College Sports Commission Loosens Prohibition On NIL Payments

The College Sports Commission has loosened its blanket prohibition on athletes receiving payments from NIL collectives, according to a memo the new enforcement agency sent to athletic directors Thursday morning.

The collectives, an evolving industry built to funnel money to athletes at a particular school, will still face significantly more scrutiny when trying to sign deals with players than they had in past years.

Thursday’s memo from the CSC, which revises guidance it issued three weeks ago, ends the first notable scuffle under the industry’s new enforcement structure without needing to return to a courtroom. However, it provides more of a punt than a definitive answer to an essential question for the future of how major college sports will function: Will wealthy teams and their boosters be able to game the system designed to create competitive balance?

The new rules say athletics and collectives will have to show that each deal they sign requires the athlete to promote a product or service that is being sold to make a profit, rather than just being a vehicle to channel money from boosters to athletes. Collectives might need to show documentation of “the entity’s effort to profit from the deal,” according to the memo.

College athletes can now make money in two ways: via direct payments from their school and through endorsement contracts with third parties. As part of a landmark legal agreement known as the House settlement, which was finalized in June, lawyers for the athletes and the schools agreed to put a cap on direct payments starting at $20.5 million per school in the coming academic year.

During the previous four years, when only NIL payments were permitted, a cottage industry of collectives evolved to provide their teams with a de facto payroll. Many of those groups gathered money from fans and wealthy boosters to give to athletes in exchange for some minimal endorsement. Some collectives also acted as marketing agencies – pairing athletes with local companies for endorsement –or launched subscription-based businesses to help fans connect with the players on their favorite team.

To prevent teams from using their collectives to circumvent the $20.5 million spending cap, the terms of the House settlement stipulate that all deals with “associated entities” (essentially collectives and boosters) must serve a “valid business purpose” and fall within a reasonable range of compensation. A $1 million deal for a player to make a few social media posts, for example, won’t be allowed.

“Pay-for-play will not be permitted, and every NIL deal done with a student-athlete must be a legitimate deal, not pay-for-play in disguise,” CSC CEO Bryan Seeley said Thursday.

The CSC is a new organization responsible for vetting all third-party deals to ensure they comply with the terms of the settlement. The conferences and CSC are using a platform called NIL Go, operated by Deloitte, to vet those third-party deals. The new guidelines mean that each deal will need to be evaluated on a case-by-case basis with subjective analysis rather than running them through an algorithm, which will likely require more manpower than the fledgling enforcement group with only three employees thus far initially planned.

The CSC issued its initial ban on collective bargaining on July 10, less than two weeks after opening its doors. Several collectives told ESPN they felt the ban was painted with too broad a brush and unfairly outlawed their industry.

“Today’s development is a significant step forward for student-athletes and the collectives that support them,” said Hunter Baddour, executive director of an industry group called The Collective Association. “By eliminating unnecessary roadblocks, this agreement moves us closer to treating NIL collectives like every other legitimate business operating in the college sports ecosystem.”