At the start of this year Choongadunga Limited, a company majority owned by footballer Jordon Ibe, filed a claim against EFL Championship side AFC Bournemouth alleging that it failed to pay him a proportion of his salary linked to image rights payments for the last 12 months of his contract with the club.
Bournemouth justified its decision to withhold these image rights for several reasons. Firstly, the commercial value of Jordon Ibe’s image rights were greatly diminished by off-field incidents and lack of form/playing time. This drastic reduction in his commercial value meant that he was no longer eligible for the agreed payments. Secondly, the club has concerns that the disputed image right payment may be treated by the tax authorities as enabling tax evasion and has opted to wait until the UK tax office, HMRC, clarifies its position on image right payments.
Image rights and payment structure
Image rights deals are relatively new to the football world and have been subject to notable scrutiny by tax authorities across Europe. The term ‘image rights’ refers to an individual’s proprietary rights in their personality and the ability to exploit, and to prevent unauthorised third parties from making use of their persona, (including their name, nickname, image, likeness, signature and other indicia that are inextricably connected with that individual).
In the UK, image rights encompass a bundle of different intellectual property rights such as trademarks, copyright and contractual rights. Image rights payments by football clubs to players have become more common in football. At a basic level, a player will license or assign the right to exploit their image rights to an image rights company (which they normally own) which will then contract with the football club to allow the football club to utilise the player’s image rights. The football club will then pay the company a fee for this privilege. This is usually beneficial to the player as the amount paid to the company will be taxed at a lower rate than if the same amount had been paid directly to the player. This purported tax benefit has led to close scrutiny by tax authorities to determine whether these arrangements amount to tax evasion.
Image rights payment: the guidance
HMRC has set out guidance on what it considers to be a properly structured image rights arrangement between a club and player. Where promotional agreements utilising a player’s image rights are negotiated alongside a player’s employment contract, HMRC expects clubs to properly consider the commercial revenues projected to be obtained from exploiting a player’s image. The contractual terms and payment amount will be expected to reflect the commercial value of the player in question.
This principle has been further clarified in the case of Hull City AFC (Tigers) Ltd v HMRC. This case provided guidance on how tax tribunals approach the question of whether image rights payments constitute a player’s taxable earnings. Geovanni (who played for Hull between 2008-2010) was paid a proportion of his earnings as an image rights payment via an offshore company that was subject to a tax evasion investigation by HMRC. The tribunal ruled that the image rights payment to the offshore company had no true commercial purpose as Hull had neither the intention nor capability to exploit Geovanni’s image rights abroad where they had commercial value. These payments were treated as part of a sham transaction to evade tax. A player’s image rights must have a commercial value that a club can utilise for image rights payments to be made.
Jordon Ibe’s claim
Bournemouth has been reluctant to make the image rights payment to Ibe due to HMRC guidance on the commercial value of a player’s image rights. The footballer’s situation is somewhat different to Geovanni’s case, as he suffered a dramatic decline in his commercial value as a public figure over the duration of his agreement with the club. At the time the image rights agreement was signed, Ibe was a promising young English player whose rapid decline would have been hard to envisage. The key issue in determining the validity of Bournemouth’s defence will be HMRC’s view on whether it will permit the payment of a prior agreed image rights fee where the commercial utility of a player has declined considerably throughout the period of the agreement. This case will also be decided on the specific contractual terms agreed; however, the tax element of this dispute will play a key part in determining whether Bournemouth has an adequate defence for not paying the fee to the player.