Colleges use tax advantages to lure top athletes in the NIL era
Florida’s lack of income taxes convinced star wide receiver Tyreek Hill to sign with the Miami Dolphins over the New York Jets. Billionaire Jeff Bezos left his home in Washington for Florida to avoid the state’s tax on capital gains.
With top college athletes now commanding millions of dollars from their name, image and likeness — known as NIL money — several colleges in low-tax states are wooing them with the same playbook that won over Bezos and “Cheetah.”
Could lower state taxes become the next big recruiting advantage in college sports?
Tax recruiting
College athletes can now make money off branding deals, autograph sessions and more. Some high-profile undergrads are estimated to be making millions each school year.
“It has impacted college football a lot, and I think we’re seeing that play out in real time,” Josh Lens, associate professor of instruction at the University of Iowa, told Straight Arrow News.
Schools have all kinds of tactics to bring in recruits including showing off their facilities, the campus and more.
Now, schools in states with low-income tax levels are pointing out that student athletes making NIL money will get to keep more of it compared to schools in states with higher tax burdens.
On Jan. 10, the University of Central Florida posted to X an image touting its state’s lack of income tax.
The theme quickly went viral in the days leading up to the transfer portal closing.
Vanderbilt University, which is in Tennessee with no income tax, followed suit.
Texas Christian University, also in a state with no income tax, posted something similar but threw in the perk of warm weather.
Schools like USC in California or Rutgers in New Jersey won’t be able to use that as part of any recruiting pitch.
Income tax effect
But does that matter?
There’s no data currently to show if players are thinking about state income taxes when they choose a school or enter the transfer portal to pick another school.
“To what extent the players and their agents are responding to that incentive difference, I can’t tell you,” Andrew Zimbalist, a sports economist, told SAN. “We don’t have data on that yet, but I’ll be shocked if it doesn’t have an impact.”
That’s been a consideration professional athletes have had to think about for decades. A $50 million contract for the Dolphins will put more in your bank account than a $50 million contract for the Los Angeles Rams, which would be subject to California’s progressive tax rates that top out at a cumulative rate of 14.4% after adding in a surcharge meant for mental health services.
But does that matter for college kids?
“If I’m looking at the list of things, it’s like six or seven on my list of things that matter,” Femi Ayanbadejo, a seven-year NFL pro and current sports analyst, told SAN.
Ayanbadejo said there’s more important factors for these student-athletes to look at than state income tax levels despite posts like this from the University of Houston.
“What’s a motivator is the aggregate amount of money you’re going to get, where you’re going to go play, and are you going to start and what does that mean for your draft status?” Ayanbadejo, who played at San Diego State University, said. “Your draft status is way more important than saving 10% or 20% in tax money.”
Hiring agents
Once NIL money became legal, college athletes were also allowed to hire agents specifically for NIL activities.
Just this week, the Federal Trade Commission sent a letter to 20 different schools to see if agents working with those athletes are following the law. Specifically, the Sports Agent Responsibility and Trust Act.
The FTC reportedly wants to see if student-athletes are being protected.
“Most states have a law that regulates agents,” Lens said. “Well, I think we’re finding that it’s very easy to call yourself an NIL agent. Do they really have the athletes’ best interests in mind?”
NIL changing college football
College football is very different since the legalization of NIL money and the transfer portal, which launched in 2018.
From 2015-2022, there were more national championship games than teams that played in it. Only six different teams played in the seven national title games during that period.
Three of those six were in the powerhouse Southeastern Conference (SEC) which has seen that power drop since the institution of the NIL.
This year’s national title game features Indiana University against the University of Miami (Florida). That’s a 3% state income tax rate against no state income tax.
Miami hasn’t been to the title game since 2002 and this is Indiana’s first-ever trip to the title game. The perennial basketball powerhouse hadn’t even outright won their conference in football since the Truman administration.
Miami is backed by major donors like UFC’s Dana White and mega-booster John Ruiz. Indiana is backed by billionaire alum Mark Cuban.
Major schools with major donors are most likely to benefit from this setup.
“Schools like Oregon, with its Nike backing, they could have a leg up,” Lens said.
Nike was founded in Eugene, Oregon, by university track coach Bill Bowerman and one of his former athletes, Phil Knight.
That’s not the only money coming in to players.
“It’s not just NIL money, but it’s also revenue sharing money,” Zimbalist said.
Schools are now allowed to pay their athletes directly following a judge’s ruling last year.
“Schools are getting tens of millions of dollars in television money,” Zimbalist said. “And they’re allowed to share that with the players.”
That money isn’t taxed as hard if you’re at a school like Florida Gulf Coast University.
Transfer portal impact
The transfer portal allows college athletes to formally declare their plan to transfer from their school and allows other schools to contact them, giving them more control over their careers.
“It’s time that players have a little say in how this goes, because their coach can leave at any time, but a player can’t? No,” Ayanbadejo said.
How much state income tax plays a factor in anyone’s transferring decision remains unclear.
“The top players are free agents in football, and they change schools looking for the best offer that they can get,” Zimbalist said.
When it comes to building a winning program, NIL and the transfer portal clearly aren’t everything.
Neither Miami nor Indiana ranked in the top ten in NIL spending in college football this year.
“Indiana was a perennial loser for 100 years,” Ayanbadejo said. “It shows what a good coach can do when young players move in unison and learn about culture and the system.”
The post Colleges use tax advantages to lure top athletes in the NIL era appeared first on Straight Arrow News.
Ella Rae Greene, Editor In Chief
