1099 Reporting and Tax Implications of the House Settlement

As universities navigate institutional involvement in revenue sharing and name, image and likeness (NIL), understanding the tax implications of payment structures is essential. Two primary options for structuring athlete compensation—royalty payments and independent contractor payments—come with distinct reporting and tax responsibilities.

Option 1: Royalty Payments (Form 1099-MISC)

Royalty payments are appropriate when athletes are compensated for granting the use of their intellectual property, such as their NIL. This structure is common in licensing agreements or marketing arrangements in which an athlete’s NIL is passively used.

• How it works: Payments are made in exchange for licensing the athlete’s NIL rights for merchandise or promotional campaigns.
• Reporting requirements: Payments of $10 or more are reported on Form 1099-MISC, Box 2 (Royalties). These payments are taxed as ordinary income and are not subject to self-employment tax (SE tax) if they qualify as passive income (reported on Schedule E). However, active participation may subject these payments to SE tax (reported on Schedule C).
• University context example: A university sells merchandise featuring an athlete’s image and compensates them with a percentage of the revenue without requiring active participation in promotion.

Option 2: Independent Contractor Payments (form 1099-NEC)

Independent contractor payments are used when athletes are compensated for providing specific services, such as event appearances or active promotion of a brand.

• How it works: Athletes receive payments for performing services.
• Reporting requirements: Payments of $600 or more are reported on Form 1099-NEC (Nonemployee Compensation). These payments are classified as self-employment income and are subject to both income tax and SE tax.
• University context example: A university compensates an athlete for attending alumni events or making public appearances to promote the athletics program.

Hybrid Agreements: Combining Royalties and Services

Many athlete contracts may involve both royalty and service components. In such cases, payments can be divided into these two categories to ensure accurate tax reporting and potentially reduce the athlete’s tax liability.

For instance, a university compensates an athlete for the use of their NIL on merchandise (royalty) and for attending promotional events (service). Proper contract drafting can clearly distinguish these components to avoid confusion during tax reporting.

More Examples of Passive vs. Active Royalties in a College Athlete Revenue Share Context

Understanding when a payment transitions from a passive royalty to a payment for a service hinges on whether the athlete is actively performing tasks to generate or enhance the revenue tied to their NIL.

Passive Royalty Examples

• Merchandise sales – The university sells jerseys, posters or other merchandise featuring the athlete’s NIL. The athlete does not actively promote the merchandise; their NIL is simply licensed for use.
• Video and broadcast licensing – The university includes the athlete’s image or highlights in promotional videos, commercials or live broadcasts of games. The athlete is not required to perform additional actions beyond what they would normally do as part of their team role.
• Use of NIL in marketing materials – The athlete’s name or photo appears on posters, websites or billboards promoting the university or athletic programs. The athlete does not participate in creating or distributing the materials.
• Social media mentions by the university – The university posts about the athlete’s accomplishments or uses their NIL in university-controlled social media accounts. The athlete is not required to interact with the content or amplify it on their own channels.

Active Royalty (Service) Examples

• Promoting merchandise on social media – The athlete uses their personal social media accounts to encourage followers to buy merchandise featuring their NIL. For instance, they post, “Check out my new jersey at the campus store!” with a link to purchase.
• Engaging in marketing campaigns – The athlete is compensated for participating in a video or photo shoot specifically promoting the university’s merchandise or programs. One example would be filming a promotional ad featuring the athlete endorsing the university’s apparel line.
• Press conference participation – The athlete is required to wear branded merchandise or promote specific sponsors during press conferences, with explicit directives to highlight or endorse the product or brand.
• Amplifying university social media content – The athlete is required to share or comment on posts from the university or its sponsors, actively increasing engagement.
• Personal appearances at events – The athlete makes personal appearances at alumni fundraisers or events at which their presence is used to promote ticket sales or fundraising goals. For example, an athlete attends a gala dinner and signs autographs as part of their agreement.

Gray Areas in Passive vs. Active NIL Use

Many of these activities fall into a gray area, requiring case-by-case evaluation based on the level of athlete involvement.

Consider the example of school logos in personal social media. If the athlete posts photos of themselves wearing school apparel or showcasing the school logo on their own accounts without being explicitly asked to do so, it is generally passive use. However, it becomes active service income if they’re required to post as part of their contractual obligations or instructed on what to say.

Press conferences come into play here as well. An athlete passively wearing a branded jersey with a university logo during a standard post-game press conference is passive use of NIL. But if they’re instructed to highlight specific sponsors or deliver a branded message, this crosses into active service income.

Team participation and highlights also fall under this gray area. Playing in a game where footage is later monetized by the university is passive income because the athlete is performing their regular team duties, not additional services. If the athlete is separately paid to create promotional content using their game highlights, this is active service income.

As revenue-sharing models develop under the House v. NCAA settlement, universities need to stay informed and proactive in managing their compliance obligations. Understanding how your athlete contracts are structured is essential to ensure compliance with IRS guidelines and to optimize tax outcomes for your student-athletes.

Passive royalties, active royalties and independent contractor payments must be clearly distinguished and properly reported on the relevant 1099 forms. Hybrid agreements should explicitly state royalty and service components to avoid tax misclassification. (Check out our helpful guide to classifying these payments.)

For additional guidance, our collegiate athletics CPAs and consultants can help you work through compensation structures, tax reporting and more.

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