December 03, 2024 | Read Online

The non-profit NIL collective is dead. Long live the non-profit NIL collective

The previous model of skirting taxes to pay college athletes is going extinct....but that doesn't mean it won't be replaced by another.

Good morning, and thanks for your continued support of Extra Points.

This publication has pretty much always been deeply skeptical of the idea that NIL collectives should be classified as non-profits.

That started all the way back in 2022, when I interviewed tax experts who felt that based on current tax law, collectives should not meet the definition of a charitable non-profit.

Earlier this year, I interviewed several more experts, all after the IRS itself said that collectives shouldn’t be classified as 501c3s. The feedback I got was pretty similar to this quote:

Bridget Stomberg, an accounting professor at Indiana University, was even more blunt. “In my professional opinion, no NIL collective should have been granted non-profit status by the IRS,” Stomberg said.

Many collectives began shifting away from the 501c3 model earlier this year, both because of the IRS General Counsel saying that NIL collectives shouldn’t qualify for tax-exempt status, and because the business realities of the NIL industry were changing. But several other collectives indicated they planned to continue to operate as non-profits…and would continue to tell their donors that their contributions would be tax-deductible.

But that era appears to finally be ending.

On Monday, Friend of the Newsletter Daniel Libit of Sportico reported that the BPS Foundation, one of the largest, (if not the largest) non-profit collectives, will close by the end of the year. Via Sportico:

In a “special message to our unique donors,” Andrew Beisel, executive director of BPS Foundation, wrote that its decision to dissolve was due to the “unpredictable and ever-increasing risks associated with NIL nonprofit operations.”

Beisel revealed that the foundation has received letters of inquiry from the federal government, in addition to notices from multiple state attorneys general, and that the organization’s legal counsel had determined there was “no path forward” for it to continue.

BPS Foundation’s remaining funds will be transferred to the partner-school’s athletic department, according to the memo, and any donations made after Nov. 30 would be returned.

A recent letter from the IRS to Tax Exempt entities also stated, under a heading called ‘Compliance Enforcement Priorities”, that:

The priority areas are referenced on the next page and include clean energy credits, employee retention credits, SECURE 2.0 Act compliance, including a new IRS correction program, tax-exempt hospitals, and tax-exempt collectives utilizing Name, Image and Likeness (NIL)

Emphasis mine.

The initial IRS memo that stated NIL collectives shouldn’t be considered tax-exempt non-profits came out in the Summer of 2023. Now, in the final weeks of 2024, before a new administration, is the IRS actually serious this time about auditing NIL collectives? Is that really why BPS, and perhaps other major collectives, are retooling how they do business?

In my humble opinion? Not exactly.