The Case for Athletes Establishing Image Rights Companies.
What is an Image Rights Company?
An image rights company is a legal entity established to manage and commercialise an individual’s image and likeness. This entity acts as a separate commercial arm, allowing athletes to retain control over their brand and leverage it for financial gain.
In the world of professional sports, athletes are not only recognised for their prowess on the field but also for the image they cultivate off it. With the rise of social media and a plethora of endorsement opportunities, athletes now have the chance to monetise their personal brand like never before.
One effective strategy for managing these opportunities is the establishment of image rights companies.
This article explores the reasons why sports athletes should consider setting up such companies, what image rights companies entail, and provides a step-by-step guide on how to establish one.
Why Set Up an Image Rights Company?
- Brand Control and Management: Athletes often become brands in themselves, and managing their public image is crucial. An image rights company allows athletes to control how their image is used commercially, protecting them from potential misuse or misrepresentation.
- Monetisation Opportunities: Through an image rights company, athletes can capitalise on various commercial opportunities, including endorsements, sponsorships, and licensing deals. This allows athletes to maximise their income beyond their salaries or prize winnings.
- Tax Efficiency: Image rights companies can offer tax advantages for athletes. By separating their image rights income from their playing income, athletes may benefit from favorable tax treatment or deductions, depending on the jurisdiction.
- Long-Term Planning: Athletes’ careers are often time-sensitive, and planning for post-retirement income is essential. An image rights company provides a framework for continued income through licensing and endorsement deals even after an athlete has retired.
Setting Up an Image Rights Company: A Step-by-Step Guide
- Legal Consultation: Seek legal advice to understand the specific regulations and tax implications for image rights companies in the athlete’s jurisdiction. Engage with a sports attorney or a specialised firm with experience in this field.
- Choose a Business Structure: Decide on the appropriate legal structure for the image rights company. Options may include a limited company, partnership, or another suitable entity, depending on the athlete’s needs and local regulations.
- Name and Registration: Select a unique and relevant name for the image rights company. Register the company with the appropriate authorities, ensuring compliance with all legal requirements.
- Define Image Rights: Clearly outline and define the athlete’s image rights within the company’s legal framework. This should include details on how the rights can be used, the duration of agreements, and any limitations or restrictions.
- Negotiate Contracts: Engage with sponsors, advertisers, and potential collaborators to negotiate contracts. Clearly stipulate the terms under which the athlete’s image rights can be used and the compensation structure.
- Tax Planning: Work with a tax professional to ensure the image rights company is set up in a tax-efficient manner. Considerations may include structuring payments, managing royalties, and understanding any applicable tax deductions.
- Financial Management: Establish robust financial systems for the image rights company. Separate accounting for the image rights income and expenses is crucial for transparency and compliance.
- Compliance and Reporting: Stay informed about reporting requirements and compliance standards. Fulfill all legal obligations, including filing annual reports, tax returns, and any other necessary documentation.
In the United Kingdom, image rights companies can provide tax efficiency for athletes through several mechanisms.
It’s important to note that tax laws and regulations are subject to change, so athletes should consult with tax professionals who are knowledgeable about the current tax landscape.
- Separation of Income: One of the primary benefits of image rights companies is the separation of income derived from image rights from an athlete’s playing income. This allows athletes to manage their tax liability more effectively by having distinct structures for different types of income.
- Taxation of Image Rights Income: Historically, the UK has had a favorable tax treatment for image rights income. Income derived from an athlete’s image rights can be subject to corporation tax rather than income tax. The corporate tax rate in the UK is generally lower than the highest income tax rate.
- The lower rate of corporation tax in the UK is 19%. This rate applies to profits of companies with taxable profits exceeding £50,000.
- The main rate of corporation tax is now 25% for profits over £250,000.
- Additionally, tapering relief is applied for profits between £50,000 and £250,000.
- For the tax year 2022/23, the basic rate of income tax for individuals was 20%, which applies to taxable income up to £50,270.
- The higher rate of income tax was 40%, applying to income between £50,271 and £125,140.
- The additional rate of income tax was 45%, applying to income over £125,141.
- Structuring Royalties: Athletes can structure royalty payments from their image rights in a way that is tax-efficient. By working with tax advisors, athletes can determine the most advantageous methods for receiving royalties and licensing fees, potentially minimising their overall tax burden.
- Deductible Business Expenses: Operating an image rights company involves various expenses, such as legal fees, marketing costs, and administrative expenses. In the UK, these business expenses may be tax-deductible, helping athletes reduce their taxable income.
- Entrepreneurs Relief: As of my last knowledge update in January 2022, entrepreneurs in the UK could benefit from Entrepreneur’s Relief, which offers a reduced rate of capital gains tax on qualifying business disposals. Athletes who sell or transfer their image rights as part of their business may be eligible for this relief, subject to certain conditions.
- Tax Planning for Retirement: Image rights companies can be instrumental in tax planning for retirement. By continuing to generate income through image rights, athletes can manage their tax liability in retirement and potentially benefit from tax-efficient strategies, such as drawing dividends within certain thresholds.
- International Tax Considerations: For athletes with an international profile, image rights companies can help manage tax implications across different jurisdictions. Proper structuring can ensure compliance with international tax laws and potentially reduce the overall tax burden on global income.
In a world where an athlete’s brand can be as valuable as their on-field skills, the establishment of image rights companies is a strategic move.
By taking control of their image, athletes not only protect themselves but also open up new revenue streams and opportunities for long-term financial success.
With careful planning, legal guidance, and strategic decision-making, athletes can navigate the complexities of image rights and create a legacy that extends well beyond their playing days.