In the modern commercial environment, advertising and publicity is key. While those in the entertainment industry have dealt with celebrity for some time, the celebrity status of sports stars has increased dramatically. It is the image, likeness and personality of a sports person or entertainer that is their brand and what the public recognises. It is these image and likeness rights that the sponsors seek to utilise and exploit and it is therefore important that these rights are effectively protected and managed.
Image and Likeness Deed
Given that the period within which sports persons or entertainers can derive income is generally finite it is essential that they obtain good legal, accounting, taxation and financial planning advice early in their career. A significant part of the planning generally relates to the manner in which income is earned during their career.
A sports person or entertainer may assign to a related trust or company by way of an image and likeness deed, the right to exploit the person’s image and likeness such that the related entity derives assessable income which is not personal services income.
The deeds generally state that the sports person or entertainer grants a related company or trust a non-exclusive right to licence their image and likeness and the company or trust agrees to employ the sports person or entertainer to perform certain services.
Sponsorship Agreements and Image and Likeness
This licence arrangement then becomes relevant when entering into sponsorship or endorsement agreements. It will be necessary to make clear in the agreements the actual services provided under the agreement i.e. is the remuneration paid in exchange for personal services or for a licence of the image and likeness of the individual.
The generally accepted position of the ATO is that, where there is blended payment in an agreement, for example a payment by a sponsor of $500,000 for 12 months for services and image and likeness rights, then an hourly rate can be put to the services provided and calculated by reference to the number of personal appearances completed. This amount will be personal services income and the balance of the funds relate to use of image and likeness.
Since the ATO interpretive decision in 2004, the ATO has commenced auditing sports people and entertainers in relation to the use of these types of deeds in relation to the manner in which the funds are being apportioned under their relevant endorsement agreements. It appears the hourly rates which the ATO will support vary between $50 and $1,000 per hour depending on the individual.
There are increasingly more sports where they are even commencing a process that separates the engagement of players between “player contracts” and “marketing contracts”.