Forbes, Tax Aspects of the NFL Settlement Payments, by Anthony J. Nitti (WithumSmith & Brown, Aspen, CO):
Have you ever wondered what your brain is worth? Well, if you’re a retired NFL football player, the Blue Book value has been set: your cognitive capacity is worth a cool $150,000.
Earlier today, the NFL agreed to pay out $765 million over 20 years to settle a concussion lawsuit brought by nearly 4,500 former players. Pursuant to the settlement, $675 million will go to former players and the families of deceased players who have suffered concussion-caused cognitive injuries, with the remaining amount used to fund medical exams and continuing research. While the payments will vary among the pool of recipients — which includes not only the claimants, but any other retired player as of the date the court approves the settlement as well — the NFL has somehow managed to settle the most high-profile lawsuit in its history for an average of $150,000 per claimant, or a total amount that is approximately .3% of the estimated $200 billion the NFL will earn in revenue of that same twenty year period.
The payouts will apparently be capped based on the particular ailment suffered: If you develop dementia, well, that’s worth a maximum of $3 million to the NFL. If you’re diagnosed with CTE (chronic traumatic encelphalopathy) after your death, your family is eligible for up to $4 million. And lastly, if you are unfortunate enough to develop Lou Gehrig’s disease, your potential payout tops out at $5 million.
All other retired players will be required to take a test to determine if they suffer from neurological issues, but they will not be required to prove that those issues are linked to concussions suffered while playing in the NFL. At that point, the retired players will be paid according to the number of years they played in the league, with the length of career used to estimate the number of blows to the head the player suffered (I’m not making this up). Ironically, no distinction will be made between positions, so a retired punter stands to receive just as much as a retired offensive tackle, assuming they played for the same amount of time.
So will the retired NFL players who receive settlement payments be required to pay tax on the amounts received? While it can often be difficult to determine the origin of a claim, it is clear in the case of the NFL settlement that the retired players have sued in order to be compensated for the physical injuries they suffered throughout their playing career. As a result, the necessary correlation exists to exclude the settlement payments under Section 104. ...
On the other side, you may be wondering whether the NFL will be permitted to deduct the $675 million of payments it is obligated to make over the next two decades. And while the answer is generally yes under Section 162, in this case it really doesn’t matter, because the NFL – and its $10 billion in annual revenue – is a tax-exempt organization.