A Holistic Approach to Student Athlete Compensation

As athletic departments grapple with the various components of enhanced student-athlete compensation—from scholarships to Alston awards, name, image and likeness (NIL) rights and now revenue sharing—we caution against viewing each piece in isolation.

“Equivalency sports have been using this concept and terminology since the beginning of cost of attendance, Alston awards and now even more so once NIL became permissible,” said Jim Booz, Director of Collegiate Athletics Services, and a former college athletics administrator. “It’s a holistic compensation model for athletes, and schools need to take a step back to look at how all these elements will be operationally managed and budgeted for accordingly.”

Taking that comprehensive view is crucial, as simply trying to fund each new obligation separately could lead to compliance risks, financial strain and inequities across an athletic program. A more strategic approach is to develop overarching policies and processes to evaluate the total compensation package for each athlete.

This holistic model requires cross-functional collaboration between compliance staff, business offices, NIL directors, development officers, legal counsel and others. This ensures that student athlete compensation structures adhere to tax regulations, employment laws, Title IX requirements and more—all while you’re raising the dollars to fund it and understanding the priorities of the athletes, coaches and boosters.

The Importance of Cooperation

As booster-run NIL collectives become more influential, athletic departments need to be strategic about their involvement while staying compliant. Simply ignoring or shutting out these collectives is likely an untenable approach. Instead, open lines of communication and collaboration are important, even if the relationship has to be carefully structured. Shared successes, not silos, should be the goal.

“You can’t have different silos across the department—and outside the department—dealing with each separate compensation component,” Booz said. “It has to be a unified effort with consistent oversight to manage this appropriately.”

“Taking a piecemeal approach just won’t work from an operational or financial standpoint,” said Katie Davis, Partner and Collegiate Athletics Practice Leader. “The smart move is implementing a cohesive strategy to administer and fund a total student athlete compensation model that accounts for all the moving parts, and then using that package to negotiate with athletes, parents, agents, and players’ associations.”

Budgeting and Resource Allocation

Budgeting presents another key challenge in student athlete compensation. Finding the funds to pay athletes potentially tens of millions or more per year in addition to existing scholarship costs will severely strain athletic department budgets.  As new revenue sharing distributions and other pay obligations are layered on top of existing scholarship costs, athletic departments should conduct comprehensive financial modeling to understand the full scale of future expenses.

This may require difficult decisions around reallocating resources, identifying new revenue streams, adjusting sport sponsorships and more. Developing comprehensive financial models and forecasts will be crucial to understand the full scale of new expenses and revenue needed from sources like media rights deals and corporate sponsors.

Determining Student Athlete Compensation Levels

Establishing fair and consistent methodologies for determining the appropriate compensation level for each athlete based on their NIL value will be complex. Factors like sport, individual popularity, awards and accolades, marketing demand, and more will likely be considered, being mindful that this valuation is neither an hour and wage approach nor a pay for play approach. The House vs. NCAA settlement should shed light on what the fair market value formula looks like.

Using flat payments across entire teams could trigger IRS scrutiny over potential private benefit violations for tax-exempt institutions if compensation levels are not properly valued. That doesn’t mean you have to determine 500 different student athlete compensation levels. You can have tiered compensation models to which athletes are assigned.

As long as there is substantiation for how the athlete’s valuation aligns with the criteria for that tier, the transaction will likely not meet the definition of a private benefit if scrutinized by the IRS. In other words, following the rules and documenting everything well should help avoid any penalties associated with private benefit.

Regularly re-evaluating and adjusting student athlete compensation amounts as an athlete’s value fluctuates will also require defined processes. Additional administrative resources and staffing may be required to manage payment distributions, compliance and other processes.

Navigating a web of potential tax implications, Title IX equity issues, employment law risks, antitrust considerations and more will require close partnership between compliance, legal, finance and others. Centralized tracking systems will be needed to monitor each athlete’s total pay as compared to their value and other compliance-related matters.

The James Moore collegiate athletics CPAs and consultants can help you take a holistic view of student athlete compensation. Together we’ll proactively develop unified policies, processes and budgets to help your department stay ahead of the curve. Those that fail to take this comprehensive approach risk getting overwhelmed by compliance headaches and financial burdens as the new era of athlete pay takes shape.

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