The Rise of Collegiate Collectives: How Jaden Rashada’s Recommitment Brings Light to the Influence That NIL Collectives Have on Recruitment
Photo Source: D. Myles Cullen, President Trump Welcomes the Clemson Tigers to the White House, FLICKR (Jan. 14, 2019) (Public Domain Mark 1.0)
By: Laura Ospina* Posted: 03/02/2023
Introduction
On June 26, 2022, five-star high school quarterback recruit, Jaden Rashada, committed to the University of Miami, and also committed to a $9.50 million NIL deal with Miami booster John Ruiz.[1] Rashada publicly stated that the NIL deal was not the primary factor in his commitment decision, citing the University’s coaches, players, and direction as the major driving points.[2] However, just a few months later Rashada flipped schools to the University of Florida, due in part to a large NIL deal with the Gator Collective.[3] This four-year deal would pay the 19-year-old roughly $13.50 million, with an initial $500,000 due on December 5, 2022.[4] For undisclosed reasons, the deal fell through before Rashada received the initial payment.[5] Rashada later requested released from his National Letter of Intent with the Gators, which was granted on January 20, 2023.[6] On February 1, 2023 Rashada flipped universities again, signing with Arizona State University, with no NIL deal publicly mentioned.[7] While Rashada has been one of the more public cases of Collectives potentially violating NCAA NIL policies, a string of similar cases is raising eyebrows within the NCAA community.[8]
What is a Collegiate Collective
A “Collective“ is an organization of wealthy fans and collegiate alumnus who work together to facilitate NIL deals for student-athletes attending specific universities.[9] They are considered “part talent agency, part extension of the school, and part rogue actor shaking up college sport.”[10] Over 100 collegiate Collectives exist, primarily supporting schools in Power Five conferences, with many more likely to come about in hopes of enticing top high school recruits to attend their selected institutions.[11]
Collectives are formally accepted organizations that are created in such a way as to benefit both its members and the student-athletes financially.[12] Many Collectives are 501(c)(3) non-profits, meaning all donations are tax-deductible, or they are considered 501(c)(7) tax-exempt entities.[13] On top of the obvious financial benefits of student-athletes being financially compensated, there are also various tax implications for the athletes, as NIL income less than the standard deduction does not have a federal tax liability.[14] However, there are also a number of financial risks that students face when accepting high-value NIL deals.[15]
How the Contractual Power of Collectives Interfere with NCAA Policy
In July 2021, student-athletes were granted the ability to profit from their name, image, and likeness.[16] Since then, the NCAA has struggled to keep up with required regulations that intersect federal and state NIL laws.[17] However, throughout all of this, the NCAA regulations that were in place have consistently prohibited pay-for-play[18] In May 2022, the NCAA released updated guidelines, stressing that boosters cannot participate in or affect the recruiting of prospective student-athletes by providing benefits.[19] Specifically, three major restrictions were placed on boosters such that they cannot communicate with a recruit prior to their enrollment, guarantee a deal for an institution, or have a meeting set up by institutions with student-athletes.[20] In July 2022, the NCAA further clarified its stance on Collectives through a published Q&A where they specifically categorized Collectives as boosters, such that they would be under the previously instituted NIL regulations and cannot engage in any recruiting activities.[21]
Despite these attempted regulations by the NCAA to protect recruiting standards, Collectives have gained substantial control over the collegiate world due in part to their strategically crafted contracts.[22] Collective agreements commonly grant substantial leeway for Collectives and students to change the terms of the deal without influence by the institutions or NCAA.[23] Many deals have not-for-cause outs, in which either party may cancel the deal for any reason.[24] Additionally, the terms and conditions of the Collective agreements are commonly kept private, giving these Collectives stronger negotiating power.[25]
While NCAA policy dictates that Collectives cannot be a factor in the recruiting process, many organizations have found loopholes to guarantee that star athletes will attend their supported institutions.[26] Primarily, this is done through Zip Code clauses.[27] Zip Code clauses are contractual provisions that allow the Collective to terminate the contract if the student-athlete fails to live in a specific zip code.[28] While the NCAA states that a Collective cannot revoke a contract if a student fails to attend a particular institution, Zip Code clauses allow Collectives to influence students to live in a specific location and thus limit the number of institutions they can actually attend.[29] These clauses transform the multi-year contracts offered to many first-year college students into contracts that fundamentally act as year-to-year contracts, contingent on continued enrollment at the institution.[30]
A similar contractual loophole utilized by many Collectives are geographical clauses that require athletes to attend public appearances in a specific location, usually on or around the desired college campus.[31] If a student decides to transfer to a university across the country, they will not be able to keep up with these strict contractual requirements and the Collective can fundamentally terminate their contract because of their decision to leave the school.[32]
Conclusion
While the NCAA has fought to regain control of collegiate compensation policies, many see Collectives as a back-door option to get around these regulations.[33] Advanced Collective contracts have brought to light their expansive power and have also emphasized the NCAA’s inability to regulate critical aspects of collegiate sports.[34] The NCAA’s hands are tied in NIL regulation, with many arguing that the best option would be to allow Congress to formulate a singular federal NIL framework .[35] Until that time comes, Collectives will continue to officially and unofficially influence the recruiting processes of key institutions, further effecting the trajectory of collegiate athletics.[36]
*Staff Writer, Jeffrey S. Moorad Sports Law Journal, J.D. Candidate, May 2024, Villanova University Charles Widger School of Law.
[1] See Scott Polacek, Jaden Rashada Reportedly Agreed to $9.5M NIL Contract With Miami Booster John Ruiz, Bleacher Report (June 26, 2022), https://bleacherreport.com/articles/10040029-jaden-rashada-reportedly-agreed-to-95m-nil-contract-with-miami-booster-john-ruiz (discussing Rashada’s lucrative NIL which led to his collegiate commitment).
[2] See Joseph Salvador, Miami QB Recruit Jaden Rashada Addresses Reported NIL Deal, Sports Illustrated (June 27, 2022), https://www.si.com/college/2022/06/27/miami-qb-recruit-jaden-rashada-addresses-reported-nil-deal (citing Rashada’s Twitter post, in which he vehemently denied making commitment decisions based on value of NIL deal).
[3] See ESPN Staff, A $13-million NIL Deal Gone Wrong, a Top QB Recruit And What Happens Next, ESPN (Jan. 20, 2023), https://www.espn.com/college-football/story/_/id/35482485/jaden-rashada-faq-top-recruit-nil-deal-florida-football (discussing Rashada’s on-going relationship with University of Florida throughout recruiting process).
[4] See Ryan Bologna, Full Details of Jaden Rashada’s Terminated $13.85 Million NIL Deal, Clutch Points (Feb. 6, 2023, 2:29 PM), https://clutchpoints.com/full-details-jaden-rashadas-terminated-nil-deal (stating that while Rashada is not the highest-ranked player in his recruiting class, he received one of the most valuable and most publicly discussed NIL contracts of his entire class).
[5] See id. (indicating potential causes of failure of Gator Collective contract). The deal included a $500,000 initial payment due before Rashada’s enrollment at the University of Florida, a likely violation of NCAA policy against third-party recruiting inducement. Id. (detailing contractual provisions of initial NIL deal). The Gator Collective could terminate the deal and refuse payment to Rashada because of a contractual provision that allowed them to terminate the contract if its terms violated school policy or Florida law or if Rashada did not reside in Gainesville. Id. (detailing Gator Collective’s justification for terminating contract).
[6] See Barrett Sallee, Jaden Rashada Commits to Arizona State: Four-star QB, Ex-Florida Signee Joins Sun Devils in 2023 class, CBS Sports (Feb. 1, 2023, 11:27 AM), https://www.cbssports.com/college-football/news/jaden-rashada-commits-to-arizona-state-four-star-qb-ex-florida-signee-joins-sun-devils-in-2023-class/ (discussing Rashada’s failure to enroll in spring semester courses with University of Florida, as initial indicator of his intent to transfer, culminating in a formal request for NLI release).
[7] See Stewart Mandel & Andy Staples, Jaden Rashada’s Unprecedented Recruitment: How a 4-star QB Went From $13.85 million to no NIL Deal, The Athletic (Feb. 6, 2023), https://theathletic.com/4149181/2023/02/06/jaden-rashada-nil/ (discusses Rashada’s transfer decisions, which caused large potential financial losses based on absence of guaranteed deals).
[8] See Ross Dellenger, The Doors Are Opening For NCAA to Close in on NIL Violations, Sports Illustrated (Jan. 30, 2023), https://www.si.com/college/2023/01/30/ncaa-enforcement-name-image-likeness-more-room-investigations (discussing NCAA’s growing concern with induced recruiting violations, culminating in increased investigations and institution of new policies designed to restrict Collective powers).
[9] See NIL Collectives & University Specific Platforms, NIL Network, https://www.nilnetwork.com/nil-collectives-and-university-specific-platforms/ (last visited Feb. 27, 2023) (discussing initial purpose of Collectives, as well as their projected expansion throughout majority of collegiate athletics in impending future).
[10] See Alex Kirshner, ‘Everything’s on Fire’: NIL Collectives are the Latest Patchwork Solution for College Athlete Pay, Global Sport Matters (Jan. 17, 2023), https://globalsportmatters.com/business/2023/01/17/nil-collectives-latest-patchwork-solution-college-athlete-pay/ (describing Collectives as essential features for compensation of student-athletes who have been historically categorized as unpaid labor).
[11] See id. (discussing rapid expansion of Collectives, as major enticement for recruiting at key universities).
[12] See Tracker: University-Specific NIL Collectives, Business of College Sports (Jan. 24, 2023), https://businessofcollegesports.com/tracker-university-specific-nil-collectives/ (describing formal creation of Collectives as “group of alums, band[ing] together to form a company whose goal is to provide NIL opportunities to student athletes of that institution.”).
[13] See id. (discussing financial incentives for creation of Collectives).
[14] See Tim Shaw, The Long Read: Tax Implications of College Collectives, NIL Deals, Thomson Reuters (Oct. 6, 2022), https://tax.thomsonreuters.com/news/the-long-read-tax-implications-of-college-collectives-nil-deals/ (discussing potential tax incentives for lower-earning NIL deals).
[15] See Ben Cahill, Student-Athletes May Not Recognize the Tax Implications of NIL Deals, CLA (Dec. 15, 2022), https://www.claconnect.com/en/resources/articles/2022/student-athletes-may-not-recognize-the-tax-implications-of-nil-deals#:~:text=Generally%2C%20athletes%20will%20be%20considered,athlete%E2%80%98s%20tax%20return%20is%20filed. (discussing financial problems with NIL deals such as tax complications with multi-state incomes and risk to eligibility based on benefits received).
[16] See NCAA v. Alston, 141 S.Ct. 2141, 2166 (2021) (finding NCAA’s restriction on student-athletes ability to receive certain education-based benefits, violated federal antitrust laws).
[17] See Tyrone P. Thomas, James D. Smeallie, Michael V. Fiorillo, NCAA Clarifies Stance on Permissible NIL Activities, Holland & Knight (Nov. 3, 2022), https://www.hklaw.com/en/insights/publications/2022/11/ncaa-clarifies-stance-on-permissible-nil-activities (“The proliferation of NIL deals and lack of regulation has created a need for the NCAA to clarify how institutions, SAs and NIL entities may operate within this space.”).
[18]See id. (describing prohibition of pay-for-play as “essential tenet” of NCAA’s amateurism model).
[19] See Michelle Brutlag Hosick, D1 Board of Directors Issues Name, Image and Likeness Guidance to Schools, NCAA (May 9, 2022, 5:21 PM), https://www.ncaa.org/news/2022/5/9/media-center-di-board-of-directors-issues-name-image-and-likeness-guidance-to-schools.aspx (“The board noted that the emphasis of this NIL guidance is on boosters in the recruiting process and is not intended to question the eligibility of prospective and enrolled student-athletes involved in NIL deals.”).
[20] See James Johnston & Andrew Richman, NCAA Takes Aim at Booster-backed “Collectives” and Their NIL Deals, Davis & Gilbert (June 22, 2022), https://www.dglaw.com/ncaa-takes-aim-at-booster-backed-collectives-and-their-nil-deals/ (citing new restrictions on boosters, as well as expanding definition of “booster”).
[21] See Name, Image and Likeness Policy Question and Answer, NCAA (July 2022), https://ncaaorg.s3.amazonaws.com/ncaa/NIL/July2022NIL_DIInterimPolicy.pdf (“If an individual or NIL entity’s (e.g., collective) sole or primary purpose is to engage in NIL activities with student-athletes from a specific institution, such individual or NIL entity would be considered a booster. . . . If an individual or NIL entity (e.g., collective) meets the definition of a booster, they may not engage in recruiting activities, including recruiting conversations, on behalf of a school.”).
[22] See Amanda Christovich, One Year of NIL: Controversial Collectives Aren’t Going Away, Front Office Sports (June 27, 2022, 11:46 AM) https://frontofficesports.com/collectives-arent-going-away/ (stating that rates of improper intervention by collectives has skyrocketed in the last year, and is only expected to become a bigger problem going forward).
[23] See Andy Wittry, Collectives Structure NIL Contracts With Protections For Transfer Portal, On3 (Jan. 30, 2023), https://www.on3.com/nil/news/college-football-transfer-portal-nil-collectives-oklahoma-sooners-crimson-and-cream/ (describing unique qualities of Collective contacts that ameliorate major issues such as retention of key players amidst institution of transfer portal).
[24] See id. (describing contractual provision intertwined into many collective agreements, creating options for many conceivable situations).
[25] See Sydney Baxter, Universities Don’t Have to Disclose NIL Data – The Potential Impacts For Student-Athletes, Villanova Sports Law Blog (Nov. 8, 2022), https://www.novasportslaw.com/post/universities-don-t-have-to-disclose-nil-data-the-potential-impacts-for-student-athletes (describing failure of NCAA attempt to require NIL disclosures, culminating in various institutions refusing disclosure of such data and further strengthening their negotiation power).
[26] See Darren Heitner, Newsletter, Image, Likeness Vol. 5: NIL Collectives And Boosters Will Need Smarter Contracts, Newsletter, Image, Likeness (Dec. 9, 2022), https://www.linkedin.com/pulse/newsletter-image-likeness-vol-5-nil-collectives-boosters-heitner/ (describing creative formatting of collective contracts, designed to limit financial risk of collectives and maintain eligibility of college athletes).
[27] See id. (describing utilization of Zip Code clauses to limit required compensation obligations for students who transfer to different institutions).
[28] See Darren Heitner, Newsletter, Image, Likeness Vol. 11: Let’s Talk About Zip Code Clauses, Newsletter, Image, Likeness (Jan. 20, 2023), https://www.linkedin.com/pulse/newsletter-image-likeness-vol-11-lets-talk-zip-code-clauses-heitner/ (detailing key language in Zip Code clauses that allow Collectives to unilaterally terminate a contract, effective immediately, and without future obligation for compensation).
[29] See id. (describing contractual loophole around NCAA policy against terminating agreements based on enrollment at institutions).
[30] See id. (describing Zip Code clauses as a loophole around the pay-for-play restriction). The multi-million dollar 4-year contracts, like the one signed by Jaden Rashada, allow for annual payouts contingent on continued commitment to the desired university. Id. (analyzing contingencies in Zip Code clauses).
[31] See Wittry, supra note 22 (describing increased use of geographical clauses as means for recruitment inducement to key institutions).
[32] See id. (describing various justifications for use of geographical clauses, such as better support for small local businesses and mitigating transfer risks for high-caliber athletes).
[33] See Richard Johnson, Year 1 of NIL Brought Curveballs, Collectives and Chaos. Now What?, Sports Illustrated (July 12, 2022), https://www.si.com/college/2022/07/12/nil-name-image-likeness-collectives-one-year (“[I]t’s easy to see how collectives operating as an over-the-table extension of the under-the-table recruiting inducement market that has always existed for college football and men’s basketball . . . .”).
[34] See William Lawrence, The NCAA’s New NIL Guidance: How The NCAA Has Loosened Restrictions on Collectives, JD Supra (Nov. 17, 2022), https://www.jdsupra.com/legalnews/the-ncaa-s-new-nil-guidance-how-the-3717587/ (discussing increased NCAA policy based on increased influence of NIL Collectives, which have undermined Association’s power).
[35] See Shaw, supra note 14 (discussing failure of proposed federal legislation, as means for expansive Collective power).
[36] See Ross Dellenger, The Other Side of the NIL Collective, College Sports’ Fast-Rising Game Changer, Sports Illustrated (Aug. 10, 2022), https://www.si.com/college/2022/08/10/nil-collectives-boosters-football-tennessee-daily-cover (stating Collective are “well known for their recruiting influence and murky legality”, while detailing concerns over long-term effects on competitive balance of collegiate athletics).
