Pay the man

Don’t try this stunt at home, kids.

Last week, I chatted with Athliance CEO Peter Schoenthal about a few different NIL related topics for Collegiate Sports Connect. Early in that conversation, Schoenthal mentioned something I’ve suspected, but haven’t confirmed. He believes a lot of college athletes aren’t disclosing NIL deals to their compliance departments.

“I’m at the NCAA Convention, and I’m talking a bunch of SAAC (Student Athlete Advisory Council) athletes, and I ask them if they’re disclosing deals. And they’re like…, ‘No.’ And when I ask why not, the answer blew my mind. They said that if we disclose the deals, we’ll have to pay taxes on them. If we don’t disclose, we don’t have to pay taxes on them. And that broke my heart.”

If that’s your game, either you’re getting spectacularly bad advice or you’re letting greed get in the way of reality, because there’s no way you’re going to be able to hide something like that very long.  And when it comes to light, it won’t be pretty.

Individual schools are unlikely to take punitive actions against their own athletes for breaking NIL team policies. The NCAA may not be able to do it either. But the IRS absolutely can. They will not hesitate to slap some major fines on an athlete who didn’t realize that the NIL deal that gave him a new truck also gave him a new taxable asset.

“I do think April 15 is going to be a scary day for a lot of student-athletes, and a lot of people are going to be put on some payment plans going forward,” Schoenthal told me.

Still, in a world where we see college athletes routinely get stopped for expired driver’s licenses, I won’t be surprised at word of the first tax bust.  I only hope Kirby’s on this particular mother with his team.

Matt goes on to highlight a different practice that may have more troubling implications.  And in this case, it ain’t the kids.

Take Horns With Heart, for example. This collective raises money, and then pairs that money to pay athletes to participate in NIL deals with charities. You may have heard of one of those deals, the Pancake Factory, which gives all participating Texas offensive linemen $50,000 to “to make charitable appearances and bring awareness to worthy causes that impact their local communities.” I’m told collectives supporting athletes at other schools are exploring similar models as well.

On its website, Horns With Heart says the organization is a non-profit organization and further identifies itself as a charity. It is unclear if the organization has filed as a 501c3, although there are plenty of typical logistical reasons for why a filing might not show up on a website yet. Horns With Heart did not respond to an email and voicemail requesting clarification.

I am not saying Horns With Heart is breaking any rules here. But I do know some accounting experts have concerns about this particular collective model.

I reached out to Brian Mittendorf, a professor at The Ohio State University who studies accounting practices of non-profits.

“I guess the big catch here is…directly funding students, by itself, isn’t a charitable purpose. You can raise money for student scholarships, and that could be a charitable purpose…but you couldn’t exist as a charity with only the function of funding students.

“In order to keep a 501c3 status, you, as a charity, have to have a charitable purpose. Doing an NIL deal, almost by definition, isn’t a charitable purpose; that’s a market exchange.”

Theoretically, if the IRS or another government regulatory body agreed with that thinking, it could investigate an NIL collective.

Potentially, how serious could that be?  I’m not sure.

Mittendorf told me that while the IRS does have purview over the incorporation status of non-profits, and it does have the ability to audit charities to make sure they’re actually operating for charitable purposes, most of these investigations would happen at the state level. “You’re much more likely to see action by state attorneys general than the IRS on a lot of these questions,” he said.

Yeah, good luck with a state attorney general opening a can of investigative whoop ass on a booster program benefiting State U’s football program.  Still, stranger things have indeed happened…

Let’s just say there are still a few kinks to be worked out.