- 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.
]]>Almost ten years ago, ESPN aired its groundbreaking 30 for 30 Series, opening with this pair of startling statistics:
Since that time, dozens of media reports have presented similar statistics, suggesting a widespread problem in professional sports that continues to impact athletes in alarming numbers. These reports often focus on the more sensational aspects of the problem: extravagant spending; fraudulent investments; and embezzlement by friends, family, and advisors. In addition to these potential threats, players have to navigate a myriad of other demands including taxes; contracts; merchandising and endorsement opportunities; investment opportunities; and team obligations – all competing for mental energy, time, attention and/or financial support.
Part of the challenge for athletes is a lack of, or gap in their education on the fundamentals of money. That gap becomes more significant due to the complexity of a professional athlete’s financial interests – which more closely resemble a mid-sized, privately held company than a typical household. Additionally, a professional athlete is the CEO of the brand that shares his/her name. To ensure long-term financial success, today’s sports star needs to adopt the mindset of a CEO.
The CEO Mindset: A Framework for Success
The CEO is the most powerful and sought-after title in business. Like the world of pro sports, very few of the people who aspire to the role ever make it – even fewer rise to the ranks of the elite performers. The job is as rewarding as it is challenging. Unfortunately, very little has been written on what makes a CEO successful.
At MGO, we’ve been fortunate to work closely with some of the most successful executives and entrepreneurs in the world. As a result, we’ve come to know the traits and practices that successful leaders have in common – and applied them to the situations most commonly faced by professional athletes or “Athlete/CEOs.”
The CEO mindset is built around a framework with four pillars:
I. Vision & Strategy
Athletes understand the power of visualization – the importance of envisioning an outcome in order to make it a reality. In their role as Athlete/CEO, they are asked to extend the horizon of their vision. To ideate their life goals and aspirations – today and into the future. To build a roadmap that will get them there.
II. Team Building & Alignment
Athletes understand that the single most important requirement for winning is the team: quality talent, clarity of mission, alignment, and execution. The team must understand the critical balance between individual talent and working together as a single holistic, high-functioning unit. The foundation of all high-functioning teams is trust.
III. CEO Focus
Athlete/CEOs face overwhelming demands for their time and must be careful to avoid other people’s urgent, but often unimportant, demands for their attention. Top-performing CEOs understand how to focus on the important things that only they can do. Whether it’s leading critical meetings, inspiring team action, or telling the story behind your vision – the Athlete/CEO must be vigilant with how they invest their time.
IV. Larger Purpose
Exceptional CEOs understand the power of purpose. Something that goes beyond just profits and financial rewards. Athlete/CEOs occupy a unique place in the world. They wield visibility and influence that most of us can only imagine. It gives them the ability to inspire others and make an impact on the world in a way few can. Lock-in to that larger purpose and make sure it’s top of mind in driving your key decisions.
CONCLUSION
John Wooden said, “The main ingredient to stardom is the rest of the team.” At MGO, we team with athletes and entertainers to achieve long-term financial success and help them think like a CEO. We are your experienced ally, financial coach, and trusted advisor.
We use a proven framework that starts with developing your vision and strategy, supported by a team that can get you there. In Part 2 of this series, we’ll discuss the keys to building a high-performing team, including:
- Common mistakes made by professional athletes when building a team
- What Athlete/CEOs can learn from the Corporate Model of team building
- How to ensure the entire team is aligned and moving in the same direction
COMING SOON:
Part 2: Building Your Team
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