In the immediate aftermath of the NCAA pretty much throwing in the towel two years ago on trying to regulate the circumstances under which student athletes might be paid for use of their publicity rights — “name, image, and likeness” —, there was a flood of so-called “collective” activity in what might be called the “for-profit” space.
Boosters raised enormous sums to entice top college athletes to transfer, and to recruit top high school prospects. Often the amounts promised were out of any reasonable proportion to an objective measure of the athlete’s market “worth.”
A great deal of this was money that might otherwise have gone to direct support of the athletic programs in question.
Some of these deals went spectacularly south. Some of the early players in the for-profit “collective” space have folded, or have merged with other entities representing the same schools. Some have lowered their sights and/or broadened their reach to include lower profile athletes competing in sports that get much less media attention. Lacrosse. Water polo. Track and field.
Stop the music
And after two years of seeming inaction, the NCAA appears finally to be gearing up to engage in enforcing its rules against using NIL as a recruitment tool.
On February 24, 2023, the association announced that it had imposed sanctions on the women’s basketball program at the University of Miami for its involvement in a situation in which a high profile alumnus working on behalf of the university directly solicited two players to transfer.
The sanctions were almost purely symbolic. Neither the booster nor the players nor the university itself were fined or otherwise penalized. The coach sat out three games. But in announcing the sanctions, the NCAA said this was at least in part because the violation had occurred prior to its adopting a revision to the Division I bylaws that shifted the burden of proof in these cases to the accused where a credible allegation is made.
That rule change became effective January 01, 2023. It seems at least possible that the NCAA will begin to rein in the more egregious violations.
While in a parallel reality
While all this has been happening, a number of entities have been operating quietly in what we would instead call the “not for profit” collective space. These are tax-exempt organizations created for the purpose of raising funds to pay student athletes modest stipends to lend their name, image, and likeness to support local and regional charitable endeavors.
Several dozen such organizations have secured favorable determinations from IRS and are eligible to receive deductible contributions.
It is important to note that while these “collectives” are providing opportunities for student athletes to exploit their publicity rights, this is not their stated exempt purpose. Typically, the premise on which IRS has granted tax-exempt status to these orgs is that they are providing indirect support to other charities by making student athletes available for various promotional activities.
The point of convergence
In October 2022, the NCAA issued further guidance outlining the circumstances under which a college or its athletic department might work more or less directly with a “collective” to facilitate NIL arrangements with its athletes. To be clear, the scenario sketched above involving the women’s basketball program at Miami would violate several of the restrictions enumerated in this updated guidance.
But by drawing somewhat clearer lines, this guidance may open new opportunities for nonprofit collectives to work more closely with the colleges and athletic departments whose athletes they are seeking to support.
Where state law does not prohibit a college or athletic department directly or indirectly “causing” NIL payments to be made to an athlete, some of these tax-exempt entities might become supporting organizations, thereby securing what amounts to “public” charity status even where their funding comes largely from a handful of larger contributors. This would allow contributors to deduct a larger portion of their gifts in any given year and greatly facilitate the opportunities for noncash gifts.
Of course, a tax-exempt org needs to be mindful of the rules against excess benefit and private inurement. The amounts paid to an athlete for her services must be fair market value, determined at arm’s length. A booster cannot direct the distribution of funds to a particular athlete. If there is a direct linkage with a college or athletic department, the “collective” cannot serve as a vehicle for offering perks of more than nominal value to contributors.
The nonprofit “collective” space does have its difficulties, but with competent advice and best practices, this is a workable model that will likely persist after some of the “for-profit” booster collectives have flamed out and/or caused their supported colleges any number of headaches.