NIL nonprofits can't lose in College Football Playoff championship

No matter who takes home the College Football Playoff championship Monday night in Houston, a rare nonprofit from the murky, still-developing world of Name, Image, Likeness programs is set to come out on top.

Numerous NIL organizations, which help college athletes get compensated, have sprung up since a Supreme Court decision in 2021 allowed the National Collegiate Athletic Association to pay student athletes for use of their brands — with some restrictions. Many are for-profit organizations that funnel donations they receive to college athletes in return for work they do for the organizations, like personal appearances, signing autographs and posting on social media.

But both Hail! Impact, an NIL organization for the University of Michigan's Wolverines, and Montlake Futures, which supports athletes at the University of Washington, have philanthropy at their cores. They are both registered 501(c)(3) nonprofits. That's increasingly rare in the NIL world, especially after the Internal Revenue Service issued guidance in May that NIL collectives may not qualify as tax-exempt if their main purpose is paying players rather than supporting charitable works.

Andy Johnson, co-founder of Hail! Impact, said his group, which launched in April, worked with the IRS and believes it is the first NIL collective to be designated a charity since the agency issued its guidance about donations. When Hail! Impact receives a donation, 70% of the gift goes to one of its partner charities in its community and 30% goes to the Michigan student athletes who work at events for the charities.

“In every team, especially a football or basketball team, there are going to be a handful of players that the market allows to go out and maximize their NIL opportunities on a commercial basis,” said Johnson, adding that Champions Circle, a for-profit group that supports Michigan student athletes, can help them sign those deals. “But that doesn’t extend to every recruit, every player .... We can address that gap.”

Hail! Impact allows donors to support all men's and women's varsity sports at Michigan and will even let them pick the community charity for large enough donations. “It's provided meaningful opportunities for non-revenue sports where someone might have a real attachment,” Johnson said. “Someone might say, ‘I want to help the softball team. These women are fantastic students and athletes and I want to give them a chance to make some money and go out and do a day of community service.’”

Michigan's win at the Rose Bowl on New Year's Day, however, launched Hail! Impact's prospects to a new level. In the days after the win, Hail! Impact received millions in donations from happy Michigan fans, including $2 million from a single donor, Johnson said.

And a national championship could take it even farther.

“The idea that one game could transform our mission the way it has is incredible,” Johnson said.

It didn't hurt the NIL organization supporting the University of Alabama's team either. Minutes after the Crimson Tide lost to Michigan, the NIL group Yea Alabama issued an unusual appeal.

“To keep Alabama in the best position, we need to have the biggest, best NIL program that we can possibly have," said Aaron Suttles, Yea Alabama's director of content. "So consider a donation, consider a membership to Yea Alabama.”

The funding for NIL agreements generally comes from supporters of the college and often is described in philanthropic terms like “donations” and “fundraising campaigns.” However, the philanthropic trappings don't make for-profit NIL collectives philanthropic, said Jonathan Jensen, associate professor of sport administration at University of North Carolina, Chapel Hill.

“Everybody — whether you’re talking about the donors, the university, that people who work at the collective — everybody understands that this is not a philanthropic thing,” Jensen said.

Since the IRS guidance was issued, the foundation that supports Texas A&M athletes said it was shutting down a fund it had launched earlier in 2023 to allow donors to support endorsement deals for Aggies athletes. The 12th Man Foundation will still engage in NIL activities, but using a different internal process.

New processes and new platforms will be the norm among NIL groups for a while, as they try to find a strategy that works. Montlake Futures, which supports athletes at the University of Washington, remains a nonprofit, but last month teamed with Blueprint Sports to offer a membership program that is not tax deductible.

Hail! Impact also lets supporters choose to have their donations go only to paying athletes, but those gifts are not tax deductible.

In any case, both Hail! Impact and Montlake Futures are set to come out ahead simply by supporting teams in the national championship.

Fundraising off a defeat may seem counterintuitive, Jensen said, but in fact, it draws on ideas in behavioral economics that prompt people to highly value things they already have, in this case, a football team's winning reputation.

“If you play on that psychology, what they’re saying is ..., ‘You could lose this mantle that you’re on as being a national championship caliber team,'” Jensen said. “So you need to reach in your pocket and spend money in order to keep this distinction.”

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Associated Press coverage of philanthropy and nonprofits receives support through the AP’s collaboration with The Conversation US, with funding from Lilly Endowment Inc. The AP is solely responsible for this content. For all of AP’s philanthropy coverage, visit https://apnews.com/hub/philanthropy.