A college football recruit signing an autograph deal for $1.4 million dollars and Fresno State’s Cavinder twins inking a $1 million dollar deal may have appropriately classified the Name, Image and Likeness era; the Wild West. The public’s perception and reality of the “NIL” era are drastically different.
The high-value deals have turned the traditional way college athletics has operated upside down with many celebrating the advancement and new opportunities to earn income. For many athletes and programs, there is one area that is consistently overlooked that could result in a surprising and potentially devastating outcome for college athletes.
Maintaining academic eligibility is a focus of many but maintaining financial ability is often overlooked, but not for long. Financial Aid departments are tasked with making the tuition money work once athletic offers are made. While public perception is that an athletic scholarship equals “a full-ride”, the reality is that out of the 517,000 student-athletes across all divisions and all leagues, only about one percent receive a full athletic scholarship. The significance of need-based aid to not just student-athletes, but the NCAA as a whole, cannot be understated. If not for need-based financial aid, the number of athletes able to attend an institution for college athletics would dramatically diminish.
When it comes to the U.S. government, any benefits received through NIL is determined to be income. Obviously, cash in the pocket is considered income, but so is crypto-currency, NFT-s, use of vehicles, clothing, trips, meals and more. Many “NIL” deals produce both cash and non-cash compensation.
For example, a female soccer player may endorse a skincare line and part of that payment is made up of $5,000 in cash and $400 worth of product each month for a year. The athlete sees it as $5,000 in cash and free products totaling $5,000 for the year. The IRS views it as $5,000 of cash and $4,800 of non-cash compensation for $9,800 for the year.
Let’s assume this athlete is currently receiving a Pell Grant and believes that because her income is below $6,000 and the family income stays below the threshold, she will continue to receive this grant, the reality is her “income” which could disqualify her from continuing to receive the same level of aid. This would theoretically jeopardize her ability to afford tuition and put her athletic career in question.
How about a male basketball player that takes no cash compensation to appear in an advertisement for the local car dealership. In exchange for his participation, he gets to drive a new truck valued at $50,000. The athlete thinks he is safe because he’s driving a free car and didn’t get paid in cash, but the IRS potentially sees $50,000 of non-cash compensation which needs to be reported on his taxes. This may not only put this athlete in a similar position as the soccer player but also put him in a tax debt he may not be able to pay.
Plan and Prevent:
- “Real-world” financial literacy education for athletes and athletic departments: Ongoing education on taxes and tax planning along with how to save properly, credit, budgeting and more foundational financial skills explained in a way that is entertaining, easy to understand and implement.
- Negotiation education to NIL coordinators and athletes: Learning how to negotiate on when compensation is received and how it’s classified by the sponsor could help prevent financial aid problems.
- Communication with the NIL coordinator, compliance and the athlete before an NIL deal is approved: Being able to provide guidance on how an NIL deal will affect the athlete and any aid they receive before the transaction happens could prevent adverse situations.
- Ongoing education for parents and athletes on how NIL deals can impact their financial aid: Bringing consistent education to the athletes and parents on how financial aid is affected will help build trust with the institution and allow for everyone to be on the same page and work in the best interest of the athlete.
Traditionally, the world of higher education and college athletics live divorced from each other in separate siloes. But the new realm of NIL will intertwine sports with the rest of the institution for the foreseeable future.
Despite financial aid departments already being completely understaffed, NIL poses a new challenge that many are ill-equipped for. Meeting this need requires financial aid staff to be more consultative by explaining the ramifications of an NIL deal before the student-athlete agrees to a contract. Providing more guidance upfront is the only way to ensure that student-athletes can benefit from NIL without getting punished later down the line.