21 July 2003
The commercial and legal logic of David Beckham's move to Real Madrid has the potential to confound both seasoned observers of the game and lawyers alike.
In particular, there are two such issues that go to the heart of the arrangement, one legal, the other commercial. The legal one is: what are these 'image rights' that have caused Real Madrid to pay so much money? The commercial one is: why should a team as packed with stars as Real Madrid pay around e25m (£17.5m) (plus bonuses), together with a princely 'wage' (football's working class ethos having always eschewed anything as middle class as a salary) to secure Beckham's services? This article will describe how the answer to one question leads directly to the answer of the other.
A core element of the transfer was Beckham's 'image rights'. According to newspaper reports, when playing for Manchester United, Beckham's £70,000-a-week 'wages' were supplemented by a weekly payment of £20,000 for those image rights. Further
more, he supplemented those earnings with a further £10m generated from personal endorsements and sponsorship deals with commercial giants such as Adidas, Pepsi, Police sunglasses, Vodafone and Marks & Spencer.
On his move to Real Madrid, it is said that Beckham will continue to be paid a wage comparable to that paid by Manchester United, will keep some of his existing personal endorsement contracts until their expiry and will receive 50 per cent of any revenue generated from his image rights.
While clearly having immense practical value, image rights are not recognised as a species of right under English law. As Cambridge University's Professor WR Cornish puts it in his book Intellectual Property (fourth edition, paragraph 16.34), English law "steadfastly refuses to adopt any embracing principle that a person has a right to his or her name, or for that matter, to identify a characteristic such as voice or image". Therefore, the conventional English law position is, and in essence remains, that there is no such animal as image rights.
This no doubt explains the extreme scepticism which greeted image rights agreements (and payments under those agreements) between English football clubs and players during the early 1990s. After the rush of money into the English game following the first Sky deal in 1992, the Premier League had the opportunity to buy the best European talent available. While a transfer fee was something everyone understood, the way in which top players were paid differed in Europe from England. European countries, unlike England, do respect image rights and players coming from those countries expected to be paid for them.
This caused the Inland Revenue no end of tongue-in-the-side-of-the-mouth perplexity. It did not understand how players could be paid for rights that their lawyers were telling them did not exist. It was all too aware of the sometimes 'colourful' ways in which some football clubs did business. It suspected that this was a device, on the part of clubs and players, to pay players large sums of money tax-free, benefiting both club and the player.
The doubt and suspicion over the nature of image rights culminated in a decision by the Special Commissioners in April 2000. In Sports Club, Evelyn and Jocelyn (Arsenal, Bergkamp and Platt to you and me) v HM Inspector of Taxes, the Special Commissioners considered whether payments for image rights were payments made for valuable consideration or whether they were simply a tax dodge.
The Special Commissioners held that the image rights agreements were genuine commercial agreements. While adopting the traditional English approach that image rights as a species did not exist under English law, the Special Commissioners found that the name 'image rights' did not adequately describe the nature of the agreements. By image rights, what they thought was meant was that "image rights were the ability to make money out of contracting with companies to do things for them, and were an opportunity to make money out of the fact that one was very well knownâ€¦ What in practice [Arsenal] was getting from the promotional agreement was a series of contractual obligations both positive and negative; positive in the sense
that the player would, if called upon to do so, do certain things like endorsing products or going to photoshoots, and negative in the sense that he could not undertake such activities for others."
While not recognising image rights as a creature of English law, the courts in the Arsenal, Bergkamp and Platt case, and more recently in the Talk Sport case, have come very close to recognising the substantive content of such contracts. In Irvine v Talk Sport, the defendant radio station had embarked upon a promotional campaign using a promotional flyer which was distributed to media buyers bearing a photograph of Eddie Irvine clutching a portable radio, to which the words 'Talk Radio' had been added. The photo itself had been doctored from one in which Irvine was holding a mobile phone. Irvine complained that the use of his image in that way represented actionable passing off.
He succeeded. In the first instance, Mr Justice Laddie accepted that the reality of the marketplace was that manufacturers and retailers pay for well-known personalities to endorse their goods, and that the law of passing off should recognise this. Using Irvine's image without payment, therefore, was tortious and actionable.
Showing scant regard, however, for the "realities of the marketplace" Judge Laddie awarded Irvine £2,000 in damages, which he considered was a reasonable endorsement fee. The Court of Appeal, while agreeing with Judge Laddie's analysis of the law, showed a rather more seasoned eye for the realities of the marketplace and upped his fee to £25,000.
Therefore, albeit uncomfortably, image rights of the kind exploited so successfully by Beckham have come to be recognised as legitimate interests capable of protection by the English courts. In this respect, however, the English courts have lagged behind their Continental counterparts. In Spain, Article 18 of the Spanish Constitution entitles anybody to forbid the commercial use of their name other than for purely purposes of information. Real Madrid would have a very shrewd idea of what it was doing when it signed Beckham.
The second question that we now turn to is: why would a team such as Real Madrid, peppered with stars as it is, feel the need to spend so much money to secure Beckham's services? The answer is pure economics. In a fascinating article in Soccer Analyst in 2002, Jean Berg and Fabrice Rousseau of Eston & Co Strategy Consulting asked the rhetorical question: "Is Zidane worth more than e69m?" Again, this was in the context of a huge transfer fee paid by Real Madrid.
The acquisition of French international Zinedine Zidane was in financial terms even more striking than that of Beckham. e69m (£48.4m) represented 60 per cent of Real Madrid's 2001 turnover. In playing terms, Real Madrid was not doing badly. The club had won the Champions League in 1998 and 2000 and the Spanish title in 2001.
The authors concluded: "Zidane's transfer does not stem from a desire to improve the sporting value of the squad. Its rationale comes from the player's impact on Real Madrid's turnover. By combining Zidane's image, the club enhanced the value of its brand. The transfer's profitability is highly dependent on the club's ability to optimise the management of the brand, rather than on the sporting results of Zidane. Real Madrid can afford to pay e69m for the player because the club is able to generate above-average income streams from Zidane's image."
Looked at that way, the Beckham transfer fee is almost a bargain. Already Real's kit manufacturer Adidas has reported a 350 per cent rise in demand for the club's replica shirts. Thus, even if Beckham finds himself a spectator rather than a participant in many games, he was still proven to be an extremely shrewd investment for the world's most successful club.
Mark Gay is a partner in Denton Wilde Sapte's sports and leisure group