Opinion: NIL Collectives Shouldn’t Be Granted 501(c)(3) Status

Last Updated on February 12, 2024

This Article contains excerpts from a Comment published in the University of Maryland Francis King Carey School of Law’s Journal of Business & Technology Law: False Start: Federal Legislation is Needed to Prevent Name, Image, and Likeness Collectives from Improperly Receiving 501(c)(3) Tax-Exempt Status.


On June 30, 2021, the National Collegiate Athletic Association (NCAA) adopted an interim policy implementing new name, image and likeness (NIL) guidelines for student-athletes (the “NIL Policy”). NIL refers to the rights of student-athletes to control and profit from their name, image and likeness. The NIL Policy directs student-athletes engaging in NIL activities to refer to state law and university policies for compliance. As of January 24, 2024, 30 states have active NIL laws.

The NIL Policy has resulted in profitable outcomes for student-athletes. After the first year of the NIL Policy, student-athletes earned $917 million from NIL-related deals. After the second year, student-athletes earned nearly $1 billion. That figure is expected to reach $1.17 billion in the third year.

Approximately 80% of all NIL compensation is provided to-student athletes by NIL collectives. An NIL collective is a group of boosters, alumni, and supporters of a university that pool funds from donations to provide paid NIL opportunities for student-athletes. There are over 200 known NIL collectives nationwide. The total amount of funds held in an NIL collective, especially at large universities, are often exorbitant – for example, one NIL collective agreed to pay a student-athlete up to $8 million, while another raised over $20 million.

Nearly 80 of the 200 known NIL collectives nationwide are claiming Section 501(c)(3) status under the Internal Revenue Code. In other words, these 80 NIL collectives collect nontaxable donations and provide tax deductions for their donors. Recently, the Internal Revenue Service (IRS) and Congress released opinions in opposition to Section 501(c)(3) NIL collectives.

These recent developments beg the question – should NIL collectives be barred from receiving Section 501(c)(3) status?

NIL Collectives’ Impact on College Sports

Since the NIL Policy was adopted, NIL collectives have had a profound impact on college sports. The most notable impact is on recruiting.

According to Lane Kiffin, head coach of Ole Miss football, “[t]here are schools with no shot to recruit certain players [because] … [student-athletes will] go to where they get paid the most.” Nick Saban, former head coach of Alabama football, agrees: “The issue is, when you create [NIL collectives] … [g]uys are going to school where they can make the most money.”

Universities are well aware of the recruiting advantage a rich NIL collective provides. As one Southeastern Conference (SEC) director of recruiting puts it, “[i]t’s the [expletive] Wild West[, a]nd you better have your collective carry a big gun.” According to another SEC staff member, “[e]verything now comes down to how willing are your boosters and how rich are your boosters. You’re pretty much [expletive] if you don’t have the booster bank.”

Even the people running the NIL collectives know their significance! Hugh Hathcock, the founder of Gator Guard, a University of Florida NIL collective, which raised over $5 million in donations, said that “if we don’t get the money, we’re going to lose players. No matter how well a kid likes Florida, if a school comes in at the last minute and says, ‘We are going to pay you $100,000’ and we have $10,000, they’re gone.” He added that “with NIL, we’re going to play the game … We’ll listen to what the coach tells us to do. I just raise the money for them to use.”

According to a LEAD1 Association survey, 90% of athletic directors surveyed are concerned that NIL collectives are using NIL payments as improper recruiting inducements. There is evidence that demonstrates that their concerns are legitimate. For example, a Pac-12 Conference school lost a recruit because a rival school’s NIL collective offered the recruit a NIL deal worth more than $1.5 million. A Big-12 Conference school also lost a recruit because a rival school’s NIL collective offered the recruit a NIL deal worth $50,000.

It is clear that NIL collectives have and will continue to have a profound impact on college sports, namely on recruiting.

NIL Collectives’ Status Under Section 501(c)(3)

In order for an organization to receive Section 501(c)(3) status and be excluded from paying taxes and eligible to provide tax deductions, the organization must be organized and operated exclusively for charitable, religious, or educational purposes, and none of the organization’s earnings may benefit the private interests of a shareholder or individual.

According to the IRS and Congress, NIL collectives may not satisfy this test. In an opinion released on June 9, 2023, the IRS concluded that most NIL collectives are not Section 501(c)(3) organizations because they have a single purpose of helping student-athletes monetize their NIL, and by doing so, they benefit the private interests of student-athletes.

Likewise, Senators John Thune (R-S.D.) and Ben Cardin (D-Md.), members of the Subcommittee on Taxation and IRS Oversight, also stated that NIL collectives partake in activity – developing paid NIL opportunities for student-athletes – that is inconsistent with the intended purpose of Section 501(c)(3) and force taxpayers to subsidize the potential recruitment of, or payment to, student-athletes. They introduced the Athlete Opportunity and Taxpayer Integrity Act (AOTIA) on September 28, 2022, which would disallow a tax deduction for donations used by an NIL collective to compensate a student-athlete for use of their NIL.

Congress Should Bar NIL Collectives from Receiving Section 501(c)(3) Status

Congress should bar NIL collectives, whose purpose is to monetize a student-athlete’s NIL or develop paid NIL opportunities for student-athletes, from receiving Section 501(c)(3) status.

This would provide two significant benefits. First, universities would compete on a more even playing field. Without the benefit of a tax deduction, it is likely that fewer donors, especially those with significant wealth, will contribute to an NIL collective. Since the universities that have NIL collectives with large pools of funds are better positioned to attract athletic talent than those with limited or no funds, more fairness in recruiting should ensue.

Second, taxpayer funds would be better protected. Since the NIL collective, donor, and student-athlete all receive a benefit at the expense of the taxpayer, taxpayers would no longer subsidize activities that are not actually charitable, religious, or educational in nature.

For an alternative opinion, see: Important Clues from the IRS’s Letter on 501(c)(3) NIL Collectives

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