Are You Ready for Some Football?

Next week, the greatest hype machine in American history cranks up its annual run, promising to swallow billions of hours of time and attention. No, we’re not talking about the elections, which promise to be a joyless gauntlet that makes every one of us stupider at the end than before it started. We’re talking about the NFL, which kicks off September 5th with the Baltimore Ravens traveling to Kansas City to take on last season’s Super Bowl champions. The next five months will see an endless parade of TV broadcasts, beer commercials, penalties, injuries, and former coaches and players sitting around filling airtime when there aren’t actual games to watch. It all culminates on February 9, 2025 in Super Bowl LIX in New Orleans.

NFL players collectively earn about $8.2 billion per year, with Cincinnati Bengals quarterback Joe Burrow leading the pack at $55 million/year. Of course, that’s not the same thing as taking home those billions. The IRS and various state and local tax collectors tackle the average player for close to 40% of that amount. So naturally, players and their advisors are constantly scouting out ways to pay less. Many choose to play for teams in states with no income tax, like Texas, Florida, and Nevada. But this year, one clever rookie tried—and failed—to complete what would have been a Hail Mary tax play.

The Chicago Bears nabbed quarterback Caleb Williams in the first spot in this year’s NFL draft and signed him to a four-year contract for nearly $40 million. But Williams wanted to try something new. He asked to be paid through an LLC as an independent contractor rather than individually as an employee.

Earning income through an LLC—particularly one taxed as an S corporation—potentially offered Williams huge savings. For starters, he and the Bears could together avoid nearly $1.5 million in Medicare tax by restructuring wages as K-1 distributions. An LLC could also let him deduct miscellaneous itemized deductions eliminated by the Tax Cuts and Jobs Act of 2017. These include agent fees, union dues, training and gym fees, and travel expenses. Working through his own LLC could also let him establish better benefit plans than he could get through the league.

Williams also huddled with the Bears about paying him in the form of a forgivable loan. That could have deferred any tax at all on his compensation until the loan was forgiven someday down the road.

The Bears approached the league with both the LLC and loan proposals. However, the overlords in New York sacked both ideas, citing the current collective bargaining agreement. Knowledgeable fans shouldn’t be surprised. NFL Commissioner Roger Goodell has always appeared far more interested in the overall health of the league than he is in accommodating individual players or facilitating that sort of change.

Williams still has plenty of play options for tax planning with his outside income. He’s already earned $10 million from name, image, and likeness rights. And he’s signed endorsement deals with Dr. Pepper, Nissan, Wendy’s, Beats by Dre, and Neutrogena. He’s even launched an investment firm, 888 Midas, targeting private equity, venture capital, and real estate. His father, Carl, is a real estate developer who clearly raised his son to succeed off the field as well as on.

This week’s story reminds us that when it comes to taxes, how and where you earn your income can be just as important as how much you earn. And while you probably aren’t throwing around the same numbers as Caleb Williams, you may qualify for some of the same planning strategies. You know who to call. Just don’t do it on Sunday afternoon!