March Madness Has a New Entry Card: State Taxes

As March Madness approaches, millions of fans will once again be watching. But there is a new factor quietly shaping college basketball success—one that has nothing to do with tactics or talent development. It’s state taxes.

A recent change in college sports has turned state tax policy into a competitive advantage for some colleges. And the effect is surprisingly large: teams in low-tax states now win about three more games per season on average than teams in high-tax states.

The reason goes back to 2021, when college athletes were allowed to earn money from their name, image, and likeness (NIL) for the first time. Before then, players were essentially amateurs. They could receive scholarships and benefits tied to attending school, but they could not receive any salaries from their sports. Hence, they did not earn any money that would have led to taxable income. State taxes did not matter.

That changed dramatically when NIL rules came into effect. Today, athletes can sign valuable contracts. The market for these deals has exploded. The total value of NIL agreements now exceeds $1.7 billion, and top athletes can earn millions of dollars while still in college.

With that money comes taxes.

Like everyone else, athletes pay federal income taxes. But the key difference lies at the state level. Some states—such as Florida or Texas—have no state income tax, while others, like California, tax top incomes at rates above 13 percent.

For athletes earning hundreds of thousands or even millions in NIL income, that difference matters a lot. A player earning $2 million could easily face hundreds of thousands of dollars in additional taxes simply by playing in a high-tax state rather than a no-tax state.

That creates a powerful incentive when choosing where to play.

In new research, we study how this tax difference affects the success of college basketball programs. We analyze all Division I men’s basketball teams from 2016 to 2024 and compare their performance before and after NIL rules began.

Before 2021, state income taxes had little reason to influence athletes’ choices—because there was almost no income subject to state taxes. Teams in high-tax states won as much as teams in low-tax states. After NIL, however, the financial stakes changed dramatically.

The results are striking.

Teams located in low-tax states gained a clear performance advantage once NIL income became available. On average, they now record about three additional wins per season compared with teams in higher-tax states.

In a sport where teams typically play around 30 to 40 games in a season, three wins is a large difference. It can be the margin between making the NCAA tournament or staying home—and between being a top seed or not.

Why does this happen? The answer appears to be talent.

Top high-school recruits increasingly consider taxes when choosing where to play. After NIL rules were introduced, elite recruits became significantly more likely to sign with programs in lower-tax states. In other words, taxes influence where the best players go—and where the best players go influences who wins games.

The effects are especially strong for major programs in the so-called “Power Conferences,” such as the SEC, Big Ten, and ACC. These schools already have strong recruiting pipelines and larger NIL opportunities. When they are also located in low-tax states, the advantage becomes even larger. There are signs that this dynamic also affects the NCAA tournament. Teams from major conferences in low-tax states are more likely to advance to later rounds such as the Sweet 16, Elite Eight, or Final Four.

The implications extend beyond sports.

Successful college athletic programs often bring broader benefits to universities. Strong performance on the court can increase alumni donations, boost applications, and raise a school’s national visibility. That means state tax policy may indirectly influence not only athletic success but also university reputation and fundraising.

Policymakers have already taken notice. Arkansas recently passed legislation exempting NIL income from state taxes, and several other states are considering similar policies. But do such exemptions make sense? Because athletes appear to respond to tax differences, exempting NIL income may not cost states much revenue while potentially helping their universities recruit talent and win games. Yet this raises a broader concern. Creating special tax exemptions for one small group—college athletes—adds more complexity to an already complex tax system. Tax codes often become complicated not because of high rates, but because of the many exceptions and special provisions targeted at particular activities or groups. Each new exemption narrows the tax base and makes the system harder to administer and comply with. If the goal is to make a state attractive to talented individuals, carving out a special rule for a tiny fraction of the workforce is a peculiar way to pursue that objective. The state could also start exempting doctors, plumbers, or even accounting professors.

Policymakers face a broader question: whether targeted tax exemptions for NIL income are sound public policy. Regardless of the answer, one thing is increasingly clear: in the new economics of college sports, state income taxes matter. And while the effects are especially visible during March Madness, the underlying lesson—that taxes influence where talent goes and how organizations perform—likely extends well beyond college athletics.