Protecting Image Rights of Athletes with Index Universal Life Insurance (IUL)

In the fiercely competitive world of professional sports, an athlete's likeness rights are a goldmine. Think Cristiano Ronaldo or Lionel Messi – their faces are plastered on everything from boots to billboards, generating enormous wealth.

Image rights are the legal rights of an individual to control the commercial use of their name, likeness, image, voice, and other personal attributes. These rights allow individuals, particularly athletes and celebrities, to monetise their personal brand through endorsements, merchandise, appearances, and other commercial activities.

These rights are incredibly valuable, so protecting them is important. Discover how Index Universal Life Insurance (IUL) provides a powerful solution for athletes and their image rights companies –  offering financial security both during and after their careers.  We'll explore how an image rights company's IUL policy can even supplement an athlete's income in retirement.

What is an Image Rights Company?

Image rights companies act as the guardians and monetisers of these valuable assets. They are specialised entities, often established with the guidance of agents and tax advisers, that handle the contracts, licensing agreements, and other commercial aspects of the athlete's image. This ensures that the athlete's brand is protected and their earning potential is maximised.

These rights encompass an individual's control over the commercial use of their name, image, voice, and signature. For high-profile footballers, protecting their commercial image is paramount, as their personal brand translates into significant income through endorsements, sponsorships, and merchandise. This is where image rights companies come into play.

Protecting Athletes' Image Rights with Index Universal Life Insurance

Using life insurance to protect likeness rights involves obtaining a life insurance policy on an individual whose image generates significant commercial value—such as a celebrity, athlete, or public figure. This strategy aims to financially safeguard against the loss of income that would occur if the individual were to pass away or suffer a career-ending terminal illness. The life insurance proceeds provide compensation to the policyholder or beneficiaries, offsetting the loss of future earnings tied to the individual's image rights. This ensures financial security and continuity for businesses or entities that rely on exploiting these likeness rights commercially.

Example of How IUL Protects an Athletes Image Rights

To illustrate how this might work, let's consider a 24-year-old Premier League footballer. Imagine this player earns a £5,000,000 annual salary.

In accordance with Premier League regulations, up to 20% of this salary can be paid to an image rights company, meaning this player's image rights could generate up to £1,000,000 per year.

Assuming the player has ten years left at the top level of football, their image rights could generate an estimated £10,000,000 over this period.  However, this is a conservative estimate. Consider the potential for increased marketability as the player enters their prime, secures lucrative new contracts, and potentially achieves international stardom. This could significantly increase the value of their image rights, as well as other endorsements.

To protect against the potential loss of this income, the image rights company could buy a life insurance policy on the player. The amount of coverage would be determined by considering factors like the player's age, health, career trajectory, existing contracts, and future projections.

In our example, let's say the company decides to insure the player for £7,500,000, representing 75% of the estimated image rights revenue over 10 years.

If the player unfortunately passes away, the image rights company would receive a £7,500,000 death benefit. This payout would help offset the loss of future revenue, ensuring the company can meet its financial obligations and potentially continue operations.

However, in the more likely scenario that the player remains healthy and completes their career, the IUL policy, can continue to grow in cash value, potentially providing retirement income for the athlete from their image rights company.

This example highlights how life insurance can be a crucial tool for protecting an athlete's commercial value and ensuring financial security for those who rely on it.

Financial Planning for Athletes with IUL

Index Universal Life (IUL) insurance offers athletes and their image rights companies a dynamic financial tool with diverse benefits including a safer approach to wealth building, career retirement planning and financial security.

For the Athlete:

• Tax-Deferred Growth:  A key advantage of IULs is the ability for cash value to grow tax-deferred. This means athletes can accumulate wealth without the drag of annual taxes, allowing for faster growth. This can become especially valuable when they transition to retirement and need to draw on those funds.
• Retirement Income Stream:  IULs can be structured to provide a steady stream of income during retirement.This can supplement other income sources and help maintain a comfortable lifestyle after their sports career.
• Legacy Planning: The death benefit ensures financial security for the athlete's family or beneficiaries, providing a safety net in case of unexpected events.
• Creditor Protection: In some jurisdictions, the cash value within an IUL may offer some level of protection from creditors. This can be crucial for athletes who may face financial challenges or lawsuits.

For the Image Rights Company:

• Flexible Funding: Policy loans can be used to fund athlete endorsements, marketing campaigns, or even invest in new ventures. This provides access to capital without liquidating other assets.
• Tax Advantages for the Company:  Depending on the jurisdiction and how the IUL is structured, there may be tax benefits for the image rights company as well. This can enhance the overall financial efficiency of using an IUL.
• Attractive Compensation Tool: Offering an IUL as part of an athlete's tax planning and wealth structuring package can be a powerful incentive. It demonstrates a commitment to their long-term financial well-being and can attract top talent.

In addition, IUL's offer:

• Downside Protection: Unlike direct market investments, IULs often have a floor on their returns, meaning the cash value won't decline from stock market losses even if the market performs poorly. This provides peace of mind and protects the athlete's financial future.
• Less Volatility: IULs allow participation in market gains while limiting losses. This offers the potential for strong returns without the volatility of direct stock market investments.

Understanding Insurable Interest and IUL

The concept of 'insurable interest' is central to using IUL effectively for an image rights company. An individual or entity can only insure something if they would suffer a financial loss if it were damaged or lost - they have an 'insurable interest'. This principle is particularly relevant in the context of athletes' image rights. Here's how it applies to an image rights company and a sports person:

Structure of the Relationship:

• Sports Person: The athlete with significant marketability whose likeness rights generate substantial income.
• Image Rights Company: The separate legal entity that manages and commercialises the athlete's commercial image.

Justifying Insurable Interest:

• Financial Dependency: The image rights company relies heavily on the athlete's image and performance for its revenue.  Any event that diminishes the athlete's ability to generate income from their image rights directly impacts the company's financial health.
• Economic Loss: The athlete's death or incapacitation would lead to significant financial losses for the company, including lost contracts and future earnings. This loss can be substantial, potentially jeopardising the company's existence.
• Legal Relationship: The image rights company has a legitimate right to protect its financial interests. As a separate legal entity, it is entitled to safeguard its assets and ensure its continued operation.
• Key Person Insurance Analogy: The athlete is essentially a key person to the image rights company, similar to a crucial executive in any business. Just as a company would insure a CEO whose skills and leadership are vital to the business, an image rights company can insure the athlete who is the source of its revenue.

Securing the Future: How to Successfully Obtain IUL Coverage for Image Rights

• Documented Evidence: Provide contracts, financial statements, and agreements that demonstrate the company's reliance on the athlete's image rights. This evidence should clearly show the financial relationship between the athlete and the company, highlighting the potential losses in case of the athlete's death or disability.
• Risk Assessment:  Clearly explain the potential financial impact on the company if the athlete were unable to contribute to its income. This assessment should include a detailed analysis of the various risk factors, such as the athlete's age, health, sport, and career stage.
• Purpose of Insurance: Emphasise the multifaceted role of the IUL policy – to protect the company's financial security, provide retirement income for the athlete, and offer access to policy loans for financial flexibility. This will demonstrate the strategic importance of the IUL policy in the overall financial planning for both the athlete and the image rights company.

Don't leave your valuable image rights unprotected. Capital for Life can help you leverage the power of IUL insurance for long-term financial security. Get in touch to explore your options.

Disclaimer

This article is authored by Carlton Crabbe, Chief Executive Officer of Capital for Life, a specialist indexed universal life insurance broker. The information provided in this article is for educational and informational purposes only and should not be construed as financial or investment advice. While the author possesses expertise in the subject matter, readers are advised to consult a qualified financial advisor before making investment decisions or purchasing life insurance products.