Collaboration and education: necessities to avoid risks related to NIL collectives

Since June 2021 when the National Collegiate Athletics Association (NCAA) created an interim policy allowing college athletes to profit from their name, image and likeness (NIL), Baker Tilly has allied with a number of colleges and universities to help them – and their student athletes – navigate the evolving NIL environment. Currently, institutions are working to comply not just with NCAA policy and the patchwork of state laws and regulations relating to NIL, but also to the growing prevalence of NIL collectives.

These collectives are generally formed by third parties – an individual, alumni group or foundation – that operate outside the institution to support student athletes with their NIL goals. NIL collectives are a way for donors, alumni and/or general fans of an institution to invest in an athlete’s success. NIL collectives can be either for-profit or not-for-profit (tax-exempt). There are currently about 120 NIL collectives nationwide.

Tax-exempt NIL collectives – benefits and risks

As institutions maneuver the NIL era, it’s important to understand the key benefits and risks connected specifically with tax-exempt collectives.

Benefits:

• Individual contributors receive a charitable contribution deduction, which enhances the collective’s ability to raise more money.
• A business receives a tax break whether the collective is for-profit (write off contribution as a marketing deduction) or tax-exempt (receive a charitable contribution).
• The collective’s tax status doesn’t affect its end purpose. The athletes will still pay tax on any income received.

Risks:

• Tax-exempt collectives must remain committed to their mission regarding their tax-exempt status. Both the IRS and state attorneys general will likely audit the collectives.
• If a tax-exempt collective loses its tax-exempt status, it can no longer collect donations from individuals looking to make tax-deductible contributions.
• Such loss of funding may impact the NIL collective’s ability to sustain promises to student athletes and fulfill multi-year commitments to those student athletes.