podcast economics

NIL refers to college athletes profiting from their name, image, and likeness. Previously, NCAA rules did not allow athletes to make money from endorsements or social media. Athletes must pay federal and state income taxes on their NIL earnings. Deductions and credits can help reduce taxable income. Athletes must report NIL earnings on their tax returns and may need to pay self-employment taxes. NIL reforms allow athletes to monetize their fame while maintaining amateur status. Athletes can plan their taxes by contributing to retirement accounts and setting up business entities. Educational resources are available to help athletes understand their tax obligations. Deductions for NIL-related expenses can include travel costs and equipment. Athletes should maintain detailed records of their NIL earnings. Quarterly tax payments may be necessary to avoid penalties. NIL deals and taxes may vary based on the type of deal. Critics argue that NIL reforms could exacerbate inequalities between a Hi, this is Joey. My name is Adam. And today, we will be talking about NIL and taxation. So to start off, we just had a couple quick facts about NIL to start off. So NIL is the name, image, and likeness. And most of the time, it refers to college athletes who can profit from their image, brand, and reputation. Prior to these NIL new rules, NCAA rules actually didn't let athletes make money from endorsements, sponsorships. And they couldn't be on, or they couldn't make money from social media as well. And then about taxation, income earned by individuals, including college athletes, is subject to federal and state income taxes. This means that people with NIL deals are getting taxed very heavily because these NIL deals come with lots of money. Tax rates vary based on income level, filing status, and other factors, with progressive tax brackets in the US. Self-employed individuals, including some college athletes receiving NIL income, may need to pay self-employment taxes. And for a lot of those people, it's above $13,000. It's when they got to start paying them. They're paying taxes. So a lot of these college athletes are paying taxes. So what can help these college athletes are deductions and credits that help reduce taxable income, such as for qualified education expenses and or charitable contributions. So for a lot of these NIL athletes in college, some of them that are making money from being in the NCAA new video game or whatever, they are able to actually deduct some of their school from the profits they earn outside of that. And although mostly college athletes that are making a lot of money on NIL probably have full rides, the ones that aren't are able to do that. These student athletes must report all NIL earnings on their tax returns. Similar to other sources of income, they have to do the same W-2 forms and such. Just like we talked about in class, W-2, I believe there's a W-4 as well that they have to report those. So the first or the big NIL reforms that were implemented in July 2021 were allowing college athletes to monetize their fame while maintaining their amateur status. And what that kind of means is before they, similar to people such as a kicker from Central Florida, as soon as he started posting and making money from YouTube, he gave up his amateur status, which didn't allow him to play in NCAA anymore. And then as well, a lot of these athletes are signing endorsement deals with companies like Nike and such, such as Colorado's own quarterback, Shader Sanders. You know, and they're making a lot of money. He was able to buy a Lambo and he's only, what, 21? It's crazy. With the advances in social media, they're able to make so much more money than they already do with the NIL deals. Mm-hmm. Yeah, social media is a big, big thing, big game changer for those athletes. And then also the major brands are increasingly partnering with these college athletes for their endorsements. And these brands are using them for marketing, just to represent their company. And then also it really gets the name out there. A lot of people watch college sports, so. And the way that these athletes can plan out their taxes is such as contributing to retirement accounts or setting up business entities. This can help them manage their tax liabilities and make sure their stress is low. And also for a lot of these retirement accounts, they actually get tax breaks, especially for some of these people that want to set up a Roth IRA, a retirement account for themselves. When they take that money out in 30, 40 years, they'll pay a lot less taxes than if they just spent it and kept it right now, so. Many of these universities' teachers are offering educational resources and workshops about taxes and financial literacy so that these student athletes can understand their obligations more and maximize their deductions. Mm-hmm, it's a big thing, learning about how they can save their money, do a lot for that, also while they are earning this money in college. So, it's big. Deductions for NIL-related expenses can include travel costs, professional services, marketing materials, and equipment, all of their sports equipment, the plane rides they need to travel to the other colleges around the company can all be paid off by these deductions. Mm-hmm, all of those big things that are related to their sports. And a lot of the schools do already pay for that, but if they do need to pay for some of it, then they can pay for it. If they do need to pay for some of it, then they got it covered for their tax deductions. And then, a lot of these athletes should probably maintain their detailed records of their NIL earnings, because then they can report their taxes accurately. They can get a lot of those reductions, keeping the receipts, what they spend on all that, and really maximize their tax return. Yeah, many athletes may need to quarterly estimate their tax payments to the IRS and state tax agencies just to avoid penalties on their NIL deals. Yeah, it's kind of just precautionary. Most people will just pay the one taxes a year, but they can do this if they're making a lot of money and they just want to make sure they pay their taxes. That's very interesting, Joey. I've heard that tax implications for NIL deals incomes may differ based on the type of NIL deal, such as endorsements, social media promotion, or appearances. If the athlete is doing his own kind of thing on social media, the rules and regulations for his NIL deal and the taxes that are taken off on that may change. Hmm, that's really interesting, because as we know, most social media influencers probably don't have to pay as much taxes for the money they make since they're self-employed compared to someone who's under employment for an endorsement. So getting back more to the NIL, the NIL has led to a lot more financial opportunities for the athletes, especially in those big sports like football and basketball, and really just all sports overall. You'll see a few big, like even the baseball players, they're making a lot, softball, lacrosse, all of those. So they're really making a difference. Some critics argue that NIL reforms could exacerbate existing inequalities between athletes and universities. Some of these NIL deals make the other college athletes feel like they deserve one as well, even though NIL stands for, what was it again? NIL stands for? Name, image, and likeness. Yeah, so if their name, image, and likeness isn't up to par for the university that they're playing their sport at, then their NIL reforms just may not be good enough for them. And also, going back to that point, a lot of these smaller universities really feel like it is unfair for the NIL deals because they can't offer what Alabama could, and that's also why they're seeing, especially in football, a lot more transfer students each year because they can actually make money from that now, and there's just not as much loyalty between the player and their team, I guess. But it's also fair, they gotta go out and make some money. It is fair because the athletes have the ability to make their own brands on social media. They can establish long-term financial stability through this, and doing their own thing takes them away from focusing on the NIL deals and how important their sport is to them. Yeah, a lot of that, too, is some people are concerned, like, especially a big one this year was with Caitlin Clark. It almost made more sense for her, money-wise, to go back to college rather than entering the WNBA because she was making probably more than she would now with the NIL deals, and a lot of people think that could kind of blur the line between the amateur and professional athletics. A lot more people staying in college because they don't have to make that change, and a lot less risky. Yeah, the NIL has created new career opportunities for these athletes beyond their playing abilities. I mean, if they have an NIL deal, that's obviously gonna get them some attention, and then that gives them the opportunity to build their own platform. It's really up to them how far they wanna take it, but it's a good opportunity for these college athletes to make some money like they haven't been able to do before. And a lot of these athletes, especially if they have really bad injury and they go down, this has created new career opportunities for them outside of that, whether it's social media, announcing games, a lot more jobs are being created through NIL. Back to taxation for a little bit. Tax laws can change annually impacting deductions, credits, and tax rates on all of these NIL deals. Most of them have to report quarterly, but these tax laws do not change quarterly. Yeah, they just change annually. So a lot, most people file their taxes by, or most people file them electronically, but you can still do it the old school way, filing it by mail. And a lot of these businesses, such an H&R Block, TurboTax and all that can really help pretty much anyone, but also these athletes file for their taxes and really maximize their returns. Yeah, and if they're unable to file their taxes or pay owed taxes on, and they don't get it done on time, it can result in penalties in their NIL deals and as well as interest charges on their taxes. A lot of those, they gotta get them on time and they can also be, forget the word for it, but they can be audited, tax audited, especially if they don't input their taxes correctly. And then NIL income also is subject to self-employment taxes because they are technically considered independent contractors because they are working for themselves. And then if a business hires them to promote their brand, then a lot of these people, they're hiring themselves and then the business is hiring their own business to do that work for them. Now, we're just gonna cut to a little ad break about halfway through. ♪ I could change you like magic ♪ ♪ Now I delay like an addict ♪ ♪ All of my wishes came true ♪ ♪ Shop like a billionaire ♪ ♪ Shop like a billionaire ♪ ♪ Download the Temu app and shop like a billionaire ♪ And we're right back at it. We'll hop right back into the NIL and taxation part of things. And one fact that really actually surprised me was that some professional fees paid to agents or advisors are actually deductible for these athletes making money on their NILs. And I did not know that, and especially those can be some hefty fees when they're signing those contracts. So it's good for them. Yeah, state tax laws regarding the NIL incomes vary, with some states offering tax breaks or different tax rates on college students with NIL deals. And that's just like anyone else living across the US, different states, different taxes. And this actually has influenced many of the major sports athletes to move other places because in some places they don't have to pay as much money on their tax, more take home money. And a lot of these athletes are searching for that bag. Right, yeah. So the IRS actually does provide a free tax filing option for eligible individuals through the Free File Program. Taxpayers can track their refunds using the IRS online tool, typically receiving refunds within a few weeks of filing. These are just a few ways that these college students could save their money up while they're looking to build their brand. Just like I did earlier this year, getting that tax refund back. So it's good. A lot of these athletes should, just like we were talking about earlier, these athletes should probably consult with tax professionals. They don't wanna get audited. I'm sure it's probably tough with a bunch of those different brand deals, especially for these big athletes. It's probably safer just paying a tax professional a little bit of that money than getting audited for a lot of that money. Right, yeah, these athletes have so much to do. It's so hard for them to keep track of all of this stuff at the same time, especially filing their taxes. They should try to keep abreast of changes in tax laws and regulations because they change so commonly in every different state. Especially for those transfer students like we were talking about earlier. You transfer to a different state, they may have different tax laws. Hire the professional so you don't get audited. And then NIL, getting right back into that, it's really transformed college sports for the better, I think. It's kinda made it into almost a marketplace where these athletes can leverage their name, image, and likeness, their popularity for financial gain. And it's really allowed some of these people that may have not been able to capitalize on their finances, and maybe the NFL, the NBA, really capitalize on that in college before they even get there. Yeah, that's exactly right. These athletes can earn income through autograph signings, merchandise sales, and personal appearances like they never have been able to before. Mm-hmm, and a lot of, some of these, they'll go sign one, 200 stickers to put on sports cards. They can get paid for that now. They go to a random, I've been seeing a lot, like Cane's restaurants. They'll go there for a day and they probably get paid a lot of that, or a lot for that because they are bringing more revenue to that business. And then NIL has sparked debates about the fair compensation for athletes and the commercialization of college sports. And I guess we just want to talk about that real quick because I really think this is for the better, I guess. I think these athletes should be paid. It's fair compensation for the work they do, all that hard work they put in. And especially because before, they were making all these colleges a bunch of money and they weren't getting a piece of it. They may have been put on scholarship, flights paid for, whatever, but they couldn't make any money. They couldn't get a car from the team. They couldn't get free personal use flights from the team, anything. Especially with some of these athletes not even being on scholarship, they still had to pay for their school. And while they were playing sports, they just had to balance so much stuff at the same time. It really just didn't make sense that they weren't getting paid. And especially because a lot of these, they're making businesses outside of the college a lot of money. And especially right now, social media now, they're able to really capitalize on that, promote some products, engage with their fans. And I think it's really brought a lot of these fan bases together more than we've ever seen before. Yeah, these institutions, these universities, they make millions of dollars a year. I feel like the college athletes that bring some of that income deserve the fair amount of money that they will be getting paid through the NIL deals. And then a lot of these athletes, you know, the almost landscape of college recruiting has shifted because as we've seen with like CU, they're this big name image likeness school, and they're just able to pull in more recruits, especially with Coach Prime from these kids that do wanna capitalize on their NIL. And not only that, but the transfer portal, as we were talking about earlier, there's a lot more incentives to transfer schools. All right, and back to taxes here for a little bit. Deductions for expenses related to NIL activities, such as marketing costs, can offset taxable NIL income. Taxpayers can also request filing extensions if they need more time to prepare their returns, though payment deadlines do still apply. Especially, it could be hard for some of those basketball players late in the season. You know, it could be playoff time, they don't really wanna deal with their taxes. They can get an extension, but they can also go to a professional, have them do it. They got options. I mean, yeah, if you think about it, March Madness, they're probably gone for a month or two, they're just not at home, so I can't see where they would find time to file their taxes. Especially a lot of those teams that go deep in the tournament. And then, I think we're just about wrapped up on taxes, but just to talk more about some of the NIL. There's new regulations, obviously, they're a lot more laid back than the old ones, and they continue to evolve as the new challenges, you know, and also new opportunities arise in the NIL space. A big part of these NIL deals are the female athletes. So, female athletes and athletes in non-revenue sports are also capitalizing on these NIL opportunities. State laws and legislation vary regarding these NIL regulations, creating a patchwork of rules across the country. Yeah, and also, just to go back to those female athletes, like we were saying earlier, Kaitlyn Clark, although she's not in a non-revenue sport, she was making tons of money from her NIL deals before she even entered the WNBA. And then also, for a lot of these athletes in these smaller sports that may not have huge paychecks for professional leagues like lacrosse, you know, maybe field hockey, I'm not sure too much about them, but they're able to post on social media, get some followers, get their money up, and just do a lot. I mean, yeah, Kaitlyn Clark was one of the biggest names in all of college basketball for a while, man and woman. So, I feel like the female athletes should be getting compensated just as much as the male athletes, although that is not usually how it works, unfortunately. Yeah, for sure, for sure. And then, just to, I guess, wrap things up here, the NIL has really sparked innovation and marketing strategies for a lot of these businesses, and they've created a lot more partnerships while also allowing the athletes to be more free with their finances and all that. And then, the long-term impact of NIL remains uncertain, but it has undoubtedly changed the landscape for them, and in our opinions, probably for the better. And then, I think that's just about it. So, we'll play our. Thank you guys for listening to our podcast. Again, I was Adam. And I'm Joey. ♪ Woo ♪ ♪ Woo ♪