The amount of endorsement money paid to athletes who compete in the United States but live overseas is under constant scrutiny by the Internal Revenue Service. Those payouts include income from trading card deals and a recent decision by the U.S. Tax Court could have implications for foreign players in every sport.
Pro golfer Retief Goosen challenged the IRS’ method for calculating the income he earned from sponsors and trading card maker Upper Deck.
The court papers offer some insight into how much Upper Deck pays for autographs and memorabilia and how much of it is taxed as income.
The case filed by the South African, and ruled on recently, will likely affect dozens of athletes whose face appears on trading cards and other licensed memorabilia.
The court sided with Goosen on some of the issues but also agreed with the IRS on others, including the amount of money Goosen received from Upper Deck that was taxable as U.S. income.
According to the court documents, Goosen entered into a 14-month letter agreement with Upper Deck in 2001, when the company jumped into the PGA golf trading card market. That was the same year Goosen won the U.S. Open for the first time (he won again in 2004). Upper Deck paid Goosen $42,500, giving the company the right to use his name and likeness worldwide in connection with the production, marketing, advertising, promotion and sale of Upper Deck’s cards. The documents reveal that Goosen “agreed to sign”3,500 trading cards per year as well as provide five shirts, five pairs of gloves, two hats and one golf bag, each of which he used during practice or in a golf tournament.”
That course-used gear, of course, was mostly cut into swatches for special insert chase cards in Upper Deck products.
Half of the endorsement fee was paid within 30 days of executing the agreement, and the remaining 50 percent was paid 30 days Goosen performed all required services under the agreement.
The court papers indicate that Upper Deck sold 92% of its golf cards within the United States, thus creating royalty income and a tax liability for Goosen on those sales to be reported on his U.S. return.
Goosen wasn’t considered a major star in the U.S. when the endorsement contract with Upper Deck was negotiated, so it’s likely the company paid significantly more to the more well-known American players with which it struck deals.
Still, the amount of money Upper Deck and other companies pay such athletes is a relative drop in the bucket compared to endorsement deals with equipment makers. Goosen’s contract with TaylorMade golf clubs included a base fee of $400,000 a year, plus bonuses based on his tournament wins and where he stood in the international golf rankings.
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