Financial Insights for NIL Athletes

April 17, 2023

The landscape of youth and college athletics had a seismic shift on July 1, 2021, when the NCAA made it legal for athletes to generate income from their own likeness. NIL deals instantly sprouted up all over the country. NIL — an acronym for Name, Image, and Likeness — has also created a need for financial literacy among youth and college athletes.

With the opportunity to earn this amount of money, there arises more questions and concerns. There are steps you can take when offered an NIL deal to ensure you’re protected from potential pitfalls.

Solidifying the Deal

You have every right to negotiate the contract for your NIL deal on your own, but these contracts are often complex and can be confusing. Consideration about protecting your rights, building your brand, and making sure you receive fair compensation may be best handled by a financial professional.

A financial professional can also help you with risk management. Any transactional deal, such as an NIL deal, may include legal liabilities and financial concerns. Also, one facet of your NIL deal is based upon your reputation. Your brand is now synonymous with the deal you sign, so there’s risk involved in much of what you do on and off the playing field. You could consider purchasing a life insurance policy to protect your income from potential risks to your brand.

Collectives

In the beginning stages of seeking an NIL deal, you might start hearing the term ‘collectives’, but may be unsure what that term references. Collectives are formed by alumni and financial supporters of the school to generate revenue. This money is collected through contributions from businesses, fans, boosters and more. These collectives are founded independently of the school and create opportunities for student-athletes to make business relationships and, of course, a source of income.

Getting Paid

When you get a job, during the onboarding process you’re usually filling out a W-4 to determine taxes, but as an athlete with an NIL deal, you’re not an employee. You’re a single entity receiving sponsorship money, which means you need to make sure you’re setting aside some money to pay taxes on your own. A very tricky situation that could lead to forgetting to pay those taxes or not paying enough. Plus, do you really want to worry about that while also attending school and performing on the field?

It's important to consult a financial advisor and discuss your options. It may be beneficial to set up business entity, such as an LLC or S Corp, and receive your payments through those entities as the business owner. Reducing your tax liability will allow you to capitalize on your NIL deal as much as possible.

An Agent’s Role

First and foremost, if you hire a sports agent, they work for you. Their responsibilities include handling negotiations for your brand, acting as your representative when potential business relationships opportunities surface, and overall, making sure you’re not being taken advantage of. They should protect everything the NIL deal stands for on your behalf, allowing you to focus on your responsibility of being a student-athlete.

Acting Like a Business Owner

If you choose to go the route of creating a business to receive payments, one of your next steps is to find a way to track your expenses. These expenses could now be considered deductibles for your business, another great way to limit your tax liability.

It’s also a good idea to work with a CPA to keep track of those expenses, as well as all your finances. Again, you’re the student athlete. Focus on your athletic performance and your studies as that is the brand your NIL deal is based upon. Let the financial professionals handle the business side of your deal, with your input, of course.

Managing Your Income

After you sign the contract, settle your payment schedule, and track your expenses, it’s time to map out a plan for your income. The three big tenants of managing your income are budgeting, saving, and investing. Understanding your wants and needs, while also making sure to put money away for a rainy day is a skill you need to learn. Finding the right investments to have your income work to make more money is another skillset. One that an investment manager could help you develop.

Another impact that an NIL deal may bring about is one on your financial aid situation. If you’re receiving financial aid based on your income status, an NIL deal may negate your eligibility. Make sure to read the requirements on your financial aid, as any changes could impact the management of your income.

Plan for the Future (Retirement)

The career of a professional athlete is limited, typically less than 10 years. The same goes for NIL athletes. Your window to earn money from your athletic performance will not last forever due to obvious reasons like age, physical ability, or injury. Its best to invest in your future while the money is flowing. Setting money aside in a Roth IRA can be a tax-free sum of money that you can pull from in your retirement years. Your future-self will thank you for taking advantage of this window in your life.