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It Figures: The CRI Podcast

S3:E1 – Fill Me in On NIL (Name, Image, Likeness)

What do your name, image, and likeness all have in common? Well, if you’re a college athlete, the answer is a new source of cash. Join us for the first episode of Season 3 of It Figures: The CRI Podcast as CRI Partners Rob Lemmon, Adria Deren, Steve Grice, and Michael Maddox discuss one of collegiate sports most hot button issues, the NIL (Name, Image, Likeness). This in-depth discussion stresses the importance of financial literacy, debates potential investment opportunities, and embraces financial risk aversion tactics.

Intro:

From Carr, Riggs & Ingram this is It Figures: The CRI Podcast, an accounting advisory and industry focused podcast for business and organization leaders, entrepreneurs, and anyone who is looking to go beyond the status quo.

Rob Lemmon:

Hello, and welcome to another episode of It Figures: The CRI Podcast, my name is Robert Lemmon. I’m a partner with CRI and today I’ve got an excellent topic and some outstanding presenters that I’m excited to be talking to. The topic is the NIL, or name, image, and likeness financial opportunities that college athletes now have. Big change this year in the world of college athletics with the introduction of name, image, and lightness, or NIL, opportunities. So I’m really excited to discuss that with our amazing presenters today. With me today, and I’ll let them introduce themselves. First up, we have Michael Maddox. I’ll mention Michael is an amazing partner who I’ve had the pleasure of working with and he’s spearheading some of CRI’s NIL opportunities. So Michael, do you want to say hello, introduce yourself please.

Michael Maddox:

Hello. My name is Michael Maddox and I am partner in the Enterprise Alabama office of CRI. Been doing this for over a little over 30 years now and as Rob said, we are excited to be working in the world of NILs.

Rob Lemmon:

Thank you, Michael, and I’m excited to be speaking to you today because I know you’ve done some amazing work and there’s some good stuff to talk about. Also with me today is Adria Deren. Now Adria, I’m so excited that she’s here because she’s a superb Tax Partner I’ve worked with in the past and she works with some professional athletes. So she’s going to have some good insights. But Adria, do you want to say hello?

Adria Deren:

Hi, my name’s Adria Deren. I’m a tax partner in our Gainesville, Florida office of Carr, Riggs & Ingram. I’ve been in public or private industry for about 18 years and I do work with some athletes. So this is right on topic.

Rob Lemmon:

You and I have chatted and you’ve got some great ideas about what could be the tax implications for these college students and college athletes. So I’m glad you are here today and lastly with me today, is Dr. Steve Grice. One of my absolute favorites. He is an amazing presenter. He’s actually a professor. He’s actually, he’s humble so you wouldn’t want me to say this, but I’m going to say it anyway. He was Professor of The Year for the Sun Belt region of Universities. So he’s an absolutely fantastic guy I love working with him. Steve, do you want to say hello?

Steve Grice:

Yeah. My name is Steve Grice and I serve as the Scholar-In-Residence for Carr, Riggs & Ingram, and have for about 20 years, and part of corporate and during that time, as you had mentioned, I have had the fortune and opportunity to be a professor. So I’ve taught a lot of student athletes over the last 25 years and looking forward to the podcast.

Rob Lemmon:

Thank you, Steve and thank you for being with us today. And as we’ve said, we’re going to talk about the name, image and financial opportunities that college athletes now have. But I’m going to start with asking you Mic Maddox, give us a bit more detail about what NIL really means for students.

Michael Maddox:

Sure. Rob, name, image, and likeness is really what it just sounds like. It’s the student athletes personal brand. And in years past, anytime a student athlete accepted even a large invitation they would run the risk of losing their eligibility. We are now in a period of time where the NCAA has passed legislation that allows these student athletes to monetize their personal brand.

This does several things. It brings opportunities for not only the athletes that are in the sports that have a future in pro-athletic but it also allows students there are student athletes that are in other sports they don’t have a pro path to have a monetary career based on their athletic ability. We are seeing from the side of things one particular quarterback at the beginning of the summer before the season ever started had a million dollar deal with NIL shortly after that, there was another university there was a basketball player with a $2 million deal and then even gymnasts with large social media following are seeing that they’re able to and so there’s been a lot of talk about that and here at CRI the one thing that we did not fear about that was the financial impact on the student athletes there. So, what we tried to do is fill that gap and put together a program that will educate the student athletes on the, not only the tax implications, but also on some other financial literacy topic.

Rob Lemmon:

I’m glad you mentioned all the different sports that are involved because people always think about the football programs and the big stars but like you said, that there’s gymnastics there’s a lot of the Olympic sports and the basketball of course and there’s going to be a lot of money. And there already is a lot of money coming to these student athletes.

And we’re already talking six, seven figures for this. And it’s just such a huge shift in such a short period of time. It caught me by surprise. If I’m being honest with how suddenly and quickly this all happened, one minute athletes aren’t being paid a penny, and then the next minute there’s these seven figure contracts and an income. So speaking of those, what sort of rules or restrictions has the NCAA put in place to regulate what’s allowed under NIL is there anything out there in terms of regulation from the NCAA?

Michael Maddox:

Rob, there’s actually very little at the NCAA level they’ve actually pushed to the universities and the individual states that those universities operate in. So there are some states that have passed laws related to NIL some states have elected not to and so there’s very little guidance even in those laws that the states have passed.

Rob Lemmon:

Wow. So big money limited and inconsistent regulation. And we’re dealing with a huge change for some young college athletes who aren’t familiar with this kind of situation. So I’m glad you mentioned education, because it feels like a recipe for a few problems because I think we all know that the financial opportunity to earn the money is one thing, but it’s never that simple as it.

I mean, there’s going to be implications of that. That’s where I want to bring in Adrian and talk tax because you’re an absolute genius when it comes to tax and like you say, you’ve worked with pro athletes in the past. So let’s get into it we talked about this big extra money coming to athletes. And I can only imagine the sort of knock on effects that they’ve never thought of just from a tax perspective. What kind of implications do you foresee tax perspective wise? What implications do you see for the athletes?

Adria Deren:

Yeah, for most of these students, they haven’t had to file a tax return, either their dependence on their parents’ return or they just haven’t produced enough income through school jobs while they’re in school to have to file a tax return. Now some of them are making, like you said, these six figure amounts and they are going to have to file a tax return or an and pay tax on most of those earnings. And I think that’s the… what can trip them up.

That’s the part that maybe people aren’t thinking about is that they’re going to have to pay tax and, and file these tax returns and it’s not as simple as a flat rate times a tax rate. So there are a lot of various ins and outs that go with a tax return and it can get complicated pretty fast.

One thing that people need to think about are these students need to think about is it’s not just cash deals. So the people who are getting paid, cash for appearances, that’s pretty straightforward, whatever cash they received or that’s income, and that will be taxed. However, what about the athlete that gets to use a car for a year? There’s no cash exchanging hands, but that is a taxable event and is income to that athlete.

You have to look at the fair market value of, of whatever goods are received. So if they’re getting clothes that they’re able to wear from a sponsor, if they’re getting equipment free travel, isn’t really free. You know, that’s all stuff that they’re getting for these NIL contracts. And so a lot of it depends how the contracts are written there’s a lot to think about and to go on and to track.

And so that’s the biggest thing is what is income? What are expenses? Some of… if there’s ordinary and necessary business expenses, they can potentially decrease some of that income, which will help them out from a tax perspective. And it’s not only income tax that’s kind of a lot of people think of the Federal Income Tax there’s specific state implications, depending on where they’re going to school, where their permanent addresses, where these appearances are taking place. If they’re traveling for a commercial shoot, all of these things make it more complicated. You could be filing in multiple states, some cities, New York city for example, have their own filing requirements. So it can get pretty complicated, pretty fast. There’s also, self-employment tax, which is another layer on top of the tax return. So the biggest takeaway is this income is taxable.

They need to be thinking about filing a tax return. That tax rate can be anywhere from an income tax perspective between 10% and 37%, depending on the income levels. There’s the self-employment tax, that’s 15.3% there’s potential state and city taxes. So there’s a lot of layers that they need to be aware of for athletes that have received income in 2021, they would have to file their tax return by April 15th, 2022. So there’s still a little bit of time, but they need to be figuring out tracking those income and expenses to know where things are.

Rob Lemmon:

Wow. That’s incredible because I like where you started there. Step one is file a tax return, which is going to be new to some of these kids. But then within two minutes of the listing off the potential issues you’re able to come up with a whole bunch of, of things to consider that probably haven’t been considered by a lot of athletes. And that’s I gather I get the sense, you’re just scratching the surface of the potential issues. I mean, the… let me ask Adria, the tax rates that you just listed off, were those the federal only rates. So there could be state taxes on top of those percentages you listed,

Adria Deren:

Correct. Those are Federal only. So there are state rates, there are some states that don’t have an individual income tax like Florida, but then there are rates that go very high. So that could be an additional, almost 10% state on top of the federal. So there are absolutely multiple layers of filings and each state has its own rules. So that doesn’t help.

Rob Lemmon:

Yeah. And, and, and like you said, in New York city, there’s even some city specific things and, and obviously correct. There’s potential for doing appearances in that city and there’s going to be all kinds of implications, but yes, certainly for me to try and recap what you’ve said, I’m not the tax expert, but I’ll try and recap, make sure you are you’re filing on time, obviously penalties. They, kick in what… remind me everyone of the dates that people need to file of at least file an extension before potential penalties kick in. When is that?

Adria Deren:

Right. So they have to file returns by April 15th of the following year. So for 2021, they would file April 15th, 2022. Like you said, either an extension or the actual return an extension does not extend when the taxes due. So they would still have to pay the tax by April 15th, whether they extend or not. And for interest and penalties, there’s a few different penalty. So there are failure to file penalties. There are failure to pay estimated taxes. So for our athletes who haven’t filed returns in the past, there won’t be any estimated tax penalty issues with 2021, but then going forward, there could be. So the safest way is to base it on the prior year.

So if they haven’t filed before their prior year would be zero, they wouldn’t have to pay in estimated taxes, but for 2022, if they got income in 2021 they would have to file those potential estimated tax payments, which are quarterly.

And so again, that’s just something else for them to think about if you don’t file those. The IRS will add interest and penalties throughout the year. And so it can add up the interest rates aren’t huge for the IRS, but they can add up depending on, the tax implications. So the people making these huge million dollar deals, their tax is going to be pretty high and then they’re going to potentially have interest and penalties on top of that.

Rob Lemmon:

Yeah. So they can get serious in a hurry. If these deadlines are missed, because I can imagine April 15th is going to come and go pretty quickly for college athletes and it’s… these tax returns are not going to be done quickly. They’re not simple. So they could easily miss deadlines, easily be subject to penalties. And then that benefit that NIL financial opportunity starts to get eroded unnecessarily. But yeah, it’s complicated there. And I certainly don’t understand all the implications.

I’m glad you do Adria. So thank you for all those useful pieces of information, but certainly the key takeaway I’m going to summarize again, is make sure you’re filing your tax or your extension on time. Estimated income is an acceptable method of paying your taxes based on estimates. And if you don’t, if you miss your filings penalties and interests are going to hit you. So, please be aware of your college athlete out there and worried about what you need to do it’s make sure you’re filing your taxes on time. So thank you, Adria.

Adria Deren:

Thank you. And just to add more item one thing athletes should be considering if they are getting those goods and services, they may have to somehow come up with cash to actually pay the tax. So from a cash flow perspective, they may not be thinking about that. They’re like, “Oh, I’m only getting goods. It doesn’t really matter.” But the IRS isn’t going to accept those goods as payment. So you do have to think about, “Where am I going to get the cash to pay for those taxes as well?”

Rob Lemmon:

Of course, that’s a great tip. Yeah and also even the people who do get cash, if you’ve blown it all before April comes around, when your tax bill comes in, you’ve got no cash left to actually pay the taxes is, but like you say, it could also be on goods and services received. They need the cash available to pay the tax on those goods and services received as well.

Lots to think about lots of tax comp complications and implications. And Adria’s just scratched the service there in a few minutes. So interesting stuff there. So thank you. I’m chapter to Steve now. So, so Steve, you’ve had a number of years working with students, including a lot of college athletes. So, having worked with them for many years, how well prepared do you think the average student athlete is to responsibly handle some large NIL endorsement, financial support? How well prepared do you think they are Steve?

Steve Grice:

Yes. Over the years, I have had the opportunity to work with a lot of students in including the student athletes and as general, these are, we’re dealing with very bright and hardworking young people, and they just need some sound words of financial management. You know, whether or not a freshman can handle a large sum of money is not much different than the question of whether somebody 25 or 26 or 31 or 32 can handle a lot of money. I don’t necessarily believe it’s dependent on the age.

It’s dependent on some of the education that they’ve had over the years. I’ve had the opportunity to counsel with students as they graduate and oftentimes they’re graduating. And that first check they’re going to is very significant to them. It’s an amount of money they’ve never seen before. And so I always counsel them, right, the right to start off just to just how to handle that first big check things like don’t just go buy a car maybe start thinking about just living a life, being debt free. I guess my biggest thing that I say, or the most significant thing I say is like, “Right, when you get it, just save it, let some time pass. So you can begin to think clearly about what impact it can have on you and your future family.”

Rob Lemmon:

Excellent advice. Yeah. That’s really good. Good words of wisdom. And I know from my own experience and myself, a lot of the people I went to university with when they were freshman and are young and in university, they probably weren’t there at the smartest point of their lives to handle something like a six, seven figure kind of check. So I can imagine that it’s going to be causing some challenges, but let me ask for athletes who do get large, NIL endorsements, where might they trip up? Do you see any specific areas of potential problems for them?

Steve Grice:

Yeah, I think first of all is just mentally being mentally prepared for it. You don’t want them thinking that they get the first big check and now I’ve made it. And that this will last forever because just as quick as it was received, it can go away. You know, they could be taken advantage of by people who have ill intentions, but they also could just be misled by people that really care about them.

That is they don’t know, the misled part would be that they’re seeking counsel from people that really don’t know what’s best. The other thing is that they just don’t do some of the basics as Adria was saying earlier, like filing the tax return or paying estimated tax. And so on just taking care of the basic financial items that adults have to do every year, once they join the workforce. Also, I think they need to hear about things like delayed gratification. They need to hear phrases like do things now that others will not. So I can do later that others can’t. And that’s basically saying, save the money. Don’t blow it because… some of these young people will be receiving sums of money that can really have a very positive impact on the rest of their life. If they just handle it correctly.

Rob Lemmon:

Excellent advice I’m being too negative with my question in questioning a little bit here. I keep saying, how do we stop the athletes tripping up? I want to know as well, how do we make them thrive financially? Because like you said, they do have opportunities others don’t with the financial NIL endorsements, but that brings with it, like you said, the extra kind of responsibility to do things that other people don’t like, how have to be more responsible now to make it win work for them in the long term. But what would you think is the best thing that universities can do to help athletes not trip up financially, but also thrive financially? What do you think can be done to help the athletes best?

Steve Grice:

Yeah, I think in general, we just have to surround them with good people that have knowledge in the financial areas, athletic departments. They can definitely play a significant role in this, my experience with athletic departments. It’s I see, it’s just amazing how they track their athletes into things that would help student athletes with anything from their diets to their sleep habits, to their study habits.

It’s amazing how detailed many athletic departments are with just the wellbeing of the student athletes. And so I think most athletic departments already have a framework in place that would allow them to insert education and programs related to NIL and things that would definitely just help the wellbeing of the student athlete that gets, gets a sneak for some money. So athletic departments I think are huge.

Rob Lemmon:

Yeah. And you used a word there, Steve, that really resonated with me, obviously education, financial education is huge. And I was actually listening to a presentation by Mark Emmert he’s the president of the NCAA, and he was presenting and he got asked a question about how to, I think it was how to ensure that universities do provide good education, whether the NCAA would be making, putting in any educational requirements. He said, “No,” he said, “There won’t be a requirement from the NCAA, but he did say that any good university and I’m paraphrasing, but basically you would expect any good university to be financially educating the student athletes” and seemed to be putting it at the university level. So like you said, it’s the athletic departments who are going to probably bear the responsibility there.

So he was even promoting education at the university level for financial management. So that, so I think that’s a similar to what you were that just reminded me of his interview there, but I thank you, Steve, for those good bits of info. I want to come back to Michael quickly and ask a couple of quick questions. So, I know actually you, Michael have spoken to athletic departments. In some major universities about how they’re handling NIL so give us a few. So, what are they doing to handle NIL and ensure they’re looking out for the college athletes?

Michael Maddox:

Well, Rob, we’ve spoken to a number of university athletic partners throughout Southeast and really its all over the board this thing is so new and its moving so fast that they’re trying to catch up and really haven’t gotten ahead of the curve student athletes that have an opportunity in their future, whether it be on the athletic field or in their job after they graduate so they are looking out for those student athletes but the one thing when all this came about that, as I said earlier, that we didn’t hear a lot talk about was the financial implications related to it for these student athletes.

So what we’ve done at CRI we put together a task that is focused on this issue and on developing a curriculum that we can offer to these universities and to these student athletes to help get that education that Steve was talking about and try to avoid some of the pitfalls that Adria spoke of from a tax perspective. And so we’ve got that, we’ve developed that curriculum, we’re talking the universities about it. And, they’re really seem to be very interested in providing something similar to these student athletes.

Rob Lemmon:

Excellent. And that, makes complete sense with Mark Emmert comments, that it’s really going to be at the university level to provide the education. And we know that the college, the athletic departments really want to do right by the kids, but it’s hard for them to have the education all lined up quickly. So, you’ve talked to them you’ve been finding subjects to put on the curriculum that you think are going to be really helpful to help athletes in the long term. So tell me a little bit about what’s on the curriculum.

Michael Maddox:

Sure. We’ve developed a curriculum that basically is divided into three components. The first being just educational, of what NIL is and what the tax implications are, whether you establish something like an LLC, what the state and local tax implications are that Adria was talking about earlier, but we also have two other areas, one being financial management that would be things like how to properly budget, how to make sure that you so try to focus on being debt free not go out right away and buy a car or something flashy but how to put those financial management tools in places that help you prolong your enjoyment of the finances and then finally, we also are doing some investment level classes that just introduce these athletes to the investment world, how to save different types of investment and compounding returns and how beneficial that can be to them in the long run.

Rob Lemmon:

Excellent. So it sounds you’ve covered all the things Adria was considering which is like the basics really getting from the ground up, but also looking longer term, like you say, with investment management and, and longer term advice for helping people really thrive. So you’ve gone pretty deep with, with some of your subjects, but built it from the ground up, step one and the basics. So that’s fantastic. I think that can-

Michael Maddox:

Yeah, we have, and one thing I would there Rob, is we do have suite of classes that we can provide to the athletes, but we’re also listening to the athletic departments and athletes themselves and getting feedback from them and that will evolve. So we’ll, add classes if there are, or areas of interest that we aren’t currently covering and are those that still need to be trimmed out we can do that.

Rob Lemmon:

Fantastic so it’s really going to be a tailored approach, always evolving to fully address the needs. So excellent work, Michael, I think that’s going to be really helpful for the athletes, for the universities. And as we’ve discussed in just a few minutes here on this discussion there’s a lot of complex financial elements that go along with NIL endorsement opportunities. It’s not as simple, obviously as it might seem just to cut the check and it’s the end of the story for the athletes. It’s long way short of that. So it sounds like that’s a fantastic suite of, of educational information for the athletes and for the universities to provide. So I’m going to wrap it up there. I’ve really appreciate everyone’s time. Fantastic information provided here. What I would say is if anyone’s interested in what Michael’s been talking about and CRI NIL education opportunities, they can check it out at our website cricpa.com enlisted under our services, the NIL services.

I think the curriculum is on there with a little bit of information about each of the classes and just a little bit of information about members of the team and anything you want to know. There’s also a CRI email address specific for NIL. And that is [email protected] any emails that go to that will go to the NIL taskforce team. So if you’ve got just a general question that you can’t find on the answers to on the website, you can just use the email address as well. But other than that, I just want to say thank you again to the presenters fantastic information, really interesting and constantly evolving subject. So thank you everyone for listening. Like I said, we’ve got the CRI website, which in addition to the NIL services has information about all of CRI’s professional financial services we offer. So do checkers out there, tune in, into future podcasts. We appreciate you listening. Thank you all for your time and have a good day.

Outro:

If you want more CRI insights or interested in learning about our firm, please visit our website @cricpa.com. Thanks for listening to this episode of It Figures the CRI. You can subscribe to It Figures on iTunes, Spotify, or wherever you prefer to listen to your podcasts. If you liked what you heard today, please leave us a review.

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