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While the National Collegiate Athletic Association (NCAA) landscape remains entwined with issues regarding compensation of student-athletes, another element of the debate reached a “foothold”…

U.S. District Court Judge Claudia Wilken (Oakland, CA) recently issued an injunction invalidating NCAA rules that prohibit student-athletes from being compensated for use of their names, images, and likenesses in television broadcasts and video games.

The decision is a win for certain student-athletes in the sense that it would allow football players in the top 10 conferences, and all Division I men’s basketball players, a limited share of the revenue generated by schools from the use of their likenesses. 

However, there are aspects of the injunction that provide factors somewhat beneficial to the NCAA.  Based on witness testimony and current NCAA rules, Judge Wilken determined that the NCAA and schools are allowed to cap the amount of money paid to college athletes while they are in enrolled in school; an eligible athlete must be paid at least $5,000 per year they are academically eligible, but schools do not have to necessarily pay more than that.  Furthermore, the compensation will likely be deferred as schools are permitted to pay the funds to a trust, which would then be held until after an athlete’s eligibility ends or he graduates, whichever occurs sooner. 

Former UCLA basketball player Ed O’Bannon had filed the class-action lawsuit on behalf of himself and other former college athletes against the NCAA, alleging that the NCAA’s prohibition on allowing student-athletes from receiving any compensation other than scholarships and the cost of attendance at schools violated federal antitrust laws.

The NCAA traditionally required student-athletes to sign a form before participating in athletics, which gave the NCAA permission to use player images and likenesses to “promote NCAA championships or other NCAA events, activities or programs.”  Because of this document, student-athletes had been unable to negotiate deals for the use of their likenesses, which the plaintiffs alleged was an unreasonable restraint on trade conspiring to fix the price for the use of athletes’ image and likeness at zero.

The injunction stops short of allowing athletes to receive money for endorsements, nor does it prevent the NCAA from creating rules that prohibit athletes from selling their name, image, and likeness rights individually.  But Judge Wilkin’s ruling is certainly a battle won by the Ed O’Bannon plaintiffs in this continuing “war” with the NCAA over amateurism and legal rights of student-athletes.

An issue with the decision is that was confined “revenue sports” (football players in the top 10 conferences, and all Division I men’s basketball players).  Thus, for the time being it remains up to the NCAA and the individual conferences and schools to determine how, or if at all, “non-revenue athletes” will be compensated for use of their likeness.  “Non-revenue athletes” encompasses the remaining Division I, Division II, and Division III athletes, as well as female student-athletes.  Application of Title IX, which requires equal opportunities and resources for all male and female athletes, is seemingly called into question if only certain athletes are able to be paid for to use of their likeness.

The ruling will not affect any recruit enrolled in college before July 1, 2016.  The NCAA has announced that it will appeal the ruling.

Authored by CJ Stroh

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A new chapter was added to the ongoing dispute as to whether student athletes should be compensated for (i) the part they play in helping their respective schools generate millions of dollars in revenue from ticket sales and the use of their individual player likenesses, and (ii) the predominant amount of time that is spent as an athlete as opposed to a student.  It is a deeper issue than simply framing it as “pay for play”, but that discussion is one for another day …

What is important for our purposes is that the National Labor Relations Board (“NLRB” or the “Board”) recently ruled Northwestern University’s scholarship football players (differentiated from walk-on players) are “employees” under the National Labor Relations Act (the “Act”), and as such, have the right to unionize for collective bargaining purposes.

The Board’s ruling will be appealed, so the practical application of this unionization right and the resulting sub-issues from the decision will be delayed as of this writing.  However, there are theoretical tax matters that will play a part in the debate, and that could emerge if student-athletes are in-fact deemed “employees”.  Furthermore, the reasoning that the NLRB used to reach its conclusion that student-athletes are “employees” may also be the basis for which student-athletes would be taxed.

Without going into extensive detail, the NLRB determined that the Northwestern football players receive the substantial economic benefit of a scholarship in exchange for performing football-related services, under what amounts to be a contract-for-hire.  Additionally, the Board made note of the extensive amount of control that the football coaching staff and University have over the players, and that if team rules are broken, scholarships can be revoked:

  • NCAA rules prohibit players from receiving additional compensation or otherwise profit from their athletic ability and/or reputation, so scholarship players are dependent on their scholarships to pay for basic necessitates, including food and shelter;
  • Players devote 40-60 hours per week for football, depending on whether it is in-season versus the off-season, despite the NCAA’s prescribed limitation of 20 hours per week once the academic  year begins;
  • Coaches control living arrangements, outside employment, the ability to drive personal vehicles, travel arrangements off-campus, social media, use of alcohol or drugs, and gambling;
  • Players also are sometimes unable to take courses in certain academic quarters because they conflict with scheduled team practices.

At this point it is not entirely clear what student-athletes would be taxed on because if the decision is ultimately affirmed, there could be conflicting definitions and concepts in the tax code with respect to “gross income”, “compensation for services” and “qualified scholarships.”

For income tax purposes, “gross income” means all income from whatever source it is derived, and this includes compensation for services.  Until now student-athletes have not been considered employees, which is essentially why their scholarship (or parts of) have not previously been taxed.  But the NLRB went to great lengths to detail how the Northwestern football players currently receive compensation for playing football (the reason it saw fit to classify them as employees).  On that same basis, the IRS would likely take the position that the granted scholarships are compensation for services, and are thus taxable income to the student-athletes.  Whether the current statutory language would have to be amended or exclusions would have to be created to properly allow for this taxation is a secondary issue.

Yet there are other benefits the Northwestern football players have cited which they feel would outweigh the negative impact of taxes they might incur.  If the decision is upheld, players might be able to qualify for workers’ compensation benefits as a result of injuries suffered on the field.  Moreover, instead of coaches having unilateral control over the schedules and rules players must abide by at the risk of losing scholarships, the union the players could form would bargain with the university over “working conditions”.  This would be similar to the way in which the NFL and MLB players’ unions bargain for benefits of their respective players.

However, rights that are bargained for by this theoretical union could lead to further questions for the university.  For example, if players successfully bargained for health benefits, Title IX (which demands equal treatment of male and female athletes) might require equivalent benefits to all of the other athletic programs on campus.  Conversely, bargained-for benefits such as safer football helmets or equipment would not necessitate comparable action on the part of the school.

The NLRB ruling in the Northwestern case is restricted to private universities, meaning efforts by student-athletes of state schools would be governed by each state’s laws on unions of public employees.  However, this decision is an initial step in what will be a lengthy process that ultimately could re-shape the National Collegiate Athletics Association (“NCAA”) … and tax issues will most certainly have a substantial impact along the way.

CJ Stroh, Esq.

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Are you a sports fan? No…no…I know you like sports; that’s evidenced by the fact that you’re wearing a Kobe Bryant jersey despite clearly being in your late 30s. But do you really know sports?

Perhaps we should enlist a quantitative approach to separate the fans from the frauds. If you’re feeling confident, below is a quiz carefully designed to gauge your general sports knowledge.  Best of luck.

1. Michael Vick is best known for:

a. leading a marginally talented Atlanta Falcons team to the 2004 NFC Championship game

b. serving prison time for operating a viciously inhumane dog fighting ring

c. becoming  the first African-American quarterback to be drafted with the #1 overall pick

d. seeking treatment for a particularly persistent STD under the alias “Ron Mexico”

Answer: d. While a through c were quite notable on their own, none of them gave rise to the 21st century’s greatest invention: the Ron Mexico name generator.

 2. Math question: Please show all work. If Tiger Woods wins 72 PGA tour events, 14 Major Championships, and spends 545 weeks as the #1 ranked player in golf while sleeping with 11 different women outside of marriage,  what will his divorce settlement cost him?

 a. $110,000,000

b. a lifetime supply of Gatorade Performance Series Protein Recovery shakes

c.  three green jackets

d.  his worldwide reputation

Answer:  a. While d. might appear to be the correct answer, his previous rampant infidelity will be forgiven the minute he wins another Major and America heralds him for his “comeback.”

3. The 2011 NBA lockout ended after:

a. 30 days

b. 3 days

c. the lockout ended?

d. 149 days

Answer: c. The NBA is unwatchable.

4. Which of the following statements is false:

a. NY Jets’ cornerback Antonio Cromartie has fathered nine kids with eight different women

b. “Who should I start at wide receiver this week?” has replaced “Why are we here?” as mankind’s leading question for God

c. 2011 NL MVP Ryan Braun is currently serving a 50-game suspension for steroid use

d. While you were taking this quiz, Antonio Cromartie fathered yet another child with yet another woman

Answer: d. but only on a technicality!

5. Tim Tebow is most accurately described as:

 a. a devout Christian

 b. a lovely young man and solid role model  

 c. a below-average NFL quarterback 

 d. all of the above

Answer: d. Kudos to you for understanding that a, b, and c are not mutually exclusive options. You can be both a great person and an awful passer of the football.

Did you score a 20% or better? CONGRATULATIONS! You’re the type of guy or gal Deadspin had in mind when they published A Guide For Sports Fans (And Would-Be Plutocrats) To Doing Your Taxes.

That’s right; Deadspin — the once underground, now-mainstream sports blog that brought the world Ron Mexico, Chris Berman’s preferred pick-up line, and Brett Favre’s alleged text message seduction of Jenn Sterger — has now delved into the world of tax law.

Some highlights include:

Your bookie probably won’t give you a W-2G
For those of you who enjoy sporting events more when you’ve placed hasty wagers on the games, gambling is an important part of your tax return. “What? You mean my hot streak of victories guided by betting against Mark Sanchez that paid for my new 106-inch projector television is related to my taxes?” Yep! And it doesn’t matter if your bookie doesn’t give you a W-2G (don’t bother asking for one); those winnings are taxable.

You can deduct those personal seat license fees Alma Mater is chiseling out of you
What about tickets for your alma mater or favorite college sports team? Well, this is a tricky one, so read carefully. Under Publication 526 for 2011, if you donate money to the school and that donation gives you the right to purchase tickets to an athletic event, you can deduct 80 percent of the donation. If you are simply shelling out money for tickets, then that does not qualify as a charitable contribution.

Violent rec sports can be good for your tax return
Start playing in your hockey rec league again or some other high-collision, injury-rich sport. Medical and dental expenses are deductible but are subject to a 7.5 percent floor of your adjusted gross income. What does that mean? You need to play hard.
Really hard.

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