell successfully sued Portsmouth Football Club for almost £1.7 million for unpaid image rights payments.
Image rights arrangements can be used to reduce a player's income tax bill and his or her sports club's national insurance contributions - Manchester United footballer Wayne Rooney recently attracted criticism for using such arrangements. In 2000 Her Majesty's Revenue and Customs (HMRC) challenged the image rights arrangements entered into by a premiership football club and the terms on which the value of image rights was assessed. HMRC was unsuccessful on that occasion, but in the current economic climate, rumour has it that HMRC is set to tackle the issue again.
Image rights law
'Image rights', 'personality rights' and 'publicity rights' all refer to an individual's proprietary right in his or her personality and the right to prevent unauthorised use of his or her name or the image or style with which he or she is associated. Athletes frequently either profit from selling their own image rights or licence their rights for use by a sports club for an annual payment, as if they were agreeing an advertising contract with the club. Generally, professional football clubs pay a proportion of a player's remuneration for the right to use his image, which can be at least one-fifth of the player's salary. Portsmouth Football Club's arrangement with Campbell almost doubled his reported basic salary of £30,000 a week, with image payments of £20,000 a week for the first year of his contract and £30,000 for the last two years of his contract in exchange for the right to use his image in commercials, sponsorships and endorsements.
There is no codified law on the exploitation or protection of image rights - indeed, there is no such recognised right in the United Kingdom. An image right is a contractual right, set out in an agreement between club and player. However, guidance on the protection of image rights can be drawn from various areas of the law.
Law of privacy
Article 8 of the European Convention of Human Rights provides that everyone has the right to respect for his or her private life. Article 10 provides that everyone has the right to freedom of expression, subject to restrictions that are prescribed by law and are necessary in a democratic society, for the protection of the reputation or rights of others (among other purposes). The United Kingdom has no law of privacy as such,(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
The tort of breach of confidence protects information which is confidential in nature and is disclosed with an obligation of confidence.
Data Protection Act
The Data Protection Act 1998 imposes broad obligations on holders of personal data and can be used to prevent publication of images which constitute personal data, such as photographs or film.
Advertising standards codes
Advertising codes, such as those for non-broadcast and television advertising, include specific provisions regarding the use of individuals' images and can be used to protect the use of a person's image or to prevent association with a person without his or her permission.
Names or images can be registered as trademarks and thereby acquire the protection afforded to such a right. For example, golfer Tiger Woods registered his name as a Community trademark in respect of goods including sportswear and golf balls, golf clubs, golf gloves, golf tees and golf club protectors.
Tort of passing off
The tort of passing off protects the commercial value of an individual's reputation. Edmund Irvine v Talksport Ltd(3) established passing off as a means of relief where a name, image or likeness has been used to suggest an endorsement without permission.
Image rights arrangements
The protection of image rights is likely to be a developing area of law, driven by European privacy legislation and high-earning celebrities who want to benefit from licensing the use of their image.
Players and clubs commonly enter into structures whereby the club makes a payment in return for the right to exploit the player's image rights. The sum paid to acquire the rights should accurately reflect their value. High-earning players pay 50% income tax on their earnings. However, players frequently transfer their image rights to image companies, which receive the 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, allowing 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. These concerns have been increased by the fact that players' image companies are often based offshore and payments for non-domiciled players to offshore company accounts may not be taxed, provided that such sums are not remitted to the United Kingdom.
Sports Club plc v Inspector of Taxes
Ten years ago, HMRC challenged the image rights arrangements entered into by a UK football club and two of its players.(3) HMRC argued that overinflated image rights arrangements had been created to enable the club to pay players a higher salary by supplementing this with tax savings. HMRC's arguments were unsuccessful and the special commissioners allowed the taxpayer's appeal.
The following questions were considered when assessing the proportionality of image rights payments:
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; this is acceptable, provided that it is commercially justifiable. For example, the image rights of a footballer such as David Beckham would be valued at a much greater proportion of his salary than other players - perhaps even more highly than his worth as a player. The percentage of salaries paid as image rights must reflect this division of value and each matter must be decided on its facts.
Since the decision in Sports Club plc, there has been no material change in image rights law. However, HMRC is understood to be investigating all 12 top-flight English rugby union clubs and is rumoured to be considering extending its enquiries to county cricket and rugby league clubs - it seems to be positioning itself to mount a further challenge to image rights arrangements.
This time, HMRC is likely to focus on the commercial justification for image rights arrangements, using the guidance provided by the tribunal in Sports Club plc. HMRC may seek to challenge image rights payments that do not reflect an athlete's profile, exposure and corresponding off-pitch value.
A successful HMRC challenge to image rights arrangements could have serious consequences for cash-strapped clubs, particularly those already facing winding-up petitions for unpaid taxes. There has also been much speculation about the outcome of HMRC's investigations from a regulatory perspective. Closer attention from HMRC might force the Football Association to cap the amount paid to players for their image rights at a maximum percentage of their salaries, similar to the cap agreed in the rugby Super League in 2010.
For further information on this topic please contact Nicole Mellors or Jeremy Drew at Reynolds Porter Chamberlain LLP by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email (email@example.com).
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