New ED Disclosure Rules Could Shine Light on University-NIL Collective Relationships

As name, image and likeness (NIL) opportunities for college athletes continue to evolve, universities face a new challenge: enhanced disclosure rules from the U.S. Department of Education (ED) regarding related parties, including NIL collectives.

Effective July 1, 2024, the ED’s new financial responsibility regulations mandate unprecedented transparency that could impact how institutions navigate NIL.

Background on the New Requirements

In October 2023, the ED released final rules aimed at strengthening oversight and consumer protection for institutions receiving federal student aid. Among the key changes are expanded disclosure requirements for related parties in audited financial statements submitted to the ED.

Under the new rules, universities must disclose the name, location, description and nature/amount of any transactions with all related parties, regardless of materiality. This goes beyond Generally Accepted Accounting Principles (GAAP) requirements, which allow for aggregation and have a materiality threshold.

The ED’s definition of related parties mirrors GAAP, including entities with shared board members or management. As such, NIL collectives with overlapping leadership could be considered related parties, triggering detailed disclosure of their activities and financial dealings with the institution.

Impact on NIL Collectives and Supporting Organizations

While not explicitly targeting NIL activities, the ED’s enhanced disclosure rules will likely have far-reaching implications for the rapidly evolving collegiate athletics landscape. NIL collectives, which pool resources from alumni, fans and businesses to facilitate NIL deals for student-athletes, could find themselves subject to heightened scrutiny if deemed related parties. The same applies to booster organizations and other entities supporting university athletics programs.

Balancing Transparency and Control

The ED’s disclosure rules present a delicate balancing act for universities. On one hand, institutions may seek to maintain control and involvement in NIL activities to ensure compliance and alignment with educational goals.

However, close ties with NIL collectives and supporting entities could trigger related-party disclosure obligations—exposing these relationships to increased regulatory scrutiny. Universities will have to learn how to delicately balance the need for control and involvement in NIL activities with the risk of increased scrutiny in a complex regulatory environment—not only the new ED disclosure rules, but also Title IX, IRS, NCAA, and other regulations.

Strategic Considerations

While the ED has stated it does not intend to make the disclosed information publicly available, universities may still opt for a strategic approach. Institutions can be strategic in having multiple versions of their audited financial statements: one to meet ED requirements, and another that excludes personally identifiable information. This approach could allow universities to comply with the ED’s disclosure rules while maintaining privacy for sensitive information related to NIL activities and relationships.

Additionally, institutions should review their conflict-of-interest policies, strengthen related-party identification processes, and ensure proper documentation of all transactions and relationships. Designating an individual within the institution for this oversight and implementing formal policies and procedures for NIL activities could also help facilitate adherence to the new disclosure requirements.

The ED’s enhanced disclosure rules present both challenges and opportunities for universities and the entities supporting their athletics programs. Institutions must carefully navigate this complex regulatory environment, balancing transparency, control and risk mitigation strategies. By proactively addressing these new requirements (along with all the others you’re facing), universities can position themselves for success in this rapidly changing environment.

James Moore’s higher education and collegiate athletics advisors will help you stay in compliance with these regulatory matters and keep you informed on breaking developments.