Ep. 202 | Future Athletes (NIL) / Entertainers
Download MP3Everybody, welcome back to the podcast today. We are gonna dive into something that's specifically for those parents that have that very talented minor. Right? You might have a singer, entertainer, musician, I don't know, magician, athlete, any of these things. About to get hit with some substantial income potentially, but there's more to it than just skills and talent.
John Tripolsky:There's something you should know about here we're gonna dive into. And thank you again, everybody, for joining us here in the Strategic Associates studio. Thanks to those guys here for sponsoring us here at the podcast and supporting everything we do, getting this out to you, the taxpayer. So enough from me. I'm gonna tas tas I'm gonna toss the torch.
John Tripolsky:Clearly, I don't have a talent with speaking today. Over to my cohost, Chris Picciurro, who's gonna introduce our guest and take this one home for us.
Chris Picciurro, CPA:Well, thanks, John. I am excited to be here. You could hear it in my voice. Super excited about our guest today, Jimmy Strong from The Advisory. We are going to jump in to various considerations when you have a child or a minor, maybe you're a guardian of someone that has a unique ability, a talent that is beginning to be monetized.
Chris Picciurro, CPA:And we are at the beginning of college football season. So we will touch on NIL. John, unfortunately, yeah, your pass wasn't that great, but guess what? You're not you're not you're not a football player, so don't worry about it, buddy. We know you're a hockey guy.
Chris Picciurro, CPA:And but we're gonna talk about that and more. Jimmy, welcome to the Teaching Tax Flow Podcast. Thank you so much for joining us.
Jimmie Strong:Thanks so much for having me, Chris and John. Really appreciate the opportunity to be here and talk to some parents about some topics that are near and dear to my heart.
Chris Picciurro, CPA:Well, let's jump right into it. Absolutely. I am always impressed with your knowledge and what your team does, and many parents have very talented minors, or it could be again, you could be a grandparent that's that's raising one of your children or, but there are a lot of minors that have special talents and unique abilities that are either in the athletics, the music, that their abilities. I mean, they could be an entertainer, they could have a YouTube channel, right? So their abilities are creating revenue, but they're a minor at this point and they don't have the structure.
Chris Picciurro, CPA:And a lot of times the parents don't have the knowledge that they should have, and that's what I want to touch on today is, Jimmy, can you give us an idea of who are the type of people that you typically work with, and what should parents be considering from a broad perspective? And then we're gonna jump into the kind of those, those different buckets of maybe athlete, entertainer, and, you know, musician.
Jimmie Strong:Absolutely. And I'll tell you that talent could be business. So I work with a lot of business owners. I work with entertainers. I work with athletes.
Jimmie Strong:I work with investors in those spaces. And I'll tell you what's common. It is earnings and wanting to minimize what goes out in terms of taxes and wanting to maximize what can be put aside for growth or what can be spent or what can be saved. And when we think about this topic for parents, I tell parents to start with the income or the anticipated income. And what I mean by that is many of these problems don't surface until there's a dollar amount or until you can foresee a dollar amount.
Jimmie Strong:Once you can foresee a dollar amount, everything needs a business. So then the next question logically is, what type of business, right? So for me, frequently, I am going to point a parent to a manager managed entity. Right? You often want the talented individual or the individual creating that income through business, the arts, sports, music, what have you, you want that person to be owning the lion's share.
Jimmie Strong:But that person, right, cannot do everything. None of us can do everything. So my advice is always for the parents to get an entity that can be manager managed. I frequently recommend a manager managed LLC. The manager is the parent or the parents, right?
Jimmie Strong:And co manager roles. And with management, often a manager gets a certain percentage. So I tell the parents to be in as 20% owners of the entity. Then the child or minor is 80% owner. But all the decisions are made by the manager.
Jimmie Strong:It's a manager managed entity. Think about a fund that has a general partner and limited partners. The limited partners are very important and and and major decisions have to be approved by the limited partners, but the general partner is running the business. The general partner is making the strategy decisions. And often when someone is talented, people will try to skip past the parents, the guardians, and go directly to the talent.
Jimmie Strong:That's not okay in any other realm of life. So it should not be okay here. So that's step one, and I'll stop there.
Chris Picciurro, CPA:No, that's a great point, Jimmy. So we're gonna dive into types of income, but but you you nailed it because what's happening is in most career paths, right? Your income starts off at a very modest level and it increases and increases. And once you hit maybe your 50s, early 50s, maybe mid 50s, that's when you're in your peak earning years where for a lot of the folks that you and your firm are working with, their peak earning years could be before they have a driver's license, before they could step into a bar and have a beer legally, right? So they have different challenges.
Chris Picciurro, CPA:What are some of those challenges that the common challenges that they face? Because the other thing is their peak earning years could be very short as well.
Jimmie Strong:The biggest challenge is exposure, right? Many of us learn from our mistakes, right? But we get a chance to make those mistakes knowing that better lies ahead. Right? You make the mistakes in your twenties, your thirties, early forties, and then in your fifties and sixties, you've mastered it, right, in your peak earning years.
Jimmie Strong:But if your peak earning years are sooner, that means you have to do it right the first time. And doing it right the first time requires a playbook. It requires an understanding. You can't piece this together through inductive reasoning, what is working and what is not working. You have to have some deductive reasoning.
Jimmie Strong:What are the rules to this road? What are the rules of engagement? How do we move this forward? And those rules of engagement are, I need an entity. I need the appropriate tax selections.
Jimmie Strong:Right? So how do you take some of that money in your peak earning years and put it on the back end? Well, with that entity, get an s election. Pay yourself a reasonable salary. Get a solo four zero one k.
Jimmie Strong:Maximize what you can put from pretax dollars into an environment where it can grow and create wealth for you, minimize that year's adjusted gross income so you minimize the tax that you paid. So we're making up for the mistakes that we're gonna make by making some very smart decisions to put wealth into some places where it can be safe. And that's what I try to tell people. Do these very simple things, but things that you can't just guess at. You have to have someone who knows tell you.
Chris Picciurro, CPA:Well and and let's look at since football season just started, let's look at NIL specifically. Name, image, or likeness for college athletes. And a lot of times, from my understanding is they're paid as independent contractors, and they they have no concept that the taxes aren't just taken out of their their income. Can you give us an idea? And then we're gonna talk about athletes and entertainers next, but from from my athlete perspective, doesn't matter the sport.
Chris Picciurro, CPA:And then a lot of these folks are gonna make more money playing college than the pros. Right? It's just the way it is. What are the income streams that they could expect, and when should they begin the process of finding the the proper representation and help? Because a lot of times, these folks just they have the wrong people around them.
Jimmie Strong:Right. And sometimes, you have the right people for what they do, but you don't have the people to do other things that should be done. So just yesterday, I spoke to a top basketball prospect's father, and he is going to start playing at a very prestigious prep school for his senior year. Well, right now, we are commencing the provision of family office services. That means everything from tax planning, entity formation, estate planning, trust creation.
Jimmie Strong:We're doing all of that right now before dollar 1 hits. Why? Because once the dollar start coming in, it can be said that you're doing certain things in anticipation of something or you're sheltering something. But if you do it at the very beginning as a as a process, right, then now no one can argue when we say in two years, you're a professional real estate investor, eligible for bonus depreciation. It can't be argued.
Jimmie Strong:Before you ever made a dollar, you were already actively engaged in this business, right? Before you ever moved on campus, we already identified a property. You bought that property. That's where you live and you rent it to four teammates, right? So by the time you've done that as a landlord, as a property manager for two years, what are you?
Jimmie Strong:You're a professional real estate investor. But who's gonna tell someone that? You have to have an encounter with someone who understands that and understands how it relates to sports. And that's why I do things like this because I can't hide this knowledge under a rock because too many people now need it. So I have to scream it with a megaphone so people can be prepared.
Jimmie Strong:Because most of the time you think, well, I have an agent. Well, what does your agent know about a solo four zero one k? What does your agent know about how much you should get in terms of ROI when you pick a financial advisor? Does your agent know exactly how to pick a financial advisor, right? Or does your agent pick off of loyalty?
Jimmie Strong:Which is great if that person guarantees that they're gonna make you 15% year over year so your money can double every four and a half years. But guess what? There are certain people who get 30% year over year on average, Right? And it's all about whose money they manage, how much they can buy, and what blue chips they can buy, and how you can get mixed in and get that type of exposure. But, that's hard to know without saying, who can I find who knows exactly what I should do from a tax standpoint?
Jimmie Strong:Not just reporting and filing, but mitigation and planning.
Chris Picciurro, CPA:Absolutely. And especially in college athletics, you could have someone that grew up in Texas where there's no state income tax, and they're going to play college basketball. Let's say they go to Duke. They're in North carol and they're in North Carolina. So you have state and local income tax considerations.
Chris Picciurro, CPA:You know, there's just a there's just a lot to consider. And with my last question on NIL is is this it's it's an evolving landscape. Right? Are you just seeing more and and whenever you have a growth, you have some bad you have some bad actors out there as well. Are you seeing more Wild West, or are you seeing, like, that this is gonna get reigned in and there's gonna be more structure and conformity?
Jimmie Strong:So I'm seeing all of the above because there are competing schools of thought, and there are competing categories of opportunist. And what I mean by that is, some people needed to stay wide open, and others needed to be very, very constrained. If you're already in and you have a foothold, you don't care how much regulation enters the space, because you've made enough to comply with anything. If you're a new market entrant, you foresee everything is trying to keep you out. And there are good things and bad things from every angle.
Jimmie Strong:Right? If you're just trying to lock up a market so you can provide an inferior level of service, less of a personal touch, and make what you've already made easily, and even make less but make it easily, that's not good. If you're someone who's just coming in and you're just trying to capitalize on opportunity, but you don't really care and you just see that there's a wide open door of opportunity, you're jumping in it, that's not good either. Now what is good? If you're great in this space and you understand how people can trip up and how people can make mistakes and what they need, that's wonderful to promote more of that.
Jimmie Strong:If you're new and you're providing daily calls, daily searching for marketing opportunities, daily updating a website, daily updating social media, and that's something that someone entrenched in the space just says, I'll never do that. Right? So so there are good things and bad things on both sides. But when you are the parent or the person participating in that endeavor, you want to find certain things. You want a personal touch.
Jimmie Strong:You want certain deliverables. You want things to be buttoned up and explained to you at the cadence that works for you and your schedule.
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Chris Picciurro, CPA:What are some of the most common and we can go with athlete, entertainer, musician. What are the most common revenue streams that that those type of, unique athletes or entertainers are are seeing and parents should be aware of? Because you just nailed it. There there's probably additional revenue streams that they're leaving on the table just because they don't know about them.
Jimmie Strong:Absolutely. So the number one is the stream that comes from exactly what you do. For example, if you're playing tennis, right, your tournament winnings are big enough for you to only focus on tennis and winning tournaments. Right? But in individual sports, the outside revenue streams are huge because your face is visible.
Jimmie Strong:So the same earnings that you're getting from winning tournaments, you can get just about those from Pepsi or Coca Cola or Gatorade or Powerade or from a beauty product, some cosmetic line. And when you have people, when you have influence, that translates into dollars in today's world. Because people go to influencers who don't play a sport, who don't do anything even before they go to celebrities, athletes, and entertainment. They go to influencers first, because that product sells immediately when someone with influence endorses that product. And then you have, what can you create?
Jimmie Strong:Right? Is there some passion that you have that relates to what you do? Mookie Betts, for example, has a baseball glove line. It makes sense for a baseball player. He says the glove breaks in in one day.
Jimmie Strong:So if you can break a glove in in one day, right, and it's nice and colorful, it meets your aesthetic, like it's fun, that makes all the sense in the world. It's what people know you for, and it's your product for the thing that you exactly do. And then speaking. Some people are very good at motivating. Some people are very good at teaching.
Jimmie Strong:Some people are very good at coaching, training, running camps. So you really wanna just take inventory. And I have a buddy who his entire world is just thinking through all those elements and going through psychology sessions to determine what is gonna be best suited in terms of activity outside of the sport, outside of the the aspect of entertainment. Wow.
Chris Picciurro, CPA:And so my final final thing I wanna leave parents with, and like I said, Jimmy and his group, I you work you work with people from all over, you know, and in super high level. If they wanna check out the advisory website, you'll see some names of some high, high profile clients, but those clients weren't always high profile. They set themselves up early on to have the right team of people. We call it your centers of influence. But if your best advice to a parent, they have a youngster, they have the minor, and regardless of what their unique talent is, is is starting to get monetized, starting to get recognized.
Chris Picciurro, CPA:Maybe they go out and they just when they I don't know much about golf. Obviously, you have a lot more knowledge on it, but they go out out of nowhere and win the biggest golf tournament for juniors. Right? You talked about influencers and and social media, which could be a blessing, but it also can be a disguise or curse if you go on and do something you shouldn't do, say something you should do it. So my question is my long winded question is who are the top two to three people a parent of an emerging star should get into their lives first?
Jimmie Strong:The very first thing that parent should get is someone who can create an entity, because you can do a lot. But as much as you can push into that entity to create a liability shield from what person does and what company does, the much bet, the better off you can be. Then you should get someone who can take that from entity formation and governance to put the parent in the power seat, so no one can come in and usurp that parent's power. No one can come around that parent and negotiate something specifically with the minor, but it must be negotiated with the business and the business is run by the parent, right? Then you should go from there to what are the income streams and revenue streams and how much.
Jimmie Strong:And if those exceed 6 figures, you can anticipate pretty good tax liability, right? So once you're climbing into tens of thousands of dollars and hundreds of thousands of dollars for sure, you need to ask someone who is a specialist at dealing with tax, particularly tax that's coming ten ninety nine, because this is not w two income in most instances. It's ten ninety nine ownership income. And the beauty of that is much can be done to mitigate it. So you need to find a person who can do that.
Jimmie Strong:And then thirdly, you need to find a mentor in that particular space who has been successful, who appears to be doing the right things with money, with opportunity, and with their celebrity in terms of does their voice speak to the people in the ways that you will be confident, comfortable, and proud of seeing that happen in your family, right? You need to find that person. So you need to create the entity to contain all of this. You need to manage the financial side of that. Right?
Jimmie Strong:And then you need a mentor in that space. And then shortly after that, you need someone who can help you put that stuff into a space of growth and earn money on your money to the tune of at least 15% year over year.
Chris Picciurro, CPA:Wow. Jimmy, I can't thank you enough for being on the podcast. You know, I'm so blessed to be able to have met you and, and get to know you even more and more, so thank you. I know our community is gonna appreciate this. I know parents.
Chris Picciurro, CPA:Sometimes they feel lost. They just don't know what to do. And and, you know, having no money is a burden, but having a lot of money could be a burden also. And with that responsibility, they have to make sure they keep stay in the right direction and surround themselves with the right people. And you're definitely one of those.
Chris Picciurro, CPA:So thanks so much, and I hope you hit the ball long and straight today.
Jimmie Strong:Oh, thank you. Thank you. I'm, I'm through about eight, and I'm one stroke up on my buddy. So so I'll, go ahead and bury him on this back nine, and and and and he'll he'll cry about it. But, I am so happy.
Jimmie Strong:Come to the advisory.global if you need to to look up anyone on the team, and, I'll send you a companion paper specifically about publicity rights, for for minors and and how those things, are looked at through the legal lens.
Chris Picciurro, CPA:That sounds good. And you just iced your partner, your buddy. So I like it. Yeah. Absolutely.
Chris Picciurro, CPA:Absolutely. Alright. Thank you, buddy. Have a great one.
Jimmie Strong:Alright. Thanks, guys. Talk
Discloser:educational and general in nature. It reflects the opinions of teaching tax flow and does not take into consideration the viewer's personal circumstances. It is not intended to be a substitute for individualized financial, legal, or tax advice. Consult the appropriate qualified professional prior to making any decisions. Securities are offered and supervised through Cabin Securities Inc member, F I N R A S I P C.
Discloser:Investment advisory services are offered and supervised through Cabin Advisors LLC, an SEC registered investment advisor. Chris Picciurro is a registered representative of Cabin Securities and an investment advisor representative with Cabin Advisors LLC. Teaching Tax Flow is an independent entity and is not affiliated with Cabin Securities or Cabin Advisors.
