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Volume 21 No. 1
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For tax purposes, NFL to have teams make settlement payments

The NFL plans to have its teams instead of the league make the recently agreed to payments to retired players over concussion-related injuries so that the clubs can account for the payments as tax-deductible business expenses, sources said.

Because the NFL league office is structured as a not-for-profit operation, it would not be able to take a tax deduction.

The league also remains in litigation with its insurers over how much they will cover of the settlement that was announced late last month. Taken together, each of the 32 NFL teams likely will pay out much less than the $25 million to $30 million estimates that have been suggested could be each club’s exposure based on the expected $1 billion total price tag of the settlement.

In fact, according to tax accountants, some teams could even come out ahead financially.

“Out-of-pocket costs could be substantially less for certain teams because you have teams that are very profitable and pay the highest tax rates,” said John Lieberman, a member of New York State Society of Certified Public Accountants and past chairman of its entertainment and sports committee.

Lieberman said that if a team were to take its entire share of the settlement as a write-off right away, it would book a big tax savings that could then be reinvested. The return on that investment, Lieberman said, could end up being greater than what it would owe in payouts over the 20-year payment schedule of the settlement.

The NFL has 20 years to pay the full amount of the settlement, but half of the total must be paid within the first three years and the rest over the next 17 years.

NFL spokesman Greg Aiello declined to comment.

A source close to the league said of the fact that the league’s financial exposure may be far less than it appears: “What difference does it make? It doesn’t impact how much a qualifying former player will receive.”

In the settlement, the league agreed to collectively pay all retired players who qualify for payments based on injuries $675 million, with another $90 million for medical monitoring and a fund to raise awareness about concussions. Additional payments for legal fees could reach or even exceed $200 million.

The settlement aims to bring to an end litigation of more than 4,500 former players who had sued the league.

Typically, class-action settlement payouts are tax deductible, experts said.

“[It is] certainly not uncommon for [a] settlement payor to try to structure so that payments are deductible for tax purposes,” said John Goldman, a sports attorney with Herrick Feinstein, via email.

Beyond the tax benefits, the NFL could receive payments from insurers to cover the retiree payouts. The NFL is suing its insurers in New York state court seeking payment. A key hearing in this lawsuit comes Thursday, when the judge may set the parameters of how the case proceeds (see related story).

A source close to the insurers said the litigation should continue with the settlement in mind, but that will not slow the case down because approving the final settlement could take many months, if not longer. Between a comment period and an opt-out period, each of which could take 30 to 90 days, final briefs, a final hearing, and waiting for the judge’s approval, the court’s decision on whether to approve the settlement could come in the middle of next year, this source said. And then if some players object and appeal the judge’s approval, that could delay payouts even more.

The NFL has the option of walking away from the settlement over players that opt out, though that seems unlikely unless there are enough of them that the NFL decides they pose enough of a financial risk to scuttle the proposed settlement. Players who opt out can sue the NFL again over concussions.