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NIL Deals: Breaking Down the Financial Basics for Collegiate Athletes

Collegiate athletes have had since June 2021 to familiarize themselves with the legislation that surrounds sponsorship deals based on name, image and likeness (NIL) in the National Collegiate Athletics Association (NCAA).

For athletes of special notoriety — like Caitlin Clarke, the NCAA’s newest all-time leading scorer in Division 1 basketball and representative of Gatorade, Nike, State Farm and more — sponsorships based on NIL can exceed exceptional sums of money.

Or Arch Manning, who inked a deal with trading card company Panini America in the summer to use his likeness in an agreement that saw his cumulative NIL income rise to over $3.2 million.

Manning, a standout quarterback prospect at the University of Texas, and Clarke, the consensus No. 1 overall pick in the upcoming WNBA Draft, both represent a demographic of athletes who can rake in NIL deals of over six and seven figures of potential worth.

But collegiate athletes, while undeniably skilled in their crafts and gifted in their respective sports, are still young, with most true freshmen breaking into higher education at around 17, 18 or 19 years old. To them, an NIL partnership could be their first time handling significant amounts of money.

When negotiating and receiving compensation for a large NIL deal, young athletes need to be prepared. We asked an expert — Richard Pianoforte, CFP and managing director at Fiduciary Trust Co. in New York City — a few basic questions regarding NIL deals in the NCAA, and how an athlete should prepare in anticipation of one.

Are NIL deals regulated?

Pianoforte said very simply, “No. (Companies) can compensate (an athlete) as much as they please. There’s no regulation right now.”

But as with any income, you have to pay taxes. And the more money you make, the more taxes you are going to have to pay.

So what are the federal tax considerations behind an NIL deal?

Income gained from an NIL sponsorship is classified as self-employment income. On top of income tax, self-employed athletes must pay a self-employed tax and file a Schedule C — a form used to report income from a “profession you practiced as the sole proprietor,” according to the IRS website.

At the federal level, paying taxes on an NIL deal is mostly self-explanatory.

How do NIL deals differ by state?

What becomes a bit tougher to understand are the different state-to-state tax laws that take effect when compensated for name, image and likeness.

If an athlete promotes an NIL deal in the state where he or she attends college, they would have to pay taxes in that state. Even if they don’t live there, they are still subjected to those states' laws, because they are actively deriving income in that state.

“You try to keep track of your expenses to offset your income in that particular state,” Pianoforte said. “You try to keep track of your dates…your expenses…your income…that’s not something that’s easy to keep track.”

This is a process unfamiliar for many young athletes. While most college students might work part-time and file tax-withheld W-2s, the nation’s most sought-after collegiate athletes must now calculate estimated income taxes to avoid penalization throughout the year.

If unprepared to manage this money, the consequences could be severe.

“That's something they should work with their accountant to come up with that number that they need to pay each quarter,” Pianoforte said. “It's something that they're not used to doing. For most of these college athletes, this is new for them.”

What are some red flags to look out for in an NIL deal?

The biggest potential cause for concern, Pianoforte said, is ensuring that an athlete doesn’t sign onto a deal that could carry on past his or her college years. In some professional sports leagues, like the NBA or NFL, a player can turn pro after just one year in school.

“They shouldn't lock themselves into long-term deals that are beyond college or when they go pro,” Pianoforte said. “Anything that they sign that may go more than a year out, (an athlete) should have their legal team look at it.”

There have been instances where athletes have signed deals requiring them to pay a company a percentage of their future earnings. When an athlete turns pro, his or her NIL deals from college can come back and haunt them if they’re contractually obligated to fork over a large sum of their professional earnings.

In 2022, Gervon Dexter agreed to pay Big League Advance Fund (BAL) 15% of his yearly earnings for the next 25 years, receiving just $436,485 in return as a one-time payment corresponding with his NIL during his time at the University of Florida, according to a September 2023 ESPN report.

After the Chicago Bears selected Dexter with the 53rd overall pick in the 2023 NFL Draft, he signed a four-year contract worth almost $7 million. Without his successful lawsuit to nullify the previous agreement, he would have had to pay 15% of this to the BLA for 25 years.

A federal judge in Florida found the BLA guilty of violating state NIL law, but other athletes may not be as lucky. It is important to be wary of potentially-fishy deals — deals that could cost an athlete more in the long run than they’d help in the present.

About to get that first NIL check? Beware!

This is a crucial step, and one that shouldn’t be done alone. It is important to work with a financial advisor or an accountant to review a potential NIL deal before signing it.

After signing a deal, Pianoforte recommended a few tasks to complete so the money is properly accounted for:

  • Open a new account to hold the money earned solely from NIL. Athletes shouldn’t mix their NIL money with their regular bank accounts.

  • Make sure the new account comes with a new credit card. This is done to track the expenses made with the NIL money.

“Athletes should go into (NIL) with a game plan as if they’re approaching a game,” Pianoforte said.

How should one divvy up NIL money?

NIL deals for top-dollar athletes have the potential to gross over $1 million. As a result, that athlete would then enter the top federally-rated tax bracket, being taxed at 37% for single-filers making over $586,000. This means saving money not spending it.

“You want to put aside the top federal rate. You want to put aside 37% (to save),” Pianoforte said. “And that doesn’t include state taxes, so there could be a point when you’re around 40-45% (to put away) on taxes.”

The good news however, Pianoforte said, is that the money made in 2024, for example, won’t be taxed until 2025. Putting the money in a high-yield savings account until that time comes can be very beneficial so that it doesn’t sit stale until tax season rolls around.

The rest of the money can be used as desired. Athletes work hard to earn their money and have earned the right to spend it how they please.

But it is also important to spend in moderation. Speaking with a financial planner or accountant about how much room is available for pleasure-based spending is not something that should be glossed over.

How can an athlete find the right advisor?

Fortunately for student-athletes, some schools have taken that matter into their own hands. They work to help make the transition easier for their players.

“Many schools have programs that they recommend. They work with seasoned professionals that they recommend to their athletes.”

The NCAA currently does not have its own system set up to help students connect with advisers. Thus, it is the athlete’s responsibility to seek out their own financial guidance when navigating the tax complexities of NIL deals.

That is until Aug. 1, 2024, when new legislation voted on by the NCAA Division 1 Council will take effect, simplifying the bridge between athletes and NIL service providers.

Under the new NIL Protections, agreed upon in early January 2024, a centralized registration process will be established, allowing providers like agents and financial advisers the volunteer their services to college athletes. According to an NCAA press release, the goal of this portal is to help athletes realize the utilities available to them and help them make well-informed decisions about their financial and educational futures. A NCAA spokesperson declined comment when reached by Retirement Daily.

In the eyes of financial advisers, college athletes represent a new pool of potential clients. Each athlete presents a different case with specific financial needs an adviser can help mediate.

Managing money can be difficult when working with large sums, especially for young Americans who are unfamiliar with coordinating their own expenses. When looking outside of a university’s resources for an adviser, Pianoforte said it’s important to seek out potential experts with experience working in this field.

“You don't want to just walk into the local accountant office who’s never done an athlete's return before. You want to look at their credentials, see if they’ve worked with prior…or professional athletes, especially on NIL deals,” he said.

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