• Service Industry
• Sport Needn’t Be Taxing
• Bolt Guns Against The Revenue

With exactly two weeks to go before the opening ceremony of the 2012 Summer Olympic Games, officially the Games of the XXX Olympiad, the best athletes on the planet are eagerly making their way through two-hour queues out of Heathrow, via the diversions on the M4 to London for the Olympics and toward their moment of glory. Meanwhile, forex traders muddling by on the meager pickings of their market skills and a bit of good fortune here and there would be forgiven to ponder the financial lot of the bright-eyed Olympians as they head to depression-stricken Britain in the midst of these austerity-hit, debt-crisis times. With the Euro football tournament safely behind us, (thankfully, we are no longer obliged to gawp at a bunch of narcissistic, moderately talented young man-boys paid the equivalent of the euro zone’s entire GDP for trying, usually unsuccessfully, to pathetically toe-punt a small spherical air-filled object between two sticks placed far enough apart to fly a helicopter through) our attention has now moved on to other, more fiscally down-to-earth pursuits.

We’ve recently witnessed how Wimbledon has proven to be the FX-factor for foreign sportspeople, keen to consider the cost benefits of competing in Britain. A yearly ritual in SW19, the first weekend of July saw two tennis pros at the top of their game - Roger Federer and Serena Williams - withstand all of the competition (as well as, in Mr Federer’s case, the resistance of a nation) to take home the Wimbledon championship prize, which this year stood at £1.15million.

But with today’s tennis stars hailing from all corners of the known Universe, Currencies Direct -Europe’s leading provider of currency exchange services - says that fluctuating foreign exchange rates greatly affect just how far an athlete’s winnings will go, once converted into their native currency. Take, for instance, this year’s winners. In a rain-delayed contest, Roger Federer got the better of Andy Murray – who even in his mid-twenties has the look about him of a teenager recently told his pocket money’s been stopped – to win the £1.15 million prize money. In Federer’s native Switzerland, this amount would have been approximately 1.71 million Swiss francs. However, had the winnings been the same when Federer last won Wimbledon in 2009, he would be returning to Basel with 2.02 million Swiss francs – almost 300,000 Swiss francs (£200,692.70) more!

Meanwhile however, dominant American Serena Williams overcame the world’s #2 ranked Agnieszka Radwańska to win her fifth Wimbledon title and fourteenth grand slam!  So when converted into USD, Ms Williams’s £1.15m takings approximates $1.79 million bucks – nearly $60,000 more than had she received that same amount at her last Wimbledon championship in 2010.

An economic calamity can sometimes be beneficial for athletes competing abroad. In 2008, at the height of the US financial crisis, the US dollar was in dire straits.  In July that year, the US dollar was trading at almost 2:1 against the pound when Venus Williams defeated her sister Serena to win the 2008 Wimbledon women’s singles championship.  Her winnings of £750,000 equaled roughly $1.45 million USD.  However, if she had won that same amount in 2012, she would only be taking home approximately $1.17 million USD, a difference of $280,000USD or £175,000.

What we see here is how fluctuating FX rates are an increasingly important consideration as abstruse tax regulation in the UK has resulted in many foreign sporting stars engaging in more rigorous financial planning before deciding whether to participate on British soil. It appears that many professional athletes are realising that the potential winnings do not offset the costs of competing in the UK.

As Melina Moussali (pictured), head of dealing at Currencies Direct comments: “Exchange rates are becoming an increasingly important factor in international sporting competitions. At present, sterling is strong, which means competing in the UK will be especially beneficial for some, particularly those from the euro zone. A strong pound translates into greater earnings once converted back into native currency.

“But it’s not just exchange rates affecting athletes’ winnings.  Britain arguably has the most draconian tax laws for foreign athletes wishing to compete in the UK.  Not only must athletes pay tax on half of their prize money, but foreign athletes are also subjected to a tax on appearance fees and international endorsements while they’re competing in the UK.  Consequently, foreign athletes are beginning to seriously consider whether or not competing in the UK makes financial sense.”

Earlier this year, Spanish star Rafael Nadal made headlines when he declined to participate in the AEGON Championship at the Queen’s Club, an event he’d won in 2008. With sponsorship deals from Nike, Babolat and others, Nadal claimed that UK tax burdens means he actually loses money when competing at Queen’s.

Jamaican sprinter and a three-time World and Olympic gold medalist, Usain Bolt, whose athletics prowess and marketing worth has thus far netted him an estimated $20 million, famously declined to run in 2010’s London Grand Prix. Evidently unbeatable on the balance sheet as much as the athletics track, Bolt turned down the race declaring he would incur huge costs by participating.

Let’s hope HMRC doesn’t decide to levy a tax on gold medals… not that it would trouble UK-based competitors too much!

 Drew Hillier. Editor, ForexSpace.com