Inside USC NIL collective House of Victory's dual nonprofit structure

When the NIL collective House of Victory publicly launched in April, it simultaneously announced a sponsorship agreement with Playfly Sports, which is the multimedia rights holder for USC. The agreement likely makes House of Victory the most aligned of the seven collectives that Trojans supporters have announced in the NIL era.

Similar to many collectives nationally, House of Victory includes two separate entities. Most collectives with two distinct organizational arms have registered a limited liability company and a nonprofit corporation.

However, House of Victory’s founders formed a nonprofit mutual benefit corporation (House of Victory Inc.) and a nonprofit public benefit corporation (House of Victory Foundation Inc.). The IRS‘s website describes the difference as, “A mutual benefit corporation is a corporation typically formed to serve a limited number of members. A public benefit corporation is a corporation formed to benefit the general public.”

House of Victory Foundation has partnered with Community Initiatives, which is an approved, tax-exempt public charity that assists with the receipt and distribution of funds on behalf of House of Victory Foundation.

In the wake of the IRS memo released earlier in June, House of Victory’s organizational model, where it utilizes the tax-exempt status of a preexisting public charity, could be a potential structure for collectives to consider in the future given the potential pitfalls of nonprofit collectives that have applied for 501(c)(3) status.

IRS Deputy Associate Chief Counsel Lynne Camillo wrote that nonprofit collectives will “in many cases, be operating for a substantial nonexempt purpose—serving the private interests of student-athletes.”

Have leaders of other collectives reached out to set up a call with House of Victory given the current environment for nonprofit collectives?

“I actually have not,” House of Victory Executive Director Spencer Harris said in a recent phone interview. “A lot of our alumni and people in the media have reached out about it but have not had a lot of questions from other collectives quite yet. As far as I know, we are the only collective to set up this mutual benefit nonprofit so I would imagine that there will be others that do the same.”

House of Victory wanted ‘adaptable’ structure

Across the country, leaders of nonprofit collectives have consulted with their legal counsel, if not also outside counsel, to discuss the potential impact of the IRS memo.

After all, the IRS memo stated that it can’t be used as precedent. The IRS has approved the applications of more than 50 nonprofit collectives that sought 501(c)(3) status.

Will the IRS eventually revoke the tax-exempt status of nonprofit collectives or apply more scrutiny to future applications? If so, which collectives will be affected and when?

“The number one thing that we wanted to do with this structure was be adaptable because we don’t know what the future is going to look like,” Harris said. “We want to be compliant but we want to have a process in place to show that we’re not looking for any benefit besides trying to help our student-athletes facilitate NIL opportunities and get people behind it.

“I think that’s why the mutual benefit nonprofit – it is a lot more work than just setting up an LLC. We have a whole board. There’s just more layers of work behind it but being able to have that and say that we’re a nonprofit and no one is in this for any entrepreneurial reasons was a really key aspect for us.”

House of Victory has said all of its NIL and business activity has taken place through House of Victory Inc., the nonprofit mutual benefit corporation, rather than the nonprofit public benefit corporation. The collective says its charitable activities take place through the latter.

House of Victory partners with Community Initiatives

At the time of publishing, Community Initiatives hasn’t responded to a voicemail or email requesting comment. Community Initiatives’ website says the organization launched in 1996.

“A group of savvy nonprofit professionals came together under the banner of the San Francisco Foundation with a great idea: to establish a comprehensive fiscal sponsorship agency defined by efficiency and integrity,” the website says.

A copy of Community Initiatives’ Form 990 from the 2019-20 tax year says the organization’s mission or most significant activities are that it “sponsors projects for the benefit of communities in service to social change.”

It reported more than $33.6 million in total revenue and more than $35.3 million in total expenses.

“From the public benefit side, the relationship with Community Initiatives is awesome for us,” Harris said. “They are experts in this space. They can provide a level of security and compliance, and we really wanted to have the charitable aspect because it’s not about just paying the athletes. It’s about getting out in the community, which is an awesome opportunity to use their NIL for the good of Los Angeles, youth in the area and really get out and use their likeness for the benefit of more than just themselves.”

Harris said House of Victory’s specific two-entity approach required more legal due diligence, such as navigating the approval process and determining the collective’s board members and their voting statuses.

“There’s just a lot more visibility into the accounting and backend management,” Harris said. “Truthfully, we wanted to launch in January, February, and it got pushed back a couple months because some of that paperwork and process took longer. And at the end of the day, I think it’ll end up benefitting us greatly.”

Harris observed how common the two-corporation structure is for many collectives, typically inclusive of a for-profit and a nonprofit corporation.

“Having the dual nonprofit, one not being tax-exempt, I think is a great way to go because we can say and act and be transparent that we’re really just in it for the good of the athlete and no one’s here to make a profit,” he said.