What donor fatigue means as NIL enters its third year of impacting college sports
As the NIL era celebrates its second birthday, allow Walker Jones to lay out the symptoms of an industry-wide ailment: donor fatigue.
When Jones re-launched the Ole Miss-focused Grove Collective early last fall, the Rebels were thriving. They had a 7-0 record, a No. 7 national ranking, and Jones couldn’t reel in donor dollars fast enough. Then came four straight losses to close the football season. Combine that with a disappointing men’s basketball campaign and suddenly donors weren’t as quick to dig deep into their pockets.
The dynamic, to varying degrees, is playing out on many campuses nationwide with the third anniversary of NIL in college sports coming on July 1. On3 is looking back at the newsmakers that shaped the second year of the NIL Era along with focusing on the storylines that’ll impact its third year.
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The thirst for success ignites the pursuit of a large war chest – table stakes in the high-stakes recruiting and retention game. Heightened on-field expectations only elevate the need for a more robust war chest, which further fuels visions of rosters strewn with five-star performers. Wash and repeat – the space is engulfed in a feed-the-beast cycle with a hefty price tag and no endpoint.
“If you’re not winning the championship, people [donors] are going to say, ‘Man, screw this.'” Jones, the executive director of the collective, said of the industry in general. “‘I gave [dollars] under the impression this was going to help us win championships and be competitive.’ And if you’re not doing it every single year, the cost still goes up – that’s a problem.
“There is this growing feeling: Is this going to be the reality every year? And is the price going to continue to increase? If we raised $6 million last year, is it going to have to be $9 million next year, and then $12 million? If it doesn’t change, and we are stuck with the same marketplace that we are today, it is not sustainable for a 95% donor-funded model.”
Can the current NIL collective model survive?
The Grove Collection is among the innovative collectives that have tapped into other pools for dollars. Others either have followed suit – or likely will soon be forced to – as donors confront an acute financial stress test. The athletic department is competing with the collective over the same donor dollar. The economy’s headwinds are causing some boosters to pump the brakes on philanthropic efforts. And the recent Internal Revenue Service memo casts doubt on whether future donations to collectives granted nonprofit status – some 80 of 200-plus nationwide – will be tax-deductible, perhaps eliminating one incentive to contribute.
At the same time, a generous collective donation still has a mirage element.
It is not the price of winning. There are no on-field, on-court guarantees. It’s merely the price of short-term optimism. Filling a collective’s coffers provides a jolt of adrenaline for an athletic program, however temporary. So for the garden-variety State U. collective donor, sources say, where’s the guaranteed return on investment?
If the ROI is a College Football Playoff berth, that’s one thing. If the ROI is a Tony the Tiger Sun Bowl berth, that’s quite another. Well-heeled boosters have deep pockets.
But those pockets are not bottomless.
Leaning so heavily on donors begs the question: Is this model sustainable?
“I don’t think that the current model will exist going forward,” Bubba Cunningham, the North Carolina athletic director, told On3. “The never-ending need for more resources will continue to be. But how we go about prioritizing and how we go about asking for resources is going to have to change.”
More than two-thirds of NIL transactions come from school-specific collectives. Of the more than 200 collectives, some rank-and-file Power 5 school-affiliated ones raise $3 to $5 million annually, with the most ambitious SEC entities amassing anywhere from $5 to $15 million.
Here’s the buzzkill: Until CFP expansion in 2024, there are only four playoff berths and only four Final Four berths. Not every season ends with a parade, so what’s the donor benefit?
As Peter Schoenthal, CEO of Athliance, said, “Listen, you want to give $2, $3, $4 million dollars for a building, your name is on a building. You get a plaque. It’s there forever. It doesn’t really work that way with athletes.”
Donors are stretched thin, often with their enthusiasm fickle, ebbing and flowing with the weekly Top 25 poll. Consider the vantage point of Steve Hank, the executive vice president of collegiate athletics at Affinaquest, the leading data management company in college sports that works with nearly 50 Power 5 schools.
“There’s just an uncertainty about where things are going,” Hank said of donors’ thinking. “Anytime you have uncertainty, people – what do they do – they retract, they pull back. You have donors who want to engage but are saying, ‘Am I making the proper investment?’ It makes it an incredibly challenging environment for the new collectives being formed. For everybody out there, it’s a slog. Donor fatigue is absolutely real.”
The new ‘weight’ on athletic departments
Donor fatigue may require athletic departments to pivot.
Not long ago, possessing the newest, glittering, cutting-edge facilities and locker rooms was all the rage, intensifying an arms race to create recruiting advantages for those with all the bells and whistles. These days, funds that pay for locker room sleep pods, cryotherapy chambers and nice-to-have stadium renovations may be better earmarked for players in NIL deals facilitated through collectives.
Take the predicament of Maryland‘s football team, which last year moved into a beautiful $149 million, football-only facility. Great building, wrong era.
“Unfortunately, we moved in at a time when facilities have been de-emphasized in a recruit’s mind,” Terrapins football coach Mike Locksley told The Athletic. “Because they’d get dressed in the trash can for $25,000.”
To that point, Jones with the Grove Collective said, while facilities still need to be competitive, there’s an increasing realization among schools and athletic directors – including at Ole Miss – that they may need to pause come capital campaigns or locker-room and stadium renovations. The capital is of greater value being redirected into a collective.
Is it as simple as move over facilities arms race, make room for the NIL arms race? Well, it’s complicated.
As one conference commissioner said, development directors, athletic directors and presidents have built a wide array of palatial facilities. Now with significant debt service on those brick-and-mortar buildings, they remain heavily reliant on donations. And if the ask now is for donations to go to collectives versus facility debt, “there’s not enough money out there to be able to do that,” the commissioner said. “Fatigue is being built. And if donors don’t know for sure if [NIL] donations are tax-deductible, but they are for facility deductions, I’d probably give money to the facility fund rather than the NIL fund.”
Christy Hedgpeth, president of Playfly Sports Properties, which has a growing number of clients – including Baylor and LSU – said it’s not an either-or proposition in the facilities vs. NIL collectives equation. Both remain important.
“It is part of the weight that is on athletic departments to figure out the new landscape,” Hedgpeth said. “I feel for them. Because there was already a lot of pressure to drive revenue and try to be profitable. And so this is clearly another form of an arms race. But I don’t think I’ve heard anything about, ‘Oh, well, we can just sort of let our foot off the gas on this area because we have to focus on NIL.’ It is just really an ‘and’ proposition.”
Tom McMillen, the CEO of LEAD1 Association, told On3 in recent months that concerns that collectives were siphoning funds that otherwise would go to traditional athletic department projects existed largely at the Group of 5 conference level. Especially at the Power 5 level, there is an increasing understanding that a large portion of funds needs to be siphoned to collectives for top-tier athlete recruiting and retention efforts. The price tag to be competitive is high, steepening each year.
“It is about what I call ‘goodwill payments’,” McMillen said. “A coach says, ‘Look, for me to get ahead, I’m going to have to give each one of my football starters $25,000 and give the guys on the bench ‘X’ amount.’ In other words, it has to do with goodwill – recruitment and retention – not publicity rights.”
‘Essential for their survival’
As donors are increasingly pulled in two directions, it’s vital for athletic departments to turn over every rock in search of new donors. Hank likes to tell the story of his company helping one SEC athletic department – he declined to name it – to identify several hundred thousand supporters whose names and information were previously hidden in a merchandising database in a forgotten digital silo.
Hank’s staff delivered customized campaigns to those fans. They found that each previously unidentified name was worth $1.91 to the athletic department. The average transaction was $530.94. Over time, that adds up.
“It is vital and essential to find those fans that are hidden; they want to engage but have just not been asked,” Hank said. “Until 18 months to two years ago [at the start of NIL], the focus was not on the hidden fan. Now they know that it is essential to do it for their survival.”
Hedgpeth said this era has revealed, or produced, two types of college sports donors: traditional ones accustomed to working with university foundations and athletic departments. For them, this new age is a dramatic paradigm shift. Some of Playfly’s schools are seeing some fatigue among many of those donors. But the emergence of collectives has also created and attracted a type of non-traditional donor who relishes accessing student-athletes more directly and supporting a collective that helps recruit athletes.
“There are more donors, and more money coming in,” she said. “But it’s being split between the schools and the collectives.”
In a specific example of finding so-called hidden fans for donations, Playfly’s LSU Sports Properties team sold a sponsorship for LSU Gold to Bayou Traditions, the LSU-affiliated collective. This allows the collective to get in front of LSU fans day and nights through the LSU Gold subscription service, where fans are consuming premium content, including stories about LSU student-athletes.
The onus is also on the NIL collective to continue to innovate. Dan Lust, a sports attorney and law professor at New York Law School and Fordham University School of Law, said collectives must become creative because the pool of money from people who donate to schools is a finite source.
“It [donor fatigue] is a concern, unless it’s handled in a way where the schools are being mindful of what the collectives are doing and vice versa,” Lust said. “I think it could be a problem.”
Echoing that point, Dale Hutcherson, a Memphis-area attorney who specializes in sports and trademark law, said, “Universities in small college towns and [with] less wealthy alumni bases are having to fish the same pond – which inevitably leads to donors either having to split the pot or having to choose based on which entity – the university or the collective – that the donor values most.”
He added that the “symbiotic relationship between a university and a collective is as sustainable as the university – and the collective – will allow it to be.”
What are the other pools of dollars out there?
The collective landscape, of course, is not a monolith. Fatigue varies from market to market.
Cody Campbell, the co-founder of Texas Tech‘s collective, The Matador Club, said where it’s “really fatiguing” is where recruits were paid big dollars out front and they didn’t pan out or wound up racing into the transfer portal. With the Matador Club, however, they’ve seen a financial upswing. Campbell said they now have some 4,000 donors and raised $8 million during the 2022-23 academic year.
More sophisticated collectives are making concerted efforts to diversify revenue streams. That enables them to avoid being so reliant on conventional booster donations. Most collectives now have an e-commerce component. None do it as successfully as the Tennessee-focused Spyre Sports Group, one of the nation’s most ambitious collectives.
Broadly speaking, Spyre’s co-founder James Clawson said, they now have 2,800 members who account for an average of $36 each month. In total, he said the collective raises $12 to $14 million annually. Some 33% of their members live out of state; expanding their reach even further remains a priority.
“They [donors] want to win. They see the plan that we have in place,” Clawson said. “We’re going to start doing more targeted ads, almost identical to how a political campaign would target fundraising dollars. Take that same mentality from different folks in the political arena to kind of tap into what makes them so successful.”
At Ole Miss, Jones said their monthly subscription platform provides a recurring revenue stream. They want 50 to 60% of their revenue to derive from this recurring revenue model, with boosters content to have their credit cards charged each month a nominal amount and not even thinking about it because “they are going to be with us ride or die.”
Collectives are starting to figure out ways to reward donors with items or experiences they value. Grove Collective athletes will start participating in monthly eSports tournaments run through the Hyperluxe platform.
Valiant Management at Michigan has become the go-to sports marketing firm in Ann Arbor. It spawned the Champions Circle collective, which offers fan interaction events, brand partnerships, merchandise and memorabilia sales and charitable endeavors. In what is believed to be the first-ever NIL cruise, BYU fans – and CougConnect subscribers – had a chance to go on a four-day Carnival Cruise, dine with different players and play minigolf with athletes.
The Georgia-focused Classic City Collective recently launched a new NIL initiative offering short-form videos alongside ads and shoppable merchandise.
“A big part of the solution is going to be the creation and monetization of content,” Mit Winter, a college sports attorney at Kansas City-based Kennyhertz Perry, said. “Collectives generally have insider access to athletes that other people don’t. They can use that access to generate content that fans are willing to pay for on a recurring basis.”
The Florida State-focused Battle’s End sent athletes to the Super Bowl with a prominent donor. And North Carolina football-focused Heels4Life unveiled a partnership with Jimmy’s Famous Seafood and Jimmy’s Famous Meals. Starting quarterback Drake Maye and wide receivers joined the partnership.
The key, Schoenthal said, is “actually operating as a real marketing agency, which is you as a collective slash agency being able to sell your athletes to brands, whether it’s nationally or locally, to get them deals, which allows you to bring in money to pay the athletes. You’re seeing these collectives, where they have marketing backgrounds, they understand, ‘We don’t just have to rely on donors. There are other pools of dollars out there.'”
New model ‘taking center stage’
Donor fatigue needs to be assessed against the backdrop of further change on the horizon.
Sources don’t expect collectives to go away. But other revenue sources for athletes – particularly if a revenue-sharing model is introduced – may be in play. One prominent NIL source noted that the median revenue for a Power 5 athletic program is some $126 million with 41% going to staff, coaches and severance and just 11% going to the athletes.
“That is going to take center stage,” the source said.
One way to counter fatigue in the short term, Schoenthal said, is to hammer home with donors that this is all short term. Reinforce that these types of donations are needed for perhaps two more years because – reading tea leaves and assessing the potential ramifications of the Johnson v. NCAA case, “we are a maximum of three years away from a revenue-sharing model.”
“They’re saying these are marketing deals, but they’re not,” Schoenthal said of many of the NIL transactions through collectives. “They are salaries, salaries clothed in marketing deals. And so the future is going to be revenue share, and also internal group licensing. The smart collectives are letting big donors know, ‘This is a two- to three-year window that we need you.'”
Winter said teams, schools, conferences, and/or the NCAA should ultimately be the ones funding athlete compensation through revenue sharing. He added: “Asking donors to do this when the NCAA, conferences and schools are collecting enormous checks from broadcast deals is a strange system when you look at it objectively.”
The NCAA – at least to date – is ceding the opportunity to play a hands-on role in creating a new model, instead lobbying federal lawmakers incessantly in the slim hope of a lifeline from Congress. Jones with the Grove Collective would love to see all conferences unite to jointly construct a new model but said the problem is “they probably all hate each other.”
Regardless, with donor fatigue plaguing the industry, some solace can be found in the fact that this current business model has an expiration date. Change is coming. What it exactly will look like, what forces will reshape it, and when it will occur remain open questions.
“Look, I’ve been in business all my life,” Jones said. “This is the one business where you try to lay out a six-month strategy – it’s pretty much worthless.”