The Rise of College Sports' Shadow Economy
"Donor collectives" are taking advantage of the NCAA's endorsement rules to pay athletes big bucks — and claim massive tax breaks in the process.
Dear readers,
Happy Halloweekend — or the most evil weekend of the year according to the young earth creationist who is now the speaker of the House.
To go along with the spooky vibes, we’re taking a look into the shadowy world of “donor collectives” in college sports this week. Boo!
-Calder and Ian
In June 2021, when the U.S. Supreme Court struck down the NCAA’s prohibition on certain types of payments to college athletes, we cheered the court’s decision, which opened the door for college athletes to sign endorsement deals and profit from their “NIL” — name, image, and likeness. At the time, we called the court’s decision “a major win for college athletes” — but we also noted that the decision and the resulting change to the NCAA’s NIL rules was only a partial victory, and a tenuous one at that. There were plenty of upsides to the decision, but also some major downsides — chief among them the possibility that bad actors would exploit the NCAA’s new rules for their own gain.
Two years later, we’re starting to see that those concerns were more than justified. If anything, we underestimated just how strange the new system could be as well. Even in our minds, we couldn’t quite imagine the lengths to which college boosters would be free to go to enrich themselves.
Last weekend, the New York Times reported on the rise of “donor collectives” in college sports — basically, groups of wealthy alumni and boosters who are using the NCAA’s new NIL rules to funnel huge amounts of cash and benefits to college athletes. The behavior of these donor collectives is pretty brazen: in some cases, athletes are being paid upward of $750,000 a year — or getting a free lease on a car — in exchange for performing menial tasks on the collectives’ behalf, like doing “charitable work” or recording videos for a collective’s social media account. (One player at the University of Iowa reportedly was paid $600 an hour by a collective to deliver meals to senior citizens.) Because many of the collectives are incorporated as non-profits, boosters who give money to the groups are able to claim a tax deduction for their “donation.” Genius!
The result is, for all intents and purposes, an unregulated and unrestricted free-agency market that encourages athletes to transfer between schools in search of the biggest payout. In its report, the Times identified at least 120 such collectives — one for every school in each of the five major college football conferences — and found that the average college football starter at the big-time football schools is taking in an average of $100,000 from the groups. As one league commissioner put it in recent testimony before the U.S. Senate, the collectives system is “a pay-for-play scheme disguised as N.I.L..”
Needless to say, this was not the intended purpose of the NCAA’s new NIL rules, which were nominally created to allow players to sign endorsement deals and receive a cut of their own jersey sales. Yet it has become the reality of the NCAA’s new system, and the league — or, better yet, the United States Congress — needs to take steps to address it.
But why, you might be asking, is this new system bad for players? Aren’t they finally getting paid? Well, yes — but that’s not really the goal here. The real end goal of reforms to the NCAA’s structure is not just that some players get paid, but that all players get paid for their labor. The collectives system is basically a perks system on steroids — all the way down to mysterious envelopes of cash showing up in star players’ lockers and new cars that appear out of nowhere. It’s just now all allowed. That’s not a viable substitute for wages.
Moreover, it benefits certain players — namely high-profile players from top-earning sports like football — while leaving the rest of the NCAA’s athletes in the lurch. Plus, regardless of its impact on players, it offers rich boosters another way of lowering their tax bill. Not a good thing.
So, what’s to be done about this? If history is any guide, the NCAA will blither on about how “the pathway to hell is paved with good intentions” while pointing to this system as proof that any change to the NCAA’s payment rules will result in chaos and corruption. But that’s the exact wrong conclusion to draw from the Times’ reporting. The NCAA’s current NIL rules are inherently unstable: They allow students to be paid for some elements of their work as athletes, while still prohibiting them from being paid for the actual time they spend practicing and competing. Of course this system is rife for corruption. Schools and boosters alike realize that recruiting top athletes is a boon for business — and in the absence of a legitimate marketplace for competing over athletes via wages, they’ll create their own marketplace to compete over them using bribes.
The solution is the same as it has been: Pay athletes real wages. The collectives won’t go away on their own, but if colleges did the right thing and paid their athletes — or Congress forced them to do so by statute — the NCAA could step in and regulate the collectives without depriving athletes of the only income that’s available to them. (The NCAA has said that its rules prohibit collectives from offering payments as a recruiting tool, but it’s clear that that rule is not being enforced.)
Until then, corruption will continue to breed more corruption. Isn’t that the NCAA’s motto?
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