Key Takeaways
- LeBron James borrowed nearly $300 million against his future Nike earnings, and none of it was taxed. Bloomberg reported this week that an LLC he controls issued bonds backed by his off-court income back in 2018. That pulled in cash years before he would have collected it as endorsement pay, and the loan itself never touched his tax return.
- That doesn’t mean the money escaped tax. It means the tax arrives on a different schedule. Every dollar Nike pays is still ordinary income the year it’s paid, whether it goes to James directly or into an account that services the debt. Below, we walk through exactly where the line sits between deferring cash and deferring tax.
- He couldn’t have gotten the same result by selling the income stream outright. A body of tax law going back to 1930 treats a lump-sum sale of future personal-services income as ordinary income. It doesn’t convert into the lower-taxed capital gain a seller might hope for. That’s the real reason borrowing beat selling here.
- The interest is where the real cost, and the real risk, lives. Whether it’s deductible depends entirely on what the borrowed cash was used for, not on what secured the loan. Getting that wrong can turn a smart liquidity move into an expensive one.
- The same choice, collect, borrow, or sell, shows up for anyone with a contracted income stream, not just athletes with lifetime shoe deals. Touring performers and creators face it too, and the math changes with the numbers, not the underlying rule.
What Actually Happened
Headlines this week called LeBron James’s financing arrangement a genius tax move. Most of them stopped there. They skipped the part worth understanding: what the tax code actually lets a $300 million loan do, and what it doesn’t. That gap matters, because the mechanics here apply to a lot more people than one basketball player with a lifetime Nike contract.
Bloomberg reported this week that in March 2018, months before James signed with the Los Angeles Lakers, an LLC he controls called King James Funding issued nearly $300 million in bonds. Two Midwestern life insurers bought them, both owned by Sammons Financial Group, with an arm of Guggenheim Partners advising the deal. The bonds carried a 4.8% interest rate and mature in 2049. In 2022, the same insurers bought roughly $60 million more at a 5.75% rate on a 34-year term. Some of the original principal has been paid down since, and the insurers reportedly held about $245 million of the debt at the end of 2025.
The collateral behind all of it is James’s income outside basketball, anchored by the lifetime Nike endorsement he signed in December 2015. His NBA salary was never part of the deal. A spokesperson for James described the structure as a common financing tool for someone at his level of wealth. The 2022 transaction also carried an independent credit rating along with NBA approval.
That’s the confirmed picture. It raises the question that matters most for tax purposes: why doesn’t a loan this size trigger a tax bill in the first place?
Why Isn’t a $300 Million Loan Taxable Income?
Because a loan comes with a matching obligation to pay it back. Federal tax law defines gross income as an increase in wealth, and a loan doesn’t increase your wealth on net. You get cash, but you also take on a debt of equal size, so nothing you actually keep has grown. That’s not a loophole. It’s the same rule that keeps your mortgage proceeds, or a business line of credit, off your tax return every year.
So the roughly $300 million that reached King James Funding in 2018 generated no federal income tax that year. Compare that to the alternative. If James had simply collected that same amount as ordinary Nike royalties spread across the following decades, each payment would have been taxed the year he received it. That tax would apply at ordinary income rates: your regular tax rate, not the lower rate that applies to investment gains. Getting the cash up front through a loan, instead of waiting on it as earnings, is the entire idea. Current law openly allows it.
Did Borrowing Actually Save Him Any Tax?
Here’s the part most of this week’s coverage skipped. The loan doesn’t defer a single dollar of tax on the underlying Nike income. Every payment Nike makes under that lifetime contract is still ordinary income to James in the year it’s paid. That’s true whether it lands in his own account or in a lockbox. A lockbox is simply an account set up to collect the endorsement payments and route them straight to the lenders. Pledging future income as collateral changes who can reach the cash first. It doesn’t change who owes tax on it, or when.
What the structure buys is timing on the money, not a discount on the tax bill. James gets decades of future cash today and can put it to work now. Meanwhile, the tax on the Nike income still arrives on its original schedule, spread across those same decades instead of landing all at once. That’s a legitimate, fully disclosed way to access liquidity early. It’s a timing choice within the tax rules as written, not a method for hiding income or shrinking what eventually gets reported. The IRS still sees every Nike payment, in the year it’s actually made.
Learn more about: The Business of Professional Sports
Why Not Just Sell the Income Stream Instead?
Because federal courts have been closing that door since 1930. Under a rule called the assignment-of-income doctrine, established in the Supreme Court case Lucas v. Earl, you generally can’t transfer your right to future personal-services income and shift the resulting tax to someone else. A related rule, the substitute-for-ordinary-income doctrine from Commissioner v. P.G. Lake, holds that a lump sum received in place of income you’d otherwise collect later as wages is itself ordinary income. It doesn’t convert into the lower-taxed capital gain that many sellers hope for.
Courts have applied this rule again and again. The clearest example: lottery winners who sold their remaining payments for a lump sum and tried to report the proceeds as capital gain. Multiple federal appeals courts rejected that argument between 2004 and 2007. Their reasoning was simple. The seller made no real investment, so the lump sum was just a stand-in for wages the seller would have collected later anyway.
A lifetime endorsement deal is compensation for future personal services in exactly the same sense. A sale of that stream would typically land the same way. The proceeds would count as ordinary income, often recognized all at once, at the top bracket, in whatever state the seller happens to live.
Collect As Earned, Borrow Against It, or Sell Outright?
Here’s how the three paths generally compare for someone sitting on a large, contracted income stream:
| Collect As Earned | Borrow Against It | Sell It Outright | |
|---|---|---|---|
| Cash today | No | Yes | Yes |
| Tax on the transaction itself | None | None (loan proceeds aren’t income) | Usually ordinary income, often all at once |
| Tax on the future stream | Ordinary income as received | Still ordinary income as received | Shifts to the buyer going forward |
| Ongoing cost | None | Interest, for years or decades | The discount a buyer demands upfront |
| Who keeps the risk | You, if the payor stops paying | You, plus the debt payments | Mostly transferred to the buyer |
Borrowing is the only column that delivers cash today without also triggering a tax event on the way in. It’s why family offices run versions of this deal constantly. It’s also why the phrase “buy, borrow, die” comes up so often to describe how wealthy households manage liquidity. The idea: borrow against an appreciated asset instead of selling it, then hold that asset until death. At that point, its taxable cost basis resets to current market value, which erases the built-in gain entirely.
Borrowing against a personal endorsement contract doesn’t get that same ending. There’s no asset changing hands at death, only a contract, and every dollar Nike pays is ordinary income when it’s paid, full stop. This is a timing and liquidity play, not a way to erase a tax bill.
Learn more about: The Role of an Accountant in Professional Sports
What Does the Leverage Actually Cost After Tax?
Interest is the price of getting the cash early. Whether it’s deductible depends on what the money was used for, not what secured the loan. Federal interest-tracing rules follow the borrowed dollars wherever they actually go. Money invested in income-producing assets generally creates investment interest expense, which is deductible only up to the investment income earned that same year. Money spent on a house or a lifestyle generally produces interest that isn’t deductible at all.
A simplified example shows why that distinction matters. Say an entertainer borrows $10 million at 5% against a contracted $2 million a year endorsement stream. The $10 million arrives with no tax due, for the reasons above. The $2 million is still taxed each year as it’s paid, exactly as before. The $500,000 in annual interest may be deductible against investment income, if the proceeds were invested and the paperwork documented that use at the time. Or it may not be deductible at all, if that same money went toward a house and a lifestyle instead. Getting this right at the moment the funds move, rather than at filing time, can be worth real money every year on a loan this size.
Whether the trade pays off at all comes down to one question that has nothing to do with the IRS. Do the invested proceeds earn more than 5% after tax and fees, for as long as the loan stays outstanding? That’s a bet on investment returns, and bets on returns can lose. The collateral behind a decades-long wager on one person’s future earning power can shrink in ways nobody modeled going in.
How Do States Tax Money Like This?
The same way the federal government does. Loan proceeds aren’t income anywhere, so no state taxes the borrowing itself. The real state-level question sits on the income stream that repays the loan, and it usually comes down to two separate tests. Residency determines which state taxes your overall income, based on where you live and how many days you spend there. Sourcing determines which state can tax income you earned by working within its borders, even if you don’t live there.
Someone who moves to a state with no income tax can still owe tax elsewhere. That happens whenever part of the underlying contract was earned through work performed in a state that does tax it. For athletes and entertainers with income spread across many states, sorting out sourcing is usually the harder job of the two. That’s the kind of question our multi-state filing team works through with clients regularly.
View our Tax Planning Life Cycle, our team gives you at least two tax planning sessions a year, including year-end planning, before preparing your return in January. Book a Call with our us.
Who Does This Actually Apply To?
You don’t need a lifetime Nike deal for any of this to matter. At Fusion CPA, we work with clients in our entertainment industry practice, including touring performers and content creators. Their real asset is often a contracted future income stream rather than a regular paycheck. The same three-way choice comes up at every scale: collect the income as it arrives, borrow against it, or sell a piece of it. We’ve modeled versions of this question for clients weighing an advance against future royalties. We’ve done the same for creators offered a lump sum for channel revenue they’d otherwise collect over several years. The right answer moves with the interest rate available, the states involved, and what the borrowed money is actually for.
If a meaningful share of your income comes from royalties, licensing, or another form of contracted future income, it’s worth modeling your options before you sign anything, not after. Fusion CPA can walk through what borrowing, selling, or simply collecting the income as earned would each look like on your actual return. We also coordinate directly with the bankers and attorneys who handle the financing itself. Schedule a Discovery Call, or find a Fusion CPA office near you.
Frequently Asked Questions
Is money you borrow against future earnings taxable income?
Generally no. A loan isn’t gross income under federal law, because the obligation to repay it offsets the cash you receive. That’s true whether the collateral is a house, a business, or a contracted endorsement stream. The income that eventually repays the loan is still taxed normally as it’s earned.
Does pledging future income as collateral change when it’s taxed?
No. The income is still taxed to whoever earns it, in the year it’s paid, regardless of where the cash flows afterward. A lockbox arrangement redirects the money. It doesn’t redirect the tax.
Can someone sell future personal-services income and pay capital gains rates instead?
Generally no. Under the assignment-of-income doctrine, a lump-sum sale of future personal-services income is typically taxed as ordinary income, often all in the year of the sale. That’s a major reason borrowing against a stream tends to beat selling it outright, though the right answer always depends on the specific facts.
Is the interest on a loan like this tax deductible?
It depends entirely on how the proceeds are used, under federal interest-tracing rules. Proceeds invested in income-producing assets generally create investment interest expense, deductible up to net investment income for the year. Proceeds used for personal spending generally aren’t deductible at all.
About the author
Trevor McCandless, CPA, MTax is the founder and CEO of Fusion CPA, a tax, outsourced accounting, and advisory firm serving business owners and high-achieving individuals across 40+ states from offices in Atlanta GA, Tampa FL, San Juan Puerto Rico, and Park City Utah. He works with owners on entity structure, owner compensation, and the multi-state exposure that arrives quietly with a growing team.
This article is reviewed by Steven Sumners, CPA, MAcc, Senior Tax and Accounting Manager at Fusion CPA.
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