The Biggest NIL Mistakes Student Athletes Make
In June 2021, headlines celebrated a historic moment for college athletes. For the first time, student-athletes could earn money from their Name, Image, and Likeness. Endorsements. Social media deals. Brand partnerships. Appearances. The door was open, and the opportunity was real. But here is the part nobody talked about in those headlines. NIL income is business income. And most 18-year-old athletes have never run a business, filed a self-employment tax return, reviewed a contract, or thought about what happens when a large check arrives with no taxes withheld. The opportunity is real. The trap is just as real. And the difference between the two is planning.
Why NIL Is Different From a Paycheck
Most people understand how a regular job works. You get hired, you earn a salary, and your employer withholds taxes before the money ever hits your bank account. When professional athletes sign team contracts, the structure works similarly. The team pays them through payroll. Taxes are withheld. There is still planning involved, but at least part of the process is handled automatically. NIL does not work that way. In a typical NIL deal, the athlete is not an employee of the brand paying them. They are treated as an independent contractor. The brand sends the money, and in many cases, no taxes are withheld at all. At the end of the year, the athlete may receive a Form 1099 showing how much they were paid. The IRS receives a copy of that same form.
What the athlete does not receive is automatic tax withholding. That responsibility falls entirely on the athlete and their family. This is where the trap begins. A young athlete sees a significant number land in their checking account and believes that money is available to spend. If no taxes were withheld, a meaningful portion of that money may already belong to the IRS and possibly one or more state tax authorities. Spending it before understanding that reality can create a serious problem.
What the NIL Earnings Can Actually Look Like
A $1 Million Deal Is Not $1 Million to Spend
Imagine a freshman athlete signs a $1 million NIL deal. If no taxes are withheld, federal income tax and self-employment tax could significantly reduce the amount they keep. Athletes living or earning income in states with income tax may owe even more, depending on their individual circumstances.
Tax Planning Helps Protect NIL Income
Every athlete’s tax situation is different. Income, filing status, deductible expenses, residency, and other factors all affect the final tax bill. Many athletes choose to set aside part of each NIL payment for taxes until a qualified professional calculates the actual amount owed. This is a planning strategy, not a guaranteed percentage.
The Problem Nobody Warned NIL Athletes About
Professional athletes have dealt with financial mismanagement for decades. Sports Illustrated covered it. ESPN made a documentary about it. The pattern is well documented: real money arrives fast, the business infrastructure is not in place, and years later the money is gone. NIL may create a version of that same story at the college level, and potentially on a wider scale. When a professional athlete turns pro, there are agents, union resources, financial advisors, and team infrastructure around them. The ecosystem exists, even if it is imperfect. A college athlete earning NIL income at 18 may have none of that. They may have a marketing representative helping them find deals, but no one helping them understand what those deals mean financially.
The tax system does not care how old the athlete is. The IRS does not offer exemptions for freshmen. Contracts do not soften their terms because the person signing them is a first-generation earner navigating this for the first time.
State Taxes Add Another Layer
Federal taxes are only part of the picture. State taxes can add serious complexity, especially for athletes who live in one state, attend school in another, and compete across multiple states throughout the season. Most states look at residency to determine whether and how they tax income. Evidence like a driver’s license, voter registration, lease agreements, bank statements, and where the athlete physically spends time can all factor into that determination. Some states have specific day-count tests. Others look at domicile, family connections, and where the taxpayer returns after travel.
For athletes who have income connected to activity in multiple states, the exposure can multiply. The goal is not to avoid what is legally owed. The goal is to have a clear, consistent residency position supported by documentation, so there are no surprises later. This is work that PMG Private NIL does for clients. It is also work that every NIL-earning athlete should have someone handling on their behalf.
NIL Contracts Deserve Serious Attention
Signing an NIL agreement is an exciting milestone, but it is also a legally binding business decision that can have lasting financial and professional consequences. While many student-athletes naturally focus on the payment amount or the brand they are partnering with, the terms written into the contract often have a much greater impact than the headline number. Every clause outlines specific rights, responsibilities, expectations, and limitations that may affect future endorsement opportunities, personal branding, and even financial obligations. A contract that appears straightforward at first glance may contain provisions that limit future partnerships, extend image usage beyond the agreement, or create unexpected responsibilities if they are not carefully reviewed. Understanding these details before signing helps athletes make informed decisions rather than reacting to problems after the agreement is in place. Taking the time to read every section, ask questions, and seek professional guidance when necessary can provide valuable protection for both current earnings and future opportunities. NIL agreements should never be treated as routine paperwork. They represent business relationships that deserve careful evaluation and strategic planning.
Before signing any NIL agreement, pay close attention to these contract details:
- Payment Terms: Understand how much the athlete will be paid, when payments will be made, and how the income may be reported for tax purposes.
- Exclusivity Clauses: Some agreements may prevent the athlete from working with competing brands during or after the contract period. Make sure these restrictions are clear.
- Image and Likeness Rights: Review whether the brand can continue using the athlete’s name, image, or likeness after the agreement ends and for how long.
- Morality Clauses: These provisions explain the situations that could allow a brand to end the agreement based on an athlete’s conduct or public actions.
- Deliverables and Deadlines: Confirm what the athlete is expected to do, such as social media posts, appearances, or promotions, and understand the deadlines for completing those obligations.
- Professional Review: Before signing, consider having the agreement reviewed by a qualified professional. A careful review may help identify important terms that are easy to overlook but could affect the athlete’s future opportunities.
NIL Financial Planning Steps
Receiving your first NIL payment is an exciting milestone, but it also marks the beginning of new financial responsibilities that many student-athletes have never encountered before. Unlike a traditional paycheck, NIL income often requires you to manage taxes, organize financial records, and make informed business decisions on your own. The good news is that effective financial planning does not have to be overwhelming. It starts with creating simple habits that help you stay organized and prepared from day one. Taking a proactive approach can make it easier to understand where your money is going, avoid unnecessary tax surprises, and build a strong financial foundation for future opportunities. Small steps taken early can save significant time, money, and stress as your NIL earnings grow. Whether you are signing your first local endorsement or managing multiple brand partnerships, having a clear financial system in place allows you to focus on your athletic and academic goals with greater confidence. Building these habits now can also help you make smarter decisions as your career evolves and your earning potential increases.
Starting early may also help reduce stress and prevent common mistakes later. Here are some simple planning steps every NIL athlete should consider:
Open a Separate Bank Account
Using a separate bank account for NIL income helps keep business earnings separate from personal spending. It makes it easier to monitor income, track expenses, and organize financial records throughout the year. This simple habit can also make bookkeeping and tax preparation much more manageable.
Set Aside Money for Taxes
Most NIL payments do not have taxes withheld before athletes receive them. Setting aside a portion of every payment for future tax obligations may help prevent unexpected bills during tax season. Planning ahead can make tax payments easier and reduce financial stress later.
Track Business Expenses
Keep records of business-related expenses connected to NIL activities, including travel, equipment, marketing, or content creation costs. Good recordkeeping supports accurate tax reporting and may allow eligible business deductions under applicable tax laws. Staying organized also ma
Open a Separate Bank Account
Using a separate bank account for NIL income helps keep business earnings separate from personal spending. It makes it easier to monitor income, track expenses, and organize financial records throughout the year. This simple habit can also make bookkeeping and tax preparation much more manageable.
Set Aside Money for Taxes
Most NIL payments do not have taxes withheld before athletes receive them. Setting aside a portion of every payment for future tax obligations may help prevent unexpected bills during tax season. Planning ahead can make tax payments easier and reduce financial stress later.
Track Business Expenses
Keep records of business-related expenses connected to NIL activities, including travel, equipment, marketing, or content creation costs. Good recordkeeping supports accurate tax reporting and may allow eligible business deductions under applicable tax laws. Staying organized also makes it easier to review income and expenses throughout the year.
Consider the Right Business Structure
As NIL opportunities grow, some athletes may benefit from discussing whether an LLC or another business structure fits their needs. The right choice depends on individual circumstances, income, and future plans. A qualified tax or legal professional can help determine the most appropriate option.
Understand Estimated Tax Payments
Because taxes are often not withheld from NIL income, some athletes may need to make quarterly estimated tax payments. Missing these payments can result in penalties and interest. Learning how estimated taxes work early helps athletes stay compliant and better manage their financial responsibilities.
kes it easier to review income and expenses throughout the year.
Consider the Right Business Structure
As NIL opportunities grow, some athletes may benefit from discussing whether an LLC or another business structure fits their needs. The right choice depends on individual circumstances, income, and future plans. A qualified tax or legal professional can help determine the most appropriate option.
Understand Estimated Tax Payments
Because taxes are often not withheld from NIL income, some athletes may need to make quarterly estimated tax payments. Missing these payments can result in penalties and interest. Learning how estimated taxes work early helps athletes stay compliant and better manage their financial responsibilities.
What Parents Need to Understand
NIL is not just the athlete’s financial matter. It is a family matter. When a student-athlete earns significant NIL income, it may affect whether they can be claimed as a dependent on their parents’ tax return. It may affect financial aid calculations. It may create new filing obligations. It may change how the family approaches FAFSA and college cost planning.
Parents who want to help protect their child’s opportunity need to be in the conversation early. Not to control it, but to understand it. The athlete’s financial decisions at 18 can have consequences that extend well beyond their college years.
Asking the right questions before a deal is signed is one of the most valuable things a parent can do. Questions like how the payment will be reported, whether taxes will be withheld, whether a professional has reviewed the contract, and whether a financial plan is in place are not overprotective. They are exactly what good planning looks like.
The Real Opportunity Is Still There
NIL is a genuine blessing for college athletes. Student-athletes who may never play professionally now have the ability to earn real money during their college years and build a financial foundation before their careers end. That opportunity should be celebrated.
But opportunity without structure has a track record. Professional athletes have demonstrated that earning significant money is not the same as keeping it. College athletes are now facing the same dynamics at a younger age, with less infrastructure around them, and in a regulatory environment that is still evolving.
The answer is not fear. The answer is structure. Treat NIL like a business before the first deal is signed, and planning may help protect what that opportunity is meant to build.
Your Next Financial Step with PMG Private NIL
The NIL landscape is changing quickly, and staying informed is one of the best ways to protect your opportunities. New tax guidance, evolving NCAA policies, contract trends, and financial strategies can all impact how you manage your NIL income. PMG Private NIL is committed to helping student-athletes and their families stay educated with timely, practical insights that support long term success. Contact PMG Private NIL to receive expert guidance, financial planning tips, NIL compliance updates, tax reminders, and educational resources delivered directly to your inbox. Whether you’re preparing for your first NIL deal or growing an established personal brand, our newsletter helps you make informed decisions every step of the way. The opportunity is real. Stay informed, stay protected, and subscribe today with PMG Private NIL.
Disclaimer: This content is educational and is not legal or tax advice. Every athlete’s situation is different. Consult a qualified tax or legal professional for guidance specific to your circumstances.
