Student athletes at the University of Arkansas will no longer pay state income taxes on revenue-sharing money they receive from the school as part of name, image and likeness deals under new legislation signed into law this month.
The bill, approved Friday by Gov. Sarah Huckabee Sanders (R), makes Arkansas the first state to exempt athletes from paying income tax on at least some of their earnings. Lawmakers in Alabama, Georgia, Louisiana and South Carolina have introduced similar measures, though none have yet crossed the finish line.
The measures are part of a race among states — particularly pronounced in the football-mad South — to give colleges and universities the ability to woo top-performing athletes. Lawmakers said the bills are necessary to keep up with neighboring states, some of which do not levy income taxes at all.
“This will allow the state of Arkansas ultimately to do profit-sharing with our student athletes to keep us competitive,” Sen. Bart Hester (R) said as he introduced the measure.
Since the U.S. Supreme Court ruled in 2021 that students who play sports may accept financial compensation for endorsement deals, the market for name, image and likeness deals — NIL, in short hand — has exploded. One company that facilitates NIL deals for college athletes, Opendorse, estimates college athletes will earn north of $1.67 billion during the 2024-2025 school year.
That total will balloon again in the 2025-2026 school year, when colleges and universities will be allowed to share revenue directly with athletes. The NIL market is expected to grow to more than $2.5 billion next year, Opendorse said.
The Arkansas legislation applies only to income an athlete takes in from a university. Those athletes would still be required to pay income taxes on money earned from other NIL deals.
Experts who watch the emerging NIL market say lawmakers are responding to sports-crazed constituents, who live and die by their teams’ performance on the field. The NIL marketplace has ramped up competition for top talent among colleges and universities, especially now that students can transfer between schools without losing athletic eligibility.
“Lots of politicians want to satisfy their key constituents, and many of their voters are hard-core sports fans of their universities within the state,” said Thilo Kunkel, a professor of sport and recreation management at Temple University. “These schools are all competing for top level talent, and schools particularly in the South where football is king.”
The overall financial impact on Arkansas’ coffers will be minor; Hester estimated it would cost the state only about $300,000 in total. But for an individual athlete, the difference between signing a million-dollar NIL deal to play for a school in Florida or Texas, which have no income taxes, and Arkansas, which levies a 3.9% income tax, can make a $39,000 difference.
Some states are going even farther to ensure their schools have the resources necessary to attract star athletes. The Louisiana House Appropriations Committee advanced legislation on Monday to increase the tax on sports gambling from 15% to 32.5%. A quarter of the new revenue to fill a Supporting Programs, Opportunities, Resources and Teams (SPORT) fund that would allow the state’s eleven NCAA Division I schools to directly pay student athletes.
Montana lawmakers last week approved legislation allowing schools to pay athletes directly; Gov. Greg Gianforte (R) has yet to act on that bill. North Carolina lawmakers are considering a bill to allow schools to pay athletes up to $20.5 million in profit-sharing deals.
Those profit-sharing deals raise concerns for at least some NIL experts. Kunkel said the money schools provide to athletes will have to come from somewhere, and it is unlikely that the sports that generate the most revenue — college football in most cases, basketball in some — will endure cuts.
“That is going to have a big flow-on effect on many other sports, particularly those non-revenue generating sports,” Kunkel said.
“You can spend $20 million, okay, that’s nice, but where’s that money coming from? That money’s not likely getting cut on football, it’s not likely getting cut on the head coach. It’s likely getting cut on men’s lacrosse, or the women’s gymnastics team or the crew team,” he said.
At least one state, West Virginia, is moving to prohibit the use of state funds to pay student athletes. The legislature approved that bill earlier this month, sending it to Gov. Patrick Morrisey (R).