MW No. 1 NFL pick Caleb Williams asked for his $40 million contract to go into an LLC. Can he do that?
By Weston Blasi
There are financial benefits to treating yourself as a brand instead of an employee
Caleb Williams, the No. 1 overall NFL draft pick selected by the Chicago Bears, signed a fully guaranteed contract with the team for four years and $39.5 million.
But it took Williams several months to sign it, and one of the reasons the negotiations took longer than other incoming rookies was that he was attempting something historic: to get paid through an LLC instead of as an employee.
A Limited Liability Company $(LLC.AU)$ is a business structure that combines elements of a corporation and a partnership. There are different types of LLCs, and their function may vary by state, but they can offer tax savings, among other benefits.
Williams is one of the few NFL rookies who isn't represented by a registered agent; he is informally represented by his father, Carl Williams.
"He's looking at his brand as a business. He's no longer thinking of himself as an employee - that's why he's looking to get paid that way," Rick Hammell, founder and CEO of Helios, a company that specializes in human resources and global payroll, told MarketWatch.
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What are the benefits of treating himself as a brand instead of an individual?
"If I'm looking at myself as a brand, I can write off my transportation to the office, or to a location, any meetings that I have I can write off, any of my employees, I'm not paying them and reimbursing them from my net income, in reimbursing them from the business," Hammell added.
Such a move could considerably lower his taxable income.
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Despite having a contract, Williams' relationship with the Bears is employee-employer, not as an independent contract worker, which prevents his wages from being sent to an LLC under federal law, sports tax expert Robert Raiola told MarketWatch.
"You could put your expenses and you can pick it up on your LLC. You can't do that in an employee-employer relationship," Raiola said, to his knowledge. "Agent fees, union dues, training, all these expenses are unreimbursed employee business expenses."
Independent contractors, whether they have an LLC or not, have the opportunity to lower their taxable income by being classified as a business instead of an employee. This is particularly impactful for high-income workers like Williams.
"Anything that he does in regards to his role he could write it off as a business expense if he was paid as contractor," Raiola continued.
But after several weeks of negotiations, the NFL informed the Bears they would not be allowed to pay Williams through a business entity and would have to pay him directly as an individual, NBC's Mike Florio reported.
Williams' camp also pursued an idea of payment from the Bears through a forgivable loan, which could have resulted in Williams being paid tax-free until the loan was forgiven if certain criteria were met in the future. That structure was also thwarted by the league, per NBC.
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Raiola confirmed that no athlete in the four major sports has their team wages sent to a business entity instead of to them directly.
"You're an employee of the team - not an employee of the LLC, that's where it starts and stops," Raiola said.
Representatives for Williams, the Bears and the NFL did not respond to requests for comment.
While Williams' bid to get his NFL wages sent to an LLC failed, he may still be able to use an LLC for his non-NFL work. Particularly, through any endorsements he has with big brands.
"The Bears relationship is employer-employee, but the Nike relationship is as an independent contractor," Raiola said. "The father's pay can go in there, there are a bunch of different things that can go in there, but only on the endorsement end. You can put endorsement income there ... you can't put your salary in there."
Some professional athletes who aren't on teams - for example golfers - are independent contractors and can receive their tournament winnings differently from how players in the NFL, NBA, MLB and other leagues do.
Most of Williams' contract - over $35 million - is in the form of bonuses. And he will likely make many millions more from endorsement deals. He currently has partnerships with Dr Pepper, Nissan, Wendy's, United, Beats by Dre, PlayStation, Alo and Neutrogena. Williams has not yet signed an athletic-apparel endorsement, which can be one of the more lucrative types of deals.
The 2022 Heisman Trophy winner made an estimated $10 million from endorsements during his last two seasons at the University of Southern California as part of NIL (Name, Image and Likeness) deals, according to The Athletic.
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In an episode of the NFL preseason TV show Hard Knocks, Williams was seen on camera during a rookie-hazing activity. Rookies had to stand in front of the team and inform their teammates how much money they earned on their rookie contracts. As the first pick in the 2024 NFL draft, Williams made the most money of any rookie, which caused the team meeting room to fall into a frenzied state when Williams revealed his signing bonus.
Williams has struggled to start his career. The Bears have one win and one loss in 2024, but Williams is averaging just 133.5 passing yards and has yet to throw a touchdown pass this season.
-Weston Blasi
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(END) Dow Jones Newswires
September 21, 2024 13:01 ET (17:01 GMT)
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