The Athletic Director’s Guide to Getting More Sleep in the NIL Era

Sports Business Journal

We are approaching the six-month anniversary of the NCAA’s interim policy allowing amateur athletes to profit off their name, image, and likeness, and let’s face it, athletic directors have had some sleepless nights worrying for their athletes. Those concerns are valid as schools, athletes, brands, and personal representatives navigate this new marketplace.

In discussing NIL with our university clients, here are a few of the key topics keeping athletic directors up at night and how they can educate their athletes to make the best decision possible…and hopefully get some more sleep in the process.

Is My Athlete Getting “Fair Market Value?”

Every athletic director continues to grapple with fair market value. At the upper echelons of college sport, this has worked itself out with reports of athletes signing deals valued over a million dollars. But for the vast majority of athletes, this remains the great unknown.    

While there is no one-size-fits-all formula, we can confidently say that your athletes are worth more than a free T-shirt or a free pizza. For Instagram, Navigate Research and AthleticDirectorU suggest that a college athlete is worth about 80 cents per follower per year. By 2025, this marketplace will be well-developed with data that allows athletes to understand market value; until then, there are a few key things athletic departments can advise athletes to protect their value:

  • An athlete questioning their value should focus on deals for specified lengths or obligations, such as the length of their competition season or a set number of social media posts. This allows both the athlete and the brand to reevaluate the athlete’s worth as the marketplace continues to develop.
  • An athlete questioning their value should avoid signing exclusive agreements that prohibit the use of their name, image, and likeness by other brands. Unless an athlete feels they are being appropriately compensated, they are sacrificing other income by signing an exclusive.
  • An athlete questioning their value should request the right to terminate the agreement with notice — even if that requires them to return some advanced payment. This allows an athlete to end a “bad” deal without cause, and allows them to protect their rights.

Is My Athlete Signing A “Bad” Deal?

There is an influx of Frankenstein’s monster of contracts, or as I like to call them, “Frankengreements,” being presented to athletes for NIL. This is because local companies and even some agents are Googling basic contract terms and piecing them together without having an attorney review them. Unfortunately, this results in both the athlete and the brand being subject to inappropriate contractual provisions. While nothing can replace professional representation from a licensed attorney or certified agent, athletic departments can educate athletes on a few red flags:

  • The brand can use the athlete’s name, image, or likeness “in perpetuity.”  
  • The brand can modify the athlete’s image without permission or approval.  
  • The allowed use of the athlete’s name, image, or likeness is not clearly defined.  
  • The agreement prohibits the athlete from bringing a lawsuit in the state the athlete attends college.  

If an athlete sees one of these provisions. Stop. Think. Ask for help.

What Are the “Consequences” of My Athletes Making Money?

Athletic departments know there are two main consequences to an athlete making money: (1) taxes; and (2) FAFSA.  

The first is of immediate concern. As 2022 begins, athletes will start receiving Form-1099s from the brands with which they have done NIL deals. But, the tax bill is not limited just to monetary compensation. The value in merchandise, cars, or other non-monetary items an athlete receives in exchange for using their NIL is subject to income tax. An athlete must account for this tax even if they received no cash in the deal. The best advice is for an athlete to set aside a portion of each NIL deal to cover their income tax (both federal and, for most, state), Social Security tax, and Medicare tax.

In addition to paying Uncle Sam, NIL income must also be disclosed on an athlete’s Free Application for Federal Student Aid (“FAFSA”). While the law is clear that NIL income cannot affect a student’s athletic scholarship or grant-in-aid, there can be a reduction of need-based financial aid, such as a Federal Pell Grant, as income increases. Need-based financial aid from FAFSA is calculated using the previous two years’ tax return information, so the impact may be delayed until 2023; however, there can be exceptions for conflicting information related to a student’s income that can necessitate a FAFSA adjustment. Therefore, athletic departments and the college’s financial aid office should partner in making athletes aware of their potential net earnings after taxes versus the possible reduction in need-based financial aid.

While these issues have kept athletic directors restless for six months, they can be overcome by providing student athletes with the right educational resources to navigate the NIL marketplace safely.

“The Athletic Director’s Guide to Getting More Sleep in the NIL Era,” by Cody Wilcoxson was published in the Sports Business Journal on December 22, 2021. Reprinted with permission.