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Athletic Programs and NIL Collectives: Truly Not-for-Profit? 

Posted on Mar. 27, 2023

Mitchell Franklin is an associate professor of accounting at the Le Moyne College Madden School of Business in Syracuse, New York. Ronald Zullo is a full-time lecturer of accounting at the Northeastern University D’Amore-McKim School of Business in Boston.

In this article, Franklin and Zullo examine how NCAA name, image, and likeness agreements have affected the recruitment of athletes and the operation of college sports teams and consider whether those teams should have the income they generate for their universities protected by their not-for-profit status.

The opinions expressed in this article are the authors’ and do not necessarily reflect the opinions or positions of any institutions with which they are affiliated.

Since April 2021 when the NCAA adopted a new transfer rule1 and July 2021, when it allowed college athletes to enter into name, image, and likeness (NIL) agreements,2 how student-athletes may conduct themselves has radically changed. Before this there were significant restrictions on how they could transfer between schools and a strict prohibition against them earning any compensation based on their name or status as athletes.

Even with the NCAA’s approval of NIL agreements, significant constraints remain on compensating college athletes to play sports — most notably pay-to-play restrictions. Still, universities have allowed prominent boosters (charitable benefactors) to set up “collectives” that raise money specifically for the compensation of student-athletes under approved guidelines. Some (but not all) of these collectives are not-for-profit entities. In many cases, universities have directed alumni and other boosters to make donations to these collectives that were established to compensate athletes for taking part in public events or other appearances that market their name, image, or likeness. Many schools allow their names and logos to be used on the websites that support these collectives.3 Athletes sign agreements with them to live within the geographic area of the college or university where they compete and take part in various marketing or charitable events in exchange for payments. Those payments sometimes reach the million-dollar-per-year point depending on the size of the school and alumni support. Although the agreements cannot specifically mandate that athletes take part in games, they are written in a way that makes it clear that the athletes are expected to compete to be compensated. If athletes do not compete successfully, there will be no interest or demand for them to take part in NIL events for which they are compensated. However, because of NCAA restrictions, the alumni who form and manage these collectives are not allowed to recruit athletes for the schools.4

College athletic programs have not had a long history of boosters using private jets to travel with potential recruits to games on campus to showcase institutions — and of those institutions indirectly supporting those actions by allowing them to occur. Recently, a billionaire booster for an athletic program flew a five-star recruit to campus on his private jet and brought him to a basketball game, where he sat courtside. On the jet and at the game were two of the recruit’s favorite rap musicians. Two days after the visit, the recruit committed to play at the university,5 and the booster acknowledged that he has multiple million-dollar NIL deals out to players.6 Universities may not be supporting these jaunts as recruiting trips under NCAA rules, but they are also not prohibiting them, as has been reported in the media for many prominent similar cases.7 A popular national media outlet recently reported that a large public university has made arrangements so that all athletes of the university will receive an NIL deal for football and basketball, funded by booster-managed collectives.8

Requirements have also eased for how student-athletes can transfer to and from institutions without facing restrictions or delays in competing post-transfer. Rules that previously required players to sit out from competing for a year after transferring have been significantly loosened through the establishment of the NCAA transfer portal.9 Alumni-booster NIL collectives that are well funded can easily lure players to transfer from one institution to a rival in exchange for highly lucrative compensation arrangements through NIL collectives affiliated with the universities. There are countless examples of students leaving one school after a year for another institution where they are offered a highly lucrative NIL deal. While there might not be agreements specifically stating that a partnership exists between the university, the NIL collective, and the athlete to perform services for compensation, it does appear to be implied. Those implications will typically hold legal weight in court proceedings.

Lawmakers are now openly targeting some NIL collectives to question their not-for-profit status,10 and we think that inquiry should be broadened. We also cannot ignore the question of what a “student-athlete” is and how the phrase “educational purposes” has been defined for charitable organizations under section 501(c)(3) and Treasury guidance.11 Given the conditions under which these student-athletes are now competing and earning money through NIL arrangements, combined with university support and significant commercialization of the athletic programs that ultimately land recruits, does the “student-athlete” definition apply, and are current patterns truly consistent with the educational mission of an academic institution as defined in the regulations? Said another way, is the spirit of the prohibition against tax-exempt organizations receiving an unfair competitive advantage being met? University athletic department income is considered tax exempt because it comes from part of the university. Does it now fit better as unrelated business income? Case law in similar situations has denied the not-for-profit status of organizations because of their significant commercialization to represent a business interest.12 Consistent tax treatment with these examples may be appropriate considering how university athletic programs are now collaborating with NIL arrangements.

Robert Goulder of Tax Notes and professor Mitchell Franklin of the Le Moyne College Madden School of Business discuss college sports programs’ not-for-profit status in light of compensation for name, image, and likeness rights.

Although colleges and universities are not directly operating these NIL collectives, they are encouraging donors to establish and support them. Collectives often target recruits to entice them to sign a contract. As universities sign higher-caliber talent, engage in competitions more frequently broadcast on national media, and take part in postseason play, these contracts can significantly increase program revenue and commercialization. And those universities with successful NIL programs will be the ones to attract and retain the best athletes.13

Current Regulations

Even before the emergence of these collectives, questions arose over how the commercialization of college sports should affect the not-for-profit status of colleges and the NCAA.14 Prior guidance supported the efforts of athletic associations and related entities to qualify as tax exempt and not for profit.

The IRC definition of educational purpose needs to be examined by both lawmakers and institutions that use NIL agreements to attract players.15 The term “educational” includes the instruction or training of individuals to improve or develop their capabilities.16 In Rev. Rul. 55-587, 1955-2 C.B. 261, an interscholastic athletic association, organized to promote and protect the health of high school athletes through uniform interscholastic competition, was found to be organized and operated primarily for educational purposes and exempt under section 501(c)(3). Further, in Rev. Rul. 67-291, 1967-2 C.B. 184, the athletic program of a university conducted for the development and “betterment” of the students was considered to be an integral part of its overall educational activities. And because the nonprofit organization created to further the athletic program provided necessary services to the student-athletes and coaches, it qualified for exemption from federal income tax under section 501(c)(3).


There is no question that the tax-exempt status of universities extended to their athletic programs under the way they historically operated. The question posed here is whether athletic program income, which includes some type of NIL arrangement and uses boosters and commercialization to attract and indirectly pay athletes to attend a school and play a sport, should still qualify under this criteria. Should income from athletic programs be more appropriately classified as UBI to universities?

It is common for not-for-profit organizations to report income from some activities as unrelated business taxable income.17 UBTI is defined as the gross income derived from any trade or business regularly carried on by an exempt organization that is not substantially related (aside from the need of the organization for funds) to the exercise of the exempt function of that organization.18 Further, in determining whether a trade or business is regularly carried on, the frequency and continuity of the income-producing activities and how they are conducted and pursued must be considered. The requirement must be applied in light of the purpose of the UBI tax to place exempt organization business activities on the same tax basis as nonexempt business endeavors with which they compete.19

Gross income derives from an “unrelated trade or business” within the meaning of section 513(a) if the conduct of the trade or business that produces the income is not substantially related (other than through the production of funds) to the purposes for which an exemption is granted. This requirement necessitates an examination of the relationship between the business activities that generate the income in question — the activity of producing or distributing the goods or performing the services involved — and the accomplishment of the organization’s exempt purposes.20 A trade or business is related to exempt purposes, in the relevant sense, only when the conduct of the business activities has a causal relationship to the achievement of exempt purposes (other than through the production of income); and it is “substantially related” for purposes of section 513 only if the causal relationship is a substantial one.

Thus, for the trade or business activity from which a particular amount of gross income is derived to be substantially related to the purposes for which an exemption is granted, the production or distribution of the goods or the performance of the services from which the gross income is derived must contribute “importantly” to the accomplishment of those purposes. When the production or distribution of the goods or the performance of the services does not contribute importantly to the accomplishment of the exempt purposes of an organization, the income from the sale of the goods or the performance of the services does not derive from the conduct of related trade or business. Whether activities that produce gross income contribute importantly to the accomplishment of any purpose for which an organization is granted exemption depends in each case on the facts and circumstances involved.21

It has been ruled that income an educational organization receives from charging admission to football games would not be deemed income from an unrelated business because its athletic activities are substantially related to its educational program.22 As noted earlier, athletic programs have been considered an integral part of the educational process of a university, and any activity providing necessary services to student-athletes and coaches furthers the educational program of those schools.23

Critical in the evaluation of the earlier guidance on this issue are the dates of those determinations and how athletic programs operated differently in the past compared to those in today’s climate. Rulings to support the not-for-profit status of these programs are not recent, and much has changed regarding how players are recruited. Moreover, the factors to be considered regarding the school at which the recruit will compete and how athletic programs commercialize themselves through athletes under NIL arrangements are quite different. At the time of these older rulings, the recruiting practices now in place didn’t exist; student-athletes typically selected schools based on academic fit, with less emphasis on athletics. Following are some relevant issues that should be considered:

  • Is the recruit of today in the NIL environment committing to a school primarily because of the academic programs offered or to play a sport — and collect a sizable income for making appearances based on the fame received from competing in the sport?

  • Do the students recruited to compete have academic and personal profiles that are comparable to other academic applicants? Is student “betterment” defined as improved athletic performance, or should it be based on how students perform relative to the academic mission of the institution?

  • As the athlete profits from the NIL arrangement, so does the athletic institution because of increased media exposure, commercial exposure, and success. If high-performing players are retained because of NIL arrangements, it stands to reason that this will lead to increased ticket and concession sales and more valuable media rights for the institution.

  • As athletic programs profit, how are those profits used? Are they invested only in athletic programs, or is the profit invested in programs campuswide to support the academic missions of the student as discussed in Rev. Rul. 67-291?

  • Should the investment of profits exclusively in athletic programs that are highly commercialized count as an “educational purpose,” even if not explicitly stated in the mission of the institution?

The operation of college athletic programs has changed over the years, and now commercialization and student-athlete compensation play significant roles in the landscape. This means that the existing guidance supporting the tax-exempt status of programs’ income may not be in line with reality. There has been considerable debate over whether college athletics should qualify for not-for-profit status based on the commercialization of sports and the perceived obsolescence of regulations that govern these programs.24


Institutions of higher education appear to use alumni and NIL collectives to skirt NCAA rules that prohibit pay to play and to recruit in ways that have historically been frowned on — ways that previously caused many programs to be sanctioned by the NCAA. Existing not-for-profit guidance protects college athletics from taxation based on an analysis of historical “student-athletes” and universities’ “educational purpose.” The new NIL model raises questions about whether today’s student-athletes are dedicated students or bona fide students at all with any real intent to uphold the academic mission of a school. Should there be a revised definition of educational betterment? If these athletes are not recruited as students first but instead are recruited for their ability to play, there may be a question of whether not-for-profit status should protect the income of athletic programs in this area from taxation as UBI.

College presidents and governing bodies must carefully monitor athletic director behaviors to ensure that students being paid by booster-run collectives truly are students first to protect the academic image of their institutions. For those who do not, lawmakers on both sides of the aisle should keep an eye on the behavior of these schools. If the “student-athlete” and “educational purpose” requirements do not hold up as originally intended when the regulations were written, lawmakers should consider modifying the laws to tax educational institutions on revenue earned by their athletic programs. The newly commercialized traits of athletic programs combined with NIL recruitment efforts show that the UBTI rules may be a better fit for schools than not-for-profit status. More recent case law also supports similar situations in which a not-for-profit organization that engages in significant relationships that are commercial (as we now have in athletics with NIL agreements) may not be tax exempt.25 As business models change, lawmakers must ensure that laws to ensure proper public policy are in place and keep up with the changing climate of college athletics.

The NCAA has recently said that it plans to crack down on what appears to be pay to play (which is being referred to as “pay-for-play”) through NIL collectives.26 Even if the NCAA does successfully curb collectives, the increased commercialization of college athletic programs must have lawmakers questioning whether the regulations really should hold as they have in the past.


1 See NCAA release on proposal of new transfer rule (Apr. 15, 2021).

2 Joseph Rios, “What Is NIL in College Sports? The NCAA Rules Explained,” Best Colleges, June 30, 2022.

3 One of many examples showing a university’s support of an NIL collective is the Seton Hall Pirates Hall Ball, “ Launched in Support of Student-Athlete NIL” (Dec. 21, 2022). See also, “The On3 Guide to NIL Collectives Around the Nation,” On3 (Aug. 25, 2022).

4 Rios, supra note 2.

5 The recruit and his father maintain that these events did not influence his decision to attend the university. See Mike Waters, “Elijah Moore’s Dad: My Son Didn’t Pick Syracuse Because of NIL Money or a Plane Trip With Rappers,”, Mar. 2, 2023.

9 Julia Elbaba, “How NCAA Transfer Portal Works and What It Means for Players,” NBC Sports, June 29, 2022.

10 Amanda Christovich, “A New NIL Bill Aims to Outlaw Nonprofit Collectives,” Front Office Sports, Sept. 29, 2022.

11 Rev. Rul. 67-291, 1967-2 C.B. 184.

12 Airlie Foundation v. IRS, 283 F. Supp. 2d 58 (D.D.C. 2003).

13 Kit Ramgopal, Kenzi Abou-Sabe, Gabe Gutierrez, “‘There’s No Rules. It’s Crazy’: New Money in NCAA Recruiting Leaves Elite Athletes Ripe for Exploitation,” NBC News, Nov. 27, 2022.

14 See Benjamin Kurrass, “The Swelling Tide of Commercialized Amateur Athletics: How Growing Revenues Have Called Public Attention to the NCAA and Its Member Universities’ Tax-Exempt Status,” 27 Jeffrey S. Moorad Sports L.J. 285 (2020); John D. Colombo, “The NCAA, Tax Exemption, and College Athletics,” U. Ill. L. Rev. 109 (2010); and Richard Schmalbeck and Lawrence Zelenak, “The NCAA and the IRS: Life at the Intersection of College Sports and the Federal Income Tax,” 92(5) S. Cal. L. Rev. 1087 (2019).

15 Section 501(c)(3).

16 Reg. section 1.501(c)(3)-1(d)(3).

17 Section 511(a)(1) and (2).

18 Reg. section 1.513-1(a).

19 Reg. section 1.513-1(c).

20 Reg. section 1.513-1(d)(1).

21 Reg. section 1.513-1(d)(2).

22 H.R. Rep. No. 2319, 81st Cong., 2d Sess. 37, 109 (1950).

23 Rev. Rul. 67-291.

24 Kurrass, supra note 14; Colombo, supra note 14; and Schmalbeck and Zelenak, supra note 14.

25 Airlie Foundation, 283 F. Supp. 2d 58.


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