Mohamed Salah has had a troublesome few weeks. Prior to crashing out of the UEFA Champions League Final with an injury, he was involved in a dispute with his national football association, the Egyptian FA, over the unauthorised use of his image.
Salah, through his image rights company, had a sponsorship agreement in place with telecommunications company Vodafone. However, the Egyptian FA had allowed his image to be used to endorse a competitor. This prompted outrage from Salah and his agent, and public outcry in Egypt in support of their most famous sportsperson, with "I support Mohammed Salah" trending online. This eventually prompted the intervention of Egyptian government officials to resolve the issue.
Image rights agreements have been used in sport for decades. We analyse the basic principles from a UK perspective below.
1. What is an image rights agreement?
Typically, under an image rights agreement, a player will license the rights to their "image" to their club who, in addition to paying the player a wage, will pay royalties for the use of the player's image. In the UK, "image rights" is a misnomer given that there is no standalone protection for use of one's image. As such, a player is not able to directly license rights to their image and in reality, the image rights agreement will in fact be a licence to a "bundle of IP rights", ranging from trademarks and social media handles to player likeliness.
2. Why enter into an image rights agreement?
Image rights agreements can often provide tax benefits to famous sportspeople. The player will often first license the rights to use their "image" to an image rights company ("IRC"), and it will be the IRC who enters into the agreement with the club.
Through using an IRC, the player pushes any taxation of the royalties into the capital gains tax regime rather than income tax regime. Given these tax implications, HMRC has taken an interest in these image rights schemes to avoid players benefitting from "disguised remuneration" and has introduced stringent conditions on their operation. These conditions include which individuals can make use of these schemes and guidance on the level of royalty payments that can be made.
Further, for UK residents, the IRC must be UK based. For a UK resident non-domiciled individual, however, a non-UK based IRC can still be effective for any funds that are not sourced in the UK. For example, Salah is based in the UK through his club Liverpool but the IRC involved in the dispute was based in the Cayman Islands. However, the agreement at the centre of the dispute was Salah's endorsement agreement with Vodafone Egypt and therefore was outside the jurisdiction of HMRC.
3. Commercial Realities
The Salah dispute exemplifies the commercial complexity of image rights agreements. Through using Salah's image without authorisation, the Egyptian FA was likely breaching its agreement with its sponsor as it would have assured the sponsor it had the ability to use the image of its player. Salah's IRC could also pursue legal action against the Egyptian FA for its unauthorised use, but such action would come in the weeks before the FIFA World Cup and pit a country's idol against its national ruling body. Further, and although not relevant here, clubs will also have comprehensive image rights agreements in place with its major players and therefore may have competing interests in scenarios such as the Salah dispute.
The disputes emphasises the need for clubs, national associations and IRCs to ensure they correctly "back to back" sponsorship agreements to ensure that they have the necessary rights they are purporting to license.
Tom Scourfield, Partner, CMS UK, Author
Tom Simpson, Trainee, CMS UK, Co-Author