In the chaotic world of college sports’ Name, Image and Likeness, some booster groups that pay student-athletes to attend their favorite schools have claimed to be charitable organizations.
It used to be that paying college athletes was a game of shadows played by armies of so-called bag men. They wielded burner phones and operated under the glow of yellow and black Waffle House signs, running an underground market for raw athletic talent.
For the most part, that changed in 2021 when the Supreme Court unanimously ruled against the NCAA’s prohibition against athletes profiting from their name, image and likeness (NIL for short). But because this is college sports, the process for how money flows to those most responsible for making it remains anything but straightforward.
Across the country, groups known as collectives have sprung up to channel money to high school and transfer-willing superstars looking to finally get their cut of the multibillion-dollar enterprise that is college athletics. Some of the groups — at least five by Forbes’ count — do so as IRS-approved, tax-exempt organizations. Rather than stuffing paper bags with cash in the hopes of luring a can’t-miss prospect to campus, donors can make “charitable” gifts that, after a bit of transmogrification, are every bit as tax deductible as a check sent to St. Jude.
Among those are collectives loosely affiliated with Notre Dame, Clemson, the University of Iowa, the University of Texas and the University of Oklahoma. None of the five responded to Forbes’ requests for comment.
Only now, even the money wouldn’t fit into paper bags. That was demonstrated by the recent mix-up involving high school quarterback Jaden Rashada. The Gator Collective, a for-profit entity with loose ties to the University of Florida, reportedly offered Rashada an NIL deal worth $13 million. The agreement fell through after the group reportedly couldn’t make good on its promise, but it shows that we aren’t talking about tens and twenties in a furtive exchange in a Publix parking lot.
The collectives that tackle this high-stakes world come in two flavors.
There are those that broker deals between businesses and athletes. These collectives operate as for-profit entities and they look and feel a lot like a talent agency. That’s not a coincidence. Some collectives, such as the University of Tennessee’s Volunteer Club, are facilitated by sports marketing firms that saw an opening after the Supreme Court’s ruling in NCAA v. Alston.
While that model has proven successful, it ignores one rather large and ubiquitous demographic: rabid college football fans who don’t own or operate businesses.
Think of it. For decades, college football’s legions of followers have shown they’re not only willing to pay for game tickets and jerseys, they’ll fork over cash just for the remote possibility their team might beat State, or whomever their rival is, with no other return on investment expected.
That’s where non-profit collectives come into play.
“The primary purpose for the tax-exempt collectives was to enable individuals to make tax-deductible charitable contributions,” Larry Mohr, a tax partner at Baker Tilly, told Forbes. “The key with the tax-exempt organizations is making sure they have a charitable mission.”
Rather than raising money from the local car dealership or fireworks store, it’s coming from donors. But there’s a rub. For a collective to be a nonprofit, contributions can’t go directly to players.
The workaround involves a bit of theater. Donations to the nonprofit collective are said to be a gift to a charitable organization (which may or may not be directly affiliated with the collective itself). But rather than, you know, give the money to the charity to do its good deeds, the money is earmarked to pay players to, at least on paper, serve as fundraisers.
The arrangement leads to a whole host of other questions. Unlike a business, charities can’t pay people whatever they feel like. To keep their tax-free privileges, charities must pay compensation considered “fair value.” And if players are essentially being paid to do charitable work, is it even charity? Stepping afoul of either guideline could put the player and the charity in jeopardy with the IRS.
“A commonly cited example of an appropriate payment is the payment of a ‘fair market value’ appearance fee at a fundraiser for a nonprofit organization,” attorneys Tom Molins and Ethan Sanders from Stinson LLP told Forbes in an email. “On the other hand, just paying a student-athlete a large sum to sign autographs may not be viewed as fulfilling a collective's charitable purpose. Similarly, paying student-athletes to donate their time working at a soup kitchen or homeless shelter probably will also not suffice. While those are clearly charitable endeavors, paying a student-athlete to do volunteer work is really not serving a public good that justifies payment.”
Whether this convoluted arrangement generates a positive return on investment for the charities will remain unknown for years to come. But what’s clear now is that the idea is already garnering unfavorable attention from U.S. senators.
In September, Republican John Thune of South Dakota and Democrat Ben Cardin of Maryland introduced a bill that threatens the status of nonprofit collectives.
“In this new NIL era, we want to ensure that the opportunities available for student athletes to benefit from their own name, image and likeness are protected,” Cardin said in a statement announcing what they called the Athlete Opportunity and Taxpayer Integrity Act. “We also have an obligation to protect taxpayer funds, which means that charitable deductions should be reserved for charitable activities. Purposefully blurring the line between private expenses and charitable contributions dilutes both these efforts.”
If Thune and Cardin are worried, it’s because potentially millions of dollars in tax revenue are being shielded.
While it’s unclear how much money nonprofit collectives are raising, there are some clues.
Tiger Impact, a nonprofit collective that supports athletes at Clemson, brags on its website that it has more than $5 million in committed donations. Former Notre Dame quarterback Brady Quinn told The Athletic in September that the collective he started, FUND, had already “raised more than $5 million and is closer to $10 million.”
Then there’s the Gator Collective and its Three Stooges act with the promised but unsecured millions. Rashada, the high school recruit who was reportedly supposed to receive that loot, signed a letter of intent to play for Florida, but has now been released from the obligation. Collectives and talented scholar-athletes around the country are watching the case for clues on how NIL will play out.
The question of legitimacy for nonprofit collectives has so far been unanswered, too. While the IRS has issued boilerplate approvals, it will be years until any of the booster groups are required to open their books for the final exam.
“Ultimately, it will depend on how the nonprofit collective operates,” Stinson’s Molins and Sanders wrote to Forbes. “There is some skepticism about whether these collectives really have a primary charitable purpose. The big questions are whether the nonprofit collective is doing actual charitable work that serves a public good and whether paying the student-athletes serves the charitable purpose of the nonprofit collective. Or is the collective just set up as a way to make payments to student-athletes?”
For now, the former bag men are deducting payments to quarterbacks and point guards from their taxes.