Since the NCAA lifted its restrictions in 2021, student-athletes have been able to profit from their name, image, and likeness (“NIL”), sparking a major shift in college athletics. Compensation for student-athletes has primarily come through endorsement deals and payments from independent NIL collectives, which are often donor-funded nonprofit entities. This summer, Judge Wilken of the Northern District of California approved a class action lawsuit settlement, House v. NCAA, which enables schools to directly pay athletes in accordance with a new revenue-sharing model capped at approximately $20.5 million per school for the 2025–2026 academic year.
As schools opt into this revenue-sharing model, several legal considerations arise. First, compensation through direct payments and collective distributions can raise significant tax implications—both for institutions (which must classify payments correctly and track reporting obligations) and for athletes (who may receive income subject to withholding and self-employment tax). Second, because some states have placed restrictions on NIL compensation, payment is permitted under the House settlement but may still be prohibited under state law, potentially leading to significant legal conflicts. Finally, the structure of NIL collectives and similar institutional departments—whether nonprofit or for-profit—could require careful corporate planning to ensure compliance with tax-exemption rules and limited liability requirements.
The landscape of college athletics has undeniably shifted through the advancement of NIL, and we expect these changes to continue. If you operate a business or NIL collective, our firm can provide guidance on how to structure your organization, draft and negotiate contracts, and ensure compliance with tax and regulatory requirements.
For more information on the House settlement and the legal implications of this ruling, please read the firm’s recent article on the decision—which can be found here.
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