NCAA Rules Change

On June 30th, 2021 groundbreaking news broke from NCAA board of Directors. The NCAA announced they would be lifting restrictions on athletes receiving payments based on their name, image, and likeness (NIL). For decades we have seen athletes suspended for this behavior, notably Reggie Bush, Todd Gurley, and Johnny Manziel. Now, the NCAA has flipped the script and has effectively turned these amateur athletes into professionals. This will drastically shift how colleges market and recruit young talent. Connections to donors, alumni, sponsors and the like will be critical in the recruiting process. Universities are going to have to quickly adapt to this new athletics landscape. In the same way, current and incoming athletes will be trailblazing this new territory. Within a day of the NCAA’s announcement, Boost Mobile had signed an endorsement deal with a set of twins from the Fresno State Womens Basketball team. A few weeks ago, Nick Saban (Alabama head coach) came out and said their presumed starting QB, Bryce Young, has already amassed NIL deals in excess of $1,000,000 in the month of July. As more athletes look to capitalize on this newfound stream of income, it will be critical that they understand all financial implications. 

One of the interesting aspects of this new rule is how it could impact financial aid.  It is currently estimated that between all college athletics (NCAA DI-III, NAIA, NJCAA) there are a little over 500,000 student athletes. However, the maximum number of scholarships is only 177,559. This effectively leaves 65% of student athletes without athletic scholarships. With an estimated 86% of all college students receiving financial aid, it is reasonable to assume a significant portion of student athletes will need to understand how NIL profits will impact other sources of college funding. When going through the financial aid process, the university will look at the assets of both the parent and student to determine if they qualify for financial aid. On their scoring system, only about 10% of the parental assets are attributed to the student, whereas the assets of the student carry a 90% weighting. As a result, parents who have saved money for their kids in a UTMA (ownership is to the child) could find financial aid harder to come by. With these new rules, if an athlete on financial aid receives a one-time payment of $20k for a marketing partnership, their student aid could be negatively impacted. If you are an athlete on financial aid and plan to make money from your NIL, it may make sense to check in with your financial aid office to ensure you are not compromising your current aid. 

For a lot of athletes, finding time to work may prove difficult. As a former college soccer player, I know firsthand how little free time you have outside of school, sports, traveling, etc. Working part time while playing a sport and being a full-time student is something few individuals have pursued. However, now that athletes can pursue a more “passive” means of receiving payment, they will now need to consider local taxes. There are currently nine states that do not have a state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. It is a guarantee that universities in these states are going to use their tax laws as a selling point to attract top recruits. There have already been stories coming out on athletes signing deals worth as much as $2,000,0000. If you signed this deal while living and playing in California, you could be paying as much as 12.3% (marginal) just on state income tax. However, if you had signed this deal in Texas, where there is no state income tax, you would have saved yourself $230,500 just on state income taxes. This is enough to have a student reconsider his or her choice of school. Inevitably, states will want a share of athlete income if it was earned while the player was in their state. As an example, if a Texas Longhorn player makes a marketing post while playing at the University of Oklahoma, was the income technically earned in Oklahoma? Does the player have to pay state taxes? There are going to be a lot of considerations for college athletes moving forward.  

From a planning standpoint, it will be interesting to see how individuals’ top income earning years change. Historically and still for most, college is thought of as a debt turning machine. According to Experian, in 2020 average student debt reached an all-time high of $38,000. For student athletes, this does not have to be a reality. Multiple analysts, retired professionals, and former DI athletes have estimated that if you are a big-time college athlete like Zion Williamson, Matt Leinart, Tyler Hansborough, Tim Tebow, Johnny Manziel, you could be making $10M+ a year based on NIL. The college earning years would have been incredibly important for players like these who did not end up with the most successful professional careers. They could have earned more income in 4 years in college than for the entirety of their professional careers. But you don’t need to be a superstar in a big 4 sport to be paid the big bucks. Newsweek wrote an article on 7/1/2020 highlighting an LSU gymnast by the name of Olivia Dunne who, by their estimates, could have become the first millionaire athlete (there are multiple millionaire athletes now). While Olivia is a D1 athlete, gymnastics does not have the popularity of football or basketball. However, Olivia has something that most college athletes do not have, over 5 million followers across social media platforms. To those looking to sponsor or use an athlete for marketing, this is an extremely attractive selling point. In professional sports, the best players are typically paid the most because they add value on the field or court. For college athletes though, performance may not be the driving factor. Whether you are a starter, role player, or even on the bench; if you have a large social media platform, you may be able to recognize substantial deals. If college athletes are going to recognize their highest income earning years at the start of their careers, they can put themselves in an incredible position moving forward. 

With this new ruling, college athletes are going to have to consider and be mindful of financial elements that have never been asked of athletes before. Building a team of CPAs, attorneys, sports agents, and advisors are going to be more important than ever for these young adults. On a consistent basis we see professional athletes mismanaging finances or being taken advantage of by their agents/advisors. Now that more freedom has been given to these college athletes, they are going to need to take the same if not more care with their finances as professionals. The world is changing and moving faster than ever. This new ruling is a clear example. We all must continue to learn and adapt, while also planning for what is ahead.