Cameron Smith. Harry How
No, the winner of this week’s Open Championship and its $3 million first-place cheque won’t be a hardship case who will have to hitch-hike home. However, competing in a UK tournament as an American-based player can be shockingly expensive — and not just because of the cost of flying private across the Atlantic.
The United Kingdom has some of the most aggressive tax laws in the world — so aggressive that for years many athletes have relocated from there to tax havens like Monaco or the Bahamas or have refused to play in non-major events because it just doesn’t make financial sense.
Unlike virtually every other taxing authority, the UK goes beyond taking a chunk of prize money as income tax and hits athletes for a representative percentage of their overall endorsement money for the days they compete on UK soil. For example, take Rickie Fowler’s experience at the Scottish Open last week. He earned $36,255 for finishing T-42. If he makes, say, $5 million in annual endorsement money from Cobra and Puma, that works out to be about $13,700 per day. For two practice rounds and four days of tournament play, that comes to roughly $82,200, so Fowler’s tax liability would be based on $118,455 ($36,255 in prize money plus $82,200 in prorated endorsement earnings) before expenses. That equates to about $36,000 in tax liability, and Fowler was still on the hook for travel, lodging, caddie expenses and champagne and strawberries at Wimbledon. The week was almost certainly a net loss for him.
How will Sunday’s Open champion fare? Twenty per cent of the $3 million first-place cheque will be withheld for UK taxes right off the top, which leaves $2,400,000. Let’s say Rory McIlroy goes back-to-back after winning the Scottish Open. The chunk of his $44 million off-course earnings he gets for sponsorship and endorsement — think Nike and TaylorMade — are subject to tax for the number of days he was in the UK, too. That could work out to be more than $100,000 per day in income the UK considers when tabulating the bill. Given the way the UK’s tax brackets work, McIlroy could expect to pocket about 40 per cent of the $3 million, or $1.2 million, before expenses are taken into account. A nice pay day, to be sure, but that’s a big cheque to write to HM Revenue & Customs.