NIL Deals, Business Purpose, and What Nonprofit Leaders Should Notice
Recent reports that the College Sports Commission's NIL clearinghouse has rejected $90 million in proposed NIL deals have generated plenty of discussion in college athletics. While the headlines focus on athletes and universities, nonprofit leaders should be paying attention too.
At first glance, Name, Image, and Likeness (NIL) compensation seems like an issue unique to college sports. In reality, the underlying principle is familiar to anyone involved in nonprofit governance.
The question isn't simply whether money changes hands.
The question is why.
According to public reports, many rejected NIL agreements failed to demonstrate a sufficient business purpose or fair market value for the services being provided. Whether those determinations prove correct in every case will continue to be debated, but the concept itself is not new.
Nonprofit organizations encounter similar issues every day.
When a nonprofit compensates an executive, hires a consultant, enters a sponsorship agreement, or contracts with a related party, the board should be able to answer several straightforward questions.
What organizational purpose does this transaction serve?
Is the compensation reasonable?
Was the decision appropriately documented?
Would an independent third party understand why this arrangement exists?
The legal standards are different, but the IRS often asks a similar type of question when evaluating whether a nonprofit's resources are being used to further its charitable purpose. Regulators rarely stop with the label placed on a transaction. They look at the substance, the documentation, and whether the facts support the stated purpose.
Those questions are part of good governance regardless of industry.
My background includes nonprofit executive leadership, financial management, and accounting. That experience continues to guide how I advise organizations today. Legal compliance and financial stewardship are not separate conversations. The strongest organizations analyze both simultaneously.
The recent NIL headlines are simply another reminder that regulators often look beyond contracts and ask whether the substance of a transaction matches the paperwork.
Whether you're leading a charitable organization, serving on a board, or managing institutional risk, documenting legitimate organizational purpose remains one of the simplest and most effective ways to strengthen governance.
College athletics headlines might be highlighting this principle, but it’s something tax exempt organizations should do on a regular basis.