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'New baseline compensation:' Why revenue sharing makes NIL collectives, sponsorships imperative for competitive advantage

Nakos updated headshotby:Pete Nakos05/24/24

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Andy Staples On3 2024-05-24 at 12:00

An SEC NIL collective operator recounted to On3 this week about negotiating with a top player in this spring transfer portal window.

“He wants six figures a month, plus a car and a house,” they said. “And he was like, ‘Well, that’s just a starting point. You have to have some sort of starting point.’ How tone-deaf are you if that’s your starting point? They thought that was an acceptable start.”

If the collective had delivered on those asks, the athlete would have immediately reset the market value for the position group inside the program. The asks collectives are expected to live up to for top college football and basketball programs to attract and retain top talent could soon change.

The NCAA and power conferences are expected to notify the Northern District of California that they have reached a settlement agreement with the plaintiffs. Both sides made announcements Thursday night that they had agreed on the terms.

Plenty still needs to be determined and the settlement needs to be certified by Judge Claudia Wilken. But with the agreement, institutions can opt-in to share roughly $20 million of revenue annually with athletes. With that cap, schools will need to figure out how to disperse revenue to athletic programs while considering Title IX.

The top-funded collectives are spending between $13 to $20 million annually on football rosters at the moment. In basketball, the highest spending programs are pushing $5 million. Despite the NCAA trying to minimize the role of collectives in college sports, multiple sources and stakeholders tell On3 that the revenue-sharing cap will only necessitate organizations to strike side NIL deals to provide a competitive advantage.

“That cap is a very important piece because as we know the competitive nature of the collegiate athletics landscape, particularly in the Power Four, it’s going to necessitate additional dollars in order to recruit and retain the best athletes,” said Andrew Donovan, the President of Altius Sports Partners, which advises double-digit power conference athletic departments.

“If we’ve learned anything over the past three years, it is that schools are incredibly competitive. They’re going to do everything they can and their supporters are going to do everything they can to try to gain an advantage. And so, I think to expect that collectives are going to go away entirely would be a bit of a fool’s errand.”

‘Revenue sharing will be the baseline toward NIL’

Recent courtroom losses have rendered the NCAA’s transfer portal and NIL policies useless. As part of the settlement agreement, the NCAA is hoping to establish a new enforcement entity with court backing to limit the role of collectives. Even if a settlement lays out that framework for the next enforcement arm of college sports, Congress will need to step in. State laws will continue to supersede the settlement without lawmakers’ help.

Talks of a college football Super League have ramped up in recent months. The Big Ten and SEC recently formed a joint advisory group. Plenty of questions remain about what the sport will look like moving forward.

For example, if every Power Four quarterback receives $500,000 annually through their school’s revenue, many believe collectives will be imperative to offering the extra $200,000 to win a recruitment.

Why? Because the only thing college football fans want on Saturdays in the fall are wins.

“If it all comes out today, the next three months will be conversations about what the model is,” said Rob Sine, the CEO of Blueprint Sports which helps manage 12 collectives in the Power Four. “Then it’s laying the piping so by July 1, 2025, everything will be run correctly. Having NIL funds available will be paramount. But schools are going to start talking about this model this fall in recruiting pitches, so therein lies the urgency.

“But that also means collectives are going to continue to be involved. The high-functioning ones will be involved in the arms race and to provide that competitive advantage. Revenue sharing will be the baseline toward NIL. Now the question will be how much does a collective need to raise for a new football roster.”

Collectives could distribute revenue payments

Collectives could become the vehicle for institutions to disperse revenue, too. On3 has learned of at least two SEC schools that are looking into ways to incorporate donor-funded entities into their plans. Universities do not want to hire additional out-of-market, third-party entities.

The answer could be collectives, especially when it means crafting revenue sharing contracts. Multiple sources voiced their concerns to On3 about financial aid departments at institutions being tasked with distributing the revenue.

Other sources On3 spoke with hypothesized about buyouts in college football helping to create a more regulated free agency. The transfer portal windows don’t appear to be changing until collective bargaining enters the picture.

“Whatever that dollar amount is, that means everyone is going to be playing on the same level?” said Russell White, the president of The Collective Association which represents more than 30 Power Four collectives. “That’s never been enough for these competitive schools, boosters and fans. That’s never been enough. So, whatever that baseline is, there will always be a need for more.”

Multiple stakeholders On3 spoke with believe collectives will be even more important in the Group of Five ranks. If those institutions do not opt-in to the revenue-sharing model, collectives will be the way for many to attempt to stay competitive in the new landscape.

For a platform like Student Athlete NIL (SANIL), revenue sharing could open up a new side of the business. The company helps manage more than 40 NIL collectives, highlighted by major schools including Oklahoma, Vanderbilt and Rutgers. Along with developing a platform made to deliver a return on investment for fans and donors, SANIL has set up the infrastructure to be the vehicle on campuses to distribute revenue.

“There’s going to be a salary level, and collectives are going to be the bonus or that key differentiator,” SANIL’s CEO Chris Brown said. “I think that’s one element of it. The second part, specifically for us, we’ve invested a lot of money in technology. All of this needs to be administered so all of the stakeholders have significant visibility into the health and the transactions and everything that’s going on in the NIL platform.”

Booster payments won’t be enough

FedEx announced last month it was going all-in on NIL with Memphis athletics. The logistics company committed $25 million over the next five years to Memphis’ NIL efforts. It’s believed to be the first NIL corporate sponsorship that services an entire athletic department.

The agreement calls for FedEx to spend $5 million annually across five years. Dollars have been appropriated for football, men’s and women’s basketball and other women’s athletic programs, however, how NIL dollars are dispersed is unclear.

When the partnership was announced in April, many viewed it as Memphis getting a jumpstart in its NIL efforts. Sources tell On3 that corporate deals could become more popular in college sports to help take pressure off donors.

Just look at the WNBA, where the Las Vegas Convention and Visitors Authority announced an unprecedented $1.2 million sponsorship with the Las Vegas Aces. WNBA rules prohibit teams from facilitating such deals to not violate the league’s collective bargaining agreement.

At the moment, college sports do not have collective bargaining in place.

“Most universities and colleges will start from the same point, meaning from a rev-share percentage, and there’ll be some more governance and balance because of that rev share, whether it be tampering rules, a clearinghouse to approve certain deals over a certain amount,” said Walker Jones, a leader in the collective space and the executive director of the Ole Miss NIL entity The Grove.

“The schools and collectives that work in conjunction together, that can be most efficient and most creative, can develop true brand partnerships through corporate entities that can add a lot of opportunities for their student-athletes and can be very efficient with compensation. Those will be the schools and the collectives that will create the competitive advantage through their operation and their efficiency.”

In roughly three years, the college sports space has developed into an environment where college football players earn a salary from collectives. Before the NIL Era, those payments came in under-the-table packages or a free car.

NIL will find a way

Whether the next form of competitive advantage comes from donor-driven collectives or corporate sponsorships, top programs will do whatever they can to find an edge.

“You could call it a base salary, you could call it something else, but we can assume that at the highest levels within the Power 4, schools are going to do everything they can within that cap,” Donovan said. “And it’s going to become an expectation by athletes, similar to how expectations have been built out within the collective environment, over the last three years. And from there, it becomes the question: How are you operating not only within the collective ecosystem as it relates to donor-driven dollars, but also general commercial opportunities?

“Whether it’s donor-driven dollars, corporate partners engaged in NIL, non-corporate partners that will provide an additional dollar or an additional incentive to an athlete, institutions will have to be prepared to have the infrastructure to execute.”