Since the early 1990s the globalisation of football has brought the ‘beautiful game’ to the households of billions and has made its players superstars and sporting icons. According to FIFA, footballs governing body, there are 38 million professional players around the world. The growth in the game in the past decades can be attributed to huge scale investment from businesses selling television rights and sponsorship deals that have generated an extraordinary influx of revenue for the game. This has driven a market for players that is now of a truly global dimension. More and more players are landing contracts with teams outside of their countries and wages are reaching unprecedented figures. The most in demand players are selling their image rights which results in vast income for these players. Large-scale investment and the rapid globalisation of the game however, has left the football sector significantly vulnerable to financial crime and most notably fraud and tax evasion.
A major concern for financial crime concerns stems from the existence of players’ image rights and sponsorship contracts. Players sell their image rights to clubs and other businesses in order to monetize their image. The key distinction to be made is that players are able to treat income from playing and income from image rights as separate, allowing players to establish image rights companies. These companies are part of complex financial operations using offshore shell companies to get around tax laws. Given the global reach and popularity of footballers, there is great financial incentive for players to create their own Image Rights Company (IRC) as it could save them millions in tax.
Recent high profile examples of such practices include the criminal convictions of Cristiano Ronaldo and Lionel Messi. In the cases of Ronaldo and Messi they argued that this income from image rights was not earned in Spain, meaning there was no reason to declare this to the Spanish authorities. Ronaldo used shell companies based in the British Virgin Islands and Ireland, whilst Messi used tax havens in Belize and Uruguay. Both players have made careers out of dodging defenders, however they were unable to dodge the Spanish authorities. Messi was found guilty of defrauding the Spanish authorities of 4.1 million euros in which he was made to pay back whilst Ronaldo was handed a 21million euro fine in his case for evading tax of 14.7million euros. Both cases are by no means unique but they remain the most high profile to date. Nevertheless both illustrate the vulnerability of the football sector to financial crime. More recently in 2019, HMRC confirmed that it is investigating around 170 players tax affairs focussing on the taxation of image rights. HMRC have stated that it ‘is successfully tackling risks in the football industry, including image rights and agents fees, and has brought in £355 million in additional revenue from its compliance activities since 2015’.
Whilst it is clear is that some steps are being taken to clamp down on these criminal practices, no uniformed approach to tackling tax evaders across football exists. The European Commission has recently published a ‘Supranational Risk Assessment of money laundering and terrorist financing facing the European Union and its 28 member states’. The commission has identified the threat of financial crime in football to be significant and has outlined a number of measures it believes should be adopted to combat financial crime.
The measures proposed that are relevant to curbing tax evasion include:
Players’ agents, clubs, federations, confederations, companies and individuals should be required to report suspicious activities to statutory authorities;
requiring football clubs to keep records of every contract and related mediation contracts for at least 5 years;
applying more requirements for control and registry of the origin of the account holders and the beneficiaries of the money that is remitted to tax heavens;
Further mechanisms should be designed in order to try to get third countries to provide all information, in a timely manner, when requested;
The proposed measures by the Commission will actively tackle financial crime in football however its successful implementation requires the backing of footballs top governing body FIFA. This however will remain difficult given the scandals have embroiled FIFA recent years. Accusations and indictments have been levelled against FIFA of fraud, collusion and money laundering. As FIFA attempts to restore its reputation and purge itself of corruption and scandal it appears that wholescale radical changes requested by the Commission will remain a low priority. It seems that for now combating financial crime in football will remain a continuous uphill struggle for national government.
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By Gregory Collis, Junior Consultant at Lysis Group