Latest news with #JudgeClaudiaWilken
Forbes
15 hours ago
- Business
- Forbes
3 Important Tax Considerations Following The House Versus NCAA Ruling
Following a lengthy legal battle, the AP reports that Judge Claudia Wilken has approved a deal between the NCAA and lawyers representing NCAA athletes. While the deal is nuanced, the key takeaway from this deal is that schools can now begin paying athletes directly. This change represents a significant departure from the NCAA's longstanding tradition of its athletes being student-athletes, hence remaining amateur (and unpaid) during their time in college. Although this coming year will be the first time that college athletes will begin to get paid directly by their schools, athletes receiving millions of dollars has become a mainstay in recent years. This ruling will allow schools to pay a total of $20.5 million in total to their student-athletes in the initial year. While these significant cash flows for the athletes can be very beneficial, they also carry tremendous tax burdens that the athletes may or may not be prepared to accept. In this article, I highlight three important tax considerations that college athletes should consider as we head into a new era of collegiate athletics compensation. Section 61(a) of the Internal Revenue Code tackles this topic. It states, 'Gross income means all income from whatever source derived.' This line item means that as athletes receive money from schools, NIL collectives, or sponsorships, they will be required to remit taxes on those funds received. As many deals are worth millions of dollars, it is important to highlight the ramifications of receiving these funds. For instance, consider Duke standout forward Cooper Flagg, whose Fox Sports reports received $28 million in compensation during his one year as a college basketball star. This amount of income firmly puts him into the top tax bracket at the federal level, meaning that all income over $626,350 will be taxed at a 37% tax rate. This means that without any other deductions, Flagg would owe over $10 million in federal income taxes. Furthermore, Flagg will have considerable state income tax liabilities due to the tax levied in his domiciled state of North Carolina as well as will have to pay the self-employment taxes (15.3%). What can also be problematic is that all compensation is subject to taxation, including in-kind compensation. According to Opendorse, athletes need to be aware of compensation beyond just the cash payments they receive. For instance, if an athlete has a partnership with a local car dealership and, as part of that partnership, they get a free car lease, the fair market value of that car lease that the athlete is not paying is a form of compensation. Similar rules apply to athletic gear, meals and entertainment, travel expenses, and other forms of in-kind compensation. What potentially gets lost in the equation is that these athletes do not have an employer who takes taxes out of their paycheck, as do most taxpayers. Instead, they must make quarterly payments to the taxing authority for their portion of the taxes owed. Thus, if an athlete receives a $1 million check, the athlete must put aside a significant portion (potentially more than half of it) of those funds to pay their taxes. This withholding will become even more important as athletes begin derive even more compensation directly from their schools. A critical wrinkle in the taxation of sports-related income is the jock tax. According to H&R Block, the jock tax is an extra layer of taxation levied on athletes when they play in a different taxing jurisdiction. This tax is levied on the athlete's salary. However, some jurisdictions will include bonuses that were achieved if the conditions of receiving those bonuses were met while performing in that other jurisdiction. The jock tax has led to numerous headlines in the media. According to Kiplinger, the jock tax led to a back-and-forth tax battle between California and Illinois over Michael Jordan's income during the 1991 NBA Finals. Their article also highlights how players like Stephen Curry and Nikola Jokic routinely pay over $1 million in jock tax on an annual basis. The precise formula for calculating the jock tax is messy and varies substantially based on where the athlete plays. For a college athlete now being compensated by their school, they will need to determine the portion of their income earned while playing at universities and tournaments in different states and ensure that they comply with the tax laws in those states. Even after an athlete pays federal income taxes and jock taxes, they will then need to pay their state income taxes. The state income tax rate can fluctuate drastically, as high as 13.3% in California and as low as 0% in several states, including Texas, Florida, and Washington. Thus, an athlete may want to consider their state tax liability when selecting their school. As I reported in Forbes, an athlete like Arch Manning decided between playing at Alabama, LSU, and Texas. While there were clearly many factors in play, Manning chose to play at Texas (0% state income tax rate) over the other schools in states that impose a state income tax, saving him hundreds of thousands of dollars per year. This nuance has led to states like Alabama and North Carolina to consider exempting NIL from state income taxes. In fact, as I reported in Forbes, Arkansas has gone the entire way and passed a law exempting this income from state taxation. Interestingly, many of these proposed and passed laws were directed at NIL income without considering the possibility that these athletes might eventually get paid directly by their schools. Thus, the House v. NCAA ruling has tremendous impacts on state income taxation considerations for these athletes, and the athletes will need to carefully consider and monitor their income to ensure that they comply with state tax laws.
CNN
2 days ago
- Business
- CNN
Federal judge approves $2.8B settlement, paving way for US colleges to pay athletes millions
Source: AP A federal judge signed off on arguably the biggest change in the history of college sports Friday, clearing the way for schools to begin paying their athletes millions of dollars as soon as next month as the multibillion-dollar industry shreds the last vestiges of the amateur model that defined it for more than a century. Nearly five years after Arizona State swimmer Grant House sued the NCAA and its five biggest conferences to lift restrictions on revenue sharing, U.S. Judge Claudia Wilken approved the final proposal that had been hung up on roster limits, just one of many changes ahead amid concerns that thousands of walk-on athletes will lose their chance to play college sports. The sweeping terms of the so-called House settlement include approval for each school to share up to $20.5 million with athletes over the next year and $2.7 billion that will be paid over the next decade to thousands of former players who were barred from that revenue for years. The agreement brings a seismic shift to hundreds of schools that were forced to reckon with the reality that their players are the ones producing the billions in TV and other revenue, mostly through football and basketball, that keep this machine humming. The scope of the changes — some have already begun — is difficult to overstate. The professionalization of college athletics will be seen in the high-stakes and expensive recruitment of stars on their way to the NFL and NBA, and they will be felt by athletes whose schools have decided to pare their programs. The agreement will resonate in nearly every one of the NCAA's 1,100 member schools boasting nearly 500,000 athletes. 'Approving the agreement reached by the NCAA, the defendant conferences and student-athletes in the settlement opens a pathway to begin stabilizing college sports,' NCAA President Charlie Baker said. Wilken's ruling comes 11 years after she dealt the first significant blow to the NCAA ideal of amateurism when she ruled in favor of former UCLA basketball player Ed O'Bannon and others who were seeking a way to earn money from the use of their name, image and likeness (NIL) — a term that is now as common in college sports as 'March Madness' or 'Roll Tide.' It was just four years ago that the NCAA cleared the way for NIL money to start flowing, but the changes coming are even bigger. Wilken granted preliminary approval to the settlement last October. That sent colleges scurrying to determine not only how they were going to afford the payments, but how to regulate an industry that also allows players to cut deals with third parties so long as they are deemed compliant by a newly formed enforcement group that will be run by auditors at Deloitte. The agreement takes a big chunk of oversight away from the NCAA and puts it in the hands of the four biggest conferences. The ACC, Big Ten, Big 12 and SEC hold most of the power and decision-making heft, especially when it comes to the College Football Playoff, which is the most significant financial driver in the industry and is not under the NCAA umbrella like the March Madness tournaments are. The deal looked ready to go since last fall, but Wilken put a halt to it after listening to a number of players who had lost their spots because of newly imposed roster limits being placed on teams. The limits were part of a trade-off that allowed the schools to offer scholarships to everyone on the roster, instead of only a fraction, as has been the case for decades. Schools started cutting walk-ons in anticipation of the deal being approved. Wilken asked for a solution and, after weeks, the parties decided to let anyone cut from a roster — now termed a 'Designated Student-Athlete' — return to their old school or play for a new one without counting against the new limit. Wilken ultimately agreed, going point-by-point through the objectors' arguments to explain why they didn't hold up. 'The modifications provide Designated Student-Athletes with what they had prior to the roster limits provisions being implemented, which was the opportunity to be on a roster at the discretion of a Division I school,' Wilken wrote. Her decision, however, took nearly a month to write, leaving the schools and conferences in limbo — unsure if the plans they'd been making for months, really years, would go into play. 'It remains to be seen how this will impact the future of inter-collegiate athletics — but as we continue to evolve, Carolina remains committed to providing outstanding experiences and broad-based programming to student-athletes,' North Carolina athletic director Bubba Cunningham said. The list of winners and losers is long and, in some cases, hard to tease out. A rough guide of winners would include football and basketball stars at the biggest schools, which will devote much of their bankroll to signing and retaining them. For instance, Michigan quarterback Bryce Underwood's NIL deal is reportedly worth between $10.5 million and $12 million. Losers will be the walk-ons and partial scholarship athletes whose spots are gone. One of the adjustments made at Wilken's behest was to give those athletes a chance to return to the schools that cut them in anticipation of the deal going through. Also in limbo are Olympic sports many of those athletes play and that serve as the main pipeline for a U.S. team that has won the most medals at every Olympics since the downfall of the Soviet Union. All this is a price worth paying, according to the attorneys who crafted the settlement and argue they delivered exactly what they were asked for: an attempt to put more money in the pockets of the players whose sweat and toil keep people watching from the start of football season through March Madness and the College World Series in June. What the settlement does not solve is the threat of further litigation. Though this deal brings some uniformity to the rules, states still have separate laws regarding how NIL can be doled out, which could lead to legal challenges. NCAA President Charlie Baker has been consistent in pushing for federal legislation that would put college sports under one rulebook and, if he has his way, provide some form of antitrust protection to prevent the new model from being disrupted again. See Full Web Article
Yahoo
3 days ago
- Business
- Yahoo
Judge approves landmark college sports settlement
The corrupt system of denying payment to college athletes has officially ended. On Friday, Judge Claudia Wilken approved the settlement of multiple antitrust class-action lawsuits that challenged the longstanding refusal of the NCAA and its members to compensate athletes. Advertisement The deal includes $2.8 billion in payments to players over the past 10 years along with payments to players moving forward. This hardly ends the chaos currently consuming college sports. The major conferences have launched the College Sports Commission (which is different from the presidential commission that was under consideration for like a week) to regulate NIL collectives that have in many instances become pay-for-play programs. Here's the problem. Any collective action by independent businesses that restrict the earning capacity of the athletes potentially creates a fresh antitrust problem. Friday's settlement resolves (in theory) the manner in which the schools will directly compensate players. The NIL issue is separate. Advertisement And it should be open season, thanks to the American system of free enterprise. That's why the colleges want the federal government to throw them a lifeline with legislation that would include an antitrust exemption. The only truly effective solution would come from creating a nationwide union and negotiating rules regarding key issues like compensation limits and transfer rights. With that, however, the players would have the ability to secure protections against, for instance, unlimited padded practices and a year-round schedule of intense workouts that leave the players with very little time to themselves — especially relative to pro athletes. So the settlemen isn't the end. It's more like the end of the beginning, with plenty more work to be done.
Fox News
3 days ago
- Business
- Fox News
Federal judge approves $2.8B settlement allowing schools to directly pay college athletes
A federal judge granted final approval on Friday to the $2.8 billion settlement that will allow colleges and universities to begin paying athletes directly. Judge Claudia Wilken approved the settlement on Friday that will allow schools to pay their athletes next month. The sweeping terms of the so-called House settlement include approval for each school to share up to $20.5 million with athletes over the next year and $2.7 billion that will be paid over the next decade to thousands of former players who were barred from that revenue for years. Payouts will be determined based on the sport and the length of athletic career, with most football and men's basketball players able to receive nearly $135,000 each. However, the highest estimated payout is expected to be nearly $2 million, thanks to "Lost NIL Opportunities," according to the law firm. Nearly five years after Arizona State swimmer Grant House sued the NCAA and its five biggest conferences to lift restrictions on revenue sharing, Wilken approved the final proposal that had been hung up on roster limits, just one of many changes ahead amid concerns that thousands of walk-on athletes will lose their chance to play college sports. The deal covers three antitrust cases — including the class-action lawsuit known as House vs. the NCAA — that challenged NCAA compensation rules dating back to 2016. The plaintiffs claimed that NCAA rules denied thousands of athletes the opportunity to earn millions of dollars off the use of their names, images and likenesses. The NCAA lifted its ban on athletes earning money through endorsement and sponsorship deals in 2021. At one point, President Donald Trump was considering an executive order to regulate name, image and likeness in college sports after meeting with legendary Alabama Crimson Tide coach Nick Saban, the Wall Street Journal reported. On Fox News last year, Saban urged Congress to step in and make NIL "equal across the board." "And I think that should still exist for all players, but not just a pay-for-play system like we have now where whoever raises the most money in their collective can pay the most for the players, which is not a level playing field. I think in any competitive venue, you want to have some guidelines that gives everyone an equal opportunity to have a chance to be successful," he said. The settlement also called for a clearinghouse to make sure any NIL deal worth more than $600 is pegged at fair market value in an attempt to thwart supposed pay-for-play deals. Follow Fox News Digital's sports coverage on X, and subscribe to the Fox News Sports Huddle newsletter.
Arab News
3 days ago
- Business
- Arab News
Federal judge approves $2.8 billion settlement, paving way for US colleges to pay athletes millions
NEW YORK: A federal judge signed off on arguably the biggest change in the history of college sports Friday, clearing the way for schools to begin paying their athletes millions of dollars as soon as next month as the multibillion-dollar industry shreds the last vestiges of the amateur model that defined it for more than a century. Nearly five years after Arizona State swimmer Grant House sued the NCAA and its five biggest conferences to lift restrictions on revenue sharing, US Judge Claudia Wilken approved the final proposal that had been hung up on roster limits, just one of many changes ahead amid concerns that thousands of walk-on athletes will lose their chance to play college sports. The sweeping terms of the so-called House settlement include approval for each school to share up to $20.5 million with athletes over the next year and $2.7 billion that will be paid over the next decade to thousands of former players who were barred from that revenue for years. The agreement brings a seismic shift to hundreds of schools that were forced to reckon with the reality that their players are the ones producing the billions in TV and other revenue, mostly through football and basketball, that keep this machine humming. The scope of the changes — some have already begun — is difficult to overstate. The professionalization of college athletics will be seen in the high-stakes and expensive recruitment of stars on their way to the NFL and NBA, and they will be felt by athletes whose schools have decided to pare their programs. The agreement will resonate in nearly every one of the NCAA's 1,100 member schools boasting nearly 500,000 athletes. 'Approving the agreement reached by the NCAA, the defendant conferences and student-athletes in the settlement opens a pathway to begin stabilizing college sports,' NCAA President Charlie Baker said. The road to a settlement Wilken's ruling comes 11 years after she dealt the first significant blow to the NCAA ideal of amateurism when she ruled in favor of former UCLA basketball player Ed O'Bannon and others who were seeking a way to earn money from the use of their name, image and likeness (NIL) — a term that is now as common in college sports as 'March Madness' or 'Roll Tide.' It was just four years ago that the NCAA cleared the way for NIL money to start flowing, but the changes coming are even bigger. Wilken granted preliminary approval to the settlement last October. That sent colleges scurrying to determine not only how they were going to afford the payments, but how to regulate an industry that also allows players to cut deals with third parties so long as they are deemed compliant by a newly formed enforcement group that will be run by auditors at Deloitte. The agreement takes a big chunk of oversight away from the NCAA and puts it in the hands of the four biggest conferences. The ACC, Big Ten, Big 12 and SEC hold most of the power and decision-making heft, especially when it comes to the College Football Playoff, which is the most significant financial driver in the industry and is not under the NCAA umbrella like the March Madness tournaments are. Roster limits held things up The deal looked ready to go since last fall, but Wilken put a halt to it after listening to a number of players who had lost their spots because of newly imposed roster limits being placed on teams. The limits were part of a trade-off that allowed the schools to offer scholarships to everyone on the roster, instead of only a fraction, as has been the case for decades. Schools started cutting walk-ons in anticipation of the deal being approved. Wilken asked for a solution and, after weeks, the parties decided to let anyone cut from a roster — now termed a 'Designated Student-Athlete' — return to their old school or play for a new one without counting against the new limit. Wilken ultimately agreed, going point-by-point through the objectors' arguments to explain why they didn't hold up. 'The modifications provide Designated Student-Athletes with what they had prior to the roster limits provisions being implemented, which was the opportunity to be on a roster at the discretion of a Division I school,' Wilken wrote. Her decision, however, took nearly a month to write, leaving the schools and conferences in limbo — unsure if the plans they'd been making for months, really years, would go into play. 'It remains to be seen how this will impact the future of inter-collegiate athletics — but as we continue to evolve, Carolina remains committed to providing outstanding experiences and broad-based programming to student-athletes,' North Carolina athletic director Bubba Cunningham said. Winners and losers The list of winners and losers is long and, in some cases, hard to tease out. A rough guide of winners would include football and basketball stars at the biggest schools, which will devote much of their bankroll to signing and retaining them. For instance, Michigan quarterback Bryce Underwood's NIL deal is reportedly worth between $10.5 million and $12 million. Losers, despite Wilken's ruling, figure to be at least some of the walk-ons and partial scholarship athletes whose spots are gone. Also in limbo are Olympic sports many of those athletes play and that serve as the main pipeline for a US team that has won the most medals at every Olympics since the downfall of the Soviet Union. All this is a price worth paying, according to the attorneys who crafted the settlement and argue they delivered exactly what they were asked for: an attempt to put more money in the pockets of the players whose sweat and toil keep people watching from the start of football season through March Madness and the College World Series in June. What the settlement does not solve is the threat of further litigation. Though this deal brings some uniformity to the rules, states still have separate laws regarding how NIL can be doled out, which could lead to legal challenges. NCAA President Charlie Baker has been consistent in pushing for federal legislation that would put college sports under one rulebook and, if he has his way, provide some form of antitrust protection to prevent the new model from being disrupted again.
