The emergence of “donor collectives”—coalitions of boosters and alumni raising money to pay athletes on behalf of individual colleges and universities—is reshaping big-time college athletics at a time when the ability to regulate when and how players can be compensated is undergoing significant change, a New York Times report suggests. The implications are potentially enormous for everything from federal tax law, gender equity and competitive balance.
Under intense pressure from athletes and its hand forced by court decisions, the National Collegiate Athletic Association altered its rules two years ago to allow players to profit off their name, image and likeness. In the wake of that loosening of national rules, a patchwork of state laws and regulations has emerged, creating a “wild west” environment in which institutions and their football programs, especially, compete for individual players with arrangements that can grow well into six figures.
The original idea behind the name, image and likeness concept—that individual employers or companies would “hire” players or entire programs to endorse and promote their businesses—has been overtaken by a system in which these collectives, purportedly disconnected from the institutions themselves, “raise money from alumni and other die-hard fans and channel the proceeds to players, ostensibly for charitable work, social media posts or other small tasks.” Some of the groups are set up as charities, treating donations to them to be tax deductible, although the Times reports that that approach is drawing scrutiny from the Internal Revenue Service.
The Times reported that it had documented about 120 collectives formed thus far, “including one for every school in each of the five major football conferences.” According to data the newspaper received from Opendorse, a platform for name, image and likeness deals, the average starting player at one of the universities in those five conferences now earns $103,000 a year from these sources, with about $80 million of the total of $100 million coming from the donor collectives.
The Times article states that one player at Michigan State University is now earning as much as $750,000 a year, which it attributes to the company that is paying him. A collective supporting the University of Utah announced this month that it would provide a free lease for a $61,000 truck to every scholarship football player.
The commissioner of the Big Ten Conference, Tony Petitti, said in testimony at a U.S. Senate hearing last week that the new system of collectives was a “pay-for-play scheme” and that control of college athletes was “shifting away from the universities to collectives.”
The Times article is filled with examples that raise questions about the purported separation of these collectives from the sports programs and universities on whose behalf they work. At a $2,000-a-head fundraiser at a New Jersey yacht club for Happy Valley United, a collective working on behalf of Pennsylvania State University, the Penn State coach, James Franklin, told donors: “We’ve got to be able to offer a package similar to [Ohio State, Michigan and Notre Dame] so that money does not become a factor,” the Times reported.
The article also explored the federal government’s evolving view of whether the emerging collectives deserve a tax exemption for an educational or other purpose, as many aspects of college sports have historically been granted.
The Internal Revenue Service granted nonprofit status to a significant number of collectives because they indicated that they would be paying players “in return for doing charity work, such as promoting a cause on social media, visiting children in hospitals or volunteering at camps,” the Times reported.
Critics questioned those rationales given that the collectives were making clear in other venues that they existed primarily to help their favored teams attract the best players, and this summer the IRS issued a memo stating that collectives “will, in many cases, be operating for a substantial nonexempt purpose—serving the private interests of student-athletes—which is more than incidental to any exempt purpose furthered by the activity.”
The other major issue potentially raised by the collectives is one that has long plagued college sports at the highest levels: the significant imbalance in support for men’s and women’s teams.
Title IX of the Education Amendments of 1972 requires equitable treatment of male and female athletes. It applies to participation rates, scholarship funds, equipment and anything else provided by institutions—but might not apply to entities that are purportedly operating outside the scope or influence of colleges and universities themselves, like collectives. The funds they raise overwhelmingly flow to football and men’s basketball players.
“You’ve got these collectives that are sitting just outside the door of the athletic department, distributing lots of money,” the Times quoted Michael H. LeRoy, the LER Alumni Professor of Labor and Employment Relations at the University of Illinois at Urbana-Champaign, as saying. “Just inside the door, Title IX applies. But outside the door, it doesn’t apply. It’s a sham.”