Do I need to set up an LLC for my marketing and endorsement dollars? Professional athletes ask us this question all the time. While many athletes choose to set one up, it’s not a requirement in order to be paid for their endorsement deals, speaking engagements, or even their share of league marketing revenue (like NFL Players Inc.). Ultimately, it comes down to what type of work the player is doing, how much time is being spent on it, and how much effort is put into tracking the work.
Before we go any further, it’s important to remember that a player should always talk with an attorney before creating any type of business. The discussion below is conceptual and shouldn’t be deemed legal advice.
First, let’s define an LLC, also known as a Limited Liability Company. An LLC is a corporate structure or business which limits personal liability by the legal separation of its assets and liabilities from the assets and liabilities of its owner(s). An LLC can also elect how it is taxed. It may have its own Tax ID and file its own tax return, or it may simply pass through the tax activity to its owner(s). If you are the sole owner of the LLC, you can choose to simply pass through your LLC’s business profit or loss to your own tax return.
There are a handful of advantages for NFL players to consider when exploring whether to create an LLC for their marketing and endorsement dollars. One traditional advantage of an LLC is personal asset protection. Meaning, if someone were to sue the LLC, only the assets of the LLC would be at risk. While this may not be a huge factor when it comes to an LLC for marketing dollars, it can be very important for service-based businesses, real estate companies, and other corporations susceptible to litigation. Different states have different laws around the liability of owners for the debts or damages of an LLC, so players should check with a licensed attorney in their state for more information.
Another potential advantage is the perception of the business. If you have a separate LLC for a specific business purpose (like marketing and endorsements), it can provide additional legitimacy to potential business partners. For example, many companies will require athletes to provide a “Tax ID” before making any payments to them. If a player doesn’t have an LLC and is considered a sole proprietor, his Tax ID is his social security number. A player may not want to provide that personal information on invoices or any other documents due to the risk of identity theft. If a player creates an LLC, he can request a separate Tax ID from the IRS for his business.
Other advantages of an LLC have to do with the complexity of the player’s business. If the player is earning a significant amount of marketing income or spending a lot of money to generate his marketing income, then establishing an LLC could be worth the cost and time to set up for the liability protection. While most legitimate expenses to earn more marketing and endorsement income can be deducted with or without an LLC, having a separate business can potentially unlock additional tax savings. Again, players should speak to a licensed attorney to decide if an LLC is an appropriate decision for their individual situation.
In short, not all players need to have an LLC to earn income off-the-field, but there can be advantages to creating one depending on their situation. Before a player goes and creates an LLC, he should be sure to have an attorney, tax preparer, and financial advisor who understands what he wants to accomplish and are all on the same page. They can help the player navigate the paperwork and reporting requirements as well as create a strategy that works for his specific situation.