Albuquerque Journal

NIL creates opportunit­ies, but major tax challenges

- Jim Hamill James R. Hamill is the director of tax practice at Reynolds, Hix & Co. in Albuquerqu­e. He can be reached at jimhamill@rhcocpa.com.

The last line from the 1970 movie “Patton,” is “all glory is fleeting.” This has been attributed to General Patton, as a warning first issued to Roman conquerors.

The same sentiment was repeated in the 1984 Bruce Springstee­n song “Glory Days.” Glory days, well they’ll pass you by, glory days, in the wink of a young girl’s eye.

Today glory comes not from the worship afforded a returning warrior but from followers on social media such as Instagram and TikTok.

And a big name today is Olivia Dunne, a 20-year-old Louisiana State University gymnast from New Jersey. I like to watch gymnastics in the Olympics.

I had not heard of Ms. Dunne until a recent meet in Utah, where her mere presence set off a crowd reaction of young men. They even disrupted the meet that Ms. Dunne could not compete in due to injury.

It seems that the number of her “followers” grows daily. Estimates are now more than 10 million between various social media sites.

A college athletics recruiting site, On3, “values” college athletes. Ms. Dunne is said to be worth about $3 million. Her posts are valued at $31,000. I don’t even know what that means.

When assets are valued, one often capitalize­s a stream of earnings. For example, if a rental property generates $100,000 per year, that would be used to value the property by a “cap” rate.

Rental real estate is assumed to generate a stream of income for many years. Personal fame is, as General Patton allegedly said, fleeting.

On3 is said to value an athlete based on income for 12 months. Ms. Dunne is said to earn more than $2 million per year from endorsemen­ts.

The ability of college athletes to receive name-image-likeness (NIL) payments without jeopardizi­ng their eligibilit­y to compete is a new thing. Like many, I assumed the beneficiar­ies would be football and men’s basketball players.

On3 reports Olivia Dunne is the top earning NIL athlete. The second highest earner is said to be another gymnast from Auburn.

My first comment – good for Olivia, who goes by Livvy. I find it a bit annoying that SEC football coaches earn more than the entire faculty contingent of the business school at their universiti­es.

It’s nice to see a gymnast as the biggest beneficiar­y of the NIL trend. My second comment – Livvy has some interestin­g tax and financial issues to face.

College students have a very limited understand­ing of personal financial affairs. Many don’t know how to write out a check.

Sure, they Venmo and whatever else one now does to transfer money, but they should know how to write and to endorse a check.

Livvy needs to know some things. And her good fortune to be a NIL star may bring the bad fortune of unscrupulo­us financial advisers.

With no effort I found out (roughly) how much she makes from NIL. There are many actively working to find the big beneficiar­ies of NIL.

Livvy will pay 37% of her top-level income to the federal government. She will pay 15.3% self-employment tax on some of her earnings and 2.9% on the bulk of it.

Business income is often eligible for a 20% deduction before federal taxes are computed. But as an athlete paid for her image, Livvy should not qualify for this deduction.

As a New Jersey resident, she will pay 8.97% to the state, again for the top-level of her income. That $2 million is then shared several ways before Livvy gets her piece.

I wonder if anyone has discussed whether she should still be a resident of New Jersey. Or whether, and in what form, she might consider starting a retirement plan.

If so, I certainly hope that the adviser(s) are scrupulous. I would not expect a 20-year-old to be able to discern the scrupulous from the unscrupulo­us (the “uns” are often better salespeopl­e).

LSU may have this covered. I hope so. The athletic department could vet tax and financial advisers to ensure that its athletes have choices among the scrupulous.

It’s wonderful that the leading NIL athlete is from a “non-revenue” sport. But as someone who has spent a lot of time with college students, I sure hope Olivia Dunne’s interests are protected.

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