Six Reasons to Be Skeptical of Proposals to Tax College Athletes' Scholarships

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NCAA will begin to consider the idea of allowing athletes to benefit from their name, image and likeness.

With the NCAA’s Board of Governors announcing a plan that will eventually allow college athletes to “benefit” from the use of their names, images and likenesses, one member of Congress appears disappointed. U.S. Senator Richard Burr (R-NC) tweeted the following on Tuesday:

There are at least six reasons to be wary of Burr’s viewpoint.

First, the NCAA has not said that college athletes will be able to “make money” or “cash in” off of their identity rights. As I wrote in a separate SI story, the NCAA’s statement on Tuesday noticeably dodged detail on how players would be compensated. It’s possible that any compensation will be deferred in a trust until after players leave college. Another possibility is that athletes will be greatly restricted in how they can use any compensation. They might only be able to use it on educational and academic purposes. The NCAA also seems to envision colleges having wide discretion to reject proposed contracts between their athletes and private businesses. In other words, there is a wide gulf of possibilities between players directly receiving cash for the use of their identities and the kind of heavily constrained framework that the NCAA might ultimately conceive.

Second, Burr is linking two sources of compensation that aren’t related. Players gaining compensation for the commercial use of their names, images and likenesses would be compensated by entities that aren’t their colleges. Video game publishers. Athletic camps. Trading card shows. Sneaker and apparel companies. There are many possibilities, except one: their college. Indeed, one key rationale for permitting college athletes to sign endorsement deals and licensing contracts is that it would not entail colleges paying their players. Another is that it would treat college athletes like other college students. For example, college students who are also professional actors and professional musicians are able to gain compensation for the use of their names, images and likenesses without such compensation nullifying their scholarships.

Third, assuming the NCAA’s plan comes to pass, college players will already be subject to federal and state taxation for any income generated through licensing their names, images and likenesses. Burr, in other words, seems to believe that already-taxable income for endorsement and licensing teals would justify the imposition of a new tax on an unrelated benefit (that is, the scholarship).

Fourth, taxing athletic scholarships, but not academic or other types of scholarships, might unwittingly advance the legal argument that college athletes are employees of their schools. The type of tax scheme that Burr suggests would signal that athletic scholarships are qualitatively different and, arguably, more akin to university employees’ income that is traditionally taxed. The Internal Revenue Service has long regarded athletic scholarships as akin to academic scholarships. Both are generally excluded from tax calculations so long as they are tethered to the pursuit of studies. The NCAA’s longstanding advocacy of student-athletes’ academic success being central to their collegiate experience helps to validate this tax treatment (even if there are real questions about the quality of education received by some athletes).

Burr’s tweet reflects a viewpoint that athletic scholarships contemplate a different and more commercially oriented framework than scholarships received by other college students. While the National Labor Relations Board rejected a petition by football players at Northwestern University in 2015 to be declared employees under the federal National Labor Relations Act, whether players at public universities ought to be considered employees is a question of state law. If college athletes at public universities are declared employees in any state, they might be able to unionize there (also a question of state law). In short, Burr, whom the AFL-CIO gives a lifetime score of just 12% (out of 100%), is proposing a change in policy that could advance workers’ rights.

Fifth, the NCAA, athletic conferences and college athletic departments might be worried about Burr’s idea. They would appear to have a weaker argument for justifying status as non-profits under Section 501(c)(3) of the Internal Revenue Code. 501(c)(3) entities are exempt from the obligation to pay corporate income taxes for income related to the organization’s exempt purpose. One such permissible purpose is “fostering national or international amateur sports competition.” If college sports competition is linked to taxation for athletes’ identities, college sports arguably becomes more like pro sports. Such a designation would undermine the valuable 501(c)(3) status enjoyed by the NCAA, conferences and colleges.

Sixth, Burr’s threat to create a new tax scheme seems to betray his own principles. He has signed the Taxpayer Protection Pledge, which is a written promise by members of Congress to “never raise their constituents’ taxes.” Should college athletes’ scholarships be taxed as a result of legislation pursued by Burr, athletes at schools like Duke, UNC and Burr’s alma mater, Wake Forest, would be subject to new taxes.

To be clear, Burr’s position does not reflect a party viewpoint. Other Republican members of Congress clearly regard the topic of college athletes’ names, images and likenesses from a different light.

Within the U.S. House of Representatives, no member has been a more passionate advocate for college athletes being able to license their names, images and likenesses than Congressman Mark Walker. Walker, who like Burr is a Republican from North Carolina, has introduced House Resolution 1804, also known as the “Student-Athlete Equity Act” (Equity Act). The Act, which has co-sponsors from both political parties, would amend the Internal Revenue Code of 1986 so that the NCAA’s status as a non-profit depends on whether the NCAA allows athletes to license their names, images and likenesses. Meanwhile, Congressman Matt Gaetz, a Republican from Florida, has opined that prohibiting college athletes from being able to license their identities poses troubling racial implications:

The topic of name, image and likeness rights for college athletes is not a partisan one. One can support those rights on account of economic liberty, racial justice or other policy reasons. No matter how the debate lands, it seems clear that change is on the horizon.

Michael McCann is SI’s Legal Analyst. He is also an attorney and Director of the Sports and Entertainment Law Institute at the University of New Hampshire Franklin Pierce School of Law.