It’s World Intellectual Property Day, every April 26 we take this time to celebrate intellectual property (IP) and to learn about the role that IP rights play in supporting innovation and creativity.

IP and Sport

This year’s World Intellectual Property Day delves into the world of sports and takes a closer look at how intellectual property (IP) rights – patents, trademarks, designs, copyright and related rights, and even plant variety protection (think turf on sports pitches) – support the global sports ecosystem, a unique landscape the brings together multiple players with overlapping interests.

With this in mind, we have asked Matthew Lingard and Katie Reed, solicitors in our IP and sport practices respectively, to talk about a recent key development in this area.

Getting Image Rights Right

As many of you may be aware, there has been increased scrutiny of late by HMRC of structures that seek to make payments to image rights companies in lieu of traditional salary payments. This structure obviously carries with it certain advantages, chief of which is the reduction of payable tax. There has been a marked crack down by HMRC on these structures and a number of high profile celebrities have appeared in the media to complain about their potential liability to pay large amounts to HMRC.

In our view, the principle issue is that image rights have always been poorly understood. As such, it has taken time for HMRC to fully understand the issue and to begin to deem such structures to be unlawful. There has been a marked lack of clarity in this area from all sides.

However the recent decision is Hull City AFC (Tigers) Limited v HMRC [2019] TC7074 by the First Tier Tribunal (Tax) (FTT) has provided some much needed clarity. This is not a decision that will be welcomed by the many who use an image rights company to receive payments.

The FTT decided that payments made to a footballer’s offshore company under an image rights contract were employment income and not consideration for the licensing of the footballer’s image rights. The brief details were as follows:

  • Hull City (the Club) signed Geovanni Gomez on a 2-year Playing Contract following his release by Manchester City in July 2008.
  • Once the season started on 7 November 2008 an Image Rights Agreement was signed in respect of Geovanni’s overseas image rights between the Club and Joniere Limited (“Joniere”), a company registered in the British Virgin Islands.
  • During Geovanni’s employment with the Club, it paid Joniere a total of £440,800.

HMRC claimed that this sum was earnings of Geovanni and sought outstanding amounts in payment for tax years 2008-09, 2009-10 and 2010-11. Geovanni appealed to the First Tier Tribunal that the payments were not earnings based on the following:

  • The Image Rights Agreement gave the Club the exclusive right to “use” the image of Geovanni for promotional purposes of the Club, its partners and third parties globally.
  • The Image Rights Agreement did not licence UK rights and the rights granted by the Player’s Contract were very limited.

Having considered the about the FTT decided that payments to Joniere were a reward for Geovanni’s services as a footballer and formed part of his earnings. They cited the following as the reason for their decision:

  • The Club did not have a plan or the resources to exploit Geovanni’s image rights.
  • It had not valued them and there was no evidence as to how it had arrived at the sums paid.
  • The Image Rights Agreement was not a sham: it granted rights to the Club to exploit Geovanni’s overseas image rights, although these rights had no commercial value.

In conclusion this decision from the FTT provides clear guidance that payments made to image rights companies can be viewed as earnings and subject to the additional tax this brings. The decision does offer some light at the end of the tunnel however and in certain circumstances it does suggest that certain payments could legitimately be made.

Intellectual Property and Sports: Key Considerations

IP rights underpin all of the commercial relationships that make sports events happen, and that allow us to tune in to sporting action whenever, wherever, and however we want. Broadly speaking these can include:

  • Sponsorship – Trademarks rights are often relied upon in sponsorship deals and offer an important additional stream of revenue.
  • Manufacturers of sports equipment – IP rights support commercial success. They encourage the development of innovative, high-quality products.
  • Organizers of sports events – Leveraging trade mark rights and a reputation are key to staging high-quality events that attract high calibre athletes and draw large crowds and audiences.
  • Broadcasters and other media platforms – Copyright is crucial to anyone looking to secure the exclusive rights to broadcast or exploit events.
  • Elite Athletes – These individuals rely on using their image and associated reputation as an asset to allow them to commercially exploit their performances.