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Why the Race to Cut College Athlete Taxes Creates a Recruiting ‘Prisoner’s Dilemma’

The potential pitfalls of the legislation could outweigh the benefits, according to two tax experts who spoke with Front Office Sports.

Feb 22, 2025; Baton Rouge, Louisiana, USA; Florida Gators guard Alijah Martin (15) dribbles against LSU Tigers guard Cam Carter (5) during the first half at Pete Maravich Assembly Center.
Stephen Lew-Imagn Images

State lawmakers have discovered a potential weapon in the college sports recruiting arms race: NIL (name, image, and likeness) tax exemptions.

Throughout the past several months, legislators in Georgia, Alabama, and Illinois have introduced bills that would exempt NIL deals from state income taxes. Legislators in Louisiana are reportedly about to introduce a bill of their own. The goal, they hope, is to entice recruits to their flagship universities, both strengthening their rosters and potentially earning more money through more ticket sales. 

But the potential pitfalls of such legislation could outweigh the benefits, according to two tax experts who spoke with Front Office Sports. Giving athletes a tax break means states would ultimately sign away their ability to earn extra tax revenue without any meaningful impact in recruiting or increased athletics earnings.

NIL earnings have become a key factor in players’ decisions of where to enroll or transfer—and they’re expected to become even more important in the potential revenue-sharing era. But they aren’t the only factor.

Some say offering tax incentives wouldn’t even improve recruiting because of the disparities in state tax laws that already exist. Katie Davis, a partner at James Moore & Co. consulting firm that works with athletic departments nationwide, notes that Florida, for example, doesn’t have any state income tax, while other programs, even within the SEC, reside in states that do. Since the NIL era began in 2021, she says, there’s no evidence of a major recruiting advantage because of that tax disparity. 

“I think what would probably move the dial in recruiting more would be if coaches had tax professionals on retainer,” Davis tells FOS.

The main reason why tax incentives for players aren’t an effective tool is what University of Central Arkansas economics professor Jacob Bundrick describes as a “prisoner’s dilemma.” If multiple states begin introducing NIL tax breaks, it ceases to become a competitive edge for schools. 

“If you’re the first mover on this [policy] there might be an advantage,” Bundrick, who has studied the impact of state tax incentives in the sports industry and beyond, tells FOS. “But if there really is an advantage, and we see that in terms of spending and enrollment, you can expect that other states will follow.” At that point, having a favorable tax policy becomes a matter of keeping a level playing field, rather than providing a significant competitive boost. 

Meanwhile, states could lose out on potentially valuable tax revenue.

Illinois state senator Travis Weaver argued that, because the NIL industry is new, relinquishing tax revenue from NIL deals isn’t actually losing out on tax earnings. “The nice thing about this is it’s not existing revenue, which I think makes it a lot easier,” he told CBS Sports. “It’s hard to cut a tax when it’s something that you have been collecting and it’s baked into your budget, whereas this, we’ve never been taxing, NIL [income], not to mention that there hasn’t really been any, right? I mean, this is just such a wild, wild west.” 

Bundrick disagrees. NIL deals are just a new deployment of capital that companies would already be using elsewhere if NIL opportunities didn’t exist. “If anything, it’s simply a shift within the way that they are going about spending those advertising dollars,” he says.

He also notes that income tax specifically is supposed to draw from a broad pool of earners—and the more legislators “whittle down” those groups, the more income tax rates end up burdening the rest of the population. 

“Most economists would say that this is bad tax policy.” says Bundrick.

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