United States: 4 Ways Tax Reform May Affect The Sports World

Last Updated: January 4 2018
Article by David M. Lehn, Michael Rueda and Gregory Pun

While we, like most of the world, have not had the time to fully digest the newly enacted tax reform legislation, signed by President Donald Trump last month, there are certain provisions worth highlighting that will have an impact on professional athletes and professional sports in the United States.

State and Local Taxes

The Tax Cuts and Jobs Act of 2017 limits deductions on state and local income, sales and property taxes (SALT deductions) up to $10,000 per year. This will particularly impact professional athletes. Previously, the deduction had been unlimited (subject to alternative minimum tax and the Pease limitations). This new limitation may provide certain teams, particularly those in states like Texas and Florida, an advantage in attracting and signing talent. For professional athletes playing for franchises in high-tax states, like New York and California, their salaries will be worth even less in real dollars than the exact same salaries in states without income taxes. Traditionally, teams in high-tax jurisdictions make up the difference for certain players by agreeing to tax gross ups and other arrangements that are designed to help athletes offset the tax impact of playing in a high-tax state.

Given the deduction limitation, the need for these arrangements will become more significant to help teams in high-tax states attract and sign certain priority athletes. Thus, the impact will be felt by both the athlete and the franchises.

In addition, athletes generally are taxed by the state where each match or game is held. As a result, even athletes playing for teams in a nonincome-tax states will to some extent feel the impact of the lost SALT deductions. The income tax athletes pay that is attributable to matches or games played at opposing team locations will no longer be deductible as they were in the past. State reciprocity agreements and potential tax credits, as well as city or other taxes, will also be important factors to consider to determine overall tax exposure. However, it is expected that some of these state agreements and credits may be reviewed as a result of the new law.

The loss of the SALT deductions and its impact on athletes and their salaries will provide athletes, agents and teams with complicated facts and issues to consider and plan for during contract negotiations. It may require teams to spend more money to attract and keep top talent, while players and their agents must prepare to adjust, or negotiate an adjustment for, dealing with any impact from the lost deductions. Athletes and their advisers should have already considered, or been advised to consider, making payments in December of all state income tax due for 2017 and all real estate taxes that may be due for 2017, making payments of real estate taxes assessed in 2017 and payable in 2018.

Unreimbursed Employee Expenses

Athletes will also lose the ability to deduct unreimbursed employee business expenses. In the past, athletes who are paid as employees were permitted to deduct expenses, such as agent fees, training and gym fees, reasonable travel expenses, or fines issued by their employer. These deductible expenses can be substantial in the aggregate, particularly the agent fees (although there were various limitations that applied prior to 2018).

Agent fees are not deducted from salary payments, but instead paid directly from the athlete to the agent. As a result, losing this deduction may have a noticeable impact on the athlete. Athletes should meet with their advisers soon and plan for this change. For example, athletes were hopefully encouraged to make 2017 agent payments before Jan. 1, 2018. For athletes under guaranteed contracts and with certain deferred bonuses payments due in 2018, athletes and their advisers should consider whether prepayment of the related agent fees would be permissible under league and/or player association rules. Ultimately, there is a tax impact to anticipate and properly plan for.

Tax Rate Reduction

Most athletes may be able to make up for some of their lost deductions through the reduction of the highest income tax bracket from 39.6 percent to 37 percent. Players playing for teams in no-tax states will likely benefit from the drop in rates given that the lost SALT deductions have less significance to them overall. For athletes not fortunate enough to be living and working in a no-tax state, depending on the athlete, the decrease in the tax rate for highest earners may offset the impact on take home pay from the lost deductions.

Possible Benefit for Investment Income

There may be a benefit in the new tax law for athletes with substantial earnings from certain investments, which are made in "pass-through entities." There will be a 20 percent deduction on "qualified business income" from certain pass-through entities (depending on the nature of the business of such entity). Most service businesses are excluded from receiving the deduction. Many athletes use pass-through entities for the purpose of receiving nonsalary income such as from endorsement arrangements. It appears that this may be one of the "excluded businesses" since it is based on the athlete's reputation. This would eliminate the availability of the deduction for income generated from endorsement arrangements. However, there may be opportunities to take advantage of the deduction for other activities, especially real estate activities, invested in or conducted by the athlete as a pass-through entity. Athletes and their advisers should carefully review their investment structure for both diversification and after-tax return in light of the new tax law.

Tax-Exempt Municipal Bonds

One proposed change received significant attention in the sports world but was ultimately left out of the law. The House bill had eliminated sports teams' access to tax-exempt municipal bonds for building sports stadiums. This proposal was not included in the act. Sports teams will still be able to build and renovate their billion-dollar stadiums with tax-exempt municipal bonds, making it easier for teams like the Oakland Raiders, which is moving to Las Vegas to build its new $1.9 billion domed stadium.


While tax attorneys and accountants are now spending significant time analyzing the new tax law to understand its full impact on taxpayers, what has been determined from an early analysis is that while the law appears to give with one hand, in terms of rate reductions, it takes away with the other hand, through the elimination of certain useful and relied-upon deductions. The important goal for all taxpayers, whether a professional athlete or not, is to determine the implications of the new law in order to anticipate and plan for these significant changes.

Originally published in Law 360 on January 2, 2018.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions