October 7, 2022

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Sports Really Satisfies

College Athletes Who Cashed In Have a Painful New Homework Assignment: Their Taxes

Au’Diese Toney, a guard for the Arkansas Razorbacks last season, has a pasta dish named after him at Bordinos, a swanky Italian joint near campus in Fayetteville, Ark. It’s the kind of deal that college athletes can now strike under new rules that allow them to cash in on their name, image and likeness. 

Toney acknowledged that it hadn’t occurred to him that Uncle Sam would be taking a bite out of every plate of Cajun-inspired fettuccine with shrimp and wild-boar sausage, a play on the university mascot, sold through the partnership.

“It’s just a blessing to you to even have a pasta named after you,” said Toney, who has used his earnings to make his car payments. 

Toney’s agent, Stanley Hastings, said the dish has been a hit, with more than 20 orders on its opening night. “Au’Diese is a sneaky foodie.”

College basketball season may be over, but tax season is about to reach its climax. The NCAA changed its rules last summer to allow college athletes to make money off of their name, image and likeness. As a result, thousands of college athletes with deals will be on the hook to file their own taxes this month, whether they are raking in six-figures from sponsorships or have meager income from social-media posts.

Dealing with the Internal Revenue Service could come as a bit of a shock. 

“Although NIL [name, image and likeness] is a wonderful thing and it will get figured out…there will be bumps in the road and one of them is going to be April 18,” said Peter Schoenthal, chief executive of Athliance, a platform that helps athletic departments navigate NCAA compliance rules. A criminal defense lawyer by training, Schoenthal said that he founded the company in 2020 because he realized taxes would be a pain point in this new era for college athletes.

“I didn’t want to represent them in federal court on tax evasion charges,” he said.

Given the rigors that come with training to be a Division I athlete, many college students will be wading through tax forms for the first time this month.

“I actually have never worked a job, really, with hours,” said Arkansas guard Stanley Umude. He said that he has done the occasional babysitting or lawn mowing gig, but his payment always came in cash. 

Plenty more athletes, like Villanova fifth-year forward Jermaine Samuels, only had time to work at basketball youth camps during the summers. But half a decade removed from his last job, Samuels did a handful of local commercials and even went up to New York City for the day to take part in an ad campaign for Tampa Bay quarterback Tom Brady’s clothing brand.

“I had makeup on for the first time,” Samuels recalled of the November 2021 photo shoot. “It’s a whole different world when it comes to modeling and taking pictures.”

Villanova forward Jermaine Samuels did a handful of local commercials.



Photo:

David J. Phillip/Associated Press

When informed earlier this month that the federal deadline was around the corner, Samuels suspected that Villanova might help him and his teammates handle their tax forms. If not, his backup plan was his parents — something of which he had yet to inform them as of April 1.

“I think I should be having that conversation [with my parents] pretty soon,” he said with a laugh.

Without much experience working salaried jobs, the concept of setting aside a chunk of income for the government is foreign to undergraduates seeing dollar signs from all the potential deals coming their way. 

Further complicating matters, much of the compensation for college athletes in the last 10 months has been in the form of pizza slices, fried chicken sandwiches or, in the extreme case of Kentucky men’s basketball, short-term leases on Porsches.

Even though that compensation doesn’t come in the form of a paycheck, it still has value that is taxable according to federal law. Additionally, endorsements deals—like Toney’s eponymous fettuccine—tend to be paid out via lump sums. It is up to the recipient to set aside a portion of that income to cover the taxes they will ultimately owe on it.

That can lead to what

H&R Block

chief executive

Jeff Jones

called “negative surprises.”

“Any time something is so new, there is just misunderstanding, especially for student athletes who most likely have never had to think about this topic ever before,” Jones said. “The biggest surprise worry is owing money.”

Thanks to new NCAA rules, student athletes can now make money from their name, image and likeness. WSJ’s Laine Higgins explains the new world of lucrative brand and endorsement opportunities for college athletes. Photo: Gatorade/Getty Images

H&R Block is playing both sides. In addition to providing free resources to college athletes on its website, the firm put forth $1 million to sponsor female college athletes and provide them with tax preparation services. Jones said the deal, dubbed “A Fair Shot,” focuses on female athletes because their national exposure and earning potential tends to peak in college due to gendered income disparities at the professional level. H&R Block has signed 19 women so far, including Iowa’s Caitlin Clark and Oregon’s Sedona Prince, and plans to add more, according to a company spokesperson. 

Most athletes qualify as “self-employed individuals” on their tax return and need to submit a 1099 form for each gig they book. Some platforms that facilitate deals between athletes and brands, such as INFLCR and Opendorse, compile these forms in one place in their apps.

Top earners and self-starters—or athletes with sharp agents—might have opted to set up a limited liability company to absorb their earnings. Forming an LLC allows athletes to write off certain expenses associated with their business deals, such as flights to a photo shoot. Forward-thinking athletes with LLCs can also contribute money pretax to a SEPP IRA account to jump-start their retirement savings.

Gregg Cascaes, who manages finances for several Minnesota-based professional basketball and football players, did many of these things for his client, Paige Bueckers. A star even before arriving at UConn, Bueckers’s one million Instagram followers make her perhaps the nation’s most marketable college athlete. Knowing that her earnings would be substantial, Cascaes advised the Bueckers to set up an LLC in Delaware, a state known for its tax-friendly laws.

She’s since signed major deals with Gatorade, education company

Chegg

and StockX, an online resale marketplace primarily known for sneakers, but neither Bueckers nor Cascaes would say how much she’s raked in.

“She will make 10x more money off the court than she will on the court, the way that the current salary structure is set up in the WNBA,” Cascaes said. Salaries in the WNBA currently top out at $228,094 with just three players on “supermax” contracts, according to Spotrac.

Given her sizable endorsement income, Bueckers most likely can’t be claimed as a dependent by her parents. But that’s not the case for many athletes. Even those on full scholarships might still depend on the Bank of Mom and Dad in the eyes of the government. Determining that cutoff point for parents used to claiming a tax-credit for their children is another potential hiccup, said Jones.

The biggest pitfalls with filing taxes are more fundamental and possibly more troublesome. Athliance’s Schoenthal, who spoke with dozens of athletes at the NCAA Constitutional Convention in January, said that many are not reporting their endorsement deals to their university compliance departments on the belief that it will exempt them from owing taxes on the income. That is unquestionably inaccurate.

“Tax liens are going to be the new student loans,” Schoenthal predicted.

Not every college sports star is in the dark. When he was a five-star recruit in high school, Duke point guard Jeremy Roach picked up a side hustle in 2020 when his high school classes went remote.

“I worked for Instacart…because everybody, obviously, was too scared to go out and get their groceries,” Roach said. He also filed a tax return.

Now a sophomore who is the face of “True Blue Basketball Camp” alongside two teammates and charges between $80 and $200 per video shout-out via Cameo, Roach now stands out from his Duke teammates in a crucial way: he knows he’s going to have to pay his taxes. 

“I wouldn’t say I’m an expert in finance,” said Roach, who has yet to declare a major, “but I know I’m going to have to file taxes on any little thing I get.”

Write to Laine Higgins at [email protected]

Duke guard Jeremy Roach in action during the Final Four.



Photo:

Gerald Herbert/Associated Press

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