Blueprint Sports Collective ran $35 Million in NIL through its Nonprofit last year

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went to pay 150 college athletes for various NIL work they did, ostensibly for other charities.

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CONCLUSION. An organization that develops paid NIL opportunities for student-athletes will, in many cases, be operating for a substantial nonexempt purpose—serving the private interests of student-athletes—which is more than incidental to any exempt purpose furthered by the activity.

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To be described in section 501(c)(3), an organization must be organized and operated exclusively for one or more exempt purposes (charitable, educational, religious, etc.). The operational test is designed to ensure that an organization’s resources and activities are devoted to furthering those exempt purposes.8 An organization is not operated exclusively for exempt purposes unless it engages primarily in activities that further an exempt purpose.9 In addition, an organization is not operated for exempt purposes unless it serves public rather than private interests.10 Whether an organization is operated exclusively for exempt purposes depends on the facts and circumstances.11 However, an organization bears the burden of proof to establish that it is not operated for the benefit of private interests.12

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where an organization’s activities result in a direct benefit to designated or identifiable individuals, the private benefit is not qualitatively incidental to exempt purposes.19 For example, in Ginsberg v. Commissioner, an organization formed by property owners to dredge a public waterway adjacent to their properties was found to serve private interests because the property owners were the major beneficiaries of the organization’s activities.20 Similarly, Rev. Rul. 75-286 concluded that an organization formed by the residents of a city block to preserve and beautify that block did not serve exclusively exempt purposes because the organization’s activities served to enhance the value of its members’ property rights.21 The restricted nature of the organization’s membership and limited service area were significant factors in concluding that the benefit to the members was not qualitatively incidental.

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Applying these principles to nonprofit NIL collectives, we believe that the benefit to private interests will, in most cases, be more than incidental both qualitatively and quantitatively. Student-athletes generally benefit from a nonprofit NIL collective through the compensation paid by the collective for use of their NIL. This private benefit is not a byproduct but is rather a fundamental part of a nonprofit NIL collective’s activities. A collective’s primary activity is developing NIL opportunities that satisfy the NCAA Interim Policy’s quid pro quo requirement and that permit payments to student-athletes. This direct benefit is categorically different from the indirect benefit considered, for example, in Rev. Rul. 70-186.

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The benefits to student-athletes from a nonprofit NIL collective’s activities extend beyond compensation. NIL collectives relieve student-athletes of the transaction and compliance costs they would otherwise incur to participate in an NIL deal. These activities include, but are not limited to, identifying and vetting partner charities, negotiating the terms of an NIL deal, and ensuring compliance with state NIL laws and university-specific NIL policies. Some collectives also provide additional services such as financial planning, tax assistance, legal advice, and assistance in personal brand development. The primary beneficiaries of these activities are the student-athletes. These activities are not necessary to the promotion and marketing of charitable causes and therefore cannot be considered qualitatively incidental to the accomplishment of the nonprofit NIL collective’s exempt purpose. The private benefit to student-athletes is also not qualitatively incidental because it is generally directed to a limited noncharitable class. Student-athletes are not themselves a recognized charitable class. While the Service has previously recognized as charitable certain organizations whose activities benefited student-athletes, the rulings were based on a determination that the activities advanced education.28 Nonprofit NIL collectives make compensatory payments to student-athletes in exchange for services and the use of a valuable property right (NIL), which does not further educational purposes under section 501(c)(3).29 Absent a finding that NIL collectives select student- athletes for participation based on need, such that their activities could be considered conducted for the relief of the poor or distressed, and that payments are reasonably calculated to meet that need, payments to the student-athletes are properly regarded as serving private rather than public interests.

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When an organization serves both public and private interests, the private benefit must be clearly incidental, both qualitatively and quantitatively, to the overriding public interest. Because the private benefit from a nonprofit NIL collective’s activities, in most cases, will not be incidental in a qualitative sense, and because a single nonexempt purpose, if substantial in nature, precludes exemption, we believe such collectives are not organized and operated exclusively for exempt purposes.34 We also believe that in many cases a nonprofit NIL collective will be serving private interests more than incidentally in a quantitative sense.

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Consequently, it is the view of this Office that many organizations that develop paid NIL opportunities for student-athletes are not tax exempt and described in section 501(c)(3) because the private benefits they provide to student-athletes are not incidental both qualitatively and quantitatively to any exempt purpose furthered by that activity.

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