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Taxing Away the Stars

2010 August 6
by Skip Sauer

From today’s FT.com:

Britain is driving away international sports stars and missing opportunities to host lucrative sporting events because of a tax practice that nets the exchequer a paltry £7m a year, a consortium of sports bodies has warned the government.

The Inland Revenue’s approach to taxing the money foreign athletes earn from endorsements has come under fire in recent weeks after the sprinter Usain Bolt said he would not be participating in the Aviva London Grand Prix, an athletics competition to be held at Crystal Palace next weekend.

Bolt, who holds the world records for the 100m and 200m events, would have had to forfeit more money to the Revenue for the few days he spent in London than he could have earned in prize winnings at the tournament.

A policy change in 1999 made endorsement income taxable, based on the proportion of days spent competing in the U.K.  This may be a bit presumptuous — it seems unlikely that Bolt’s endorsement income will increase in proportion to this weekend’s track meet.  I may also be counterproductive in a world where only a few countries — including the U.S. — employ this policy.   But from a political economy perspective, the pattern of exemptions looks predicable:

The government has granted an exception to the law for athletes competing in the 2012 London Olympics. An exemption has also been given to footballers playing Champions League games in the UK – although the levy has not generally been applied to team sports.

Pete Hackleton, co-author of the RSM report, said: “Exemptions have only been given to the highest profile events, whereas in many ways it’s the lesser events held in the UK that would benefit most from exemptions.”

4 Responses
  1. Damon permalink
    August 7, 2010

    Britain is, “missing opportunities to host lucrative sporting events,” passes without comment why? Also from the article, “[RSM] argues that the £7m would easily be offset by the positive economic impact of hosting sporting events. One estimate of the benefit of the Ryder Cup to the wider economy in Wales, for example, puts the figure as high as £96m.” These kinds of zero-data estimates are normally torn apart. But why not in this case?

  2. Skip Sauer permalink*
    August 7, 2010

    Damon,

    That’s a fair comment. Why not in this case, you ask? We do make that point all the time, but there is more to this site than that, and the highlight here is different. The main point is that fans don’t get to see certain athletes perform due to the tax. We like sport, we just don’t believe in inflated numbers.

    Skip

  3. Dan permalink
    August 11, 2010

    Sporting events can be lucrative but it depends on how much public money is being used to put it on. Spending $2 to bring in $1 will never make economic sense even if a politician thinks they can make it up in volume

  4. August 16, 2010

    re: Dan’s post.

    It may be worth a loss to the government to increase the happiness of the population. I’m thinking about Zymanski’s (sp?) chapter in Soccernomics on World Cup subsidies.

    My guess is that same sort of reasoning animates this tax and its exemptions. It’s why everyone will get to see the best athletes compete at the Olympics in London in two years and is why Champions League players have been reassured they will face no additional tax. I’d guess these are the events that people care most about. I think that is the point S.S. was making when he wrote the pattern of exemptions looks predictable. In point of fact, the tax (and its exemptions) is tailored to benefit the people, not the promotors/sponsors of events like the Aviva London Grand Prix.

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