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Recent IRS Rulings Will Change the NIL Game for Collectives - What’s Next?
In the first two years of NIL, over 200 collectives have emerged, and more than 80 of these collectives were formed as non-profits, or 501(c)(3) organizations - an Internal Revenue Service designation that allows for businesses to be exempt from taxes so long as they are primarily focused on making advancement and improvement for the public good.
In late May 2023, the IRS ruled that NIL collectives serve a more notable purpose to the private interest of athletes, rather than to the public interest. Therefore, NIL collectives are no longer eligible for 501(c)(3) status, and consequently, the donations they receive from boosters and organizations are no longer eligible for tax exemption.
So what does this news mean for collectives?
1. The majority of nonprofit collectives will restructure to for-profit entities.
Since nonprofit collectives in most cases will no longer be afforded tax exempt status, the vast majority of nonprofit collectives will structure/restructure as for-profit entities likely as LLCs.
Because collectives will no longer be able to offer donors tax exempt status on donations with, they will need to implement new incentives to keep their donations coming in. Collectives have begun to launch membership packages to donors that provide exclusive access to events, unique experiences, private broadcasts and streaming. We expect these packages to be offered at increasing rates.
How can MOGL help? MOGL has over 2,000 dedicated brand partners available for collectives to partner with to create exciting and meaningful experiences and activations for their community and student-athletes. This network of partners is available to sponsor experiences and events and also provide advertising support.
2. Collectives will work directly with university fundraising arms with greater frequency.
State legislatures, including TX, NY, AK, OK, and MO have begun to adopt language that prevents the NCAA from restricting colleges in supporting and facilitating NIL for their athletes.
These adjustments to state NIL laws are representative of a broader shift in the NIL landscape: athletic departments are questioning the NCAA’s ability to govern and enforce penalties for violations against their policies. The result is that NIL collectives at many Power 5 institutions now work closely, if not directly, with university fundraising arms for donations that ultimately go towards supporting student-athletes.
How can MOGL help? MOGL offers the only fully integrated and automated university and collective solution in the NIL landscape today. As schools work directly with their collectives, they will need visibility into everything their collectives are doing, information regarding who is receiving payment, evidence that the deliverables were fulfilled, and more.
Collectives are working closely with university sponsorship groups and have an increased need to drive ROI similar to a local marketing agency.
As universities and collectives work more closely together, the two parties recognize that corporate sponsors and local businesses in the university network are a tremendous source of support for student-athletes through marketing activities. Since collectives often have a close relationship with their student-athletes and have them under annual contracts, they are now working with universities to broker NIL deals with university corporate sponsors.
At this point in NIL, many collectives are not yet experts on influencer marketing, and many do not possess experience in managing marketing campaigns. Collectives are on the hunt for a creative partner, and MOGL can fill that void.
How can MOGL help? MOGL serves as a dedicated sponsorship activation partner for collectives who use our software. Our brand network will continue to expand, and value provided to collectives and schools that need support managing and executing NIL campaigns will increase. A flywheel effect is in place as collectives bring new sponsors, local businesses, and student-athletes to the network.
