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Money Smart Athlete Blog

Tax Structuring of Image Rights

Nov 28, 2017 | The Athlete's Brand

International Image Rights structures facilitate the exploitation of the athletes’ image rights throughout their movement from team to team and from one country to another and also take advantage of their international exposure in terms of sponsorships and endorsements in a number of countries and by a number of foreign brands.

The exploitation of athletes’ image rights is normally undertaken by an image rights promotion company in which athletes transfer the rights to their image.  In order to set up an image rights company, it must be clear that the individual has an image which has an independent value to sponsors.  If the image has a value, and the athlete wants to hold this in a separate entity in order to protect and separately manage those rights, the image should be valued and the rights sold and transferred to a company.  Capital gains tax is typically due on the transfer of rights based on the market value of those rights.  A tax charge will arise as the individual will dispose of the image rights held by him/her personally, so that it becomes an asset of the image rights holding/promotion company.

The structure should preferably be implemented when the athlete is young whereby his image rights are not so valuable and thus capital gains are minimized.  In the US though, this is difficult to implement as young athletes who are part of collegiate sports are not allowed to receive any commercial revenues for the use of their image pursuant to the terms of the NCAA contract they sign.  As a result, during their college sports years, they cannot capitalize on their stardom and generate revenues from the commercial exploitation of their image.  Any image rights exploitation structure has to be deferred until the athletes finish college.

For international athletes, their image rights promotion company is usually established in a suitably selected tax jurisdiction with a reasonable corporate tax rate and with a large number of bilateral tax treaties to cater for the athlete’s current and future international transfers.  In the case of US athletes, playing in the US, the image rights promotion company is established in a suitably selected state with favorable tax rates.  All image rights exploitation income which results through licensing out the player’s image rights is received by this company.  The athlete’s rights may be licensed out to either clubs, organizations or individual brands.  The net profits of the image rights promotion company can be declared as dividends to the athlete, to the extent he/she is a shareholder, whenever it is deemed that tax benefits are optimized, and such dividends will be taxed accordingly in the athlete’s country of tax residence.

 It is crucial that image rights structures are set up properly and within the provisions of the tax laws of the countries where the athletes are tax residents otherwise the athletes may face tax fraud issues.  Athletes and their advisors should make sure they have a tax compliant structure in place by adhering to the following basic rules:

  • It is essential to get an expert appraisal of the value of the image rights and have the transferee entity pay a price to the athlete, in line with the valuation. This generally means the sooner the transfer the better, that is, before the athlete’s career explodes to a superstar status.
  • The image rights holding/promotion company should have real substance, have real professional staff, independent management besides friends and family, have a real infrastructure and carry on the business of managing the talent.
  • Corporate formalities should be adhered to.
  • The athlete should be kept out of any legal involvement – such as personally signing endorsement or sponsorship deals on behalf of the image rights holding/promotion entity.
  • The image rights holding entity negotiates and executes endorsement or sponsorship deals with due execution formalities.
  • And finally, we should all be wary of pre-packaged, off the rack “image rights company” solutions. Custom bespoke work is essential to maximize the chance for success and there aren’t any shortcuts.

An athlete’s image rights can be or can become a very valuable commodity.  It is important for image rights to be structured in a tax efficient manner while at the same time adhering to all applicable tax law provisions.  This is a key factor to yielding maximum benefits and shielding the athlete from unpleasant tax implications.

For more information on the tax structuring of your sports image rights you may contact us via e-mail at athena@apc-sport.com

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