NFL Tax Planning: Understanding How Much Athletes Really Keep | Jimmy Bisharat
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NFL Tax Planning: Understanding How Much Athletes Really Keep
When NFL stars like CeeDee Lamb sign blockbuster deals—such as his $34 million per year contract with the Dallas Cowboys—it’s easy to get dazzled by the eye-popping numbers. But how much of that is actually pocketed after taxes, agent fees, and other deductions? Let's break it down.
CeeDee’s contract may be worth $34 million a year on paper, but taxes and expenses could take a substantial bite out of those earnings. Here’s a closer look at how the real numbers shake out:
The Federal Tax Hit
Like any high earner, CeeDee owes a significant portion of his salary to the federal government. In the highest tax bracket, that means it could be around 37% of his income goes straight to Uncle Sam. For CeeDee, this has the potential to add up to about ~$12.6 million in federal taxes each year.
The Jock Tax
Athletes have to navigate a unique tax called the "Jock Tax." This tax applies to players who earn income in multiple states, as they are taxed for games played in each state. For CeeDee, this has the potential to add another ~$1 million to his tax bill, which varies depending on where he plays his games throughout the season.
Agent and Representation Fees
CeeDee’s agent, Tory Dandy from CAA, is one of the individuals responsible for negotiating the terms of his deal, and for his efforts, the standard fee could be ~3% of the contract. That’s potentially a $1 million deduction from his total earnings.
FICA and Medicare
On top of federal and state taxes, most people also pay into to the Federal Insurance Contributions Act (FICA), which covers Social Security and Medicare. For someone in his tax bracket, that’s approximately another potential $800,000 out the door.
State Income Tax Advantage: Playing in Texas
One big advantage CeeDee has by playing for the Dallas Cowboys is no state income tax in Texas. Unlike athletes in high-tax states like California or New York, CeeDee doesn’t have to worry about losing a chunk of his earnings to state taxes when playing at home. This is a significant advantage, as it allows him to keep more of his salary compared to athletes in other states.
However, it’s important to note that CeeDee still has to pay state taxes for games played in states with income tax laws. When the Cowboys travel to places like California or New York, the income earned for those games is subject to that state’s taxes, contributing to the Jock Tax burden.
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What's Left?
When all is said and done, CeeDee could be left with roughly $18.6 million per year—still a hefty paycheck, but significantly less than the headline figure of $34 million. That’s nearly 45% of his salary going to taxes and fees.
What Can Athletes Do?
While it’s hard to avoid paying taxes, there are strategies athletes can implement to keep more of their hard-earned money. This includes tax-efficient investments, retirement planning, and using strategies like charitable contributions to reduce taxable income. Working with a knowledgeable financial advisor can help navigate the complexities of an athlete’s financial situation and protect their wealth for the future.
Get Your Financial Game Plan in Place
Whether you’re an up-and-coming athlete or a seasoned pro, understanding the true cost of your contract is crucial. With proper tax planning and financial strategy, you can take the steps towards keeping more of what you earn.
If you're a rising athlete looking to secure your financial future, let’s talk strategy before taxes and fees take the lead. Reach out today and let's make sure your future stays in the green.
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Jimmy Bisharat is a Financial Advisor of Santa Monica, California-based Gerber Kawasaki Inc., an SEC-registered investment firm with approximately ~$3.16B billion in assets under management as of 9/30/24. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss. Readers shouldn't buy any investment without doing their research to determine if the investments are suitable for their situation. “All investments involve risk and one should consult a financial advisor before making any investments. Past performance is not indicative of future results."