Personal Finance

Op-Ed: Here's the Financial Impact of the NCAA Permitting College Athletes to Profit Off Their Name, Image and Likeness

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  • College athletes may now profit off of their name, image and likeness — and the ruling means students and their families must prepare for a new financial reality.
  • It’s important to assemble a team that can properly address many of the financial and non-financial issues that will arise.
  • Top of the to-do list will be addressing the all-important tax consequences.

Student athletes and their parents have likely heard that the NCAA has opened the door to allow collegiate athletes the ability to profit off their name, image and likeness.

The NCAA policy, which took effect in July 1, will allow college athletes and recruits to make money off of activities like autograph signings, endorsements and personal appearances as long as they are consistent with any applicable state law where the athlete’s school is located.

This presents both an opportunity and a challenge. After all, in some cases, college athletes, who could profit off their marketability, could make millions. So far, it has led to many smaller deals for thousands of student-athlete players and a few six-figure endorsements for the biggest college stars.

Therefore it’s key for families to make sure they are properly prepared before moving forward with any deals.

To be sure, signing a deal and collecting a check is the easy part.

However, being truly prepared for what will happen as a result of the potential newfound wealth is another matter. This financial windfall will require, in many cases, that the athletes and their families begin to put a team in place to help them address the financial implications.

It’s important to assemble a team that can properly address many of the financial and non-financial aspects that will be faced and to make sure that they are all fiduciaries, working in the athlete’s best interest.

Key members of this team will include an agent and legal, tax, risk management and investment professionals. Typically, it makes sense to have one member take the lead, organize the team and keep everyone on the same page.

In many cases, the agent is the one who will take the lead and manage the team. After all, the last thing anyone wants is to lose the potential wealth that can be gained through this opportunity due to the lack of cooperation and coordination of the advisors.

Keep in mind, this team does not come without cost. It’s therefore important to know in advance how much each professional will be charging for their services.

The agent will typically take the lead in representing the player and using their in-house team or network of professionals to service the player. Agents will normally take a 20% commission on marketing deals they secure for athletes, but this can also be negotiated based on the size of the deal.

The only exception would be if the player needed to purchase products such as life insurance or disability as part of their planning, as these would pay a commission from the sale of the product to the advisor who sold the product. This would be something that needs to be reviewed when much larger deals are signed and prospects look bright for the athlete.

Once the team is in place, it’s time to create a game plan on how everyone will work together with the student-athlete to build, create and protect the wealth as they look to profit off the athlete’s marketability.

Of course, not every athlete has the ability to take their careers beyond college to the professional level or the Olympics, for example. Many athletes will find college sports is their only opportunity to monetize their name, image and likeness. For these athletes, it will be crucial to plan carefully, with little margin for error, as they position themselves to build and protect wealth in the short-term.

Student athletes should look to hire a reputable agent and seek legal representation before signing any deals.

The right counsel will help the athlete find, negotiate and sign a deal with a potential sponsor. As much as the sponsor is resting their reputation on the shoulders of the athlete, the athlete is also putting their reputation on the line for the sponsor.

The proper advice will help the athlete make sure they are getting the best deal they can, while they are protected in the process.

Top of the to-do list will be addressing the all-important tax consequences. Regardless of the amount of income seen by the athlete, this will most likely be the largest sum of money they have ever received in their young life. Taxes, of course, can have a huge impact on what they are ultimately going to keep or going to have to pay.

Tax planning is key. Without planning for the tax implications, there is no way to know the amount of money that would be available to the athlete for planning other aspects of their lives.

There also may be ways they can reduce their tax burden and increase their after-tax net income received from the use of their name, image and likeness.

At this point in their lives, many of these young athletes may not have created good financial habits. Additionally, their immediate family members may not have had the time to educate them, either.

No different than training for game day

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Smart financial habits are not built overnight, so it will be important for the athlete’s team to help educate them and get them on the right path.

While the athletes and their families don’t need to understand all the intricacies of tax, investments, insurance, budgeting and other key financial topics, they will need to have some knowledge to assure that they understand what the team is recommending and why.

Understanding these money issues, even at a basic level, will help the athlete have a better feel for what the financial team is doing for them. These student athletes should look at this as an investment in themselves and their future.

The ability for student athletes to profit from their name, image and likeness is new and will create some tremendous opportunities. That’s why it’s so important to make sure these young people are prepared.

They need to take this opportunity and educate themselves on how to navigate this new financial reality. This is no different than getting ready for game day.

For these student athletes, it’s essential to grab this opportunity and make certain they are doing everything in their power to maximize it.

Copyright CNBC
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