As the post-Olympics glow fades, U.K. policy makers are trying to figure out how to keep the flame of British sports burning. They could start by changing Her Majesty's tax laws. After Jamaican sprinter Usain Bolt won his third gold in London last week, reporters asked him why he doesn't compete in the U.K. more often. "As soon as the law changes I'll be here all the time," he said.
Punitive tax policy had kept the world's fastest man from competing in Blighty for the past three years. Explaining Mr. Bolt's decision to skip a 2010 race in London, his agent told reporters: "He will earn a lot less by competing in Britain if he maintains his current endorsement level." Mr. Bolt competed in Paris that August instead.
Few high earners in other fields would choose France over Britain on tax policy, but athletes are a different story. The British government has granted an exemption to income linked to Olympic and Paralympic competition. But normally Britain takes a cut of an athlete's worldwide endorsement earnings—that means overseas sponsors in addition to those in the U.K.—proportional to the time spent in Britain. By comparison, the U.S. only taxes nonresident athletes on endorsement fees paid by American sponsors. France does the same.
So if in a given year Mr. Bolt ran in six races, one of which was in Britain, Her Majesty's government could collect income tax on one-sixth of his total income from sponsorships. Given that Mr. Bolt's contract with Puma alone is worth $9 million annually, the final U.K. tax bill for a single London race could dwarf his appearance fee, which has been in the range of $150,000 to $250,000.
Mr. Bolt isn't the only star athlete with a knotty relationship with U.K. tax law. In 2006, tennis champion Andre Agassi lost a legal battle to avoid paying U.K. income tax on endorsement deals with overseas sponsors. Rafael Nadal excused himself from this year's Aegon Championships, the traditional warm-up to Wimbledon, on fiscal grounds: "I am playing in the U.K. and losing money. I did a lot more for the last four years, but it is more and more difficult to play in the U.K." Mr. Nadal competed in the Gerry Weber Open in Germany instead.
Superstars like Messrs. Bolt and Nadal can tailor their professional schedules to maximize earnings without risking damage to their fame or competitive standing. So the best athletes stay out of U.K. competitions, the events have less popular appeal, fewer people attend, and the country forfeits both the economic activity and the tax revenue. The lesson is that taxes influence behavior, and punitive taxation hurts everyone, not least the punitive nation.
Thursday, August 16, 2012
2:28 PM dhm