IRS Form 990: Telling the Financial Story of NIL Collectives

The IRS Form 990, seemingly just a tax document, actually tells a story about a nonprofit’s financial health and priorities. This is particularly relevant for name, image and likeness collectives known as (NIL collectives), whose first 990s are now under scrutiny.

However, like any story, it has its untold chapters. Stakeholders are generally familiar with Form 990 filings for booster clubs or athletic associations with long-standing history. But NIL collectives are a new breed of nonprofit organization. So it’s important to scrutinize the details on their Form 990s to help ensure transparency in collegiate athletics.

The Emergence of the NIL Collective

An analysis of over 40 NIL collectives’ form 990s from FY 22, as reported by Extra Points (behind a paywall), shows combined revenues of $53.5 million. This data, for the first time, provides a large-scale view of fundraising for athlete compensation. Katie Davis, CPA and collegiate athletics services team leader at James Moore, is quoted in the article emphasizing the importance of understanding how these revenues are used.

These filings also reignite questions about charitable intent, as questioned by the IRS in their memo last summer. Davis speaks out, “With this being the first year, it’s hard to tell whether they’re truly operating as a nonprofit with a specific mission or they’re just paying athletes to keep them on the roster. It’s still too early to tell.”

The Story Told by Form 990

Comparing established university booster clubs with NIL collectives reveals distinct focuses and approaches. Booster clubs, for example, have a long history of supporting athletic programs through scholarships, facility improvements and other programs.

NIL collectives, however, focus on helping athletes monetize their personal brand. Analyzing their Form 990s requires a tailored approach to understand their unique operational structures. So what can we tell from the information available to us?

Basic Information

The heading details date established, legal status and primary contact information. It also has a section that describes its mission or most significant activities.

Alignment with Mission

Program expenses are detailed, indicating how funds are used in line with the organization’s purpose. Higher spending on program expenses suggests strong mission alignment.

Diversity in Funding Base

Form 990 includes a section on public support, which gauges the breadth and diversity of an NIL collective’s financial backing. A diverse mix of support (grants, donations, membership fees, etc.) indicates healthy community backing. This aspect is particularly important for maintaining public charity status (measured over a five-year period), which is more favorable than being classified as a private foundation under IRS rules.

Compensation Disclosure

The form requires disclosing compensation for key employees, officers, directors and highest-paid contractors. This transparency helps ensure resources aren’t disproportionately directed towards a few individuals.

Governance

Form 990 provides insights into governance by detailing the composition and practices of its board of directors, including their roles, meeting frequency, and policies like conflict of interest.

For new organizations like NIL collectives, initial Form 990s may show higher administrative costs and limited public support as they build credibility. In contrast, established entities like booster clubs typically exhibit stable spending and support patterns. This is indicative of ongoing operations and strategic planning.

The Untold Story

While Form 990 is informative, it doesn’t paint a complete picture of an organization’s story.

Qualitative Aspects

The form lacks qualitative data about program effectiveness. It tells you what the NIL collective spent, but not how effectively the funds were used to advance the mission.

Timing and Context

Financial data is historical and may not reflect current challenges or long-term sustainability.

Donor Intent

Donor identities and intentions behind contributions aren’t disclosed. Stipulations behind their contributions could be important in understanding the influence or expectations these donors may have.

Tax Deductions

Form 990 is designed to provide transparency and accountability for a nonprofit’s activities. It’s not meant to track the tax positions of its donors.

Vendor Alignment with Mission

While payments over $100,000 are disclosed, their contribution to the mission isn’t detailed.

Specific Beneficiaries Under $100K

Details on recipients of payments or distributions under $100,000 are not provided.

To fill in the gaps, stakeholders should have nonprofit NIL collectives clarify their financial operations and intentions. This involves asking questions about:

• The structure of NIL deals
• Their alignment with charitable purposes
• Allocation of donations across athletes, sports, and genders
• Strategies for broadening public support

With the NCAA’s evolving stance on NIL, the future sustainability of these collectives remains uncertain. In the meantime, we urge universities and other stakeholders to delve deeper into the financial narratives of NIL collectives. Scrutinize their Form 990s, question their alignment with charitable missions and assess their impact on your student-athletes. Your informed analysis can drive transparency and accountability in this evolving landscape.

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