The Formation and Tax Implications of NIL Collectives

By: Bryce Danielle Bradley

Last year, research reported that there were around 250 name, image and likeness collectives around the country.[1] Collectives are “structurally independent of a school, yet fund NIL opportunities for the school’s student-athletes.”[2] Most of the time, the founders of these collectives are entrepreneurs, lawyers, financial advisors, investors, and super-fans who may be proud alumni of a certain university.[3] Typically, these individuals will agree to combine funds and resources to establish and operate a collective.[4] Collectives create agreements that detail the services that an athlete will provide in return for monetary compensation.[5] These services include social media advertising, autograph signing, commercials, in-person appearances at events, and much more.[6] Generally, collectives serve as the facilitators and connectors between companies and athletes.

There are different forms of collectives, as they are created with a specific purpose in mind.[7] These entities can be marketplace, donor-driven, or dual.[8] Marketplace collectives arrange for businesses and athletes to collaborate on NIL opportunities.[9] Donor-driven collectives raise money and produce NIL opportunities that compensate athletes.[10] Dual collectives offer both marketplace and donor-driven opportunities.[11]

Donors participate in donor-driven collectives by making monthly or annual payments.[12] Some of the donors pay as little as a few dollars every month, while others have donated millions.[13]

By signing up for a collective membership, fans can have access to the ultimate fan experience. Companies can capitalize on the widely publicized and televised space that is college sports to build grow their businesses. These opportunities have never been this accessible to the public and will continue to expand in the future as both fans and businesses give more and more money through their collective memberships.

Some collectives identify as “nonprofit” entities.[14] Donations to certain collectives are 501(c)(3) tax-deductible and others are labeled as 501(c)(7) tax-exempt, nonprofit entities.[15] To qualify for tax-exempt status, the collective must be organized exclusively for tax-exempt purposes such as “religious, charitable, scientific, literary, or educational purposes.”[16] When donors give funds to a nonprofit collective, the collective uses these funds to create nonprofit opportunities (community service and fundraising).[17] Student-athletes are compensated for making charity appearances and participating in other activities to impact their communities.[18] A President of a non-profit collective stated that “[the players] don’t have time to go out and get a second job…being able to do something and help enact change for them and their family, as well as giving back…it’s a win, win, win.”[19]

However, there are regulatory concerns that come with operating as a nonprofit collective.[20] State senators have pushed legislation to prohibit collectives from this kind of compensation practice.[21] The proposed legislation has the goal to “protect athletes, strengthen NIL, and uphold the responsible stewardship of taxpayer dollars.”[22] These proposals have not been successful in becoming federal laws, but there is growing skepticism of 501(c)(3) collectives. Attorney generals around the country are looking into these kinds of collectives to analyze whether the collective’s “primary purpose is charitable.”[23] The IRS believes that there are many collectives attempting to qualify as 501(c)(3) entities, but they will be unsuccessful due to operating for the purpose of serving private interests instead of the exempt interests listed previously.[24] Now, and in the future, collectives should be careful in forming their entities to ensure that they are IRS compliant to avoid liability and to continue to benefit from NIL opportunities.

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[1] A Changing Game: The Rise of NIL Collectives, Teamworks (Sept. 6, 2023), https://teamworks.com/blog/a-changing-game-the-rise-of-nil-collectives/.

[2] Name, Image, and Likeness (NIL) Collectives, Taxpayer Advoc. Serv., https://www.taxpayeradvocate.irs.gov/get-help/general/nil/nil-collectives/ (last updated Jan. 4, 2024).

[3] Id.

[4] See id.

[5] Id.

[6] Tracker: University-Specific NIL Collectives, BUS. OF COLL. SPORTS, https://businessofcollegesports.com/tracker-university-specific-nil-collectives/#:~:text=A%20collective%20is%20an%20organization,student%20athletes%20of%20that%20institution (last updated Apr. 4, 2024).   

[7] Taxpayer Advoc. Serv., supra note 2.

[8] Id.

[9] Id.

[10] Id.

[11] Id.

[12] Membership, The Tech Way, https://www.thetechway.com/content/memberships (last visited on Apr. 13, 2024). The Tech Way is a collective local to the Georgia Institute of Technology in Atlanta, Georgia.

[13] Id.

[14] Taxpayer Advoc. Serv., supra note 2.

[15] Id.

[16] Jacob L. Kaplan et al., Federal Tax / Exempt Organizations Advisory: The IRS’s Latest Play on NIL Collectives: Tax-Exempt Status on the Defensive, Alston & Bird (Oct. 18, 2023),

https://www.alston.com/en/insights/publications/2023/10/the-irss-latest-play-on-nil-collectives.

[17] See Cohesion Found., https://www.cohesionfoundation.com/charities/ (last visited Nov. 30, 2023). The Cohesion Foundation is a non-profit 501(c)(3) at Ohio State University.

[18] Id.

[19]See Josh Schafer,  University of Texas Offensive Linemen Offered $500,000 Each to ‘Make a Positive Impact’ , Yahoo!Finance (Dec. 10, 2021), https://finance.yahoo.com/news/university-of-texas-football-players-pancake-factory-132446197.html.

[20] See The Risks of Nonprofit NIL Collectives, James Moore & Co., https://www.jmco.com/articles/collegiate-athletics/risk-nonprofit-nil-collectives/#:~:text=An%20NIL%20collective%20is%20generally,are%20establishing%20themselves%20as%20nonprofits (last updated Oct. 27, 2023).

[21] See Tim Shaw, The Long Read: Tax Implications of College Collectives, NIL Deals, Thomson Reuters (Oct. 6, 2022), https://tax.thomsonreuters.com/news/the-long-read-tax-implications-of-college-collectives-nil-deals/.

[22] Id.

[23] See Larry Mohr, The Tax-exempt Entity: NIL Collectives Getting Creative in Pursuing College Athletes, Bakertilly (June 28, 2022), https://www.bakertilly.com/insights/the-tax-exempt-entity-nil-collectives.

[24] See Kaplan et al., supra note 16.