The players alleged that “the NFL was negligent and failed to carry out [its] duty… to inform NFL players of the risks associated with… neuro-cognitive injuries”. The players were seeking “a declaration of liability, injunctive relief, medical monitoring, and financial compensation…”.
Yet while there was a settlement that both sides claim to have benefited from, everyone involved in this situation lost.
Instead of continuing on to trial, the players and the NFL reached a settlement agreement wherein the NFL will pay the players $765 Million plus legal fees. Of that $765 million, only $675 million goes to the former players with the remainder going to research and medical exams. While the exact amount each party receives will vary, the average amount each player could receive is around $150,000. This amount is far below the monetary amount the players were seeking to receive payment for past medical expenses as well as future loss of income. With a brain MRI priced in the range of $3,500 it is skeptical that either one of those demands will be fulfilled under this settlement agreement.
Additionally, the players won’t see most of that money for a long time. The settlement agreement amount will pay 50% for the next three years and then 50% for the next seventeen years. If a former player was to receive the average amount of $150,000 that means they will be paid $25,000 each of the next three years and then $4,412 each of the next 17 years.
No legal or tax analysis is needed to realize the players also lost by the injuries alone. Many have died from, or are currently living with, depression as a result of football injuries as well as non-head football injuries.
Loser # 2 – The NFL
Saying the NFL “lost” is a bit of a reach but they did lose $765 million + legal fees. Considering they are paying their lawyers, and each lawyer that every one of the 4,500 former players hired, those fees will add up. They did get to settle though without having to battle in court, battle with a public relations nightmare and got away without having to admit guilt. Additionally, the NFL makes $10 BILLION in annual revenue so paying at most $127.5 million dollars in a year is the same as asking a $50,000 employee to pay a $638 fine for 3 years.
That being said, for the sake of this article, the NFL did lose close to $800 million dollars as a result of this lawsuit. That’s a lot of money for a lawsuit, but nowhere near the billions of dollars other large companies have lost as the result of class action lawsuits.
Loser # 3 – The IRS
The IRS didn't become a loser by this lawsuit but due to the tax code they will always see very little of the money exchanged in this and similar settlements.
The Money the Players Receive
This money will NOT be taxed because it is not considered income under the Internal Revenue Cod (see Read More for detail). Because it is not “income” it is not taxed.
The Money the NFL pays
Are legal expenses incurred in a lawsuit tax deductible?
If the NFL was a person, you are allowed to deduct legal fees related to your job. This lawsuit would most likely be considered “related to their job”. If the NFL was a company they would likely be able to deduct these legal expenses as an “ordinary and necessary” business expense. BUT none of this is necessary because the NFL (and its $10 billion annual revenue) is a IRC 501(c)(6) “non-profit” organization so NEVER pays taxes.
The Money the Lawyers receive
It’s income and is taxed as ordinary income under the 2013 tax rates.
In summary, the entire situation is unfortunate. The Players, NFL, and IRS don’t gain much from this lawsuit. Feel free to comment below with who you think the biggest loser in this lawsuit was.