It was recently reported that Nottingham Forest FC’s Gustavo Scarpa fell foul to a targeted cryptocurrency scam in his native Brazil. The club also confirmed they had allowed him a period of leave to return home in an attempt to resolve the situation, and sadly this occurrence is becoming all too common within the professional sport sector.

In January of this year, world record 100m holder and 8-time Olympian gold medallist former athlete, Usain Bolt, reportedly also suffered at the hands of con-artists, with a staggering £10 million investment vanishing without a trace.

The trend continued two weeks ago with Craig Bellamy revealing he had been led astray by fraudsters and his financial mistake (which has ultimately ended in bankruptcy) was the result of a remarkable series of failed property investments, and a film-partnership tax deferral scheme that was targeted by HMRC.

To combat these occurrences, this article outlines why it is always prudent to seek professional legal advice when it comes to corporate investments, and explores what due diligence should be undertaken in each scenario to avoid these luring ‘honeypots’ and make fiscally responsible decisions.

By their very nature, investments into businesses (particularly the unregulated crypto asset space) can be risky, therefore it is vital to adopt a cautious approach. Combine that with a high-profile athlete and the amount of due diligence required from their perspective, it is evident that more factors are at play than for just a traditional investment.

The meticulous nature of due diligence (that should always be a pre-requisite for athletes’ advisers when assessing investment opportunities) must encompass a review and analysis of:

• The business itself and the product and/or service offering
• The sector
• The market
• Financial due diligence
• Company due diligence
• Legal due diligence
• Reputational impact on involvement in the business

Footballers, similar to the likes of Scarpa and Bellamy above, might be considered uniquely placed in how they accumulate their wealth. If effective at their trade, they may be well remunerated for their services in a comparatively short amount of career time in stark contrast to the other professions. However, that earning potential is also time-limited, and this applies across professional sport as a whole, with most athletes’ careers at the top level lasting no longer than 10-15 years. Accordingly, many athletes seeking financial advice may:

• be naïve, youthful and inexperienced;
• have substantial quantities of disposable income at that moment in time;
• have limited market and investment knowledge;
• not have factored in the need to plan for the future for when their career is over; and
• have devolved decision making to trusted advisers.

These circumstances create a scenario in which the pursuit of potentially high-risk investment strategies is made more likely. In addition, the belief may be that because an opportunity is presented to them with bold promises of outsized returns that there is limited downside risk for them in investing. With disposable income available to them, and potentially team mates also investing in similar sounding ventures, their instinct may be to invest first and consider implications later.

The film partnership scheme which led to Bellamy’s financial demise was designed to (legally) exploit heavy tax reliefs created by the government to promote investment in the UK film industry. The scheme generally involved the formation of a limited liability partnership (LLP) with each investor becoming a partner in that structure. The LLP would then acquire the rights from a film production company to utilise and distribute films for a defined period. The LLP would then lease those rights back to a film distributor under a sub-licence which required the distributor to make annual payments to the LLP for the same period. The lease agreement would consequently generate revenue for the LLP.

The glaring risk that was kept hidden from footballers (or indeed that their advisers failed to highlight) was the fact that the generous tax breaks that the scheme relied upon to offer a financial benefit were placed on an ambiguous legal standing, and at the mercy of being scrutinised and challenged by HMRC. Regrettably for the athletes involved, that exact situation transpired, and the ability to claim tax relief through film partnership schemes was devastatingly dismantled through legal challenges mounted by HMRC. Millions of pounds were lost for these athletes overnight, yet with the safety net of professional advice at the time Bellamy, amongst others, may have made different investment choices if presented with a different perspective as to the risk and effectiveness of the scheme.

Our (one might say self-interested or biased) view is that no investor is likely to ever regret obtaining professional tax, legal and financial advice and/or independent third-party scrutiny of their investment.