Tiran Gunawardena

how image rights deals work

Tiran Gunawardena
how image rights deals work

Reevaldo’s image rights agreement with Kings Cross United FC

As we saw in our last post, Reevaldo signed for Kings Cross United FC (KC United). Being such a popular and high profile player, in addition to the employment contract the club proposed an image rights agreement. But what exactly are image rights, and what do image rights agreements look like?

The sports team at Mills & Reeve have acted for many football clubs and players on image rights matters. So, we thought it might be useful to explain what image rights deals actually look like.

As always, don't miss the footnotes --> 1 <-- which contain links to useful documents as well as additional insights.

What exactly are image rights?

In a football context, image rights are, simply put, the player’s likeness – that is, his image, his name, his nickname, his voice, his signature, and all other characteristics unique to the player. Image rights deals enable the parties to exploit that likeness for commercial value, i.e. through sponsorship and endorsement activities.

Perhaps confusingly, image rights do not actually exist as a separate standalone right under UK intellectual property law. Instead, the concept of image rights (as intellectual property) includes various separate rights (for example, trademarks, copyright and the ability to claim for ‘passing off’). As a matter of law, the licensing and exploitation of image rights are also controlled under the types of contractual agreements we mention below in this post. These image rights contracts are entered into by players or their image rights companies (“IRCs”) and clubs or sponsors, and will often not just be a licence of player intellectual property rights, but also include the agreement of a player to endorse or use a sponsor’s product and to make personal appearances (for example, in sponsor advertising) to do so.

A high profile footballer’s image is a tool used to sell products and merchandise all over the world, generating enormous amounts of money for clubs and sponsors. Just think about the marketability of the likes of Cristiano Ronaldo, Lionel Messi, Neymar and Paul Pogba. For example, Ronaldo currently has sponsorship deals equating to circa £37million annually and his lifetime contract with NIKE is said to be worth circa £787million (or $1billion). Wayne Rooney’s IRC was said to be worth £17.2million in 2017.

So image rights can be very valuable assets for players (and their clubs) to exploit. If the player’s image has independent commercial value (or the prospect of such), then the player will often seek to create an IRC, and assign his rights to the IRC.2 The IRC then exploits the player’s image rights. Structured in this way, it is the company that is charged corporation tax (currently at 19%) for the revenue it receives for the exploitation of the image rights rather than the player paying tax on his earnings at the higher rate of tax of 45%.

What do clubs and players have to negotiate?

One of the main issues which needs to be negotiated between clubs and players is the extent to which the club will be able to exploit the player’s image rights in a ‘personal capacity’ as well as a ‘club capacity’.3

‘Club capacity’ is usually the representation of the player and/or use of the player’s image rights in connection with or combination with any of the name, colours, crest, strip, logos identifying him as a player for his club.

‘Personal capacity’ is usually when the player is appearing in and conducting activities outside his role as a player at the club, in his own clothes for example. The player is however usually allowed to wear football boots/gloves (if a goalkeeper) and shin-pads of his own choice, as these are the so called ‘tools of trade’ and he is likely to have a separate deal in place already regarding this.

The image above illustrates the difference between image rights in a ‘Club capacity’ (on the left) and ‘Personal capacity’ (on the right).

The image above illustrates the difference between image rights in a ‘Club capacity’ (on the left) and ‘Personal capacity’ (on the right).

It is to be noted that clause 4 of the Standard Premier League Playing Contract provides clubs, the Premier League and various sponsors with some limited exploitation of players image rights in a Club capacity. However, clubs seeking to exploit rights that go beyond the remit of clause 4 will need to enter into a separate agreement with the IRC and pay an additional fee for this.

Another potential issue when negotiating these deals, is how to deal with conflicts or potential conflicts between sponsors. There may be a conflict, for example if the Player is already sponsored by Coca-Cola, and this directly conflicts with the club’s sponsor Pepsi. In such circumstances, the player’s pre-existing sponsorship agreement will be carved out of the IR agreement and it is acknowledged that the Player already has obligations which must be fulfilled (a similar approach is taken in respect of his boots/glove deal). A clause is usually inserted into the IR agreement to state that if this existing sponsorship agreement is varied, renewed or extended, the club must provide its written permission or have chance to provide input on the deal/match the offer of renewal.

In this case, after their negotiations KC United and Reevaldo eventually agreed that the club had rights to exploit Reevaldo’s image rights solely in a Club capacity. This is a standard position taken by most clubs, partcularly if the player is up and coming or junior and is not yet at a “superstar” status.

A club will create a plan for how it intends to exploit the player’s image and will determine the value of this and/or the player’s image rights may be valued by a third party organisation4, and this tends to determine the range of the image rights fees to be payable.

What is HMRC’s position with regards to image rights?

There are potentially significant tax benefits for players in creating IRCs5, and IRCs are recognised by HMRC - as long as they are structured correctly. In English football, image rights arrangements became especially prevalent after HMRC’s defeat in the Sports Club case6 in 2000 involving Arsenal FC, David Platt and Dennis Bergkamp. HMRC has however continued to scrutinise the image rights deals reached between players’ IRCs and clubs, especially with overseas structures, claiming that these are simply “disguised remuneration”, which should be subject to PAYE and National Insurance Contributions (NIC).

From 2000-2015 there were many more enquiries brought by HMRC against Clubs. As a compromise a protocol was introduced by HMRC in 2015 with Premier League clubs which set out some parameters on what Clubs could spend on image rights deals.7 HMRC and the Government have continued to been under pressure to look at image rights closely, particularly for football players and clubs, as there is some concern that IRCs were being exploited by wealthy clubs and players to improperly, and in some cases unlawfully avoid tax.

The UK isn’t alone in this. In Spain, notably, we have seen high profile criminal prosecutions and substantial fines handed out to players.

In July 2016, Lionel Messi was sentenced to 21 months in prison for tax fraud after the court of Catalonia found that he had evaded tax on his image rights, with more than €4m owed in back payments. In February 2018, Manchester United forward, Alexis Sanchez also accepted a prison sentence for tax fraud for allegedly defrauding the Spanish treasury of €1m whilst playing for Barcelona. However, neither actually spent any time in prison.8

In the summer of 2017, the ‘HMRC protocol’ was abolished and HMRC published new guidance regarding image rights deals (however the Club Cap and Player Cap set out in the protocol was not renewed). Unfortunately, for the Premier League clubs, whilst abiding by the protocol’s parameters as agreed in the past might be of some comfort, every contract is now potentially contestable on a stand-alone basis.

This also ties in with the Criminal Finances Act 2017 (the “Act”), which came into effect on 30 September 2017. The Act imposes corporate criminal sanctions for failure to prevent tax evasion by any employee or agent/intermediary. Whilst the Act applies to all corporate bodies, the creation of a corporate criminal offence should be of particular concern to the sports sector, as Clubs can now be held accountable for their employees and agent/intermediary’s actions.

It’s now more important than ever that Clubs (as well as IRCs) are seen to be acting in line with taxation laws and HMRC requirements. Accordingly, it is critical that players seek independent tax advice in relation to IRCs.

If you would like to learn more about image rights and the Criminal Finances Act, please see our blog post on this topic.

What does an image rights agreement actually look like?

These are the terms agreed between Reevaldo’s IRC - Reevaldo Megabucks Ltd (“RM”) - and KC United. Typically, they would be included in standalone, bespoke contract between the IRC and the club which is separate to the Standard Premier League Playing Contract.

Note that the image rights contract is between the club and Reevaldo's image rights company, not Reevaldo himself.




Duration:                              From signature until 30 June 2023 (the end of the relevant Season)                                       subject to early termination.

Fee:                                   £120,000 per annum

Use of the Player's image:               The IRC grants to the Club an exclusive license to use and exploit                                       the Player's Image in a Club Capacity during the Term. The IRC                                        and the Player are free to enter into endorsement / sponsorship                                       deals in a Personal Capacity during the Term (and retain all revenue                                       generated by the same), subject to the IRC obtaining the Club's                                        prior written consent for each deal.

Player's Obligations:                   The Player must undertake a certain number of individual                                                 appearances and group appearances (with at least two other team                                       members) during the Term.

                                           -> The number of days upon which the Player shall be required to.                                               make individual Appearances shall not exceed 6 days per season.

                                           -> The amount of time which shall be required of the Player to                                               undertake Group Appearances shall not exceed 8 hours per week.

                                           The Player will autograph merchandise and official products in                                                            accordance with the Club's instructions during the Term.

                                           The IRC and the Player shall create and operate "Player Media"                                                            including magazines, websites, social media site/page/account,                                            mobile service, apps or television channels relating to the Player                                            as the Club directs.

Club Obligations:                      The Club shall pay the IRC the image rights fees (£30,000 plus VAT)                                      in instalments on a quarterly basis during each Season of the IR                                        agreement.

Termination:                          The IR agreement will terminate if the Player:

                                           -> dies;

                                           -> retires from professional football;

                                           -> is guilty of a criminal offence or a drug related offence;

                                           -> the IRC is wound up or goes into liquidation;

                                           -> if the Player conducts himself in a manner that offends against;                                              decency or morality or which materially reduces the value of the                                              Player's Image or causes the Club to be held in public ridicule;9

                                           -> is in persistent breach of the IR agreement.

Intellectual Property Rights:            All intellectual property rights in the Player's image belongs to the                                      IRC. All intellectual property rights in any materials which are created                                      during the Term with the Player's image on, such as promotional
                                      material or official merchandise sold in the shop is the property                                       of the Club.

Confidentiality:                       Each party shall keep the terms of this IR agreement confidential and                                      cannot disclose the contents or existence of the IR agreement to
                                     anyone (save for professional advisors) unless required by law.

Governing law:                       The IR agreement will be subject to English law and any disputes will be                                      dealt with by the Courts of England and Wales.

  1. Pretty cool, right?

  2. This assignment needs to be at a fair, arms’ length value reflecting the player’s true commercial value, not just a token/nominal amount.

  3. The player’s representation for his national team (also called “International Capacity”) is usually carved out of the image rights agreement as he will have separate obligations which he must fulfil.

  4. Such as independent accountants or financial advisers.

  5. Put very simply, this is because company tax rates are lower than individual tax rates, especially for high profile footballers who are in the highest personal income tax bracket. The tax paid on the image rights payments received by the IRC is lower than the tax that would have been paid if it was employment income received by the player.

  6. Sports Club plc and others v CIR (SpC 253, [2000] STC (SCD) 443

  7. Premier League clubs were not allowed to spend more than 15% of their overall commercial revenue on separate image rights deals with their players (the “Club Cap”) and Premier League clubs and players’ IRCs were generally restricted to a maximum 20% of the player’s overall remuneration package (the “Player Cap”).

  8. According to article 81.2 of the Código Penal, Spanish criminal courts are able to suspend the applicable jail time if (a) the accused is a first time offender; (b) the offence applies a sentence of less than two years’ incarceration; and (c) the accused has complied with the terms of the settlement. Both players would have satisfied these conditions. However, if the players commit any criminal infractions (no matter how small) during this period of probation, there is a risk that it could potentially result in incarceration.

  9. Morality clauses such as this allow clubs to protect themselves and their brand by seeking to regulate the conduct of players and providing an option to terminate if necessary. They are often drafted deliberately vague and as widely as possible, so as to provide flexibility for the club (or organisation). The Lance Armstrong saga – whilst an example outside football - is an ideal example of why clubs/sponsors seek to protect themselves in this way.