NIL Update: “Collectives” On The Rise Boasting Tax Exemptions

It has been over a year since the National Collegiate Athletic Association (NCAA) suspended its amateurism rules allowing student-athletes across the country to profit from their name, image, and likeness (NIL). Since then, Congress has not passed federal legislation that would put all universities on an “even” playing field, leaving individual states to determine how student-athletes may profit from their NIL. As we have previously written, whole-team NIL deals and impermissible booster involvement were flagged by the NCAA, putting several schools under investigation (See GF Sports Advisors’ prior blog post on this topic, NIL Update: BYU, Miami Being Investigated for NIL Violations). Now, boosters have gotten creative—creating “NIL collectives” which are entities independent from (yet affiliated with) a college or university that generate NIL opportunities for student-athletes. Collectives come in all forms—from for-profit to non-profit entities and from those with or without tax-exempt status. 

SOME NIL COLLECTIVES ARE TAX-EXEMPT—FOR NOW

Many of the NIL collectives around the country have craftily created tax exemptions for themselves by operating as a 501(c)(3) public charity. The advantage of this approach is that it allows alumni, donors, or even students to participate in the NIL process, even if they do not have the financial resources to individually sponsor or pay a student-athlete for their NIL. In the process, the collective provides a charitable contribution tax deduction to individuals or companies that support the collective’s mission. 

However, the catch is that operating as a 501(c)(3) public charity requires the collective to have a charitable mission. While the Internal Revenue Service (IRS) grants the collective tax-exempt status, attorneys general have authority over public charities operating in their state. This means that attorneys general may formally launch investigations into NIL collectives if they are skeptical of the collective’s charitable purpose. 

COMPLIANCE IS KEY

All NIL collectives must be aware of NCAA, conference, and school-specific NIL rules in addition to state law. Even further—the NCAA has alluded that institutions themselves may be held responsible if NIL collectives violate any of these rules. NCAA rules apply equally to NIL collectives as they apply to student-athletes. For example, “pay-for-play” is still prohibited, and NIL collectives may not induce student-athletes to attend their affiliate institution. Stated another way, even though a NIL collective is nominally independent of a particular institution does not mean that the institution can turn a blind eye to its activities. Therefore, an institution’s compliance department must include and be aware of collectives in its monitoring process in order to meet the NCAA’s compliance requirements. 

INSIGHTS FOR GF CLIENTS

Every month there are new implications of NIL which GF Sports Advisors are tracking. Our team can help institutions monitor and take a proactive approach to NCAA compliance. Similarly, GF Sports Advisors can advise institutions and student-athletes on best practices in the NIL era. 

Please contact a Gjording Fouser lawyer at 208.336.9777 if you would like any additional information about this topic or any other issues facing your company.