Understanding Football Contracts & Image Rights

In the world of professional football, we see these huge sums of money being offered to players, however, beneath these eyewatering figures lie a complex financial landscape that players have to navigate.

From the moment young players signs their first professional contract, the financial dynamics of their career start to unfold. These players, often in their late teens or early twenties, are thrust into a world where their performances on the pitch are directly tied to their financial rewards.

Club contracts and image rights deals form the bedrock of their income, and with the additions of bonuses and endorsements, they can earn significant money.

A football player is typically an employee and is paid accordingly. However, in recent years, players have gained a better understanding of the value of their image rights and have begun establishing limited companies to manage these deals. This practice has now become common among elite players.

This not only optimizes their tax liabilities but also provides a structured approach to handling various sources of income. This article delves into the various components that constitute a football player’s income and expenses with regard to their club contracts.

Employment Contracts

• Base Salary: At the core of a football player’s income is their base salary, which is agreed upon in their contract with the club. This salary is typically paid monthly or bi-weekly and is the most stable and predictable part of their earnings.
• Signing Bonuses: Upon signing a new contract, players often receive a lump sum as a signing bonus. This can be a significant amount, especially for high-profile transfers.
  

It has been reported that Kylian Mbappe’s Real Madrid contract is for five years, earning him €15 million (£12.7m) per year (base salary) and receiving a signing-on bonus of €150m (£127.7m).His signing-on bonus is so huge due to him being a free agent after his PSG contract had ended.

• Performance Bonuses: Clubs often incentivize players with performance-related bonuses. These can include:
  • Appearance Bonuses: Payments for each match a player participates in.
  • Goal & Assist Bonuses: Rewards for scoring goals or providing assists.Mohamed Salah allegedly received a bonus of £2.5 million from Liverpool after his first season due to breaking the thirty-goal barrier.
  • Clean Sheet Bonuses: For defenders and goalkeepers, bonuses for maintaining a clean sheet. Virgil Van Dijk is rumoured to have a clean sheet bonus of £250,000.
  • Win & Draw Bonuses: Additional payments for each match won or drawn.
• Team Success Bonuses: Players often receive bonuses tied to the club’s overall success, such as winning a league title, domestic cup, or progressing to certain stages in European competitions. It was reported that Manchester City’s treble success during the 2022/23 season led to each player receiving £2 million.
• Loyalty Bonuses: To encourage long-term commitment, clubs might offer loyalty bonuses, which are paid out if a player stays with the club for a specified period.

Image Rights

Image rights refer to the commercial use of a player’s likeness, including their name, image, and signature. Players often have separate contracts for these rights, either with their club or third-party agencies. These rights can generate substantial revenue through merchandise sales, advertisements, and other commercial activities.

As mentioned already, to manage image rights more effectively, many football players set up a company entity. This system allows a player to receive income through the company, which is then subject to corporate tax rates rather than personal.

These rates are often lower than the personal income tax rates, leading to potential tax savings. Additionally, players can pay themselves a salary and dividends from the company, which can further optimize their tax liabilities.

Here are some examples of players and their image rights companies;

• Manchester City defender, John Stones has built a £15m nest egg in his image rights company
• Manchester United attacker, Anthony Martial has collected £8m in his image rights company.
• Paul Pogba, has retained a UK image rights company with assets worth £5m. He likely has another image rights company in Italy.

Professional Expenses

While the incomes of football players are significant, they also incur substantial expenses. These include:

• Agent Fees: The FIFA Football Agent Regulations (FFAR) has recently proposed to cap service fees for football agents at no more than 5% of a player’s salary that is under USD $200,000, with a lower threshold of 3% when a player’s annual salary is more than USD $200,000, however, these caps will not be enforced in England due to recent legal proceedings.Agents play a crucial role in negotiating contracts, and while they sometimes receive negativity based on the assumption they do little work for a lot of money, it’s just not the case. An agent’s role goes way beyond contract negotiation.
• Taxes: Players are subject to income tax in the countries where they play, which can significantly reduce their net income. Rates vary, but in the UK for example, the tax rate is 45% for PAYE employees earning over £150,000 per year.A player earning £1,000,000 per year will be subject to the following tax of approximately £431,175. Ouch!
• Insurance: To protect against potential career-ending injuries, players often take out significant insurance policies, which come with hefty premiums. These can vary depending on the value of the player’s contracts for example.

Financial Management

Due to the complexity and magnitude of their finances, many players employ financial advisors to help manage their wealth, investments, and tax obligations. Sound financial management is crucial to ensure long-term financial stability, especially considering the relatively short career span of professional athletes.

How they are paid can vary depending on the complexity of the project and what exactly is required. Retainers, one-off annual fees, and often a percentage of profit can be implemented for financial managers who are tasked with generating revenue through investments on behalf of the player.

The financial ecosystem of a football player is multifaceted, combining substantial earnings from club contracts and image rights, alongside significant expenses and financial management needs. Understanding this intricate balance is key to appreciating the financial realities of life as a professional footballer.

Note: I’ve not covered commercial deals like brand campaigns and sponsorship as I want to cover that in another article.

Written by David Skilling