Two U.S. Senators introduce NIL bill to prohibit tax write-offs

NIL collectives have received the first notice their charitable tax deduction status may be short lived.

U.S. Sens. John Thune (R-SD) and Ben Cardin (D-MD) introduced a new piece of NIL legislation on Wednesday. Both sit on the Subcommittee on Taxation and Internal Revenue Service (IRS) Oversight. Their bipartisan legislation prohibits individuals and organizations — NIL collectives — from using the charity tax deduction for contributions to compensate collegiate athletes in the NIL space.

Titled the Athlete Opportunity and Taxpayer Integrity Act, it is aimed specifically at collectives that have claimed 501(c)(3) status. Universities would be exempt from this legislation.

Just a two-page document, the bill would be used to address individuals and organizations distributing NIL compensation under the charitable tax deduction umbrella.

“College athletes have the ability to benefit from opportunities related to their own Name, Image, and Likeness, but outside organizations and collectives should not be able to write contributions off their taxes that are used to compensate athletes,” Thune said in a statement. “This common-sense legislation would prohibit these entities from inappropriately using NIL agreements to reduce their own tax obligations. These basic taxpayer guardrails would protect athletes, strengthen NIL, and uphold the responsible stewardship of taxpayer dollars.”  

There are more than 20 collectives across the country currently registered with tax-deductible status.

This move comes less than a week after U.S. Senators Tommy Tuberville (R-AL) and Joe Manchin (D-WV) sent letters to 30 collectives asking for feedback as part of their process of drafting bipartisan, federal legislation related to NIL.

In their preliminary research, Tuberville and Manchin discovered college athletics stakeholders believe a decision needs to be made on the future of collectives.

“Notably, more than 70% of the commenters recommended that any future legislation address the issue of whether and how to regulate, control, or ban collectives,” the Senators wrote in a letter sent to collectives.

What is an NIL collective?

In the first year and change of the NIL era, collectives have surfaced all over the country. In the On3 NIL collectives database, there are more than 160 NIL collectives spread across Division I sports.

Typically founded by prominent alumni and influential supporters, school-specific collectives pool funds from a wide swath of donors to help create NIL opportunities for student-athletes through an array of activities.

Independent of a university, it can serve a variety of purposes. Most often, they pool funds from boosters and businesses, help facilitate NIL deals for athletes and also create their own ways for athletes to monetize their brands. The term “collective,” which generally means a cooperative enterprise, has no particular legal significance.

Industry sources expect every Power 5 school to be affiliated with at least one NIL-related collective by the end of the year. Those programs that fail to be affiliated with a robust collective risk being left in the dust in the ultra-competitive world of football and basketball recruiting. 

Registering under a 501(c)(3) status has emerged as one of the most popular formats for collectives to come together. Donors are be able to write off their donations. The other popular route NIL-driven organizations have taken is to register as an LLC. This business structure allows an owners’ personal assets to be protected from business debts and lawsuits. It also allows an LLC to have one owner or multiple members.

Where NIL legislation goes from here

The last few months have marked a busy time for NIL legislation to be introduced on Capitol Hill. Wednesday night’s announcement is the fourth piece to be introduced in the last two months.

Five senators announced plans to reintroduce Athlete Bill of Rights in Congress, led by Cory Booker (D-NJ) and Richard Blumenthal (D-CT). Their bill includes health, wellness and safety standards. A medical trust fund would be established to cover the cost of the out-of-pocket expenses relating to any athletic program-related injury or illness not covered by an institution.

Tuberville and Manchin announced plans for bipartisan legislation on the same day. They have yet to release a draft of their bill.

And U.S. Senator Roger Wicker (R-MS) reintroduced a bill aimed at curtailing the impact NIL has made in recruiting earlier this month. Most importantly, the bill prohibits former student-athletes from retroactively suing over NIL. The legislation also states athletes would not be considered employees — a main argument some Republicans and Democrats have had over NIL legislation.

And then there’s the latest piece of legislation, introduced Wednesday, which would curtail tax-deductible collectives.

“In this new NIL era, we want to ensure that the opportunities available for student athletes to benefit from their own name, image and likeness are protected,” Cardin said in the release. “We also have an obligation to protect taxpayer funds, which means that charitable deductions should be reserved for charitable activities. Purposefully blurring the line between private expenses and charitable contributions dilutes both these efforts.”  

Where NIL legislation goes from here is a major question. Midterm elections are nearly a month away. Conference commissioners called for reform, driven by legislation, on Capitol Hill throughout the summer. And Democrats and Republicans continue to remain fair apart from on much of the language being introduced in these bills.

The one route, sources say, is that the House of Representatives goes Republican and the party holds control of the Senate following November’s elections. This would allow a window where a piece of NIL legislation could be passed.