Insights

Sports people: handling a break in earnings

  • Written By: Peter Fairchild
  • Published: Thu, 02 Apr 2020 12:00 GMT

Efforts to halt the spread of coronavirus have hit the sporting world hard. The Premier League is suspended until at least the end of April, the Olympics until next year and many other sporting fixtures postponed or cancelled. Unable to play, sports people may already be seeing a hit to their income.

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In recent years, it has become commonplace to place greater emphasis on performance-related pay. As such, the ‘guaranteed’ part of a sports person’s income has shrunk. While they are playing, winning and receiving bonuses, this shift may have gone largely unnoticed. However, the abrupt halt to activity brought about by the coronavirus may have brought it sharply to light.

If players can’t perform competitively, they can’t earn appearance fees or performance bonuses. It may be that sponsorship revenue is also tied to appearances – a ‘fee per wear’ model. In many cases, sports people will be thrown back on their standard or guaranteed income, which will be subject to PAYE deductions for income tax and NICs in the usual way.

Some sports teams have taken it a step further. Birmingham City has asked those players earning more than £6,000 per week to accept a 50% cut for the next four months by the club. As it stands, it is the first to do so in the Championship, but others may follow. Clubs are reliant on gate receipts and the shutdown has impacted their cash flow as well.

Cash flow

Many sportspeople have grown used to a certain standard of living and have come to rely on these ‘extras’. That is understandable. The impact of the coronavirus has been extraordinary and unprecedented and few could have predicted their income would have evaporated so quickly - except in the case of injury for which most sports people have insurance.

It is worth saying that once the season resumes, then the player (if picked) can get back out onto the pitch and help their team secure a league victory in order to be eligible for the performance bonus. Birmingham City has said it will pay back wages over time. Over time, it is possible that income levels may even out, but in the short-term there may be cash flow problems.

There is another, final, consideration. The position for footballers could be compounded if the player’s club contract runs out on 30 June 2020 and the league continues beyond then. In theory, they will no longer be employed by the club and may not be entitled to any additional pay. It is not yet clear whether they will receive a short term contract for the period post 1 July 2020, and what will happen if they don’t. Will clubs and players be forced into extending contracts due to end on 30 June 2020 until the current season is finished? We are waiting for guidance from the sports authority on this point.

Cutting back

The majority of professional sportspeople will not be used to adjusting their spending in these fluctuating circumstances and may be tempted to rely on (readily available) debt options. There are better options, however. It may be possible to put a short-term halt on certain expenditure. If a player has capital spending plans – a renovation project, a new car – they should put this on hold. Equally, if a player puts a lot into their savings each month, it may be possible to hold back on this for two or three months as needed - though this would be inadvisable as a long-term strategy.

The key is to have a plan. There are always options. Rather than worrying at home as the bills come in, we would encourage sports people to talk to us. We can guide you through your choices at this unusual time.

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DISCLAIMER
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of publication.

Please remember investment involves risk. The value of investments and the income from them can fall as well as rise and investors may not receive back the original amount invested. Past performance is not a guide to future performance.

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