- Name, image, and likeness (NIL) deals offer athletes exciting opportunities, but also potential pitfalls if not approached strategically.
- Athletes should educate themselves on taxes, carefully review contracts, and budget with long-term security in mind.
- With guidance on financial obligations, agreements, and smart money management, athletes can maximize NIL benefits while safeguarding their futures.
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You are a talented young athlete with a growing public profile. You’ve just been offered a Name, Image, and Likeness (NIL) deal, an opportunity that can put some extra money in your pocket or even, in some cases, make a more profound impact on your financial life. It’s an exhilarating time, but it’s also crucial to approach this new chapter with the right knowledge and mindset.
Whether you’re a college or high-school athlete, or the trusted advisor to a young athlete, here are the three most critical actions you should take to avoid common financial pitfalls associated with NIL deals.
1. Recognize Your Tax Obligation
One of the first hurdles you’ll encounter in the world of NIL deals is taxes. It’s essential to understand that the money you earn from these deals is subject to taxation. Many young athletes overlook this, often because they’ve never had to deal with taxes before.
To avoid potential financial trouble down the road, consider these steps:
- Educate Yourself: Young athletes receiving payments from NIL deals are responsible for paying taxes on that income just like professional athletes. Take the time to learn about taxes, especially how they apply to your earnings. Understanding the basics of taxation will empower you to make informed decisions.
- Consult a Tax Professional: Before signing any NIL agreement, consult with an experienced accountant, tax advisor, or business manager. They can help you calculate your tax obligations, identify potential deductions, and develop a tax strategy tailored to your situation. Along with ensuring any federal, state, and local taxes you owe are paid on time (avoiding penalties), a tax professional can also help you navigate more complex situations – such as earning income across multiple states.
- Practice Smart Spending: Resist the urge to splurge on electronics, clothes, or cars as soon as the money starts rolling in. Create a budget that considers your future tax payments, living expenses, and financial goals. Staying disciplined with your spending is key to long-term financial success.
2. Execute Agreements Cautiously
Navigating NIL deals can be tricky. There are various state laws and school policies to consider, along with a number of legal “gotchas” to avoid. Here’s how you can safeguard your interests:
- Seek Legal Advice: Before signing any NIL agreement, engage a lawyer with experience negotiating NIL and brand endorsements for athletes. An attorney with expertise in sports contracts can help you navigate the important terms in an NIL deal, such as money, exclusivity, length of the agreement, how the brand can use your name, image, and likeness, and an athlete’s delivery requirements. An experienced attorney will help you spot potential pitfalls and ensure the agreement aligns with your long-term goals.
- Beware of “Standard” or Simplistic Agreements: When someone refers to a contract as “standard” or provides an overly simplified agreement, that should throw up a red flag. All it takes is the slightest language in your agreement to give a company unfettered rights to use your name, likeness and image in ways you never intended.
- Follow Regulations: An experienced advisor will help you navigate specific laws and policies set by your state, school, and the NCAA regarding NIL deals. For example, you cannot share photos or videos in your team uniform with logos from other brands without first getting permission from your school or the brands.
3. Budget Wisely for the Long Term
While newfound wealth can be exhilarating, it’s crucial to manage your finances wisely:
- Prioritize Needs Over Wants: When it comes to spending, prioritize essential needs over extravagant wants. Understand this financial windfall may be a one-time occurrence, so focus on building a secure future rather than indulging in immediate gratification.
- Future-Proof Your Earnings: Instead of assuming this is a continuous stream of income, treat each deal as if it were your last. Create a budget that accounts for potential future earnings and uncertainties, ensuring you’re prepared for any scenario.
- Explore Tax Mitigation Strategies: Consider tax mitigation strategies, such as retirement planning and deferral opportunities, to minimize your tax burden. Consulting a financial advisor can help you explore these options.
Make the Most of Your NIL Opportunities
The legalization of NIL in college and high school sports represents an exciting shift for young athletes. It can offer game-changing money, enabling you to take care of your financial needs, along with building your brand for future growth. But with great success also comes great responsibility. Even professional athletes who’ve reached the highest pinnacles of their respective sports can end up without the financial resources they need if they don’t plan ahead.
The good news is by recognizing the potential pitfalls and seeking professional guidance early in your NIL journey, you can better position yourself for long-term financial success. Remember, it’s not just about profiting from your name, image, and likeness today, but also securing your financial future for tomorrow.
How We Can Help:
Our Entertainment, Sports, and Media practice understands the unique challenges athletes face at all stages of their financial journey. Whether you need assistance with tax planning, contract negotiations, or financial strategy, we’re here to guide you toward a successful future in the world of sports and NIL deals.
This article was co-authored by Leron E. Rogers, Partner at Fox Rothschild LLP.
]]>At a Glance…
- A professional athlete is the CEO of the brand that bears his or her name. That’s why sports stars should turn to the strategies employed by the world’s most successful entrepreneurs and executives as a playbook for long-term success. In short, they need to think like a CEO.
- Building a high-performing team is the number-one priority for growth-oriented businesses, and it’s no different for the Athlete/CEO. Drawing from the proven team-building models of the corporate world and the entertainment industry, we’ve developed the MGO Model, tailored to the unique needs of Athlete/CEOs.
- The Business Manager is the Financial Quarterback of an Athlete/CEO’s team. He or she is responsible for the daily oversight of a client’s financial affairs. That includes tax planning and compliance, establishing budgets, paying the bills, managing cash flow, and advising on major financial decisions. The Athlete/CEO should carefully vet the qualifications of anyone serving in this critical role.
Background
In the first installment of this series, we noted that the financial profile of a professional athlete more closely resembles a mid-sized, private company than a typical household. While the economics can be exceptional, an alarming number of players lack the support structure necessary to navigate the depth and complexity of their financial requirements.
A professional athlete is the CEO of the brand that bears his or her name. To ensure the long-term value of that brand, the Athlete/CEO needs to embrace that role and reimagine their future beyond the playing field. In this series, we examine the mindsets and practices of some of the world’s most effective business leaders as a model for navigating the unique challenges and opportunities facing professional athletes.
Building a Team
John Wooden said, “The main ingredient to stardom is the rest of the team.” This is just as true in the business world as it is in the world of professional sports. That’s why the world’s top CEOs make team-building their first priority. The way they approach that process serves as a valuable roadmap for Athlete/CEOs.
The Corporate Model
Most businesses share a common structural framework. While details may vary across different industries and global regions, the core elements of the Corporate Model (below) remain consistent. This framework identifies the primary business functions and areas of expertise critical to an organization’s success.
The Corporate Model has been successfully adapted to a wide variety of business categories, evolving as necessary to the unique needs of each organization’s operating environment. When working with athletes, perhaps the most relevant example is the entertainment industry.
The Hollywood Model
The Film & Television industry shares many of the traits of people working in professional sports. The quality of the product is determined largely by the quality of the talent in the spotlight – driving significant demand and high salaries for the best actors, directors, writers, etc. Over the years, Hollywood leaders recognized that many of the same principles of growth and financial governance in the corporate world apply to the financial lives of talent in Film & Television. This led to the evolution of what we call the Hollywood Model (shown below).
This model identifies the importance of each individual role in the Corporate Model, albeit by different names. For example, the Business Manager takes on the role of the Chief Financial Officer (CFO), serving as the quarterback of the client’s financial affairs.
The Sports Model
Over the past several decades, the financial lives of professional athletes have grown increasingly complex. Salaries have grown significantly, as have endorsements, appearances, other sources of income, and the demands on each player’s time and attention. However, the average player’s support system has failed to evolve at the same pace. The model below shows how the support team of a typical athlete compares to Corporate Model.
While professional athletes understand the importance of experience, expertise, and teamwork, they often lack a clearly defined model for building their own teams off-the-field. The majority of highly publicized financial failures in professional sports stem from athletes who were either (a) missing key role players on their teams, or (b) trusting important roles to inexperienced or sometimes even unscrupulous acquaintances.
The MGO Model
At MGO, we’ve been fortunate to work with some of the most successful executives and entrepreneurs in the world – as well as many of the biggest names in Sports & Entertainment. As a result, we’ve come to know the traits and practices that drive success across industries.
The MGO Sports Model was developed to be a blueprint for Athlete/CEOs as they build their own teams. It identifies and defines the roles that are critical to success, while aligning the work of leading advisors under a common vision. While each role is important, we encourage clients to begin with the person who will serve as the quarterback of their daily financial lives; the CFO Business Manager.
The Financial Quarterback
In a recent article, Variety described the role of Business Managers in the Sports & Entertainment industry, stating, “Business Managers are the personal CFOs for celebrities, executives and athletes… They put their fortunes and their day-to-day lives in the hands of these trusted advisors.”
While each member of the Athlete/CEO’s team plays a vital role, the CFO/Business Manager is the person with the most tangible daily impact on a client’s financial life. He or she is the quarterback of the financial operation – responsible for hands-on, real-time execution of the financial plan. This includes establishing budgets paying the bills and monitoring the expenditures of anyone with access to the client’s accounts or credit cards.
Additionally, Business Managers serve as on-call financial advisors, working closely with clients on many of their most important financial decisions including family estates and trusts, tax planning, major purchases, potential investments, and charitable contributions.
High profile athletes are sometimes targets of investment scams and unwarranted requests for financial support. When these propositions come from friends, family and former acquaintances, a Business Manager can provide an important gatekeeper function. By establishing a recognized first point-of-contact for all financial requests, the majority of questionable requests can be filtered out before reaching the athlete.
Finally, the CFO/Business Manager works closely with the entire roundtable of advisors, ensuring that everyone is aligned and working together to implement a common strategy.
Selecting a CFO/Business Manager
Despite the critical role played by Business Managers in the financial lives of their clients, most states require no credentials to use the title Business Manager. As a result, there are people with little or no accounting experience using that title today.
Many of the highly publicized financial challenges in Sports & Entertainment have stemmed from unqualified and/or unethical advisors serving in the role of Business Manager for high profile clients. That’s why we suggest doing your own due diligence before hiring the quarterback of your financial team.
Questions? Let’s Talk.
]]>The Basics of Financial Literacy: Saving and Investing >
The Basics of Financial Literacy: Getting and Building Credit >
The Basics of Financial Literacy: Everything You Need to Know about Diversifying >
The Basics of Financial Literacy: Budget Now, Enjoy Yourself Later >
]]>Big earnings do not equal a lifetime of financial comfort
High tier individuals in entertainment can earn more money in a year than the average person makes in a lifetime. Yet, in a Forbes study of 165 talent agents and managers, more than nine out of ten interviewed claim a large percentage of their top tier clients have little or no understanding of wealth or how to handle that wealth for themselves.
As a result, a number of financial perils consistently trap, and occasionally ruin, a number of high-earning individuals. The media and the general public only care about the splashy, flashy tawdry spectacle of a former star down on their luck. That attention only addresses the symptoms of a disease, but never gets to the core cause that would enable a person to find a cure.
The dangers of lavish spending
Many talented individuals make the mistake of buying into media depictions of how people with status in the entertainment industry “should” live and have little or no concept of how to keep themselves financially grounded. Often there is a perception that one should not only live their lives as if they are successful, but there is pressure to show that life to the world at large, most recently through the lens of social media.
Michael Jackson is just one of many celebrities who faced bankruptcy and financial ruin late in his career. The performer had zero self-control when it came to lavish spending. His Neverland Ranch and collection of oddities are a legendary lesson in the danger of excess and paved the road to his financial ruin.
Another behavior pattern that has led to lavish spending is a general negativity attached to money, referred to as “demonized wealth.” In this case, people from a lower income bracket are suddenly thrust into a position of high wealth, and feel that being wealthy is bad, dirty, or somehow embarrassing. This could be due to how they were raised, or gained from observing the behaviors of other wealthy individuals. Demonizing one’s wealth can lead to talent spending money as soon as they earn it, in an attempt to get rid of it, instead of letting it grow.
The risks of poor investments
Many celebrities try to make smart money choices by investing in real estate, emerging companies or other investment vehicles. For every stunning success, like 50 Cent’s famous investment in Vitamin Water, there are countless stories of failed investments. While risk is part of any investment strategy, far too many celebrities over-extend themselves in pursuit of greater wealth.
Kim Basinger and Burt Reynolds, A-List movie stars at the height of their fame, ran into financial distress due to poor investments. In Basinger’s case, the actress invested in a town outside Atlanta, Georgia, intending to turn it into a tourist destination. Just five years later, on the brink of financial ruin, Basinger and the other investors sold the property at a significant loss. For Reynolds the damage of a series of costly divorces was exacerbated by a major investment in a failed restaurant chain.
In both cases, the celebrities where trying to be proactive about securing and growing their personal wealth. But poor advice and over-extending their finances led them to ruin.
Lack of experienced financial guidance
New wealth in Hollywood comes with a wide variety of financial pitfalls and traps. Some celebrities do plan ahead and seek out financial advice early in their careers, but it can often fall severely short of the depth and breadth of options that are available to them. While many are wise enough to work with a “financial advisor” all too often that source of advice is not qualified for the role, or is downright criminally-minded.
R&B singer Toni Braxton placed her financial trust in her manager and his record label only to ultimately lose everything. It is a common story, where a celebrity places financial trust in someone who is either close to them (a friend or relative) or who is a scam artist disguised as a financial advisor. Those advisors then provide poor advice that seemingly enriches everyone else at the expense of the celebrities themselves.
How can talent avoid the financial pitfalls?
We’ll be discussing this in depth in the next installment of this series of articles, but the best thing high-earning talent can do is to find themselves a brilliant financial team to work with and for them. A top tier individual in entertainment should look at the management of their wealth the same way a mid-sized company would. The person earing the income is the CEO of their own business with their name as the brand. They then need a CFO and a team of experts that are the best in their specific fields of wealth management, diversified investing, and financial planning. Proper financial planning with a team can give someone a healthy, prosperous, and well-rounded financial lifestyle; while still enabling them to plan for the future and the security that comes with smart investment moves.
]]>The financial perils celebrities face in Hollywood
A professional athlete or a top tier individual in entertainment should look at their expanded wealth and the management of that wealth the same way a mid-sized company would. The person earning the income is the CEO of the business and their name is the brand. They need a CFO to manage finances who is supported by a team of experts who are the best in their fields of wealth management, diversified investing, and financial planning. This team then enables the talent to get the best use out of their wealth while still making provisions for a comfortable future.
A good partnership between a high earning professional and a financial team can yield endless results and allow earners to live comfortably now and long into the future when considering retirement. Trust is the key to a successful working relationship between a high-income client and their financial team. With that trust established; the future of an individual and their family will be assured with strategy, planning, and more than just a bit of market savvy.
The first step in working with a professional financial team is to take ownership of financial awareness and education. It’s important that the earner takes time whether over the phone, remotely through video conference, or when possible in person; to sit and talk to their financial professionals. This will help them understand how and why their money is being managed the way it is.
A financial team needs to be allowed to act as guardians of wealth
High-earning talent must allow their financial team to act as guardians and keepers of their money. In the worlds of sports and entertainment celebrity, very few things are ever denied top-earning talent, and quite often they are not acquainted with the word “no.”
This is where financial teams step in to not only shield talent from financial predators and bad investments, but to also protect the earner’s money from themselves by helping curb extravagant spending and off-the-wall purchases. A good financial professional team is the best line of defense against money disappearing with no return.
Establish current and future goals for the life you want
A series of goals must be set by the earner and their financial professionals to properly plan for the future. Where do you want to be when you retire? What kind of life do you want to have? With the money you have coming in, what sort of plans can you make for yourself and your family? It’s important that individuals set realistic goals that are guided by their financial team, and that they maintain solid credit through their more lucrative years so they have an excellent history to build from.
Work to establish a series of sound and profitable investments
Talent can work with their financial team to establish investments that will earn returns and dividends that they can draw upon once they are no longer working. Municipal Bonds and ETFs in efficient markets are examples of smart investments. There are a multitude of options available, and if your financial team is savvy; they can advise you in the world of alternative investments like casinos, restaurants, hotels, and newer
markets like cannabis.
Get the right insurance for your career and risk profile
The financial team must work to ensure that talent has adequate insurance. Athletes take risks with their bodies all the time, so it is important that a player maintains the correct type of insurance that will cover them if they are injured and are unable to return to playing for a season. Or in a worst case scenario, they are forced into early retirement by an injury. The same can is true for actors, directors, and professionals in the world of entertainment. On-set accidents do happen, and if a person is unable to work in their chosen field; their earnings drop to next to nothing.
There is an energy and synergy to money
There is a synergy and energy to the exchange of money. Money is like an electrical current and a flow must be maintained at all times for wealth to increase in size. There needs to be a give and receive in place when balancing an individuals’ investments and wealth, and there is always the value of giving vs. receiving to consider. This journey to finding a balance with a financial team and a true vision of what a person wants to achieve with their wealth and their life is a much broader topic; which we’ll be discussing soon enough. So, just keep your eyes open for further editorials in this ongoing series!
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