IRS: Some nonprofit NIL groups may not qualify
The rapidly expanding landscape of nonprofit, donor-backed collectives paying college athletes to promote charities has been hit with a potentially seismic disruption.
A recent 12-page memo from the Internal Revenue Service determined that, in many cases, such collectives may not qualify as tax-exempt if their main purpose is paying players instead of supporting charitable works.
If the collectives aren’t tax-exempt, the donations they collect that are used to pay quarterbacks, point guards and pitchers may not be, either.
“There’s a high likelihood we will cease operations, within the next period of months,” said Gary Marcinick, founder of the Cohesion Foundation, a collective formed to connect Ohio State athletes with charities for name, image and likeness (NIL) promotional deals. “In our space, we are donor driven. … It’s not only a game changer, it’s a game ender, I think, in the vast majority of cases.”
The collectives were born out of the massive change that hit college sports in 2021 when athletes were allowed to earn money in ways that had been prohibited for decades.
Some collectives — and there are dozens of them — are set up as for-profit entities that help connect athletes with endorsement deals as the new market swelled into the millions and NIL became a recruiting tool. Opendorse, a company that partners with schools to help initiate, track and monitor NIL deals, projected nearly $1.2 billion flowing through the industry in 2023.
The nonprofit model was an attractive option for some donors and entrepreneurs, who tout such things as appearances at sports camps and fundraisers and social media promotions for select charities. There are an estimated 80 such collectives.
Charities gained exposure from star athletes who earned money. And donors got the promise of a tax-deductible donation.
According to the IRS, those collectives already granted tax-exempt status don’t lose it as a result of the June 9 memo. But it does lay out new guidelines for how they are expected to operate if they want to keep it.
“These collectives may face future examinations or enforcement action by the IRS,” the agency said without elaboration.
“The big question is whether this memo will spook donors enough that they will no longer want to donate to nonprofit collectives, and schools enough that they tell donors not to donate to them,” said Mit Winter, a sports law attorney in Kansas City, Missouri, who tracks issues in the college athlete marketplace.
Congress has also been watching. A bipartisan bill filed in 2022 would limit tax deductions for bankrolling nonprofit NIL collectives, but it has yet to pass.
The IRS was granting tax-exempt status to collectives for more than a year before issuing the memo that determined, in many cases, paying players isn’t merely incidental to the charitable cause but “is the very justification for the organization’s existence.”
“The only question was to what extent would the IRS would put its thumb on the scales. It was pretty clear many of these organizations were pushing the boundaries,” said Brian Mittendorf, an accounting professor at Ohio State with a concentration on nonprofits.
“The IRS memo put a line in the sand,” Mittendorf said. “Paying college athletes is not a charitable purpose. Paying an athlete and doing some charitable work on the side, is also not a charitable purpose.”
The IRS warning should not have come as a surprise, said Jason Belzer, founder of Student Athlete NIL, which operates several commercial collectives for schools across the country.
“All of these nonprofits were paid solely for paying student athletes, not for doing the charitable work,” Belzer said. “That’s racketeering.”
The NCAA has raised concerns about the collectives, but the federal government is a different story when it comes to enforcing rules that have been somewhat murky when it comes to athlete compensation.
“The IRS,” Belzer said, “is not the NCAA.”
Eventually, annual financial disclosures required by state and federal regulators will show how much money is collected, spent and to whom. Because these organizations are so new, many of those records haven’t been filed yet.
Marcinick said Cohesion has partnered nearly 80 Buckeyes athletes from multiple sports for NIL deals totaling more than $1.5 million. Partner charities include the Ronald McDonald House, Special Olympics, an area food bank and drug and emotional abuse support groups.
“Unfortunately, there are bad actors out there. They have used [nonprofit status] as a way to harvest donations that have nothing to do with a charitable purpose,” Marcinick said. “We’re a good actor. … We’re paying the price for others.”
On June 9, Ohio State‘s all-Big Ten defensive end J.T. Tuimoloau hosted a football camp for about 80 children backed by the Boys & Girls Club of Central Ohio and the Lindy Infante Foundation, which helps local nonprofits create and improve youth sports programs.
“He talked to the kids, went to every station, signed autographs,” said foundation President Stephanie Infante, calling the IRS memo potentially “devastating” if it effectively ends partnerships like that one.
“It was such a great day and great event,” Infante said. “Nonprofits struggle as it is. To be able to interact and get involved with athletes who are reaching out … It’s been such a great opportunity for athletes to get involved in their community.”
Not everyone is ready to back out of the marketplace.
The Texas One Fund, a multi-pronged collective that includes the Horns With Heart program and its promise of $50,000 for scholarship offensive linemen, intends to keep doing business as usual. The Texas One Fund has long had a disclaimer that a donation could be tax deductible but advice should be sought from a tax attorney.
Texas One Fund will show any nervous donors the group’s March 2022 IRS letter granting nonprofit status, said Patrick Smith, the collective’s president.
“All we can do is continue to perform the mission of our [nonprofit],” he said. “If that whole thing is disallowed. It would be sad for the charities we are helping out.”
Texas One Fund also has a new connection with the university that should help keep the money flowing in. Starting July 1, donors can earn loyalty points with the school-affiliated Longhorn Foundation for season-ticket selections and upgrades.
“I don’t know what effect the memo will have on NIL giving,” Smith said. “Whether it’s a [nonprofit] or not, money is still going to flow to college athletes.”
LAS COLINAS, Texas — Ohio State athletic director Ross Bjork told leaders of the College Football Playoff on Tuesday that the sport’s calendar needs to change, and it’s a critical component as they consider the playoff’s future format.
Bjork, just months removed from watching his Buckeyes win the national title, attended a portion of the annual CFP spring meetings to provide feedback with the three other athletic directors who participated in semifinals and hosted first-round games: Texas athletic director Chris Del Conte, Penn State athletic director Pat Kraft and Notre Dame athletic director Pete Bevacqua, who is part of the CFP’s management committee along with the 10 FBS commissioners.
Bjork said CFP executive director Rich Clark asked if he had one major point he wanted to make before leaving.
“We’ve had so many disruptions over the last five-plus years that I think the time is now to not be reactive, be proactive,” Bjork told ESPN. “When we had this setting here with the commissioners, our job was to provide feedback on what was it like to go through the 12-team playoff … but it all gets impacted by the calendar. I felt it was important to lay that out with everyone in the room to say, separate from the CFP process, if we don’t fix our calendar as an industry, then we’re going to continue to have unintended consequences.”
Bjork shared with the commissioners the perspective of a school trying to win a national title while classes had begun Jan. 6. Ohio State’s academic advisers traveled with the team to the semifinal and national title game, he said, but some athletes missed class and the school had to apply for waivers around the countable athletically related activities, which limits schools to 20 hours of practice time while classes are in session.
“When you don’t have class, there is no limit to CARA hours,” he said, noting that Texas started classes later. “It created some disadvantages. It all goes back to what’s countable CARA hours, NCAA structure. The portal is the next big conversation after the House case and truly what kind of rules can we set? Will we have the authority around transfer rules to set some parameters?”
Bjork said the transfer portal needs to move to a 10-day period in May for fall sports because if the NCAA House settlement is approved, most of the players are going to be signing revenue share agreements with the schools from July 1 to June 30.
“May makes the most sense” to align player contracts with the portal, Bjork said.
Bjork, who said he’s on the implementation committee for the House settlement, said “if everyone follows the structure, it’s going to be a great structure.”
“And everyone has to follow the rules,” he said, “and agree that this is the structure, which we have to. If we don’t do that, then what good is the settlement?”
CLEVELAND — Guardians center fielder Lane Thomas was placed on the 10-day injured list Tuesday with a bruised right wrist sustained when he got hit by a pitch two weeks ago.
The move is retroactive to April 20.
Thomas, who was a postseason star for Cleveland in 2024, was struck on the wrist in the home opener against the Chicago White Sox on April 8. He has played in five games since, including Sunday at Pittsburgh.
Thomas said his wrist initially responded to treatment, but it began troubling him after he played over the weekend.
“I got that first jam shot base hit when I played that first day and it just kind of swelled up after that,” Thomas said. “I kind of lost some range of motion, so they just thought the best option was to try and get all that out of there and not go through that same cycle again.”
Manager Stephen Vogt hopes putting Thomas on the IL will give him time to let the injury heal correctly.
“Let’s take eight to 10 days, knock this thing out so that it’s behind us for the rest of the year,” Vogt said. “Out of fairness for him to be able to be himself and not wonder how’s it going to feel today when I wake up. We decided that with Lane, that this was the best course of action.”
Thomas has twice broken the same wrist after being hit by pitches. He went 2 for 15 with five strikeouts in five games after getting hit.
The Guardians acquired Thomas, 29, in a July trade with Washington. He struggled for much of the regular season before having his biggest moments with Cleveland in October.
Thomas hit two homers in the AL Division Series against Detroit, connecting for a grand slam in Game 5 off Cy Young winner Tarik Skubal to help the Guardians advance.
To replace Thomas, the club selected the contract of infielder Will Wilson from Triple-A Columbus. The Guardians also transferred right-hander Trevor Stephan, who is recovering from Tommy John surgery, to the 60-day injured list.
Wilson was batting .324 for the Columbus Clippers with six homers and 18 RBIs in 18 games. He homered in three of his past four games.
This is the 26-year-old’s first promotion to the majors. He’s a former first-round pick of the Los Angeles Angels, who traded him to San Francisco in 2019. Cleveland acquired Wilson in the minor league portion of the Rule 5 draft this past offseason.
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