NOTE: THIS IS OUR LAST EMAIL OF THE YEAR. HAPPY HOLIDAYS.

College sports has never really interested us. We’ve never been into rooting for teams where we didn’t go to school, and watching professional athletes has always been more interesting.

That being said. College sports is also an opaque candyland of terrible business practices waiting to be researched and explained.

And the landscape of college athletics has changed dramatically in the last half decade. NIL and NIL collectives have taken over, so let’s talk about them.

NIL and NIL Collectives: Good and Bad

When Nick Saban he had a problem with the current dynamic of college football, he wasn’t talking about NIL. He was talking about NIL Collectives. He was talking about the transfer portal.

How NIL works

1. First, you have to be a college athlete with something to offer (a huge following, big abilities, a unique name sometimes).

2. Then, a company will approach you with a deal (endorsement, commercial, etc.). These can be national brands like Nike or local businesses like car dealerships, etc.

3. Most colleges have athletes report their deals as a policy.

Here are a few examples of NIL deals that have been signed by college athletes:

1. Shadeur Sanders (Deion Sanders’ son) has a deal with Nike.

2. Decoldest Crawford has a deal with a Local AC company (pays to have a name)

3. Bijan Robinson has a deal with….his own Dijon Mustard company (The website is a trip)

A lot of these deals can typically be carried over when college athletes make the leap to professional sports. This gives them a base on which to operate on. This typically means a reduced marketing spend for professional teams since players are coming in with established personal brands.

And while it’s an evolving practice, this pretty much sums it up. But a lot of talk around NIL isn’t really about NIL itself.

It’s about NIL collectives

A NIL collective is a pool of money set aside for a specific college program to ‘create opportunities’ for a school’s college athletes. The tax-advantaged donations are driven by a mix of businesses and boosters, who use these funds to tempt 5-star high school prospects or college athletes in the transfer portal.

In a lot of ways, college athletics has turned into how professional sports work. Think of NIL collectives as the salary cap, and the transfer portal as free agency.

This is a wholly new dynamic from a few years ago, when scholarships were the perceived yet cosmetic benefit of being a high profile student athlete. Now, with new rules (or relaxing of rules), there are a few gaping drawbacks to this.

Put aside that student athletes are finally getting opportunities to get paid. This structure has a big drawback. Like handouts and under the table payments in the before times, NIL Collectives are still a shady ass business. In the real world, NIL Collective promises money to a high profile recruit in exchange for an endorsement. Details are left to both parties to hash out.  This is ripe for exploitation, and it’s happened multiple times.

Enter: Jaden Rashada

Jaden Rashada filed a suit against the Gator Collective over a 13.85 million dollar NIL Deal, stating that the collective never had the funds to pay that money. Rashada went to another school. In Oklahoma, players at the university of Tulsa were promised deals that were never paid.

Enter: House v. NCAA

Earlier this year, a judge granted a settlement between the 2 parties listed above that basically grants close to 3 billion dollars to college athletes over 10 years. Under this settlement, D1 schools can now start allocate a portion of revenues directly to athletes. This is revenue sharing, people! This money would be separate from any scholarship or NIL deals.

It’s complicated, though…

This is going to favor some schools over others. Less lucrative programs are going to have to get creative or cut costs in order to pay student athletes. Also, payments for revenue sharing need to be compliant with Title IX, so schools will need to be thoughtful about revenue sharing in a way that doesn’t merit further legal challenges.

What’s going to happen now?

If we’re reading the room right(and we do…we’re like 5 for 5 on predictions this year), in a few years time, players will be designated as employees that sign contracts with the school. Joining a student athlete union will become the norm. There are too many gaps in this entire thing not to have labor protections in place.

None of this is investment advice, btw.

Have a great week!

Ahmed and Peter