Trevor Lawrence Partners with Blockfolio to Invest His $22.6 Million Signing Bonus in Cryptocurrencies

Quarterback Trevor Lawrence was selected as the No. 1 overall pick in the 2021 NFL Draft by the Jacksonville Jaguars last month. As one of the most highly rated quarterbacks to get drafted in the last decade, Trevor was offered a $22.6 million signing bonus. He then announced a partnership with cryptocurrency investment app Blockfolio to place his $22.6 million signing bonus into an account with the company.

Why is his story worth exploring? Let’s dig into some possible scenarios of his investment and its tax implications. 

SCENARIO #1: BONUS HAS NOT BEEN INVESTED INTO CRYPTOCURRENCY
Keep in mind, the cash went to Blockfolio and he was under no obligation to buy any cryptocurrencies, so it’s possible he has not purchased any cryptocurrency and still has all $22.6 million in his account.

In addition, he may have also received compensation from Blockfolio for the very public endorsement of the growing investment app, which has much legitimacy to gain from this public partnership.

His signing bonus and any additional Blockfolio compensation would be taxable to him and be reported on his 2021 tax return, regardless of what happens with his investments of the money. The upside would be that he does not have to pay state income tax in Florida.

SCENARIO #2: BONUS WAS INVESTED INTO CRYPTOCURRENCY
Let’s say Trevor did in fact invest his entire bonus in cryptocurrencies around late April/early May – the time he received it. He would have bought in when the cryptocurrency market was at an all-time high.

In late April/early May, Elon Musk was tweeting about being able to buy Teslas with Bitcoin (which he later reversed, stating that he could not endorse something whose global mining consumes unsustainable amounts of energy, creating a negative environmental impact). He also proclaimed himself to be the father of Dogecoin while doing a bit hosting Saturday Night Live, adding to the allure of the coin – which started as a joke using a famous meme for its logo. Jokes aside, Dogecoin was trading for fractions of a penny at the beginning of 2021, then spiked to $0.74 in early May which turned some small investors into millionaires overnight, and was trading on May 20, 2021 at around $0.40.

Assuming he didn’t buy Dogecoin, but went ahead and bought Bitcoin and Ethereum, two of the most “stable” coins on the market, Trevor would have bought Bitcoin somewhere between $53,000 and $59,000. Ethereum would have been somewhere between $3,400 and $4,300.

By May 20, Bitcoin dropped to $30,000 before bouncing back to about $40,000. Ethereum dropped as low as $1,860 on May 19, 2021 before bouncing back to $2,800 the next day.

The market can continue to recover and maybe even spike, but as of May 20, 2021, his investments would be down -25% to -49% on Bitcoin, and -18% to -57% on Ethereum.

SCENARIO #2.1: SELLING CRYPTOCURRENCY
To expand on the scenario further, let’s say he needed cash for living expenses today, and had to sell some cryptocurrency at a loss (there’s a possibility he would be taking a massive loss on his investment). Unfortunately for him, the IRS does not allow taxpayers to deduct more than $3,000 of their losses in excess of their gains. This applies to individuals, as well as to those who are married filing jointly. Any remaining capital loss is likely to get carried forward to the following year indefinitely until the amount is exhausted.

If he was fortunate enough to sell for a gain, he may need to sell more, just to cover the taxes on the short-term capital gain, which could be taxed at 37% depending on his total income for the year (which is likely to be well into the highest tax bracket).

ALTERNATIVE INVESTMENT: EXCHANGE-TRADED FUND (“ETF”)
In comparison, the SPDR S&P 500 ETF Trust (SPY) was trading between $412 and $422 around the same time Trevor received his signing bonus. As of May 20, 2021 the ETF is trading around $415. If Trevor bought this ETF instead of cryptocurrency, his investments could be relatively flat, considerably better than if he invested in most mainstream cryptocurrencies when he received his signing bonus.

WHAT IF: ONE YEAR AGO
If Trevor Lawrence had been the No. 1 draft pick in the 2020 NFL Draft instead, and invested that same $22.6 million solely in Bitcoin, he would have been worth approximately $137 million as of the April 2021 NFL Draft.

There is great opportunity in the cryptocurrency market, but also tremendous risk. Please see our previous article on NFTs to see whether you should buy cryptocurrency, as the concerns are identical.

We’ll be closely tracking cryptocurrency industry development in the future in conjunction with applicable IRS tax pronouncements in a continued effort to provide comprehensive advice to our current and prospective clients. Please reach out to me at slaughlin@citrincooperman.com if you have any questions.