When Lionel Messi was honored with FIFA’s star player award, the Ballon d’Or, on January 10, no feisty tax collection agents jumped on stage to enforce a collection lien and sell the award statue at a tax auction. But the star of FC Barcelona and Argentina’s AFA national team has large tax problems that are getting increasingly serious. These are providing a lesson to all athletes that athletic excellence alone cannot undo the difficulties caused by ineffective preparation and decisions in personal financial management.
A one year prison sentence handed out earlier this week to Messi’s fellow FC Barcelona and Argentine National Team player Javier Mascherano for underreporting taxable income has raised the stakes for Messi. The Mascherano case might also add pressure to accept a very unfavorable deal from prosecutors. Messi and his father, Jorge Messi, have been charged with three counts of tax fraud and could be sentenced to nearly two years in prison if found guilty. The charges on file assert underpayment of approximately US$ 4.4 million in taxes for the three tax years 2007 to 2009. This leaves the possibility that additional charges might be filed for tax years 2010 to 2014. Fellow FC Barcelona player Neymar Junior has been charged with tax fraud in Brazil, which has frozen some of his financial accounts until further reporting or a financial settlement clarify his situation.
The details of prosecutors’ charges in Lionel Messi’s tax case are similar to the practices that got Javier Mascherano in trouble. That is the creation of a separate corporate entity in a tax shelter nation to receive licensing revenues from Messi’s image, name, and other personal attributes. There is no dispute that either player paid all of the income taxes due in Spain from their salaries and bonuses as soccer players for FC Barcelona. Fashion maven Paris Hilton has used a very similar corporate structure in the British Virgin Islands to book royalties from the use of her name and image in hundreds of business deals and to date, the U.S. tax authorities have not challenged Ms. Hilton’s decisions.
But Spain is not the U.S. Spain’s tax laws are different and after a series of financial crises, the tax authorities are going after alleged underpayment of taxes with noticeable zeal. The ongoing case against King Filipe’s sister, Princess Cristina, is yet another high profile case being publicized. The case’s connections to sports business have additional ramifications for the sports world. The case charges Princess Cristina and her husband Inaki Urdangarin, a former Olympic handball champion, with leading improper financial reporting at Instituto Noos, a non-profit that organized sports business conferences at Spanish resorts.
Javier Mascherano, who plays defense for FC Barcelona, is looking at a defense tactic that could have significant implications for many other wealthy athletes. FC Barcelona published a statement by the player asserting that he may take legal action against the tax advisors who recommended the tax shelters that have now caused him so much grief.
Ironically, this week’s sports news includes the oddity that Canadian sports lawyer Richard Maclaren, the arbitrator who made the initial rulings for the Tennis Integrity Unit in the “Tennisgate” scandals, is about to be sued for defamation by VTB Bank of Russia. VTB objects to Maclaren’s statements in reports regarding another sports organization much in the news, the IAAF. If Maclaren cannot successfully defend himself or is forced to settle, this will put the sports world on the brink of chaos. Think about it. If the ultimate authority for integrity in a major sport is found guilty of violating the law himself, who is actually qualified to determine which athletes are following the rules and which are not?
These messy details show that the level of preparation of many multi-millionaire athletes to manage millions of dollars in assets is woefully inadequate. Messi’s official biography and the FC Barcelona website highlight heartwarming details of the player’s education at the FC Barcelona Youth Academy. Obviously, that education did not cover personal financial management. From time to time, the NFL has talked about providing more counseling to players to reduce the amount of negative reporting about athlete bankruptcies and financial excesses. It appears that this has never progressed beyond unhelpful commercial lead generation programs in which self-styled financial consultants pay to get a chance to pitch their services to unwitting and unprepared athletes.
Financial mismanagement is turning out to be a part of the sports world where “taking it to the next level” is not a good thing. To date, the only response that can be seen from team owners and sports federation management is a level of helplessness that is anything but athletic.