Tax Topics · For athletes, parents & advisors
What Is the Cost of Getting Paid Today?
An athlete may be offered significant money today in exchange for a percentage of future earnings. At first glance, that can look attractive. But what does that percentage ultimately cost?
Somewhere between a strong sophomore season and draft night, a certain kind of offer arrives. A company — sometimes polished, sometimes introduced by someone the family already trusts — offers a lump sum of cash now. Not a loan, they'll say. No monthly payment. No interest rate. If the athlete never turns pro, nothing is owed.
In exchange, the athlete agrees to hand over a percentage of what they earn as a professional.
These arrangements are real and they are growing. One fund in the professional space reported roughly $400 million in assets and more than 700 athletes under contract; college-focused versions have advanced six figures to football players in exchange for percentages reported in the range of 1% to 15%. The most-cited example is a minor-league infielder who took about $2 million and gave up 10% of future earnings — and then signed a $340 million contract.
This page is not about whether these deals are good or bad. It's about the two questions almost nobody gets a clean answer to: what the percentage actually costs, and how the whole arrangement is taxed.
The dollars you receive are fixed. The dollars you give up are not.
The “money today” illusion
A $250,000 payment today feels very different from giving up 10% of future earnings. That's not a failure of intelligence. It's how the two sides of the trade are built.
$250,000
Certain. Tangible. Countable. It arrives on a specific date, in a specific amount, and it never changes.
10% of future earnings
Uncertain. Abstract. Years away. It has no number attached to it on the day you sign — and it is capable of becoming enormous.
One side of the trade you can hold. The other side is a fraction of a number nobody knows yet. That asymmetry is what makes the trade-off psychologically difficult to evaluate — and it is exactly what a 19-year-old is least equipped to price.
So the family's job is to do the thing the structure discourages: put a number on the second column.
A simple example
Suppose an athlete receives $250,000 today in exchange for 10% of future professional earnings. Here is what that 10% turns into at different career outcomes.
| Career earnings | 10% given up | Cost per $1 received |
|---|---|---|
| $1 million | $100,000 | $0.40 |
| $5 million | $500,000 | $2.00 |
| $10 million | $1 million | $4.00 |
| $25 million | $2.5 million | $10.00 |
| $50 million | $5 million | $20.00 |
The $250,000 never changes. The amount given away does.
That is the fundamental concept. The better the athlete's career goes, the more expensive the money they took at 19 becomes. Success is what makes the bill grow.
The number to make them say out loud: the break-even
There is a single figure that turns this from a feeling into arithmetic. Divide the money offered by the percentage given up. That is the career-earnings level where the athlete hands back exactly what they were handed.
Break-even
$250,000 ÷ 10% = $2,500,000 of career earnings
Below $2.5 million, the athlete came out ahead. Above it, every additional dollar earned is a dollar the deal keeps taking from.
Everything above is the best case
Every number so far assumed two things that are almost certainly not true: that the athlete keeps every dollar they earn, and that they pay the fund out of untaxed money. Neither holds. The tax treatment is where these deals get materially more expensive than the headline percentage — and it is the part nobody in the meeting can answer.
Start with the honest state of the law: there is no IRS guidance on these agreements. No revenue ruling, no private letter ruling, no regulation, no decided tax case. Congress has twice introduced bills that would have written the rules — the Investing in Student Success Act in 2017 and the ISA Student Protection Act in 2022, which would have added a new Code section declaring an income share agreement “shall not be treated as indebtedness” and excluding the cash from gross income. Neither passed. The fact that Congress thought legislation was needed is the clearest signal available that today's law does not already say so.
So the practical move is not to look for an answer. It is to make the company put its answers in writing, and to know which ones are genuinely open and which ones are already settled against the athlete.
Four tax questions to put to them in writing
The first two have no settled answer — and watching a company answer them confidently is itself information. The last two do have answers, and they are the expensive ones.
1. Is this a loan? Yes or no, in writing.
Probably not — and that's not good news
“For federal income tax purposes, is this agreement indebtedness? If your answer is no, say so in writing.”
These deals are marketed as not a loan — no interest rate, no schedule, nothing owed if the athlete never turns pro. For tax purposes that marketing is probably accurate, and that is exactly the problem. Loan treatment is what keeps money you receive from being income. Lose it and the cash today has no obvious home except gross income.
Watch for the company arguing both sides: “not a loan” when consumer-protection and usury law come up, but “essentially a loan” when the athlete asks about taxes. Nothing requires them to be consistent, and nothing requires the IRS to follow either answer.
The authority behind this
Loan treatment requires “an existing, unconditional, and legally enforceable obligation for the payment of a principal sum” — Milenbach v. Commissioner, 318 F.3d 924 (9th Cir. 2003), quoting Commissioner v. Tufts, 461 U.S. 300 (1983). In Milenbach a nonrecourse advance repayable only out of a share of future revenue was still held to be debt — but only because an independent, enforceable duty to build the revenue source existed. An athlete has no enforceable duty to earn.
Compare Karns Prime & Fancy Food, Ltd. v. Commissioner, 494 F.3d 404 (3d Cir. 2007) (advance forgiven on hitting targets held taxable income, not a loan, because the recipient “alone controlled whether it could retain the money”), applying Commissioner v. Indianapolis Power & Light Co., 493 U.S. 203 (1990) (does the taxpayer have “some guarantee that he will be allowed to keep” the funds?).
Consumer regulators have gone the other way on their own statutes: the CFPB's 2021 consent order with Better Future Forward held that income share agreements are credit and that calling them “not loans” was deceptive, and Federal Student Aid treats educational ISAs as private education loans. Consumer-law “credit” is not tax “debt” — different tests — but it undercuts the marketing.
2. Will the money you're paying me be taxable income to me this year?
Nobody knows
“Will you issue me a Form 1099 for this payment? If not, is it your position that this is not taxable income to me — and under what authority?”
This is the genuinely open question, and it is worth several hundred thousand dollars. If the agreement is not debt, the leading analogy is a Supreme Court case holding that a lump sum received for the right to future ordinary income is itself ordinary income, because it is a substitute for income that would otherwise arrive later. On that view, a $250,000 advance is $250,000 of taxable income in the year received — leaving roughly $137,500 to actually spend at a 45% combined rate.
Expect no 1099. That settles nothing: income is taxable whether or not a form shows up, and a fund that says the deal is neither a loan nor a payment for services has an argument for issuing nothing at all.
The authority behind this
Commissioner v. P.G. Lake, Inc., 356 U.S. 260 (1958): a lump sum paid for a right to future income is ordinary income, because “the lump sum consideration seems essentially a substitute for what would otherwise be received at a future time as ordinary income.”
The competing argument is open-transaction or prepaid-forward treatment, under which nothing is recognized until the contract closes. Treasury asked for comments on prepaid forward contracts in Notice 2008-2 and never resolved it, and the doctrine is built around forward delivery of property, not a claim on a person's own future services.
Failed legislation is the tell: S. 268 (2017) and S. 4551 (2022) would each have excluded ISA proceeds from gross income and declared them not indebtedness. Neither was enacted.
3. When I pay you 10%, will I already have paid income tax on that 10%?
Settled law — yes
“Confirm that I will report and pay tax on 100% of my earnings, including the share I pay to you.”
The athlete is taxed on every dollar they earn, including the dollars handed straight to the fund. This is the assignment-of-income doctrine, and it is about as settled as tax law gets: you cannot contract away tax on income your own labor produces. The closest modern case involved a client who owed tax on the entire recovery even though a third of it went directly to his lawyer.
So the percentage is not carved out before tax. It comes off the top of income the athlete has already been taxed on.
The authority behind this
Lucas v. Earl, 281 U.S. 111 (1930): income from personal services is taxed to the earner regardless of an anticipatory contractual assignment — and Earl's contract covered future earnings. Helvering v. Horst, 311 U.S. 112 (1940): “the power to dispose of income is the equivalent of ownership of it.” Helvering v. Eubank, 311 U.S. 122 (1940): assigned renewal commissions taxed to the assignor.
Commissioner v. Banks, 543 U.S. 426 (2005) is the closest analogue: a litigant's gross income includes the contingent fee paid to his attorney, because the taxpayer “retained control over the income-generating asset, diverted some of the income produced to another party, and realized a benefit by doing so” — and it applies regardless of whether the assigned value was speculative when assigned. The athlete's income-generating asset is his own labor, and he keeps it.
4. Can I deduct what I pay you?
Settled law — almost certainly no
“Is any part of what I pay you deductible by me? If you believe it is, identify the Code section.”
This is the one that quietly doubles the price. For a salaried professional athlete, the payments to the fund are almost certainly not deductible at all. They come out of money that has already been taxed, with nothing coming back.
An athlete with self-employment income — NIL, endorsements, a loan-out entity — has a slightly better argument, but only to the extent the advance was actually spent on the business. Money spent on a house, a car, or supporting family produces nondeductible personal interest at best. In practice, most of it is.
The authority behind this
If the payment is an unreimbursed employee business expense under §162, it is a miscellaneous itemized deduction disallowed by §67(g) — and OBBBA §70110 (2025) made that disallowance permanent. If it is instead characterized as interest, Temp. Reg. §1.163-9T(b)(1) treats interest allocable to the performance of services as an employee as personal interest, which §163(h) disallows outright.
For Schedule C income, Temp. Reg. §1.163-8T allocates debt by tracing the use of the proceeds, not the collateral — so any interest component is deductible only to the extent the advance funded business expenditures.
Note the trap: an older IRS information letter (INFO 2003-0136) suggested a compensation advance included in income could be deducted on repayment. That remedy was a miscellaneous itemized deduction. It no longer exists.
Whichever way it's characterized, the back end is the same
Here is why the uncertainty doesn't help the athlete. The three plausible characterizations disagree only about the money received today. They agree about everything after that.
| Treated as… | Cash today taxed? | All earnings taxed? | Deductible? |
|---|---|---|---|
| A loan | No | Yes | No |
| A sale of future income | Yes (ordinary) | Yes | No |
| An open transaction | Unresolved | Yes | No |
Every row ends the same way. The only thing genuinely in play is whether the money today gets taxed on the way in.
You will be taxed on money you never keep.
What that does to the earlier numbers
Take the same deal — $250,000 for 10%, a $10 million career — at a 45% combined federal and state marginal rate, with no deduction for the payments.
| If the advance isn't taxed | If it's taxed on receipt | |
|---|---|---|
| Money you can actually spend today | $250,000 | $137,500 |
| Paid to the fund (from taxed dollars) | $1,000,000 | $1,000,000 |
| Real cost per $1 you could spend | $4.00 | $7.27 |
And the percentage itself understates what it takes. Because the payment comes out of after-tax money, giving up 10% of gross earnings costs about 18% of take-home pay at a 45% rate. The contract says 10. The bank account says 18.
The $4.00 in the earlier table was the best case. The honest range for this deal runs from $4.00 to $7.27 per spendable dollar, and which end you land on is a question no one in the room can answer.
Run your own numbers
Use the actual offer, not the example. Move the sliders to the amount on the table and the percentage in the contract.
What is this money costing?
A hypothetical illustration. Not a quote, a projection, or advice.
The lump sum, before taxes and before anyone's fee.
Reported offers have ranged from about 1% to 15%.
Total professional earnings the percentage applies to — check the contract for what counts.
Federal plus state, at the top of the athlete's income. Often 45–50% in a high-tax state, closer to 37% in a state with no income tax.
The unresolved question. Untick it to see the friendlier assumption.
The deal on paper
What it looks like after tax
At $10,000,000 of career earnings, the athlete gives up $1,000,000 to have pocketed $137,500 — a real cost of $7.27 for every dollar they could actually spend.
Assumes no deduction for the payments to the fund, which is the likely outcome, and applies one marginal rate throughout. A real projection would model rates year by year.
In fairness: what the athlete is actually buying
It would be dishonest to present this as pure loss, and parents can smell a one-sided argument. Three things are genuinely being purchased:
- Certainty. Most athletes who sign these deals never reach the earnings level where the deal becomes expensive. If the career doesn't happen, the money is generally kept and nothing is repaid. That's real protection against a real risk.
- Timing. A dollar at 19 — when a family is stretched, when an injury could end everything — is worth more than a dollar at 27. Every calculation on this page ignores that, which makes the “cost per $1” column look worse than it strictly is.
- Risk transfer. The company is betting on a portfolio; the athlete has a portfolio of one. Shifting some of that concentration is not irrational.
None of that is the problem. The problem is price. Insurance is a reasonable thing to buy and an unreasonable thing to overpay for, and there is no posted rate here — no APR, no disclosure box, nothing that lets a family compare this offer to any other. The only way to know what's being charged is to run the numbers above and decide whether the protection is worth that much.
Worth knowing before the meeting
These contracts are largely unregulated, and whether they are “investments” or simply loans is being fought over right now. In a widely reported case, an athlete who signed as a teenager for a $2 million advance later tried to void the agreement, arguing it was an unlicensed loan. He lost — an arbitrator ruled against him, and in May 2026 a California court declined to overturn it, ordering him to pay millions plus the company's attorney's fees. Notably, the judge did accept that the contract functioned as a loan, which may matter for future challenges. The practical lesson is narrower than the headline: the time to negotiate these terms is before signing, not after the big contract arrives.
Nine more questions about the deal itself
Same rule as the tax questions: ask in writing, and keep the answers. A company that won't put its answers in writing has told you something.
- Is there a cap?Does repayment stop at some multiple of the money advanced — 3×, 5×, anything — or is it truly unlimited? An uncapped percentage of a great career is the single most expensive term in the document.
- What exactly counts as “earnings”?Salary only? Signing bonus? Endorsements? Playoff shares? Card and memorabilia deals? Broadcasting income after retirement? Gross or after taxes and agent fees? Each word here is worth real money.
- How long does it run?A fixed number of years, or the entire career? Does it end at retirement, or follow the athlete into whatever comes next?
- What is the break-even, in their words?Make them state the career-earnings figure at which you've paid back exactly what you received. If they won't, you already know it's a number they'd rather you not hold in your head.
- What happens if the career doesn't happen?Injury, transfer, undrafted, walking away — is the obligation truly extinguished, or does it convert into something owed? Get the exact clause, not the reassurance.
- Can we buy out, and at what price?Is there any way to end the arrangement later, and is that price fixed today or set by them later?
- Is there an arbitration clause?Where, under whose rules, who pays, and does it waive the right to a jury or to join with others? This is the clause that decides what happens if the relationship ever goes bad.
- Who is being paid to bring us this deal?Is the advisor, agent, trainer, or family friend who introduced this receiving a fee, finder's payment, or equity from the company? Ask directly. Ask in writing.
- Who is our lawyer?Not the company's lawyer. Not a lawyer the company recommends. Not the agent's firm. Our own, paid by us, reading only for us — and given more than a day to do it.
And have your own CPA read the actual document before it is signed — not in April, when the only remaining question is how much is owed.
The short version
The money offered today is a fixed number. The percentage given up is not. The better the career goes, the more that money will have cost — and the athlete will pay income tax on every dollar of it, including the share handed straight to the fund, with no deduction coming back. Find the break-even, ask the four tax questions in writing, and decide with your eyes open.
The fine print
This page is educational and general. It is not tax, legal, investment, or financial advice, and it is not a recommendation for or against any company, product, or agreement. Every figure and table here is a simplified hypothetical: the numbers ignore agent and advisor fees, the time value of money, and the specific terms of any actual contract, all of which can change the answer materially. Individual agreements differ enormously in what counts as earnings, whether repayment is capped, and how long the obligation lasts.
On the tax discussion specifically: there is no IRS guidance, regulation, or decided tax case addressing these agreements. Everything above is reasoning by analogy from general authority, and reasonable practitioners can disagree. The assignment-of-income and deduction conclusions rest on settled law and current statute and are the strongest; whether the money received is taxable on receipt is genuinely unresolved and could come out either way. The illustrations apply a single blended marginal rate across a whole career, which no real return does. Tax outcomes also turn on how a particular contract is written and on whether the income is employee or self-employment income.
Before signing anything that assigns a share of future income, have the actual document reviewed by your own attorney and your own CPA — people you are paying, who represent you alone.
Have an offer in front of you?
We'll read the actual terms with you and put a number on what it costs.
Request a consultationor email yourteam@yourfinancegroup.com
Sources
Industry size, deal structures, and reported percentage ranges: CBS Sports; The American Prospect (Feb. 2026). Contract terms and the caution about counsel and oversight: Nelson Mullins. Litigation outcome and the loan characterization: Times of San Diego (May 22, 2026); Sportico.
Tax authority cited above. Debt characterization: Milenbach v. Commissioner, 318 F.3d 924 (9th Cir. 2003); Karns Prime & Fancy Food v. Commissioner, 494 F.3d 404 (3d Cir. 2007); Commissioner v. Indianapolis Power & Light Co., 493 U.S. 203 (1990); Commissioner v. Tufts, 461 U.S. 300 (1983). Lump sum for future income: Commissioner v. P.G. Lake, Inc., 356 U.S. 260 (1958); IRS Notice 2008-2. Assignment of income: Lucas v. Earl, 281 U.S. 111 (1930); Helvering v. Horst, 311 U.S. 112 (1940); Helvering v. Eubank, 311 U.S. 122 (1940); Commissioner v. Banks, 543 U.S. 426 (2005). Deductions: IRC §67(g), made permanent by OBBBA §70110 (summary); Temp. Reg. §1.163-9T; Temp. Reg. §1.163-8T; IRS INFO 2003-0136. Failed legislation: S. 268 (2017); S. 136 (2023). Regulators treating ISAs as credit: CFPB (2021); Federal Student Aid (2022). Background scholarship: Oei & Ring, Human Equity? Regulating the New Income Share Agreements, 68 Vand. L. Rev. 681 (2015).
Reviewed September 4, 2026. This area is moving — the Tatis litigation is on appeal, state regulation is being proposed, and the IRS could issue guidance at any time that supersedes the analysis above. Re-verify before relying on this page.