Navigating NIL: Financial Literacy and College Athletics

January 4, 2024

In this episode of FIN LYT by EWA, Matt Blocki and Ben Ruttenberg discuss the world of NIL (Name, Image, Likeness) in college athletics. Ben, a self-professed sports enthusiast, discusses the significant changes in the college athletic landscape due to NIL and its implications for student-athletes’ financial literacy. They explore the origins of NIL and why it was adopted by the NCAA in 2021 and emphasize the opportunities it provides for student-athletes to profit without jeopardizing their eligibility. The conversation explores the financial implications of NIL income, tax considerations, and strategies for managing newfound wealth. They stress the importance of setting aside money for taxes, using separate bank accounts, and considering retirement plans like 401(k)s. Lastly, they dig into how athletes can balance increased social pressures and responsible financial planning. Tune in to gain valuable insights into the evolving world of NIL and financial literacy in college athletics.

Episode Transcript

Welcome to EWA’s Finlit podcast. EWA is a fee only RAA based out of Pittsburgh, Pennsylvania. We hope all listeners of this podcast will benefit as we deep dive into complex financial topics that we will make simplified for you. And we hope that this really serves as a catalyst so that you can make the best financial planning decisions for your family and also save time in welcome, everyone, to this week’s Finlet by EWA podcast. I’m joined here by Ben Ruttenberg, our number one sports person on the EWA team. So excited to talk about the nil, how the college athletic landscape has changed. And most of our clients have some big ties into. A lot of our clients, like college athletics, follow college athletics. Some have kids that have played college. They themselves played. And so it’s just an interesting topic.


So we want to address this head on because a lot of our clients are going to have some people that affected will be impacted by this. And also in the future, I think there’s going to be a lot of financial literacy and education that needs to occur so students don’t get themselves into big tax trouble or financial or money temperature trouble, as we refer to. So excited to dig into this and see where it goes. But Ben, I know you naturally know a lot about this stuff. Maybe because of the Ohio State loss, you’ve had extra time on your hands to look at other teams. I don’t know. But anyway, so tell us about Nil then.


Well, first of all, Matt, thanks for having me. I know you had put a five to ten minute kind of stopgap for me to talk about sports and nil. We are going to get into finances in this podcast, but I think it’s important for the viewer to understand what Nil is, why it exists, and the changes that have happened in college athletics over the last, really two years. Nil was adopted in July of 2021, and it stands for name, image and likeness. And so this is essentially a policy that the NCAA adopted that allows student athletes the opportunity to benefit from their name, image and likeness without having it jeopardize any of their NCAA eligibility.


So essentially, players can earn profit from brand deals, sponsorships, they host their own camps, guest appearances, autograph signings, all of these things that players can now utilize and leverage to earn money. They can do this now without having to impact their eligibility. They can still play in whatever sport they’re playing. Why did this come into play? Why did this happen in 2021? Why did this shift happen? Well, really, the NCAA has been really, it’s turned into a billion dollar business between March Madness and tv contracts, and the amount of money that is being wagered on these games, these college athletics and NCAA is really becoming a money making machine. And we’re not going to get into personal opinions too much on this podcast, but it was getting to a point where players were on scholarship.


They were receiving funds from that for tuition, room and board, meals, things like that. But they were not profiting at the level in which the NCA and all these companies were making money.


A couple putting their lives at risk in some sports, some cases with concussions, or not putting their lives, sometimes putting their lives at risk, but putting their health well, being long term at risk.


Exactly. And just a couple stories here that I think illustrate this .1 of them being from. This is from a 30 for 30 documentary about the Fab five, which is the Michigan basketball team in the early 90s that started five freshmen. One of those freshmen was Chris Weber, who turned into a great NBA player and now is a commentator for NBA games. But when he was playing, he told this story about how he would be walking down the street at Michigan and he’d look into a bookstore and he’d see his jersey being sold again. Number four, Michigan basketball. No name on the back, but it’s clearly Chris Weber. It’s being sold for $100 a jersey, $150 a jersey, whatever the number is. And meanwhile, Chris is struggling to find money to put gas in his car and drive to and from class.


So who’s pocketing that $100? It’s clearly the school. It’s clearly the NCAA. And Chris isn’t able to make money from his jersey being sold, his image, his likeness. So that would be an example of this policy changing where players can now receive a cut of that compensation if the university, if the NCAA wants to market these players as athletes, which they are.


I played golf with Chris Weber a couple of years ago. Really nice guy.


Really nice guy. Well, there you go.


Another basketball game is better than his golf game. His golf game was good, but as a tall guy, I know personally. Swing was good, though. I know he’s working at his game, but basketball player, unbelievable.


That’s awesome. Well, he was a huge proponent of this was in the early ninety s, and this didn’t come into play until the 2020s, but that started these conversations. And those five players really were catalysts for a lot of the conversations we’re having today. Another example would be just NCAA football and basketball games. So these stopped happening in the mid 2010s because electronic arts and the video game developers could not label players in the game because then they would have to pay them because then that would then ruin their eligibility, and the players.


Weren’T allowed to receive the players were.


Not allowed to receive funds. But if you bought an NCAA football game in the mid 2010s. I’m just using an example again, I’m an Ohio State guy. I’m going to use two Michigan players as an example.


But Denard Robinson, at least you’re acknowledging greatness, then you’re acknowledging greatness of Michigan. That’s good.


Denard Robinson, the old Michigan quarterback, was on the COVID of NCAA football 14. And so if you bought that game and you turned it on and you said, I’m going to play as Michigan, their quarterback is number 16. He’s six foot two, he’s 200 pounds. He’s got long hair. He looks exactly like Dinard Robinson, but his name in the game is QB number 16 because you can’t actually say that’s Donna Robinson without acknowledging them as athletes and therefore giving them a cut. So again, the video games are making money off the kids. The NCAA is making money off the kids. The tv contracts are making money off the. It’s.


Again, we’re not going to get into personal opinions, but with these changes now, again, players aren’t being paid, but they’re able to earn money from their name, image and likeness, which I think is great for the future of the sport.


Yeah, absolutely. And I think it’s also great to keep talent inside of college. A lot of people prefer college sport athletics over professional athletic, like NFL, NBA, as examples. And this will enable the college to still get the best talent, potentially because some of the talent was skipping college just because of these issues and not being able to get paid and not, et cetera. Personal question for you, Ben, with Ohio State. I’m not rubbing it. I’m just asking because, you know, Ohio State’s always has, like, a perfect record until the big game and then at the big house, I guess. So with the Ohio State, with a recent coach, we’re not going to names. Being under 500 against top five teams. You can google that.


How much nil money do you think Ohio State needs to get the correct team in place to win these top five games?


Wow. Really putting me on the spot.


Because Matt rule, the Nebraska coach says it cost a million dollars just to get a quarterback at this point. And he’s right. That’s with his nil stuff. So there’s good stuff about the athletes, but there’s definitely some paradoxes. Because now you essentially have to buy the top talent.


Yeah, to your point. I’ll get back to your question in a second. But buying top talent doesn’t necessarily equate to wins. There’s a lot more in building a team than just going out and signing free agents, so to speak, in the transfer portal. And with nil, it is still about building a culture and developing a team.


It comes down to those top five games. You got to win the top five games. Like Michigan, as an example of.


Well, you know what? It has been a rough couple of years from that standpoint, but it’s great to have the rivalry back because, as you may know, Ohio State absolutely destroyed Michigan for about 15 years. So it’s good to have Michigan back in the rivalry.


All right, I’m. Enough busting. Enough busting here. Let’s get back to the ready group schedule program. But you held your cool there way too long. So I was wondering what was going on there, Ben. All right, thanks for that. So the examples you gave here, so they can do guest appearances, they can do autograph signings, which some examples of that would be like if you watch the Johnny Manziel. I don’t know if I pronounced the name right. Netflix. He was doing that illegally. And he made, I think it was like Texas A and M, was it? They built a new stadium. He beat. Like he beat Alabama. I know it’s the team, but it was crazy how much money he made, not only for the NCAA, but also for that university. And he missed out on all this.


Now, he didn’t miss out on all of it because he was doing it illegally, but now all the stuff he was doing in the documentary, people can do now and get paid for it legally.


That’s a great example, because he would do these autograph signings and all of these appearances, and he would take cash because he would trace, track it. It’s untraceable. So this would be a great podcast for 2013, Johnny Manzel to listen to, because we’re going to talk about how to manage nil the right way. He had bags full of cash. There’s probably ways to manage nil the wrong way. But, yeah, great example, because that now, if Johnny were in Texas A and M in 2023, he could do all of this legally and report all this income and do it the right way as opposed to the system in quotes that he was using back in 2013.


All right, so let’s just say someone gets paid from nil. Just give us a basic rundown of what they need to do from a financial tax management perspective?


Yeah. So nil money. I would think of it like you are a business owner and any money that is paid to you from Nil is considered 1099 income. So if you’re an athlete, you get Nil is treated as if you are self employed and any money that you receive comes from a form 1099. So if you earn more than $600, from that standpoint, you need to file a schedule c to determine your taxable income. There are a couple of tax considerations we want to be aware of with 1099 income. Because you are your own employer, you are responsible for paying the employee and employer portions of Social Security tax, of Medicare tax, as well as obviously any federal, state and local tax that apply. So we’re going to go through a more detailed breakdown of what that would look like with your nil money.


But more importantly, it is important to know that, hey, this is 1099. Income taxes aren’t being withheld. We need to be very proactive in what we’re doing with this money. Just because someone has a million dollar nil deal, Matt, doesn’t mean that they’re netting a million dollars and it’s all good.


Yeah. The dangerous thing about that is people that aren’t used to having money. I don’t know about you, I’ve worked like a job that paid me say like $10 an hour when I was in college. Then it was like necessity to get by, but that was w two and so the taxes and everything really could take care of. But I can’t imagine for someone that doesn’t have the financial which isn’t trained in school, you get the money and now no one tells you I give the pay tax on it. There’s going to be a lot of stories, I think, that come out with the people will go into tax debt without managing this properly. In general, regardless of nil, you need to take 30% to 50% of that money, depending on how big it is that year, and set it aside.


It’s going to go away to taxes no matter what. That takes discipline, because basically as a kid you get 100% of the money. You see it, you feel it, and once you see it and feel it’s like you’re kind of figuring out a way to spend it already, especially in college with your buddies. But right away we have clients that are million dollar income earners that are 1099 that struggle, putting that 40 or 50. So imagine you’re a kid in school and you just got paid 50 grand or a million or whatever. It is. It’s just the fact that you have to give part of that back right away is a struggle.


And I don’t know how that’s communicated to the athletes when they receive the nil funds. I don’t know if they just get a 1099 and they think, that’s awesome. I’m netting this. I don’t know how that’s communicated their taxes, but we’re going to run through the examples of taxes that you’d be subject to as 1099 income and make sure that people are doing the right thing.


Yeah, absolutely. So right off the bat, we recommend you should probably have three accounts that goes right into it, so you don’t feel it and see it, because your money temperature is a real thing. Just like if you like the room at 67 degrees, if it goes to 75 or it goes down to 60, you’re going to be freezing. Money feels the same way. So once you adjust that temperature, it’s nearly impossible to adjust that. Three accounts you should have. One should be an account that you’re going to spend some money out of. The second should be what you’re going to save. And the third has got to be taxes. And you can never see that, never feel it.


So I would recommend right off the bat, like if you got an Nil check, it should be direct deposited, it should be split between those three accounts right off the bat, or 40% into taxes, maybe 20% into spending, depending on how big, and the rest into savings. You can really set yourself up well, because this is earned income. So we’ll talk about how you can fund four. One, you could set up your own 401K, Roth Ira, all that kind of stuff. Okay, so nil collectives, before we get into some specific. What is this nil collective subject you have here, Ben?


Yeah, so this is just a way that players are being paid. This is groups that are funded by alumni and supporters of a certain university, and they’re the ones that can actually raise revenue and use funds to help create opportunities for these student athletes to help leverage their nil in exchange for compensation. So these collective groups are forming. I mean, this is still very new. This is only a couple years in, but these groups are basically responsible for making sure that athletes are getting the funds and for collecting funds. So it’s not just, hey, some local restaurant is paying the star wide receiver from their bank account. They’re essentially a middleman that helps organize some of these nil payments and make sure that the athletes receive them correctly.


Gotcha. Okay, so let’s go through some. And what is this thing you have here around the nil income in multiple states? Jock tax. That looks funny to me, but what does that mean?


Yeah, this is probably more relevant for professional athletes than collegiate athletes, but it’s something important to think about, too. This is essentially any income tax that’s levied against visitors to a state that earn money in that jurisdiction have to file a state tax return in that state. So let’s say you’re a college athlete in Ohio, and you get the majority of your nil money in the state of Ohio, but you travel to Pennsylvania for appearances, or you travel to Florida for camps, or you travel to New York for an appearance fee. You may be subject to state income tax in those states that you earn nil money in, even though it is not your state of residence. So this is known as the jock tax because professional athletes are subject to it.


If you are a professional athlete in the city of Pittsburgh, but you travel all over the country for your games, you’re essentially earning income in other states as well. So there’s a portion of your check that goes to this. And so if you’re earning nil, it’s something to think about. Hey, what states are you actually earning income in? Because you may need to file a state tax return in that state.


Got you. Okay. That makes complete sense. All right, so let’s talk about some specific examples. Let’s talk about who made the most nil money.


LeBron James.


More than Shadur Sanders.


Yeah, I think Ronnie was in the $6 million range. Olivia Dunn, who is a gymnast at LSU, was very close.


6 million. A gymnast?


Yeah, it was like four or five, I think. And then shore Sanders was up there. Quinn Ewers, the quarterback at Texas, was up there.


What did Shador make? Do? You know?


I don’t know. I think it was in the three to $4 million range. Travis Henry, his team.


I went to his Colorado game before my hip surgery. They were playing Oregon State. Just the bling alone that those guys were wearing. I mean, I would assume he’s in the millions. Shadur is. And then apparently, his parking tickets he gets for parking is Rolls Royce. He needs to be making millions to take care of those as, . Anyways, that was a crazy mean. It’s. The tickets there were insane. It’s like, literally, you’re sitting on a concrete. Anyways, they needed, like, a Johnny Menziel like, update to that. A cool. It was like a fun, cool, people watching environment. Oregon State, I think they lost by one. Touchdown. Oregon State. Score they did something stupid. Like, before the first halftime, they scored a touchdown, they turned the ball over, and then they score with 15 seconds left in the first half.


I’m excited to see Colorado move to the big twelve and play from there.


So I’m excited they’re moving to the big twelve. I don’t know, you know this. So, full disclosure, Ben and I do some friendly bets, and I have to take him to a sushi dinner now, because I bet that Colorado would have no more than four losses this year, which I didn’t look at their schedule, I was like, because they beat TCU, he’s like, they’re going to crumble. And so, anyways, I think they lost their last five games, something like that. We got to plan that.


There were a lot of losses, so it’s hard to keep track of all them.


Yeah, well, if you don’t want the free dinner, then that’s fine. You know, I may be talking about Ohio State the whole time, so maybe you’re avoiding me. I don’t know.


But this goes back to our point. They have two of the highest eight players in nil money, and they went four and about. It’s still about developing a culture in a team. Yeah, great players.


They’re doing a good job.


Travis are incredible players. But you can’t just. College football is not a sport where you buy two players and you say.


Hey, yeah, you need a whole team. In fact, that could hurt, because if you have one amazing player, no one to surround himself, then, yeah, totally, that could hurt, too. All right, let’s talk about the implications of this. So let’s start with the crazy example. So you’re in $2 million. You’re going to owe several. So let’s say it’s at Pennsylvania, you’re at Penn State or Pitt or whatever. And I don’t think there’s an example of someone in Pennsylvania. But let’s just say you’re in Pennsylvania because we did the analysis already. You get a $2 million nil deal in. Did you use 2024 tax brackets here?


This is 2023 current year.


Okay. It’s all very similar, though, so you have it broken down in details. $2 million. Assuming you don’t do any financial planning, like 401 ks, deductions, et cetera, the total is 45%. So I already figured this out. I readjusted the formulas here. You’re going to pay state taxes of 3.7%, local taxes. Let’s say if you’re at Pitt, living in Oakland, 3%. You’re going to pay Medicare taxes double because you’re your own business. So you’re on the employer and the employee side. So that’s 2.9% Social Security tax. You’re going to pay 6.2 times two the employee and the employee side up to the Social Security wage base. So that’s almost 20 grand. And then the big one is federal taxes because you’re going to pay 10, 12, 37. So anyways, the total taxes you would pay will be almost $900,000 right off of that.


So if you get a $2 million check, 900,000 has got to get set aside. It’s going to go to three ways. It’s going to go to state, it’s going to go to local, and it’s going to go to federal and federal. Part of your federal. The Social Security and Medicare get totaled into that federal. And you should make quarterly estimates, because if you don’t make quarterly estimates, you’re going to pay interest on that 900,000. You’re going to end up owing another like 50 or 60 grand interest if you just ignore this throughout the year as well.


That’s a really important point. I just want to clarify. So if you were this $2 million nil athlete, which you are not, just want to clarify that for the viewers. But, yeah, I had a hip injury.


So I’m just kidding.


If you were and you just got that $2 million check, you’re immediately putting 900,000 to the side, and then every quarter you’re paying that quarterly estimate.


State, local and federal. Most of that’s federal to the IRS.


So January, every quarter, to satisfy that payment.


Yeah. Which I’m really upset about, because as a college student, if I was shooter, I’d want to say I could spend 100 a month and I’d be just short of that. So 1.1 million, that’s like 92,000 or whatever it is a month, I’d be really upset. So I’ve tried to talk to you, Ben, and save some taxes so I could have that bragging. Right. So spending 100,000 a month. So tell me, what could I do to lower my. So if we did everything that you put in here, we could get that effective rate down to 41%. So we could essentially save 80 grand in taxes if we set up this cash balance plan. So what could I put into those?


Yeah. So for 2024, you can put in $69,000 into a solo 401k.


So if I’m under 50, what if I’m over 50?


Going back and playing well, we got other questions. And that’s important because this is all through 1099 income. So this is not necessarily relevant for nil athletes. But if you have earned income, that’s w two that can be completely separate from this 1099 nil income. So you can create your own 401k with just your nil income. You can fund $69,000 into that on annual basis. And if that’s a pretax contribution, that is $69,000 that you are essentially writing off of your earned income. Another thing you can do is you can set up what’s called a cash balance pension plan. All contributions to a pension plan in this cash balance variety are pretax as well. It’s actuarily determined and based upon your age.


Based upon your age, we have 100 in here. You couldn’t put 100 if you’re 20 years old, but you could put in similar to a 401k amount. Correct. And it has to have a permanent, like a five year. It should be in place for five years. So if you do that and then you go pro in a year later, there’ll be some IRS eyes on that. So we have to be careful about that as well. But in general, there’s many ways. And then it’s unknown whether you can set up like an s corp. You could save a ton of taxes and pay yourself a salary and avoid Social Security, Medicare taxes on the distributions versus your salary. But we’ve read a lot on this in preparation for this podcast, and some places say you can do it someplace.


So ultimately, it’s up to NCAA guidelines, which are still evolving over time.


I was going to say this is still living and breathing. This rule was rolled out in 2021, and it was kind of the wild west. It was players getting checks here, players getting funds from this company, and they’re really trying to regulate this. And so I think over the next couple of years, we’re going to see a little bit more regulation in this space. So it’s not essentially free agency, which is how it’s acting right now.


And then real quick, I have to point out it’s not that. So if someone, you did the analysis here on 100,000, and it’s still 32.6% when you add state, local, Medicare, Social Security, and federal taxes altogether, if you make 100 grand, 32,652 has to go to, assuming you do the standard deduction, don’t itemize. So 33, a third of your money still has to go to taxes. So if you’re shador or brawny, we didn’t do the $6,000,000.01 but a $2,000,000.01. He made 4 million. So if you’re a $2 million nil deal, 45% is going away, 900,000 of the 2 million. And even if you’re $100,000 nil, which is more common.


Sure. We’re saying the top ten athletes of the entire country, I would say this mid six figure, that would be a very strong deal.


Yeah. And still almost 33 grand in the state of Pennsylvania would have to go out of your hundred, would have to go to taxes. You have to be very careful because with a lot of these athletes they have, and this isn’t a book by Morgan household called same as ever, but these athletes have this invisible debt. It’s called social debt, because a lot of these athletes came from rough backgrounds financially. And so their parents and their 1st, 2nd, 3rd nephew, they want to spread the wealth and they almost feel this invisible pressure to spread the wealth. So make sure you know how much money you actually have and then you have to be careful because you have to take care of yourself too. So I’d recommend generally, if you have an Nil deal, a normal nil deal, at least like a third.


A third, a third, like spend a third, save a third, pay taxes on a third. And the bigger you get, if you’re getting a two or $3 million, you’re most likely like a professional prospect or you have a parent that’s you’re going to be a professional just because of your parent. Like Bronnie, I think is definitely like NBA caliber. But still, because merely for his dad, someone’s going to draft him just so his dad will play with him. In the last couple of years, you should spend a large amount of this insurance. You should buy part of this money, buy insurance for yourself. If you get injured during college, et know, through like the Lloyds of London type outfit to make sure you’re protecting your millions of future income. So there’s a lot of responsibilities that come with money.


And one of my favorite quotes is money doesn’t change you, but it really magnifies who you are. And if you don’t have the financial literacy training, the right influences in your life, or let alone the wrong influence in your life, this could go quickly and you could not. Only nil deals could make you go into drastic tax debt if it’s not managed properly. And then everyone’s going to be hitting you up for new business ideas and everything like that. So is this public information when people get nil deals.


The list of highest nil deals was public information. I don’t believe every nil deal is easily researched like that.


Okay, that’s scary, because if I had a kid going that got an nil, I would say, keep this private. Let’s keep it private as possible. But Ben, thanks so much for the research and breakdown of this super important. And hopefully this is helpful for the audience. And if anything, we recommend if you know of someone, make sure they consult with a good financial advisor, good tax CPA preparer, and make sure as the rules evolve, there’s lots of strategies, such as setting up an LLC S corporation that you can do a lot of, potentially hundreds of thousands of dollars of tax savings as rules become more clearly laid out in the future.


I would say low hanging fruit for anyone that is earning Nil in these ballpark ranges. I would say, number one, track every single expense that you have. Because, again, this is self employment income. So any expenses that you incur related to your Nil can be written off of your income. So if you are driving to an appearance fee, you can deduct mileage. If you have a business phone, if you have meals, any expense that you incur related to your Nil can help reduce your income, which therefore reduces your tax liability. I would have a totally separate, like you said, nil bank account and Nil credit card. Any purchases that you make related to your NiL can be done on that card.


And then from a tracking standpoint, it’s super easy to just pull one statement and then write out everything that you have month to month for annual check. And then I’d create a monthly budget while paying myself first. So again, fund that solo 401K fund, that backdoor Roth Ira that were talking about, and then obviously spend some. We’re not saving every single dollar we make, but pay yourself first so that you have an allowance, so to speak, that you can comfortably spend. Knowing that you have taxes taken care of, knowing that you have your expenses tracked, and knowing that you’ve put some away for the future and take the.


Stress off and say, hire a financial advisor that can say no, you can blame to us and your friends, family. Every set says no. I’ve given up the decision making as a college athlete to focus on my career as an athlete and college, and it’s an easy no. Like, hey, all those decision making I’ve outsourced. And then that way you have the out when you get hundreds of asks. Ben, thanks so much for preparing this and look forward to catching everyone next week on Finland by EWA thanks for tuning in to our podcast. Hopefully you found this helpful. Really hope this is as beneficial and impactful to as many people across the nation as possible. So hit the follow button, make sure to rate the podcast and please share with any friends or family members that would also find this beneficial.


Thank you very much.

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