Type: Law Bulletins
Date: 08/09/2022

NIL & U: NIL Collectives

In 2021, the U.S. Supreme Court ruling in National Collegiate Athletic Association v. Alston, a series of new state laws, and subsequent NCAA rule changes unleashed one of the greatest disruptions to intercollegiate athletics in NCAA history: NIL. Almost a year later, there are still many unanswered questions about the rules, strategies, and implications of NIL on the future of intercollegiate athletics.

NIL, or more formally, “Name, Image, and Likeness,” refers to NCAA athletes’ new opportunity to be compensated for the use of their person and celebrity. NIL activities can run the gamut from individual autograph signings and video greetings to more traditional corporate endorsement and appearance deals. NIL activities can also harness student athletes to serve charitable causes.

Across the country, fans, alumni, and donors have banded together to form a variety of entities that engage student athletes in NIL activities. Although their form and focus varies significantly, these organizations are typically lumped together and called  NIL collectives. Collectives take diverse forms—from for-profit endeavors to nonprofit entities with or without tax-exempt status. Those forms are often dictated by collectives’ varied approaches—from raising money and funding NIL for commercial or charitable purposes to brokering NIL deals between third parties to hiring student athletes to generate original content for subscribers. Those varied approaches offer a significant opportunity for stakeholders to create a platform for NIL activities that reflects the spirit, values, and priorities of the institutions that they love.

Fans, alumni, and donors should carefully consider their goals when choosing an entity structure for a new NIL collective. That choice can significantly impact how an NIL collective will raise funding and what kinds of activities it will support. For example, certain entity choices are not suitable for an organization that wants to have a charitable focus and seek tax-exempt status, which would allow donors to deduct contributions to the organization. But those entities may be a great fit for NIL collectives seeking to produce and sell content to fan bases.

Entity choice will also shape how the NIL collective is governed. A limited liability company may have just a few parties controlling the NIL collective’s activities and may be accountable to a single member. At the other end of the spectrum, a public-benefit nonprofit corporation may require a board of directors, may fall under the oversight of the state attorney general’s office, and may face charitable-solicitation registration and reporting requirements.

Regardless of entity choice, NIL collectives must be aware of NCAA, conference, and school-specific NIL rules—along with relevant state laws—that will govern their NIL activities. Although current guidance remains limited and has evolved in recent months, a growing number of collectives are focused on compliance, transparency, and doing NIL the “right” way. Although the rules for any particular institution will depend on state laws, conference NIL rules, and school-specific rules, NCAA rules reach all NIL collectives. They prohibit any NIL deals from being conditioned on attendance at a certain college or university, athletic performance, or athletic achievement. In other words, “pay-for-play” is still prohibited. So is the use of NIL deals as a recruiting inducement. NIL collectives must keep those rules in mind as they plan their activities and enter into agreements with student athletes.

So why should all of this matter to colleges and universities? The NCAA’s most recent guidance suggests institutions may be held responsible if NIL collectives run afoul of these rules. That places the impetus on each institution to monitor its student-athletes’ NIL activities.  

If you have questions about compliance with NIL regulations, NIL collectives, or businesses seeking to contract directly with student athletes for NIL deals, contact Donnie Morgan and Donnie Naiman or reach out to a member of Taft’s Higher Education team.

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