Name, image, and likeness compensation has moved beyond endorsement deals and social-media sponsorships. Following the approval of the House v. NCAA settlement, participating Division I schools may now provide direct financial benefits to student-athletes, while third-party NIL agreements remain subject to new reporting and review requirements. The result is a rapidly developing market involving contracts, intellectual property, employment classification, business planning, and—of course—tax.
For attorneys advising athletes, schools, brands, or collectives, the first tax question is not simply how much the athlete received. It is what the payment was actually for.
An athlete may be paid to appear at an event, create sponsored content, promote a product, license photographs, permit the use of a signature, or participate in a merchandising agreement. Service-based payments will generally be treated differently from true royalty or licensing income. The IRS directs student-athletes to report business and sponsorship income on Schedule C, while certain royalty income may be reported on Schedule E. Many NIL agreements contain both service and licensing components, making careful drafting and allocation increasingly important.
Worker classification is another developing issue. Some athletes receive Forms 1099 and are treated as independent contractors, meaning they may owe both income tax and self-employment tax. Others may receive Forms W-2 when the payer exercises sufficient control to create an employment relationship. The label used in the contract is not necessarily controlling; classification depends on the parties’ actual relationship and the surrounding facts.
Attorneys should also remember that taxable NIL compensation is not limited to cash. Merchandise, gift cards, travel, equipment, and other benefits provided in exchange for an athlete’s services or publicity rights may constitute taxable income at fair market value. The income may still be reportable even when the athlete never receives a Form 1099.
The analysis becomes even more complicated when athletes perform services in multiple states, maintain homes in different jurisdictions, or transfer between schools. State residency, income sourcing, withholding, and filing obligations can create tax exposure far beyond the athlete’s home state.
NIL is often discussed as a sports or intellectual-property issue. Increasingly, however, it is also a tax-planning and contract-drafting issue. Attorneys entering the NIL space should be prepared to identify the character of each payment, separate services from licensing rights, address noncash compensation, and coordinate with qualified tax professionals before the agreement is signed—not after the tax bill arrives.
This Is Not Legal Advice. This article is provided for general informational purposes and does not constitute legal or tax advice.