NIL Deals - Managing Your Finances as a Student Athlete

In 2021, the Supreme Court finally ruled in favor of Student Athletes, giving them the ability to capitalize on their name, image & likeness (NIL). This was a monumental ruling for these athletes because, as most of you know, the NCAA has been profiting off of their successes for far too long, leaving them with nothing in their pocket. In most cases, they only have a slim 2% chance of actually going pro, where they can finally earn a living for being great at their respective sport. 

The downside of this ruling is that NIL is essentially the wild wild west, with state regulators and student athletes navigating uncharted territory to figure it all out. Every state has to adopt their own laws which leads to confusion #1 when figuring out which school to play at. The athletes then have to figure out whether it's best to stick with their school-run NIL program (Collective) or go with some sort of private NIL marketplace to tap into it. After wading through those issues, the athletes have to analyze every deal to avoid locking themselves into something that could potentially be a dud. If they finally land something they want, they then have to consider how to best spend/preserve their newfound wealth… 

Although exciting and potentially life changing for some, most NIL deals only amount to about $10,000 or less. It is pivotal, however, for these student athletes to have a team in place to help them navigate these complexities, such as a competent Lawyer to help with contracting, a CPA (Certified Public Accountant) to handle the tax side, and a CFP (Certified Financial Planner) to help with building and preserving that wealth.

Financial Impacts to Consider

Taxes

Most of these NIL deals will be paid out as if the student athlete is an Independent Contractor, or a 1099 employee. This will require them to pay taxes at the Federal level on all earnings they make and also at the State level as well in some circumstances. In most cases, it can make sense for athletes to set up some form of LLC (Limited Liability Company) so they can deduct any expenses associated with their NIL activities and also get some level of liability protection against their personal assets. This is where having a good CPA and CFP come into play.

Being a 1099 employee also means you will be required to withhold your own taxes and make quarterly tax payments. Running tax projections for current and future years is key here to ensure no underpayment penalties apply on any of your earnings. Setting up a separate account and withholding around 30% of every dollar you earn should help cover this. 

Wealth Preservation

Once the proper legal structure is in place for this income to funnel through, the next step is to focus on how to turn that wealth into something that will last well beyond your playing years. As gloomy as it might seem to say, the vast majority of athletes don’t end up making it to the professional level. Of those that do, another significant majority of them go broke within the first few years of them leaving the sport. It is pivotal that these athletes seek a qualified professional early on to help them get a good grasp around the basics of financial planning because these things are rarely ever taught to us in school. The goal of this professional shouldn’t be to simply tell you how to spend your money, but to help you understand the consequences of taking different actions and how to approach them in an intelligent manner. 

One strategy in particular that can make a big impact is setting up some sort of qualified retirement plan such as a SEP IRA or a Solo 401k. The core benefit of implementing one of these is that you can set aside a portion of every NIL deal you make for the future and also get a substantial tax deduction to offset your income for the year. Nobody likes giving more money to the government than they have to. The government doesn’t necessarily have the best track record of spending your tax dollars so why give them more than you have to? 

Lastly, growing that money and positioning it properly becomes increasingly important over time. Student athletes have an enormous benefit on their side. Time. The earlier you start investing your money the more time it has to compound. Opportunities will come your way constantly when you have money and it's very important that you don’t just throw money around into whatever deal comes your way or whatever the new fad is at the moment. Cryptocurrency comes up a lot with Millennials and Gen Z’s and most want to have some sort of exposure to it, but there is a way to do it responsibly without risking everything. Real estate is another example. Working with a good financial professional will help you examine these opportunities and pick the right course of action for your unique situation. 

Risk Management

The NCAA has a plan in place that allows most athletes to pre-qualify for disability insurance. The entire goal of disability insurance is to replace your income when you are unable to perform either your own occupation or any occupation at all. This is key for most athletes given the significant risk that comes along with getting injured and not being able to collect a paycheck while you are sidelined. Although the NCAA offers a fairly good option for coverage, it could be smart to also work with an insurance broker to look into a supplemental policy as well to make sure you are fully covered. 

Umbrella coverage also comes into play for most athletes given their significant assets such as houses and cars which rarely have good coverage in and of themselves. Umbrella coverage was created to cover anything above and beyond what homeowners policies and auto policies cover. With significant assets comes an increased risk for lawsuits so these policies can help protect against any extraordinary liability claims against you. The best part is, this coverage is extremely affordable. 

Financial Aid

Lastly, for those earning some sort of financial aid from their school, any earned income can be taken into account when their new aid package is handed out. This can drastically decrease the amount of financial aid you’ll actually receive because it's primarily based on your ability to pay. Naturally, if you made $100,000 from NIL deals that year the school isn’t going to think you need a lot of financial aid to enroll. This needs to be taken into account when creating a spending plan for the year.

In Closing

NIL deals provide a tremendous opportunity for young athletes to change their financial lives forever. With all of that opportunity comes a responsibility to ensure that money lasts well beyond your years in the spotlight. Hopefully this article brings a little clarity to those going through this process now and gets you started down the right path!