Image rights have been receiving a lot of publicity recently. Whether it is speculation about what David Beckham’s image rights are worth or headlines about whether Lionel Messi will be jailed in Spain for using image rights contracts to avoid tax – their newsworthiness stems directly from their association with famous people.
Image rights are a group of rights associated with celebrities including sportspersons, artists and entertainers. They can include rights over the use of the celebrity’s still, moving and animated image, name, signature, recorded voice, catchphrases and associated iconic acts, logos, trade marks and brands. These image rights are legally defined in some countries and in others, like the United Kingdom, do not exist as protectable rights in themselves but may still be exploited in contracts as a valuable asset, since one may be able to protect them by invoking the law in relation to passing off, privacy and reputational damage.
For commercial and tax planning purposes, image rights are often transferred by outright assignment or various forms of licence to corporate structures where they can be exploited by a company. This is done for commercial and tax planning purposes, and so they have come under the scrutiny of tax authorities such as HMRC – particularly where used by sports clubs, such as football clubs.
The use of image rights contracts became popular in the new millennium. Arsenal FC had its use of image right structures with regard to two of their players, David Platt and Dennis Bergkamp, effectively approved by a UK Tax Tribunal. The essential idea was that a player’s remuneration package would be split between his playing services and his image rights. A separate payment would be made for the use of image rights, usually into a UK or offshore company. This has tax benefits for the player, especially where he was non-domiciled in the UK and using an offshore company. The benefit for the club would be that it gave it contractual certainty that it could exploit the rights for its own commercial purposes and also avoid National Insurance Contributions on the image rights payments. However, following the financial crisis of 2008, many sports clubs were challenged by HMRC and other tax authorities overseas on their use of image rights, particularly the proportional allocation of payments for services and image rights, which needs to be justified commercially. HMRC have now laid down guidelines for the clubs on what is acceptable. Image right contracts are still accepted by HMRC for tax planning purposes, but cannot exceed in total a proportion of the club’s commercial revenues. Also, as the transfer to any corporate structure is a taxable and chargeable gain, the image rights must be valued on the date of transfer. In this respect, image rights are like any other form of intellectual property such as patents and trade marks. Often, they also encompass trade marks.
Of course, the registration of patents and trade marks is well established practice throughout the world and this has started to become the case with image rights too. The Bailiwick of Guernsey was the first jurisdiction to establish a registry for image rights. This is being used to give some legal and tax substance to image rights structures. Registering the rights in the same way as patents and trade marks signals that there is valuable intellectual property and also demonstrates an intention on the part of the owner to exploit the rights commercially.
Image rights can be registered via one of Guernsey’s registration agents in respect of an individual, a joint personality (eg Ant & Dec), a group (eg The Rolling Stones), a fictional character (eg Harry Potter) or a legal entity that has a personality (eg a company).
Image rights can be valued by discounting of the future licence fee income under image rights contracts to a net present value, assessing the probabilities of whether contracted or potential future licensing cash-flows will be received.
Given the increased importance being attached to image rights, it will be interesting to see if other jurisdictions around the world adopt a similar mechanism to that used by Guernsey for the registration of image rights.