The Texas A&M NIL Loophole
So full disclosure from the jump, there will be no link. No article. And this can be tossed into the "research on my own" bucket that is so popular these days.
That said, I decided to do just that...do my own research, do some digging, talk to friends and colleagues (folks in the NCAA and compliance officers at different universities, etc.)
My goal was simple, to answer the question, "what is Texas A&M (and so many others) doing with NIL that has been so controversial, yet effective?"
The first thing you should know is the NCAA is ACTIVELY investigating multiple schools around the country right now (on NIL). They're not announcing it, but it's happening.
Second, I didn't find the answer to my question, but I did find part of it. For example, one of the things Texas A&M is doing is they've got donors lined up ready to pay for autographs, memorabilia, etc. from recruits? Market value, right?
One recruit sold an art project from class for six figures. He's an Aggie. Another held an autograph session and charged $50,000 an autograph...two people showed up, both got autographs. He's an Aggie.
As the rules are written, none of this breaks anything in Texas...technically. Obviously, it's not the intent of NIL.
Another thing I've learned is that you have to have a donor base with an appetite to give money to 17 year olds, a lot of schools do not. Most student-athletes aren't even interested in NIL right now.
In the end, the model is not sustainable and the NCAA will likely take a drastic shift in the next couple of years.
That's it, nothing ground breaking. But if you want some art...head down to College Station, TX...they've got an explosion of creativity and expression down there.
February 1st, 2022 at 10:48 AM ^
The goal of NIL was to let athletes monetize on the value that they bring to schools, it's working exactly as intended. I have no issues with donors paying $50k for autographs.
February 1st, 2022 at 11:07 AM ^
Yeah, isn't this exactly what the intention was? If someone is willing to pay it, that is the market.
February 1st, 2022 at 11:49 AM ^
Not exactly. If we’re talking supply & demand, the demand wasn’t for an athlete’s autograph or art but for the athlete to play for your favored college.
February 1st, 2022 at 11:55 AM ^
If someone is willing to pay it, that is the market.
I hate comments like this ("the value of something is what someone is willing to pay"). It's a huge misconception. The value of something is determined by what the consensus of the market is willing to pay, not what some random dude would pay. If most people would pay $5 for that A&M player's autograph, the autograph is worth $5. The fact that a couple people with money to burn would pay $50k doesn't change that. It just means there are a few people that would drastically overpay, because a "market value" that 99.9% of the time you wouldn't be able to get anywhere close to is meaningless.
Imagine a house for sale, where the market consensus is that it's worth $300k. Now say someone comes along and offers $500k. It doesn't matter why--he might really like it, he might need a house ASAP, he might just have money to burn--he buys it for $500k. But that doesn't mean the house is now worth $500k just because that's what he paid for it. If he puts it up for sale, people will offer $300k, same as before.
One person can't create the market, unless the market is so specific that it's limited to just that person (and I'm struggling to come up with an example of that). The market is created by everyone else.
February 1st, 2022 at 12:17 PM ^
The value of the thing may not change, but that's an entirely nebulous concept. The cost of the thing absolutely changes. In your house example, if one guy offers $500k, it's extremely unlikely that anyone at that time is going to get it for $300k. In the autograph example (reproducible, so not a limited commodity), it depends on if the player is still willing to sell one for $5. If he gets $50k and decides that's what he wants for each one, then that has become the cost, if not the value of it.
TL;DR The cost of a thing, if not the value, is what someone is willing to pay for it.
February 1st, 2022 at 12:35 PM ^
TL;DR The cost of a thing, if not the value, is what someone is willing to pay for it.
Maybe, but the cost is to a large degree meaningless. People aren't going to pay more for something just because it cost more. If something costs more than it's worth, and that cost is a hard floor (i.e. the seller is unwilling to sell it below cost), then no one will buy it.
It's like The Homer from that episode of the Simpsons. The cost was so high ("Let's see, the sticker price is... $82,000?!") that no one bought it and the company went out of business.
February 1st, 2022 at 1:30 PM ^
All of this is semantic, though. The cost or value isn't being assigned to the autograph, but to the player committing to that school over another one.
February 1st, 2022 at 2:49 PM ^
"People aren't going to pay more for something just because it cost more."
Oh yes they are. Peloton literally made this principle the cornerstone of their business strategy. They nearly doubled the price of their bikes with zero material improvements, and sales dramatically increased because people perceived it as a high end product.
February 1st, 2022 at 1:57 PM ^
I mean, literally by definition what someone is willing to pay in an arm's length transaction is the market value. Is any random NFT worth $1 million? I have no idea, but if one random guy on the internet is willing to pay that, that's the market value.
Now, we can argue that many of these transactions are not truly arm's length, and are kind of the equivalent of someone buying their own NFT to artificially drive up the price, which is a different issue.
February 1st, 2022 at 2:49 PM ^
No, the market value is what the market is willing to pay, and the market is more than one individual. Otherwise it would lead to absurd results.
Take your NFT example. You have an NFT that one person would (over)pay $1M for, and the next highest person would pay $100k. Either you have a situation where the NFT is worth $1M until that person buys it, at which point its value instantly drops to $100k because now that's the most anyone left would pay for it (the guy who bought it for $1M can't buy it from himself), or a situation where it's still "worth" $1M since that's what the buyer valued it at, but the highest he could sell it for is $100k. Either way that's a worthless definition.
February 1st, 2022 at 2:56 PM ^
But that's literally how appraisals work. If you're appraising a house, you often look at comps. If someone paid $500K for a house that "should be" $300K given everything else, that changes the market value of the other houses. Now, will the next guy pay $500K just because someone else did? Not necessarily, but someone paying that is a new data point that you have to consider and can't shrug off just because "everyone else" wouldn't pay it.
The point is, everyone has a different value they'll assign to something, and if someone is willing to pay it, that is the market value until another transaction says differently.
February 1st, 2022 at 3:27 PM ^
The definition relates to a hypothetical buyer and a hypothetical seller, neither under any compulsion to buy, and both having reasonable knowledge of relevant facts.
If I buy a house at its appraised value of $25 million and then immediately turn around and "sell" it to my son for $250,000 in an attempt to have the transaction characterized as a "sale" rather than a "gift" in order to shirk the $10 million gift tax that would otherwise be imposed, my argument (the house's fair market value is $250,000 because I am a willing seller and my son is a willing buyer and that is the price we agreed upon) is going to fail. The IRS is going to recharacterize this as a part-sale ($250,000), part-gift ($25 million less the consideration paid).
That is what is happening in most of these fantasy scenarios where ultrawealthy donors are "buying" things from student-athletes for ridiculous prices plus a wink and a nudge.
Obviously, intangible assets like name and likeness rights are more difficult to value than something like a house. But "difficult to value" does not mean "assign whatever value you want and that is the fair market value." The IRS has approved methods for NIL valuation. If some billionaire donor tries to "buy" an autographed football from a star quarterback for $2 million and argue that there should be no gift tax liability because the fair market value of the autographed football is whatever the billionaire was willing to pay for it, that billionaire is unquestionably going to lose that argument against the IRS.
February 1st, 2022 at 3:47 PM ^
Yeah, that makes sense, and why these things have to be "arm's length" to count. I don't know what happens with NIL, because the value of a player to a wealthy donor is pretty subjective, but obviously selling an autograph to someone who is buying it to de facto pay the player gets pretty grey.
February 1st, 2022 at 4:26 PM ^
What will happen if some ultrawealthy booster decides to ignore the advice of their advisors and make a massive gift (say, $2 million) to a star football player at their favorite university in exchange for an autograph is that the IRS will assess a $800,000 gift tax on the gift, plus a penalty for failure to report (or worse, a penalty for fraud, depending on the facts and circumstances). If the taxpayer wants to appeal it and argue that it was a "sale," not a "gift," then the taxpayer will have the burden of proving that the autograph is worth $2 million. The taxpayer in that scenario will not be successful in convincing any tax court in America to accept their position. Lawyers and CPAs everywhere will tell their wealthy, sports-obsessed clients, "told you that would happen."
Bonus: If the NCAA catches wind that the player received a gift from a booster, they may suspend the player.
So now you've spent something in the neighborhood of $3,000,000 (the $2 million gift plus $1 million in taxes and penalties) on a star player for your alma mater who will be sitting on the sidelines, not playing, because he's ineligible under NCAA rules.
February 1st, 2022 at 11:16 AM ^
That doesn't mean there can't be some structure to it like there is in every single professional sport.
February 1st, 2022 at 2:51 PM ^
There is structure to how much Nike pays Jordan?
February 1st, 2022 at 4:13 PM ^
You're being intentionally obtuse. This thread is not about college athletes signing endorsement deals with Nike because no one has an issue with that. It's how schools and boosters use NIL to recruit players to their school. Jordan's salary for the Bulls didn't come from a couple random fans bankrolling him without regulations or caps.
February 1st, 2022 at 11:25 AM ^
This couldn't be any further from the truth.
NIL was NOT intended for that rc and you know that, but it fulfills your fantasy somehow.
February 1st, 2022 at 11:45 AM ^
No, that would be if players got a cut of the school's revenue. NIL is intended to allow individual athletes to capitalize on their fame. The former is not necessarily a problem, but NIL is not intended to allow people to just throw money at athletes solely because they play for their school.
February 1st, 2022 at 1:02 PM ^
I strongly disagree. You are correct, it was intended to let athletes monetize their value. However, it’s being used as a way to buy recruits, which isn’t the same thing. As an example, if Hutchinson was returning next year, he would likely get less NIL offers than a 5 star high school senior who was enrolling early. If NIL was based on the value they bring to a school, Hutchinson would get far better offers than a recruit, but that’s not what is happening. I’m 100% for NIL, but only the NCAA could have screwed it up this badly. Where Texas AM is breaking the rules, but not getting caught, is that the coaching staff is directing the donors on who to sign, which to my knowledge is prohibited
February 1st, 2022 at 3:00 PM ^
All American pro leagues have salary caps because that's what creates enough competitive balance for them to be interesting entertainment. I would argue that's a large part of why we find European soccer so boring and nonsensical. It's why we prefer March Madness to the NBA Finals.
There has to be some semblance of parity or the only fans that will stick around will be fans of the few top teams. That's already been hurting college football throughout the entire playoff era.
NIL has the potential to help even things out, but we can't have a situation where there aren't clear rules. The NCAA needs to ensure NIL functions in a way that contributes to parity rather than harm it.
February 1st, 2022 at 10:49 AM ^
If the NCAA is investigating then West Texas A&M is screwed
February 1st, 2022 at 10:49 AM ^
MgoBlog... doing its own research since 2006.
February 1st, 2022 at 11:15 AM ^
Its own research with unverified voracity.
February 1st, 2022 at 10:50 AM ^
Why do you say that the model is not sustainable? To me, it seems no more or less sustainable than how things worked prior to NIL. The idea that the NCAA has any power to implement a drastic shift seems unlikely to me, as well. Anything they do to try to restrict this will likely end up losing in court.
February 1st, 2022 at 10:53 AM ^
So is the "loophole" they have wealthy alums willing to pay more than fair market value for stuff because isnt that kinda the whole point of NIL? I mean how is that different than the Columbus car dealership paying Quinn Ewers a shit-ton of money to endorse them only to have the kid never play and then transfer? And who's to say those autographs wont be worth millions some day when the unnamed kid from A & M hits it big?
NIL is nothing more than above board bagman. Some schools have an appitite for this (like the entire SEC) and others, like Michigan, do not.
February 1st, 2022 at 10:53 AM ^
As long as most of this research was done, by you, on your iPhone, while on the toilet "pinching one off" and/or with a "turtle head poking out," then I am willing to listen.
February 1st, 2022 at 10:59 AM ^
...whilst on the toilet. Please.
February 1st, 2022 at 11:01 AM ^
The holy grail of dumps is the Loch Ness Monster. Been trying for decades. Still no luck.
February 1st, 2022 at 11:17 AM ^
1) It wasn't really a shit ton of money
2) It wasn't a Columbus car dealership - it's a "sports marketing" company in Hawaii
February 1st, 2022 at 11:43 AM ^
NIL is nothing more than above board bagman. Some schools have an appetite for this (like the entire SEC) and others, like Michigan, do not.
I think this point here leads us to why JH is sniffing around the NFL. He either can't convince Michigan to play the NIL game or doesn't want any part of it himself (especially when coupled with the transfer portal)....or maybe both.
I suspect that Michigan will be unwilling to adapt to the new realities of NIL and the portal and it will end up hurting them badly no matter who the coach is. Beating OSU once per decade, winning the B1G every 15 years then getting spanked in the CFP could be as good as it gets.
February 1st, 2022 at 11:44 AM ^
Meant to reply to MGrowOld above.
February 1st, 2022 at 1:34 PM ^
I don't even think it's NIL specifically, but do suspect that the less college football looks like what Harbaugh experienced as a player, the less incentive/interest he has in sticking around for it. Somewhat analogous to the Beilein situation (though obviously about his coaching rather than playing experience.)
February 1st, 2022 at 10:54 AM ^
Careful what you wish for... you just might get it.
February 2nd, 2022 at 2:17 AM ^
I'm fine with it. And just as I guessed, everyone is blaming selfish players or dirty coaches when the NCAA fought this shit tooth and nail for years and have still done jack all when they could have been setting up a system that may make this somewhat less sketchy and more equitable.
February 1st, 2022 at 10:56 AM ^
Where would the $100,000 go if it didn’t pay for two autographs?
A new waterfall in the locker room?
an increase in assistant pay so that assistant’s credit card can pay for things all over for players? (Basically back to the players)
Improved facilities? Does their football weight room have a basketball court yet?
I would rather see the money go to the kid than any of those things.
February 1st, 2022 at 12:15 PM ^
this is a fair point
February 1st, 2022 at 1:22 PM ^
Just because the end result is acceptable doesn't mean the means to get there are correct. Words have meaning, and compensation for playing at a school is not the same as compensation for Name, Image, and Likeness.
Does the donor really value $50k for the autograph? What if the kid signs with LSU instead, is he still going to pay?
February 1st, 2022 at 4:47 PM ^
Fuck around and find out, right!?
February 1st, 2022 at 10:59 AM ^
Be it the NCAA, some other governing body of the big conferences: the sport does need controls for competitive balance (just one's that don't disenfranchise its players). You need only look at how infrequently NCAA semi-finals have been competitive vs. the last two weeks of the NFL to realize that your product (if you are part of NCAA Div 1 football) has problems.
All that being said: I'll gladly send any of you my autograph and commit to the school of your choice for a quarter and a lollipop.
February 1st, 2022 at 1:41 PM ^
The issue is that the NCAA has no legal recourse to control NIL. That was the point of the various court cases. The players have the rights to their NIL and can monetize it as they see fit.
The NCAA may write rules that donors can't pay players to attend a specific school, but there are a million ways to work around that.
February 1st, 2022 at 11:00 AM ^
One recruit sold an art project from class for six figures. He's an Aggie.
Sounds like total nonsense. Transactions like this would be characterized as part taxable gifts. Gifts are still impermissible benefits under NCAA rules. Very few high-net worth individuals are going to have any interest in making extremely tax-inefficient transfers of wealth (the gift tax rate is 40 percent, tax exclusive) for the benefit of their favorite college football team with a high degree of risk that the transfer actually hurts the team if the player is deemed ineligible or other sanctions are imposed on the program.
What TAMU is actually doing is organizing and streamlining the NIL process. They have established that each recruit will get an average of $200,000 to $300,000 in exchange for the commercial use of their name, image and likeness. They have organized the alumni base to ensure that this promise can be fulfilled by creating independent legal entities with partnership/operating agreements/bylaws that carefully spell out how the entity is capitalized and how it will expend its capital. That is much more efficient than hoping wealthy alumni and/or student-athletes will source their own deal flow, conduct their own due diligence, avoid conflicts of interest, and so on.
February 1st, 2022 at 11:00 AM ^
This was always an unsavory and logical possibility, but the alternative hasn't been any better. The market value of these guys is literally their market value.
February 1st, 2022 at 11:06 AM ^
The market will correct itself. Either the return is good for the people paying or it’s not. If the school is successful it will generate more revenue which in turn will be both beneficial for the institution and the player. Having the money on top of the table so to speak is better for everyone involved.
February 1st, 2022 at 11:08 AM ^
Remember when Texas A&M gave Eric Dickerson a yellow Trans Am and then he went to SMU? too funny
February 1st, 2022 at 11:48 AM ^
February 1st, 2022 at 12:02 PM ^
Trans A&M
February 1st, 2022 at 11:15 AM ^
An issue I think we're going to see in the future related to NIL will be guys getting into trouble related to taxes, trademarks, etc. Lots of the less glamorous aspects of running a business that, frankly, wasn't a concern for a lot of these kids until recently. Right now guys are just being handed money and it's a bit of a wild west, but at some point you're going to see the IRS start auditing guys and universities start enforcing actual trademarks they hold related to advertising and it's going to get gross.
February 1st, 2022 at 11:57 AM ^
So, what your saying is that like Al Capone, OSU will eventually be taken down for tax evasion...
February 1st, 2022 at 12:52 PM ^
The IRS doesn't give a shit how many fans you can pack into a stadium. They want their money.