🏅Could Schools pay NIL out of their Endowment?

Hey there,

Today we’ve got a treat for y’all. Earlier this year, we released a story called “Could Schools pay NIL out of their Endowment?” Well, we got a ton of good feedback on that, so we decided to release it again to y’all, but this time… it’s for everyone. It’s a little present from us to you.

If you like what you see… well then you should subscribe to NIL Wire All-Access, where we’re delivering stories like this to you every week. It’s super affordable to become an NIL/college sports expert, so don’t miss out. Alright, let’s get into it!

— Cole and Collin

Very soon, schools will be paying millions in damages thanks to the House lawsuit. Some schools can stomach it, financially speaking, but no one’s exactly prepared to pony up millions per-year. Or are they? 

Enter, endowments. Endowments are massive piles of money held by educational institutions in order to… wait, what exactly do they do with that money? Could they, perhaps, dip into that fund to pay back damages – or even wilder, fund NIL rosters with that money?

That’s what we’re talking about today – how endowments play into the suddenly somewhat cash-poor college sports ecosystem. Oh, and how one school – the University of Houston – is considering how to use their endowment to pay for House.

What is an Endowment?

Endowments are… well, tricky. Their purpose is rarely understood, and even when it is, they exist in this plane just above the purview of the university itself. Chances are you only really hear about the endowment when you come across one of those articles about some massive Ivy League endowment, and you probably don’t even know the dollar amount of your own alma mater’s endowment. 

So what is it?

It’s a good question to ask, and an important one. Broadly speaking, a school’s endowment is sort of like an aggregation of donations that’s constantly being invested to support its “mission” – whatever that means. 

According to the American Council on Education, there’s five purposes for endowments: “Carrying out the charitable mission of the institution, providing stability, enhancing access and student support, encouraging innovation and flexibility, and allowing a longer time horizon.” Those are all somewhat buzzword-y, but each school obviously has more specific goals. 

As an example, let’s talk about my alma mater, Baylor. Luckily, they make it really easy to donate to their endowment (shocker), which takes you to a page with a bunch of information about Baylor’s endowment. Information like the endowment’s total value:

The general investment makeup of the portfolio:

And its returns:

All of those things are interesting, but the most important thing is how Baylor’s distributing their funds, which you can see here:

Alright, so as you can see under “Endowment Distributions”, 5% of the endowment’s value is spent, internally, each year. That’s good news for us – that means this isn’t some “untouchable” fund that’s completely for saving. It’s generating value constantly, but they’re shaving off the top each year to fund certain things. 

Because Baylor’s endowment is about $2.1 billion, that means in 2024 5% would have been about $105 million. However, they only spent $91 million in 2024 according to their website – probably just a year they decided to save a bit more. 

Endowment for NIL?

Now, if I were an NIL general manager, and I were trying to convince my school to let us dip into that $100 million endowment for some NIL cash, how would I go about it? We’ll use Baylor as an example. 

Firstly, I’d probably have to pick one of the above categories to situate my “ask” within. “General Use” seems innocuous enough. Secondly, and perhaps most importantly, I’d have to convince the school’s president that funding our athletic programs’ NIL is indeed in line with the school’s mission – probably along the lines of “community building” or something like that.

For that reason, I’m sure this strategy would be much more effective at a school with an extremely rich football history – USC, Alabama, or another legacy program. A school like Baylor may be a bit more focused on other things to actually go for this pitch. 

Why Not? 

Seems pretty easy, right? Well, on paper it’s possible, but it’s far from likely for a couple of reasons.

Firstly, endowment gifts are usually restricted for a specific purpose – more than 90% of endowment donations, in fact, are specified by the donor at the time of giving. When a donor gives money to the school, they’re not just giving it to “the school”, they’re usually giving it to a certain cause they care about. Take a look at Baylor’s giving page, which is split into three categories:

The closest thing to NIL that I can give to is under Campus Life – either general “Athletics” or the “Athletic Excellence Fund.”

Which leads to the second point: Because endowments are very specific gifts, they can’t be used for anything outside of why the original giver gave the gift (whew, that was a mouthful). In essence, unless the athletics page itself specified that they also deal in NIL, they cannot distribute money from the athletic endowment toward NIL because it would violate the terms of the original gift. 

Here's where things get complicated, though. NIL collectives started out as separate entities… but they’re oftentimes now very closely tied to the athletic departments. Some schools have even begun to bring portions of their NIL collective partners “in-house” – meaning they’re being absorbed into the athletic department itself as an “NIL arm” of sorts. 

Unless this happens in full – unless NIL collectives become officially part of the school itself, then the school could actually justify dedicating money from the “Athletics” portion of the endowment toward NIL.

But there’s a lot of legal reasons not to take NIL collectives into the athletic department, either. First, the University could risk losing it’s 501(c)(3) non-profit status – which would negatively affect so much of their gift-receiving model. Secondly, if collectives came in house, they’d be more vulnerable to gender discrimination lawsuits under Title IX. 

For those legal reasons, I think Athletic Departments are keen on keeping an arms-length between their collectives and themselves – even if they collaborate very closely with one another. 

Revenue Sharing…

Sports fans oftentimes use “NIL” as a blanket term to denote all college athlete compensation, but that’s not necessarily the case. Not all student-athlete compensation is going to be NIL in the future.

Thanks to the House Settlement, schools will now be sharing about 20% of their athletic department revenue – that’s an average of about $20ish million per year. If you were able to creatively interpret the meaning of “revenue”, perhaps you could pay players rev-share money out of the athletic endowment.

There’s a few complications to this, though. “Endowment Income” and “Athletic Department Revenue” are two different things – they’re accounted for, and reported, in two different ways. You risk similar legal issues by combining the two of them.

That doesn’t have to stop the endowment from functionally bankrolling player compensation, though.

If the endowment distributes, say, $10 million to the athletic department, the athletic department can use those funds within the purview of the donation’s legal intention, and simply reallocate other internal spending toward athlete compensation. In other words, the accounting may look different, but it can achieve the same purpose.

So yes, you probably can utilize the endowment to pay players, but not in an extremely obvious way. 

The House Settlement

There is one more thing here – the House settlement bill itself. Each school will be paying millions per year in damages for the next decade. Could schools allow their athletic departments to pay this back via the athletic endowment?

I think so. Once again, the accounting would be tougher, but if it was coming out of the athletic endowment, there’s no reason the athletic department couldn’t reallocate some funds to pay these damages back and get the money pumped back in via endowment.

But could a school use non-athletic endowments to pay back the damages? It turns out, there’s one school that’s been exploring that option since the fall: The University of Houston.

Essentially, they’re asking a quasi-endowment from within the school (the UH Core Pool) for a loan to keep the department afloat for the next ten years as they deal with House damages. The athletic department then intends to pay back that endowment the money they borrowed as time goes on. 

Think of it as an internal investment of sorts from the UH Core Pool – this isn’t charity or financial reallocation, it’s a loan with the expectation that they’ll receive the money back. The Athletic department gets a lifeline, and they’re able to make the payments in potentially more manageable ways down the road.

Just answer the question: Can we pay players out of the endowment?

It’s complicated, but yes, I think so. It won’t be out of the endowment – it’d be the endowment replacing other things within the athletic department, but functionally speaking, paying athletes money with the help of endowment funds should theoretically work.

Now, those payments wouldn’t be through NIL, unless collectives came in-house. But rev-sharing seems viable, and paying back House damages over the next ten years does too. Would the schools like to pay these things out of the endowment? Absolutely not. But the legal and accounting challenges aren’t insurmountable, in my opinion.