On image rights

Friday, 23 September 2011

I’m more interested in the Worlds right now but with allegations in the Corriere della Sera involving the notion of undeclared revenues and money being transferred around Europe, here’s quick mention of the subject of image rights.

First the pro cyclist is paid to ride a bike but the images of them doing this are valuable. As such some riders have a split salary, with a proportion for riding and another amount that is linked to the apparent value their success generates. Why do this? Tax is the main reason, for salaried income is taxed differently than earnings on intellectual property.

A classic method has been to set up a company in Luxembourg. British rider David Millar didn’t realise just how valuable this could be when he called a Cofidis contact in Luxembourg to ask about how much money he had been earning. “My image contract was paid into Luxembourg… I was stunned to be told I was sent to close to €400,000” he writes in his “Racing Through the Dark” autobiography. Beats finding a banknote in the pocket of an old coat.

Luxembourg royalty

No, not that kind of royalty

Just as they say New Zealand has more sheep than humans, Luxembourg is the kind of place where you can imagine more companies than inhabitants. It’s easy to incorporate and once the company is set up, it “manages” the image rights. In reality it just collects payments into a bank account. The difference here is tax, with Luxembourg taxing royalties at 6%. It depends where the rider lives but they often will be paying anything from 10-50% of their salary in income tax so you can see the incentive to channel a proportion of this via Luxembourg.

The difference between this and the apparent shenanigans of some Italian riders is a question of legality. Setting up a business in Luxembourg is legal but walking an undeclared briefcase of cash into a Swiss bank is not. But it is not always black and white, some money can go undeclared whilst some might channel excessive amounts under the cloak of “intellectual property”.

Either way, when you see a rider endorsing a brand of shoes or putting their name to a product this is the visible side of image rights but there can be an extensive cross-border financial operation behind this.

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{ 7 comments }

fmk September 23, 2011 at 12:32 pm

A lot more complex, as St David the Redeemed found out. Is one thing to have the money in Lux, is another to be able to spend it where you live. Once you start doing that, teh tax man wants his share of the booty.

Img rights are also where JV’s proposed salary cap falls flat on his face.

You should also check out the img rights clause in race rules. It seems to take up more space than anything else.

Flashing Pedals September 23, 2011 at 1:21 pm

the favoured method of ‘financial extraction’ and thus avoiding the attention of any tax authority,
(on the image right element, or simply the other bank account) is simply to pay tax correctly on salary.
and then have a company debit card for the offshore, which is used ad hoc.

Reno September 23, 2011 at 2:24 pm

hm.. fmk freely used my avatar-right (which is okay!)
all credits to be paid to piet mondriaan tho.

Ethan Glading September 23, 2011 at 5:44 pm

Have to take issue with one thing. “the images of them doing this are valuable” is not strictly true. Photos of pros riding their bikes are abundant and not worth all that much. The value lies in the implicit endorsement that is created when an image is tied to a product.

The Inner Ring September 23, 2011 at 6:28 pm

Ethan Glading: you expressed it better, that is what I meant. They are not selling actual visual rights of course.

Guadzilla September 23, 2011 at 9:35 pm

Not related to this post, but has Livestrong purchased Velonews while I was away on my Himalayan riding holiday? I dont see ANY mention of the Ferrari case or the money laundering investigation on Velonews.

JESSEDZIEDZIC October 20, 2011 at 7:21 pm

That was very descriptive read.

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