NIL in 2024: The Year of Donor Fatigue?
The end of 2023 was a monumental period for NIL. As legal challenges continue to pile against the NCAA, the longstanding governing body of collegiate sports has proven itself to be an ineffective regulator of their policies.
Without a sheriff in town, NIL has become a dominant recruiting tool leveraged by schools to attract top talent. With the implementation of penalty-free transfers and, potentially, the complete abolishment of any transfer restriction in the near future, we are nearing a reality that at the conclusion of every season, a player’s services will be available to the highest bidder.
Without fear of enforcement, college coaches in revenue sports have now, for the first time, almost unanimously expressed their unfiltered feelings about NIL, the transfer portal, and the proxy-free agency market that has been created from these policies. The consensus: If you want to win, you must play the NIL game.
The cards are on the table. Player payment, thinly veiled as NIL contracts from collectives, has been used to lure recruits since NIL started in 2021; now, this practice is open and notorious. At almost every school, emphatic calls to boosters from collegiate coaches to strengthen NIL war chests have been made; without these resources, coaches say, they cannot compete, retain players, and recruit players from the transfer portal and high school ranks.
With this new transparency, however, comes expectations. With certain exceptions – looking at you, Miami basketball – prior to 2023, NIL was seen as a compliment to the recruiting ability of schools. Coaches now outwardly indicate that the balance in the account of a NIL collective has a high correlation to team success. While some may see this as blame shifting, the data would indicate validity to the sentiment.
One large concern for many programs is the potential of donor fatigue. With NIL collectives at top programs being estimated to have 8-figure bankrolls, maintaining this flow of capital is paramount. Now, in 2024, collective donors will expect an on-field return on investment for their contributions to NIL collectives. While sometimes muddied by donor appreciation events and gifts, the relationship between a donor and a collective is a clear bargain for exchange: the booster gives money to the collective so his team will win.
For the collective to hold good on their end of the deal, the team actually has to win. There will be a time when the lack of success – a success that is determined by each donor (and who has more reasonable expectations than sports fans) – will yield a deal that is no longer worth their financial commitment. Currently, leveraging mediocrity and disappointment is an effective fundraising technique for NIL collectives.
As we now stand, in the early stages of a pay-for-play NIL economy, throwing money at the problem may just be the solution a program needs to get back on the right track. 2023 and perhaps 2024 will likely serve as a trial run for collective donors. Beyond this timeframe, subsequent donations to collectives may feel like a bad investment.
While certain charitable NIL collectives exist, the vast majority operate as legal entities that do not include a tax benefit for the donations made to them. For those with charitable status, the IRS has released a memo claiming that most NIL collectives who have registered as 501(c)(3) do not meet the standards of a charitable organization. Put simply, no entity whose primary focus is the payment of student-athletes is eligible for charitable status.
Without a tax break, it becomes likely that alternative and more financially beneficial means of philanthropy will prove more attractive, especially in the presence of low on-field success. Tax-deductible donations to a university’s Athletic Fund appear as a logical shifting of resources after a donor’s “NIL trial run” expires. Moving forward, it can be theorized that positive on-field success will correlate to NIL funding; one can only throw money at a problem for so long.
While usually dominated by substantial donations from wealthy alumni, a portion of NIL collective funding comes from small/medium and subscription-based donors. Despite gloomy forecasts, the U.S. avoided a recession in 2023. Hopefully, the same will remain true for 2024, though economic outlooks paint a rather ambiguous picture.
There is no data on where non-recession-proof individuals prioritize NIL donations in comparison to other areas of spending. With pocketbooks potentially tightening, costs will have to be cut. For people who don’t have buildings named after them at their alma mater, does that lead to a reduction from a $50 to $25 monthly donation to a NIL Collective? Maybe. Without on-field success or massive value in fringe benefits from being a collective member, the outcome seems likely.
As the novelty of NIL collectives and the transfer portal wears off in 2024, the arms race that has transpired in the last three months may fizzle out. The NIL economy will likely, at least in part, shift to a result-oriented industry. Combined with an unreliable economic outlook, many who originally took place in the NIL hysteria may rethink their investment.
How donor fatigue may affect college sports remains to be seen. If a uniform reduction in NIL spending hits schools equally, the only change to the landscape would be a decrease in average compensation to athletes. If only schools with struggling programs experience a lessening of NIL investment, a massive drop in competitive parity will likely follow.
