January 3, 2024

Navigating the World of NIL: Financial Implications and Strategies

The landscape of college athletics is constantly changing, specifically in reference to Name, Image, and Likeness (NIL) deals. There are many topics to consider including how they impact student-athletes’ finances, the need for basic financial literacy and tax considerations that come with these deals.

NIL, short for Name, Image, and Likeness, is a policy introduced by the NCAA in July 2021. It allows student-athletes to profit from their name, image, and likeness without jeopardizing their NCAA eligibility. This opens the door for athletes to earn money through brand deals, sponsorships, camps, autograph signings, and more.

The NCAA has transformed into a billion-dollar industry, with lucrative contracts, TV deals, and the excitement surrounding events like March Madness. However, student-athletes were previously not benefiting proportionally from this financial boom. With NIL deals, players can now receive their fair share of compensation without affecting their eligibility.

NIL deals have the potential to reshape the landscape of college athletics. They allow universities to attract and retain top talent, ensuring that players are compensated for their contributions to the sport. For Student-athletes benefiting from NIL deals, it’s crucial to understand the financial implications and tax considerations. Here’s a breakdown of what you need to know:

  1. Tax Classification
    • NIL income is treated as 1099 income, similar to being self-employed.
    • You need to file a tax return with a Schedule C if you earn over $600.
  2. Tax Responsibilities
    • Student-athletes are responsible for paying both employee and employer portions of Social Security and Medicare taxes.
    • Federal taxes apply
    • state, and local taxes may apply (dependent on state)
  3. Setting Aside Taxes
    • It’s essential to proactively set aside a portion of your NIL earnings for taxes.
    • Make quarterly estimated tax payments to avoid penalties and interest.
  4. Financial Planning
    • Consider setting up three separate bank accounts: one for spending (30%), one for savings (30%), and one for taxes (40%). These %’s vary on how big of a NIL deal an athlete receives.
    • Develop a budget that includes paying yourself first, contributing to a self directed 401(k), backdoor Roth IRA, and saving for your future.
  1. The Jock Tax
    • An income tax levied on visitors to a state who earn money within that jurisdiction.
    • Student-athletes earning NIL income in multiple states may be subject to jock taxes, requiring them to file state tax returns in those states.

NIL collectives have been founded as groups funded by alumni and supporters of a university. They help organize and distribute NIL payments to student-athletes, ensuring proper compensation and compliance with regulations.

NIL deals have ushered in a new era for student-athletes, providing them with opportunities to earn income while in college. However, it’s crucial to navigate the financial aspects wisely. Seek professional advice, track expenses, set aside taxes, and consider tax-saving strategies to make the most of your NIL earnings. Remember, financial literacy is key to ensuring your financial future remains bright in the ever-evolving world of college athletics.

Share This Article:

Get In Touch

In just 15 minutes we can get to know your situation, then connect you with an advisor committed to helping you pursue true wealth.

Subscribe

Add me to the weekly newsletter to say informed of current events that could impact my investment portfolio.

Important Disclosures:

Securities and advisory services offered through EWA LLC dba Equilibrium Wealth Advisors (a SEC Registered Investment Advisor).
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* The risk of loss in trading commodities and futures can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage is often obtainable in commodity trading and can work against you as well as for you.  The use of leverage can lead to large losses as well as gains.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.

Request An Appointment

In 15 minutes we can get to know you – your situation, goals and needs – then connect you with an advisor committed to helping you pursue true wealth.