The Sports Law Playbook: Gifting Issues for Athletes

Welcome to the March 2026 edition of The Sports Law Playbook. In this issue, we explore key tax considerations and gift planning strategies for athletes looking to give back to the people and communities that have supported their success—while avoiding unintended tax consequences. 

Before we dive in, here’s a look at some recent developments and headlines shaping the sports world:

• The Federal Trade Commission recently launched inquiries into universities regarding compliance with the Sports Agent Responsibility and Trust Act (SPARTA)—particularly agent disclosure and inducement practices.

• State NIL laws continue to evolve. In 2025 alone, at least 10 states amended their NIL statutes. For example, Tennessee expanded its law to allow unlimited NIL compensation unless restricted by federal law, court order or antitrust-exempt rules, Colorado authorized direct school payments while exempting individual payments from state open-records disclosure, and Utah authorized direct NIL payments while specifying that student-athletes are not employees. As a result, schools must navigate a patchwork of rules on compensation, disclosure and institutional involvement when recruiting, competing and operating across state lines. 

• Recent NIL disputes—including litigation involving Brendan Sorsby, a former University of Cincinnati quarterback, related to an alleged breach of an NIL agreement following his transfer, and a dispute involving Blaine Brown, a University of Tennessee baseball player who alleged nonpayment of NIL compensation—have underscored the importance of clearly drafted endorsement agreements, particularly with respect to performance obligations, termination provisions and payment terms.

• Courts and regulators are increasingly scrutinizing athlete employment classification issues, with recent litigation and administrative actions—such as Johnson v. NCAA and ongoing NLRB-related proceedings—continuing to test whether college athletes should be treated as employees under federal and state labor laws

Gifting Issues for Athletes: What to Know Before Giving Back

“I didn’t get here by myself. . . My teammates, my friends, my family, the coaching staff, the athletic training staff, my doctors, my surgeons, the admin people. . . Nobody does anything by themselves.” – Paige Bueckers, First Overall Pick in the 2025 WNBA Draft.

Every professional athlete has a team and community behind them—family members, friends, coaches and more—who have helped them reach the pinnacle of success in their sport. Many successful athletes who recognize the value of their support system greatly desire to give back to those who have contributed to their success. These athletes are sometimes surprised to learn that the Internal Revenue Code (the Code) does not incentivize such generosity. Instead, subject to certain exemptions and exclusions discussed more below, the Code imposes an excise tax on the gratuitous transfer of wealth at the punitive rate of 40%. 

By carefully navigating the Code, athletes can minimize or eliminate gift tax and maximize the impact their generosity will have on their beneficiaries.

Gift Tax Basics

A taxpayer can make a certain amount of “taxable gifts” cumulatively throughout their lifetime before incurring any gift tax liability. This amount is often referred to as the “lifetime exemption.” The lifetime exemption is indexed to inflation and adjusted annually. As of 2026, the lifetime exemption is $15 million. This effectively means a taxpayer can make cumulative lifetime taxable gifts amounting to $15 million without owing any gift tax.

In addition to the lifetime exemption, a taxpayer can gift a de minimis amount in any given calendar year to any number of recipients without making a taxable gift. This amount is often referred to as the “annual exclusion.” The annual exclusion is also indexed to inflation and adjusted annually. As of 2026, the annual exclusion amount is $19,000. This effectively means a taxpayer can make gifts amounting to $19,000 during the calendar year to any one or more recipients and such gifts will be excluded from the definition of “taxable gift.” Because annual exclusion gifts are not taxable gifts, they do not use any of the lifetime exemption amount available for taxable gifts.

Additionally, because the annual exclusion amount applies per donee, the total amount that can be transferred without having made a taxable gift (or using any lifetime exemption) is only limited by the number of recipients to which the taxpayer desires to make gifts. By way of example, consider a taxpayer who has two children, two living parents, three siblings and four nieces. Our taxpayer could gift $19,000 to each of these 11 individuals—an aggregate amount of $209,000—in 2026 without making any taxable gifts or using any of the taxpayer’s lifetime exemption. Our taxpayer could then make gifts to those same individuals the following calendar year using the 2027 annual exclusion amount, and repeat this practice every year.

Finally, payments made directly to a qualified educational institution for tuition or medical care provider for qualified medical expenses on behalf of a beneficiary are also excluded from the definition of taxable gift and therefore do not utilize any of the taxpayer’s lifetime exemption.

Tax-Efficient Gifting

Beyond the thoughtful use of the lifetime exemption and annual exclusion amounts, estate planning lawyers have a variety of sophisticated tools and techniques available to help clients shift wealth to beneficiaries with little or no transfer tax consequences. Here, we highlight the grantor retained annuity trust (GRAT)—and more specifically, the aptly described “zeroed-out” GRAT.

The Zeroed-Out GRAT

While GRATs are complex in application, they are fairly simple in concept. The GRAT centers on the principle that the amount of a taxable gift is computed by (1) identifying the fair market value of the asset contributed to the trust, and (2) subtracting the fair market value of any interest the donor retains in the trust. Accordingly, by retaining an interest in the GRAT (specifically, an annuity) equal in value to the asset(s) contributed to the GRAT plus an assumed rate of return, the donor can reduce the amount of the taxable gift to zero (hence the term “zeroed-out GRAT”). 

For example, if a donor contributes $10 to a GRAT on April 15 in exchange for two payments—one payment of $5 next April 15 and a second payment of $5 the following April 15 (or $10 total)—the Code treats the transaction as a taxable gift of $0 (subject to the following caveat on the time value of money). Conceptually, this makes sense: if the donor gives $10 to the trust and receives $10 back, they have not really given anything away.

The fly in the ointment is the time value of money. The “time value of money” is the principle that a dollar today is worth more than a dollar tomorrow. That’s because a dollar today can be invested to earn a return. 

The Code accounts for the time value of money by assuming an annualized rate of return known as the “Section 7520 Rate” (named after the Section of the Code prescribing the rate and sometimes referred to colloquially as the “hurdle rate”), which is set monthly by the IRS. In order to successfully “zero-out” a GRAT, the donor must retain an interest in the GRAT having a present value equal to the amount contributed to the GRAT assuming the GRAT assets appreciate annually at the Section 7520 Rate. Accordingly, if the assets contributed to a zeroed-out GRAT achieve an actual rate of return in excess of the Section 7520 Rate, the donor will have shifted that excess appreciation to the GRAT beneficiaries without triggering any gift tax or use of their lifetime exemption.

Example

Using a real word hypothetical, it was reported that Roger Federer (who, we’ll assume is a U.S. citizen for this exercise) invested $50 million for a 3% equity interest in On Running, a popular athletic shoe and performance sportswear company, in November 2019.  The Section 7520 Rate at that time was 2%. Had Federer contributed his entire 3% interest to a GRAT with a two-year term, he would have received an annuity payment of just over $25.75 million in 2020 and the same amount in 2021 (or just over $51 million total).  The On Running interest remaining in the GRAT at the end of two years in excess of the annuity payments made to Federer would then have passed to the GRAT’s remainder beneficiaries without incurring any gift tax or using any of Federer’s lifetime exemption. On Running went public in 2021 and, as of year-end 2025, has a market cap of $15.5 billion, meaning that Federer’s initial $50 million investment is now worth $465 million—a rate of return dramatically exceeding the Section 7520 hurdle rate of 2%. Had Federer contributed this interest to a GRAT, he would have benefitted from extraordinary estate and gift tax savings because most of the appreciation in the On Running interest would have been transferred to the GRAT’s remainder beneficiaries without incurring gift tax, and the On Running interest would have been outside of his estate at his death.

Similar to Federer, athletes are increasingly asking for equity, rather than cash, as compensation for endorsement deals. Recent examples include Lebron James, Patrick Mahomes, Tom Brady, Naomi Osaka and Christian McCaffrey, among others. As athletes continue to seek stock compensation in endorsement deals, or own stock in their personal investments portfolios, GRATs can be utilized as a powerful tool to efficiently transfer wealth to others.

While GRATs can be extraordinarily powerful, the applicable rules are filled with traps for the unwary.