Daniel Libit is an investigative reporter for Sportico—a website that well-covers the business of sports, including what at least some apparently want tax law to consider the “charity” of college sports.
In 2019, Libit co-founded The Intercollegiate, a college-sports outlet recognized for its successful vindication of transparency rights accorded by public-records laws. Previously, he reported on national politics for Politico, National Journal, The Daily, and CNBC, among other places.
Recently, Libit’s Sportico work has included coverage of entities with tax-exempt status under § 501(c)(3) of the Internal Revenue Code seeking to facilitate opportunities for college student-athletes to derive financial benefit from their “name, image, and likeness” (NIL), as well as public-university athletic departments’ creation of separate, independent, private (c)(3) groups to act as deal-making proxies and signatories with outside contractors and endorsers, among other things.
Libit was kind enough to join me for a recorded conversation last week. In the first part of our discussion, which is here, we talk about the growing flow of money in college sports—including through tax-incentivized, nonprofit entities with charitable status—in general.
The just more than 13-and-a-half-minute video linked here is the second part—during which we further discuss factors surrounding potential policy reform regarding nonprofit flows of money in the college-sports business, along with newer and likely forthcoming flows of that money, whether nonprofit or otherwise.
Other potentially relevant factors regarding reform
Asked whether a relevant factor in consideration of any reform might be that supporters of mid-sized or smaller schools and their athletic teams are essentially being forced—through their payment of taxes, which incentivize the creation of all nonprofits, including college-sports ones—to subsidize bigger or better teams, perhaps rivals to or competitors with their own, Libit says,
That is a very fair point and one that’s raised often by supporters and leaders of smaller schools. The unfairness is replete in this whole thing, especially as you look through the lens of how things are or aren’t being taxed. The inconsistencies just kind of are all over the place.
NIL collectives are merely “another example of just that,” he continues. Overall, “There’s no real logical consistency with the way in which this enterprise is treated.”
Libit also acknowledges what many might consider to be yet another unfairness: the decidedly different levels of benefit to student-athletes on the major revenue-generating college-sports teams from those on non-revenue-generating ones.
Other forms of flow—more non- and likely forthcoming for-profit
Almost all major public universities have affiliated private nonprofits through which donors can make tax-deductible contributions to support the school. As Libit has reported, an increasing number of schools are newly creating such affiliated nonprofits for their athletic departments in particular.
“Most of the time, athletics has worked through the university foundation, much like with the hospital system or any of the departments,” he says. “A lot of the time, athletics is the primary source of the revenue flow” from these nonprofits to the university. “But for various reasons—flexibility, continuity—there’s started to be, at certain schools, larger schools with larger athletic departments,” these new nonprofits.
“In light of the new changes to the rules allowing schools to directly compensate athletes, which have just come on board a couple of months ago, the schools are now trying to come up with new architecture, new accounting architecture, financial architecture, to do one of two things,” according to Libit.
One, to give them the ultimate flexibility in how they pay athletes now and in the future. And two, ways of raising revenue that they might not have been able to do before, at least into the university itself. In some cases, that means building new 501(c)(3)s that they effectively have control over, but they’re legally distinct. In some cases, it’s converting existing (c)(3)s or replacing (c)(3)s with new for-profit entities. … That’s at the vanguard of the new kind of financial model of college sports.
As I’m sure you’re aware, one of the big conversations of the last year is the potential introduction of private-equity money into universities. Obviously, if you’re a (c)(3), there’s limitations potentially on where you can raise money. So in some cases, while the (c)(3) still has a lot of value and they’re being created as we speak for athletics departments, they might become a relic as people are looking to raise private-equity capital, private debt money.
It “wouldn’t shock me,” he adds, if “foreign sources of money are sought to be raised.”
Practicality and policy, public money and transparency
More largely, “one thing about college sports and higher education is there is no shortage of bureaucracy,” Libit says,
so it does seem like everyone’s solution to a problem is to create more legal structures. … Whether or not this this is the most-efficient way, it certainly makes it harder and harder to track the flow of money and so it serves that purpose and arguably it allows for more maneuvering.
He continues, “I think there was a place and a point in time certainly, years ago, where tax reform or honesty about the taxing of college athletics would have maybe had a very-profound effect on the way universities treat this,” but “the horse is so out of that barn now that I think in some ways the tax instrument is no longer a practical thing.
“It still might be right to do,” Libit notes. “I think we want people to be honest what is charitable. I think there’s still value to it, but I don’t think it would have a huge reform effect. I think there’s so much money now that universities don’t even care about paying, or don’t care to the same extent,” about paying taxes.
As a reporter, he concludes,
My policy-reform suggestions would all be about improved transparency across the board, not allowing people to hide. … The whole notion of a public university that utilizes public taxpayer money is that they need to show the work. They need to show where the money is going, and how it’s being expended.
