Inside the NIL Battle That Is Splintering the SEC: ‘We’re All Money Laundering’

May 30, 2023 | News

Within the 11-state footprint of the country’s most dominant league, some schools have worked with state lawmakers to rewrite statutes to give them an advantage over neighboring programs.

Published by Ross Dellenger on the Sports Illustrated Website in May 2023 – In the state of Missouri, a high school athlete who signs with an in-state college, such as the University of Missouri, can begin earning compensation for their name, image and likeness before enrolling at the school.

Soon in Texas, Texas A&M donors will earn priority points through the school’s fundraising arm for donations that eventually funnel to athletes. For months now in Arkansas, college athletes have been paid for charity appearances through a nonprofit organization that is owned by the school’s fundraising foundation.

Meanwhile, on the Florida Gulf Coast, where the SEC’s most powerful officials gather this week in Destin for their annual league meetings, none of the above is permitted. If the University of Florida carried out those actions, it would be in violation of NCAA rule and its own state law. The same can be said for a handful of other SEC schools in Mississippi, Alabama and Tennessee.

“Right now, we’re in no-man’s land,” says Walker Jones, executive director of the Ole Miss collective, The Grove. “If you are the SEC office and you’ve got 14 schools and three are operating this way, it’s a competitive problem.”

Within the 11-state footprint of the country’s most dominant college football league, fairness is fading, swallowed by the greed of competition from the conference’s very own members. Through lobbying efforts, schools have worked with their state lawmakers to feverishly rewrite statutes to give them an advantage over neighboring programs.

New state laws adopted in Arkansas, Missouri, Texas and Oklahoma clear a path for their schools to bring NIL programs more under their proverbial roof while also prohibiting enforcement from the NCAA and others. This new evolution of NIL collectives tests NCAA and SEC governorship, risks federal rules violations and, maybe most important, pushes college sports another step closer to what many believe is an eventuality: Schools paying athletes directly.

And yet, despite the obvious issues, the movement is sweeping across the Southeast footprint with SEC speed.

“It reminds me of a rigged marketplace,” says Julie Sommer, a lawyer and expert on NIL matters who works for the Drake Group, an organization whose mission is to defend academic integrity at universities. “Federally funded institutions running these enterprises for private gain? The first big question is, what’s the IRS going to do?”

While debates over field storming and a future scheduling format have captured attention, SEC power brokers have a much more pressing issue at hand: the distribution of money to college athletes.

How to do it? What is right and wrong? Where is the enforcement?

There are disagreements. Frustrated administrators. Ticked-off school presidents. And a commissioner, Greg Sankey, who is handcuffed as his unruly programs fight to dip their hands in the NIL money pit.

“You’ve now got fundraisers at a foundation out raising money for the athletic department and they can now add NIL to the list of what they are asking for and doing it through their athletic clubs,” says Mississippi State president Mark Keenum, the longest-serving president in the league. “What NIL has become is universities going out through their foundations and collectives and raising dollars to give to athletes. They’re just paying them to come play, and there is no limit on that.”

The collective industry is big business. And understanding that business is important to understanding the SEC’s latest quandary.

Jason Belzer is CEO and cofounder of Student Athlete NIL (SANIL), an organization that manages more than 30 booster collectives from Oklahoma to Penn State. “The median collective on the Power 5 level has about $3 million on hand,” Belzer says. “Some have $7 [million] to $10 million, but many are also operating at $1 [million] to $2 million on hand.”

The average compensation for a Power 5 football player from a collective ranges widely, usually around $10,000 to $50,000 annually, but “about five players per roster are making more than $100,000 on average,” he says.

More than 200 collectives exist among the 130 FBS schools. For the most part, they are private third-party fundraising entities with a mission to raise and distribute booster contributions to athletes through a variety of means that satisfy vague NCAA guidelines.

Collectives differ in style. Some are offering a tax deduction as nonprofits specializing in large-scale gifts; others are for-profit shops using a subscription-based model for modest monthly giving. Several offer both.

Athletes supply deliverables in an assortment of ways—as little as posting a monthly endorsement tweet or carrying out a video chat with donors, to as much as attending autograph signings or performing charitable work.

The collective model is a roundabout way for schools and their boosters to get money into athletes’ hands without handing the cash directly to them. The collective provides organizational oversight, finds NIL endeavors for athletes, creates a system of pay distribution and, most importantly, acts as a legal buffer.

One SEC athletic director describes the situation in blunt terms: “Let’s be honest, we are all money laundering.”

The relationship between a school and its collective or collectives (some have more than one) has remained a murky subject. At first, school officials were prohibited from any involvement, but slowly the firewall has crumbled. In guidance released last fall, the NCAA permitted school officials to direct donations to collectives. Roughly a year ago, lawmakers in several states started to amend laws to allow their schools heavier involvement with NIL deals—another lobbying effort from administrators who wanted a more hands-on approach.

The latest wave of state law amendments bring a school and collective the closest yet. Laws in Arkansas, Oklahoma and Missouri and a bill in Texas (it awaits the governor’s signature) feature language to permit a school’s nonprofit fundraising arm to provide NIL deals, and prohibits the NCAA or any other enforcement arm (i.e., the SEC) from penalizing a school in the state for following the law.

“What’s happening at our state level is exactly what I warned about,” Sankey said Monday from Destin. “Our states are making a mess of college athletics. Our states are adopting laws that are not helpful to conduct conference competition or national competition.”

A school having the ability to operate NIL through its fundraising arm is a significant advantage. It affords universities more control and oversight over NIL payments and gives them a staff of veteran fundraisers to mine an established base of high-level donors who, in Texas A&M’s case, will receive priority points for contributions.

“As a collective, we can offer cool experiences for donors to interact with coaches and players, but the model for years at schools is you give money and you get tickets and parking and other benefits,” says James Clawson, cofounder and CEO of Spyre Sports Group, the agency that manages Tennessee’s collectives. “If you can offer that from a collective entity standpoint, you’re going to be able to raise more money.”

The Texas law specifically notes that priority points and other perks are permitted to donors for NIL-based donations—a direct contradiction to NCAA rules.

“There is no enforcement, and everybody is breaking the rules,” says Peter Schoenthal, the CEO of Athliance, an NIL management and compliance software that works with college athletic programs and collectives. “Schools are saying, ‘How far can we push it?’”

Texas A&M’s fundraising arm, the 12th Man Foundation, made a splash when it announced an NIL offshoot in February.

The 12th Man Plus Fund is an NIL initiative that allows donors to contribute to a fund that distributes payments to athletes. While the Plus Fund does not describe itself as an NIL “collective,” it operates as such while under the university’s fundraising arm. It is believed to be the first distribution model that allows a school’s booster to be that heavily involved in the NIL space.

Donations to the Plus Fund, like those to the 12th Man Foundation, are tax-deductible and earn benefits such as priority points. In satisfying the NCAA’s policy for a quid pro quo, athletes are paid by the Plus Fund to promote its parent company, the 12th Man Foundation, through social media posts and appearances.

In short, athletes are being paid to advertise for an entity whose primary goal is to fund their school’s athletic department.

The news drew collective scrutiny from across the country and triggered a NCAA-wide memo that, without mentioning A&M, insisted such actions were against rules.

“We all want to try to bring NIL in house,” says one official with an SEC collective, “but we’ve been told we can’t. Well, A&M has now done it.”

Texas A&M athletic director Ross Bjork doesn’t see the problem.

“We’re just trying to do all we can to support our athletes,” he says. “There is no national standard. It’s all local standards, so that’s what we’ve done. We’ve adapted to our local environment.”

As of now, the 12th Man Plus Fund has not struck any deals with athletes. The initiative is building infrastructure and fundraising and hiring staff members before springing into action later this summer, Bjork says. Those around the SEC wonder whether the Plus Fund is delaying action because of NCAA inquiry and/or until the new Texas state law takes effect July 1 so the school has protection.

When the Plus Fund does leap into action, its model isn’t complicated. Donors can elect for any portion of their contributions to the 12th Man Foundation to be directed to the Plus Fund and a specific A&M sports team. What donors can’t do is take the cash they’ve committed to 12th Man Foundation and send it to the Plus Fund. The 12th Man Foundation funds facilities renovations and construction at Texas A&M.

“Our projects would then suffer,” Bjork says.

While A&M drew the spotlight, the 12th Man Foundation was not the first such SEC fundraising arm to dabble in NIL. Since last fall Arkansas athletes have earned NIL compensation from attending charity events through OneArkansas, a nonprofit collective that is owned by the Razorback Foundation, the school’s primary foundation. While donors to OneArkansas do not receive priority points, the initiative straddled the line enough to evoke a meeting between school administrators and those within the SEC headquarters last fall.

As for Missouri, its state law mirrors the rest but with a twist: High school athletes in the state can discuss NIL deals and earn NIL compensation after signing a letter of intent but before enrolling in the college. Here’s the kicker: To qualify for early NIL, athletes must have signed with an in-state school.

“Game changer!” Missouri coach Eli Drinkwitz tweeted after the law passed.

Meanwhile, Arkansas and Texas A&M share a glaring similarity: Their foundations are legally classified as separate entities from the athletic department, which is not the case with all schools. This important fact—combined with their protective state law—affords them the freedom to operate in such a way, the schools say.

But they won’t be alone for long.

“These things kind of take off in the SEC. ‘We’re going to one-up our neighbor,’” Sommer says. “They are protected by state law, which is pretty fascinating. Why wouldn’t other states do the same?”

In the next few weeks, a soon-to-be SEC school will join Arkansas and Texas A&M.

Even before its state law passed, Oklahoma began gearing up to launch a similar nonprofit NIL initiative. At least a half dozen SEC schools are seriously exploring or planning to emulate their league brethren with NIL programs tethered, in some way, to their fundraising arm.

Says Jones, the Ole Miss collective executive director: “My prediction is we will continue to move toward a path where this is the model.”

But that means crossing two hurdles:

  • Lobbying lawmakers to again amend or create a new state law that mirrors Texas and Oklahoma.
  • Legally separating foundations from the school athletic department.

The latter is more difficult than the former. Many foundations are not set up as separate nonprofit entities but are legally under the umbrella of an athletic department. They share employees with the school, even operate from on-campus buildings and answer directly to school leaders.

Such a close connection risks violating Title IX law and/or exposing a university to accusations of employment—right now, a word that scares leaders within college sports circles. For decades now, the NCAA and SEC have considered a school’s foundation as a representative of the school itself, no matter its separation. Foundations raise money from a pool of donors and then funnel that cash to the athletic department. Sound familiar?

At many places, foundations and collectives are at odds, a fractured relationship of two fundraising arms that are working a similar pot of boosters for cash—one for the athletic department to fund coaching salaries, scholarships and facilities upgrades, and one fund NIL for athletes.

Imagine if the two were working together? Last year, the 13 public SEC schools raised a combined $561 million in donations, much of it from their foundations.

Georgia president Jere Morehead, the president of the SEC executive council who also chairs the NCAA Division I Board of Directors, believes schools are putting athletes’ eligibility status “at risk” with the foundation approach. “If NIL payments come directly or indirectly from the institution, that sounds like an employment relationship,” he says.

Michael Leroy, an Illinois law professor who has published extensive work on labor policy, believes the Texas A&M situation could eventually be used in the NCAA’s court battle in the Johnson case—a fight over whether athletes are employees playing out in the state of Pennsylvania.

Many experts already believe college athletes meet many of the indicators used to determine employment. For starters, Leroy says, athletes are in a “controlled environment” for “work,” such as playing games and attending practices. Someone also benefits financially from the work, such as coaches, administrators, etc.

The latest foundation move brings athletes even closer to employment status.

“It has all the appearances of an in-house payroll system,” he says. “This reflects how short-sighted schools are. Everybody is trying to out-compete the next guy, and they don’t have a strategy for tackling the big picture. In the course of doing this, they harm their long-term interest in protecting the amateurism model.”

There are other problems, too.

Arthur Bryant, a lawyer specializing in Title IX violations, believes schools are violating the federal statute that prohibits gender-based discrimination. Male athletes are receiving more NIL cash than female athletes, he contends.

“Most colleges and universities in America are violating Title IX right now. What’s happening with NIL is just adding to that, sometimes massively,” he says. “It is impossible to know in some circumstances exactly how much the school is involved, but from public appearances, the schools are regularly involved and in some cases, they have to be involved.”

Belzer believes the foundation system and any non-profit collective is a “bad” business model that is certain to spell disaster in the end. “They are using it to get a tax writeoffs to pay student-athletes,” he says. “Unless you are OK with money laundering, you can’t pay athletes $20-30,000 a year through a non-profit.”

All of this is creating trepidation within the league.

“There’s a lot of wait and see on this,” says Charlie Winfield, who operates Mississippi State’s collective. “Everyone is watching the test case [Texas A&M].”

There are some schools within the conference where the hurdles to adopt this model are maybe too high.

“We are a university that does not have a foundation, so that’s not an option for us,” Kentucky president Eli Capilouto says.

At Georgia, its foundation is closely tethered to the university as any in the league. And although Florida’s entire athletic department is legally a separate nonprofit from the school itself, the school’s foundation, Gator Boosters, is classified in state statute as a “direct supporting organization,” making any separation difficult.

“I think we can have a successful NIL program without bringing it into our fundraising shop directly,” Florida athletic director Scott Stricklin says.

This topic is the latest gossip among league administrators who often share information. They are careful not to share too much.

“A&M’s foundation head told our foundation head, ‘I’m not telling you how we did it but know that we did it legally,’” says one SEC school’s fundraiser.

At LSU, the Tiger Athletic Foundation, like the 12th Man, is legally separate from the university. Officials in Baton Rouge are seriously exploring the same model as Texas A&M, but like other schools, they are waiting for any action from the governing body of college sports.

“If the NCAA doesn’t do anything on this, we’re all in,” one LSU administrator says.

Can the NCAA enforce its rules that conflict with state law? Those who believe it can enforce penalties say A&M is a member of a voluntary organization that can resign from the NCAA if it wishes to march down this path. Those who believe the NCAA cannot enforce penalties say the organization is too fearful of more legal battles.

In a statement to Sports Illustrated, Tim Buckley, the NCAA’s senior vice president of external affairs, says the NCAA has “no plans” to change its enforcement and investigatory actions. Buckley’s statement mentioned the four-year-old congressional effort by college leaders to create a federal NIL standard that would preempt state laws and provide more consumer protection for athletes and their families.

“The best way to protect” college athletes is working with Congress, Buckley said.

Says Keenum: “Unfortunately, the NCAA has been placed on the sideline, and they are not able to effectively oversee this, so there is no oversight.”

Like or not, there are more state law changes and foundation involvement on the way.

“When one state does something, it will stimulate other states to go to their legislature, ‘We want what Texas does! We want more! We are going to one-up what they did!’” Keenum continues. “If we in Mississippi feel disadvantaged, then we will have conversations to decide if our legislature will consider it.

“It won’t just be Mississippi—there will be other states. Where does it end, is the question.”

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