The state of play in the world of college athletics has shifted considerably in recent years amid an overhaul to how student-athletes may be compensated during their college careers. But with the amount of money involved in broadcasting high-level collegiate games, the NCAA’s exemption from federal tax has come under increased scrutiny.
NIL Timeline
NCAA v. Alston
The Supreme Court’s 2021 decision in NCAA v. Alston (594 U.S. 69) held that the NCAA’s restrictions on education-related benefits for student-athletes violated Section 1 of the Sherman Act and must be evaluated under the ordinary “rule of reason” antitrust analysis.
The Court found that the NCAA and its member schools possess monopsony power in the market for student-athlete labor, and that their compensation limits had significant anticompetitive effects, depressing both price and quantity below competitive levels.
It also rejected the NCAA’s arguments for special treatment or immunity from antitrust law, emphasizing that the NCAA is not exempt from the Sherman Act simply because of its nonprofit status or educational mission.
The impact on college athletics was immediate and significant. Following Alston, the NCAA adopted interim rules allowing student-athletes to receive compensation for the use of their name, image, and likeness (NIL) for commercial purposes without affecting their eligibility.
Advent of NIL Collectives
This decision led to a rapid expansion of NIL deals, with athletes now able to earn income from endorsements, appearances, social media, and other commercial activities. In response, groups of boosters and donors quickly formed “NIL collectives,” which are typically independent from universities but closely affiliated in practice.
These collectives pool donations to facilitate NIL deals for student-athletes, often by matching athletes with businesses or charities for promotional work or endorsements.
NIL fundamentally changed college athletics by enabling student-athletes to monetize their personal brands, leading to significant new income streams and a shift away from the traditional “no pay for play” model.
The IRS has responded to the proliferation of NIL collectives by taking a firmer stance against granting them tax-exempt status under IRC § 501(c)(3). In Chief Counsel Memorandum AM 2023-004 and several recent private letter rulings, the IRS clarified that most NIL collectives primarily provide private benefits to student-athletes, which disqualifies them from tax exemption.
The IRS has emphasized that to qualify for exemption, an organization’s activities must primarily benefit the public, not private individuals, and any private benefit must be truly incidental to a charitable mission — a standard most NIL collectives do not meet.
The NCAA’s Tax-Exempt Status
The NCAA itself is a tax-exempt entity under Section 501(c)(3). But Scott Hodge, tax and fiscal policy fellow at Arnold Ventures and former president of the Tax Foundation, argues it’s time for the NCAA to “go pro,” as he wrote in a Washington Post op-ed last month.
Hodge pointed to the NCAA’s 2024 financial statement reflecting $1.3 billion in revenues, $948 million of which came from the sale of broadcasting rights. The NCAA recently inked multi-year contracts with CBS and ESPN to televise and advertise games.
Income from sources not directly related to an exempt organization’s purpose is normally subject to unrelated business income tax, or UBIT. However, as Hodge noted, the NCAA avoids paying tax because the IRS has historically treated revenues from hosted or broadcasted games as “substantially related” to the NCAA’s primary mission.
In a 2024 Tax Foundation article, Hodge wrote that “large business enterprises” like the NCAA are considered “charitable organizations.”
“This raises the question: should an organization be considered a nonprofit, or even a charity, if only a fraction of its revenues come from charitable donations?”
Hodge told Checkpoint that Congress over the years has granted the NCAA “all kinds of waivers and special protections.” For example, the IRS was met with heavy lobbying resistance when it sought to tax sponsorship fees for bowl games. The IRS, he explained, looked at those deals and found them to be “advertising by another name” and thus “should be taxed.”
The IRS was “lobbied into submission to take some of that back,” he said. “And then eventually, Congress stepped in later on to exclude those sources of income from UBIT. There’s clearly a lot of political influence here.”
In its publicly available 2022 Form 990, Return of Organization Exempt from Income Tax, the NCAA stated its mission is to “provide a world-class athletics and academic experience for student-athletes that fosters lifelong well-being.”
As for whether this includes selling broadcasting rights, Hodge said this angle showcases how “this notion of supporting education and student athletes has been distorted to such a degree to justify what is essentially a big business in sports entertainment.”
Revenue Sharing
As part of a recent settlement in House v. NCAA, decided in the U.S. District Court for the Northern District of California (No. 20-cv-03919 CW), the NCAA as of the 2025-26 academic year will allow Division I programs to directly compensate student-athletes. This will happen via a so-called revenue sharing agreement in which students receive salary-like payments on top of any NIL deals they may also enter into.
Announced late June this year, the agreement permits eligible schools to make discretionary payments from a “pool” up to a yearly cap. For the first year of the program, each school may pay approximately $20 to $22 million.
The agreement includes $2.8 billion in back damages to former athletes affected by sudden shift in college athletics compensation. Whiteford Law attorneys Claire Allenbach and Matthew Razzano wrote in a client alert from the firm following the settlement the back damages are meant for those athletes “unable to capitalize on the sale” of their NIL.
It also places restrictions on team roster sizes and introduces compliance requirements for student-athletes to disclose “NIL deals to a third-party clearinghouse run by Deloitte,” The Whiteford attorneys wrote.
Gil Ghatan of Ropes & Gray’s tax-exempt organization practice said in a podcast produced by the firm the “revenue share component is not really a revenue share in the traditional sense – at least not for tax purposes.
The pool, said Ghatan, “is calculated as a function of average revenue amongst schools covered by the settlement, but the agreement itself does not provide for sharing profits or revenue or any other elements that you would expect of a true revenue sharing model.”
Tax Considerations
NIL compensation is generally taxable income to the athlete, regardless of whether it is paid in cash or noncash form (such as free products or services). The tax treatment depends on the nature of the NIL arrangement.
If the athlete is paid for personal services (e.g., making appearances, posting on social media), the income is subject to self-employment tax. If the payment is strictly for the use of the athlete’s NIL without services, it may be treated as royalty income, which is not subject to self-employment tax.
Athletes must report NIL income on their tax returns, even if not reported on Form 1099. They may also need to make estimated tax payments and keep records of business expenses for deduction purposes. NIL income may be subject to state income tax, depending on the athlete’s residency and where the income is earned.
With the new revenue sharing agreement comes novel tax questions regarding multi-state income sourcing, valuation of in-kind benefits, employment classification, and withholding. One pertinent issue, according to Ropes & Gray’s Kendi Ozmon, is the private benefit doctrine, which “generally prohibits 501(c)(3) organizations, like most colleges and universities, from conferring more than incidental benefit on private parties.”
Franziska Hertel, also appearing on the podcast, explained that “if the benefit to private parties is disproportionate in relation to the benefit to the public interest, an organization’s exempt status may come under scrutiny under the private benefit doctrine, and could, in the most extreme situation, be revoked.”
For more on NIL and tax-exempt status substantiation, see Checkpoint’s Federal Tax Coordinator 2d ¶ D-4015.
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