A large prize is not automatically a large investable balance. Before committing the money, confirm what the payment is, understand the tax obligations that apply to your circumstances, protect cash needed soon, and set goals for the rest. This guide focuses on the United States; tax, account, and financial-advice rules differ elsewhere.
What should you do before treating the prize as spendable money?
Start with the award paperwork, not the headline amount. A competition prize may be treated differently from an employment bonus, payment for services, sponsorship, endorsement, or name, image, and likeness (NIL) compensation. A payout may also combine more than one type of payment. Ask the payer for the award agreement and correspondence, and keep any tax forms when they are issued.
For U.S. federal income tax, IRS Publication 525 (2025) says prizes and awards are generally included in income; a noncash prize is generally measured at fair market value. Exceptions and the facts of the award matter, so the athlete label alone does not determine the result. Do not assume that any withholding or amount reported by a payer settles your final tax liability.
If the award includes NIL activity, the IRS says NIL income is generally taxable, including noncash compensation. Student-athletes should also establish whether a payment is treated as employee compensation or independent-contractor income; the reporting and tax obligations can differ. Review the actual arrangement with a qualified tax professional, and verify current IRS instructions because rules and reporting thresholds can change.
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There is no responsible universal tax percentage or net-payout estimate without the payment terms, location, and individual tax facts. Athletes outside the United States should consult a qualified local tax professional before applying U.S. guidance.
How can you protect the money you may need soon?
Before investing, list upcoming bills, debt payments, training and career expenses, family commitments, and other near-term obligations. Set aside a tax reserve only after a tax professional has reviewed the payment and relevant jurisdiction. Keep emergency and planned near-term spending accessible rather than relying on investments that may have to be sold during a market decline.
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The SEC’s Investor.gov guidance on lump-sum payments recommends building emergency savings and paying down high-interest debt. The right cash reserve depends on the athlete’s expenses, existing resources, and income stability; the guidance does not prescribe a fixed percentage of a prize to hold in cash.
What should the payout be expected to do?
Write down financial goals and when the money will be needed before choosing investments. Depending on the person, goals might include living costs during a career transition, education, housing, retirement, or charitable giving. Separate goals by time horizon so money needed sooner is not exposed to risks that may be unsuitable for that timeframe.
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Do not assume that future earnings will match current earnings, or that one prize can support a particular lifestyle indefinitely. There is no universal athlete spending or investment formula established by the cited guidance. SEC Investor.gov recommends considering short-, medium-, and long-term goals alongside risk tolerance and the time available to pursue each goal.
How should you choose investments for different goals?
Decide first how much must remain liquid, when each portion may be needed, and how much fluctuation you can tolerate. Then compare investments that fit those constraints. The SEC describes asset allocation as dividing investments among asset categories and diversification as spreading investments to lower overall portfolio risk. The appropriate mix depends on the individual’s time horizon and risk tolerance.
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Diversification can reduce the impact of a poor result in one holding, but it cannot guarantee a profit or prevent losses. Avoid concentrating the payout in one company, property, speculative asset, or business venture simply because it is familiar. SEC lump-sum guidance names mutual funds, exchange-traded funds, U.S. savings bonds, and certificates of deposit as examples of possible choices—not as a recommendation that every athlete buy them. Product risks, access to funds, tax treatment, and suitability vary.
For any proposed investment, ask what could cause its value to fall, when and how you can access the money, what fees apply, and whether it fits the goal it is meant to fund. Check account eligibility and tax treatment rather than assuming they follow from being an athlete or receiving a prize.
How much can investment fees change the result?
Fees reduce the money left invested and earning a return. In a July 23, 2025 Investor Bulletin, the U.S. Securities and Exchange Commission illustrated how annual fees affect a hypothetical $100,000 investment growing at 4% a year for 20 years:
| Hypothetical annual fee | Approximate value after 20 years |
|---|---|
| 0.25% | $208,000 |
| 0.50% | $198,000 |
| 1.00% | $179,000 |
These are the SEC’s approximate illustrative values under its stated assumptions, not a forecast or an athlete-specific outcome. Ask for costs in dollars as well as percentages, and compare services and investments on a like-for-like basis. Look for advisory charges, fund expenses, commissions, sales loads, transaction or account charges, markups, and bundled or wrap fees; charges may appear in disclosures and account statements.
When is professional help useful, and what should you ask?
A tax professional may help classify the payment and estimate obligations from the actual agreement and tax circumstances. A financial planner or investment professional may help organize goals, liquidity, and investment choices. The appropriate service could be a one-time plan or review, or ongoing management; a professional may provide advice, sell products, or do both.
Before hiring anyone, ask:
- What services will you provide, and what is outside the engagement?
- Are you providing investment advice, selling products, or both?
- How are you paid, and what conflicts of interest could affect your recommendations?
- What are all one-time and ongoing costs, including product and account charges?
- Can you explain the recommendation’s risks, liquidity, and fit with each goal?
The SEC’s Investor Bulletin on selecting an investment professional advises checking background information and understanding compensation, which can include hourly or flat fees, commissions, loads, markups, and bundled fees. Use SEC Investor.gov resources to check registration and background information and to read disclosures. Experience working with athletes may be relevant where income comes from multiple sources, but it is not a substitute for verifying credentials, services, costs, and conflicts.
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What is a practical order of operations?
- Collect the records. Keep the award agreement, payer correspondence, payment details, and tax forms when issued.
- Classify the payment. Ask a qualified tax professional to review whether it is a prize, employment compensation, payment for services, sponsorship or endorsement, NIL compensation, or a combination.
- Plan for obligations and immediate needs. Estimate taxes using your actual circumstances, list near-term commitments, maintain accessible emergency cash, and address high-interest debt.
- Set goals and time horizons. Decide what the payout needs to fund and when each portion may be needed.
- Choose an investment approach. Match liquidity, risk, and diversification to each goal; do not invest money needed soon as if it were long-term capital.
- Compare professional services and total costs. Check backgrounds and disclosures, understand how advisers are compensated, and compare fees in dollars as well as percentages.
- Review the plan when circumstances change. Revisit goals, cash needs, and investment choices if income, expenses, or career plans change.
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