🏅Money Laundering in College Sports? No. Creative Accounting? Absolutely.

Hey everyone,

Today, we’re touching on some of the creative accounting that could become common behind the scenes in the revenue-sharing world, with a guest post from KC Smurthwaite — the first of many new voices you’ll read around here over the next few weeks.

This post is free to all and should give you a good glimpse beyond the paywall at some of our content that would otherwise be premium.

— Joan

"Are we there yet?"

Why yes, we are here — smack dab in the middle of the new era of collegiate athletics. Revenue sharing. NIL. Collectives. Athletic departments evolving faster than Dwight Schrute's job description at Dunder Mifflin.

Gone are the days of backroom deals and handshake agreements, a local car dealership offering a starting point guard a six-figure “NIL” deal and a complimentary Lambo.

Or ... are they?

If anything, the new system in college sports has shifted problems rather than solving them. It’s like swapping quarterbacks behind a busted offensive line and expecting the offense to magically click.

I came up through the collegiate athletics system and hit a lot of the boxes along the way. I am a  former (overrated) JUCO student-athlete turned D-I softball coach, a fundraiser turned administrator turned consultant. One of my all-time favorite major gift donors — a guy whose business instincts always led him down the yellow brick road — once told me: “You don’t throw money at problems. You create solutions.”

But right now, it sure feels like college athletics is just throwing money around and hoping the problems will disappear.

Revenue sharing will fix it! Pay the athletes, that’ll solve it! But spoiler alert: It won’t. From New York to Hawaii to Canada — shoutout to the Canadian Collegiate Athletic Association, but that story’s for another day — the same root issue lingers: money.

The assumption is that revenue sharing will magically stabilize the chaotic financial landscape of college sports, but many programs are already stretched thin. Smaller schools, in particular, are grappling with the reality that their budgets don’t match the hype. I spoke with several athletic directors who pointed out the disconnect on revenues within athletics. Recently, one from a mid-major school told me: “What revenue? It’s important to understand that revenue and profit are not the same thing.”

Athletic directors, coaches and fans used to cry foul: They’re paying players! Now? Yeah, they are. That’s kind of the point. But some schools are viewing revenue sharing as an offset to what they were already handing out in NIL deals. (Sorry, uh, I mean, supporting NIL deals.)

Behind closed doors, I’ve been told many of these NIL deals won’t even be reported. And even when they are, who’s checking if the athletes are fulfilling deliverables? We know the College Sports Commission and NIL Go will be in charge of oversight — but will they really? Who is checking and documenting the six social posts and two autograph signings a year … multiplied by 365 D-I schools? (Welcome to FBS, Delaware and Missouri State!) In theory, yes, there are internal compliance and general managers, but that’s not going to happen. (This feels like a great time to shout-out Extra Points Library, which has GM and other contracts available.)

It’s still a pay-for-play world; we’ve just rebranded it. The lawsuits will keep coming. And until there’s actual collective bargaining, we’re not really “there.”

Here’s one of my go-to lines: The athletic department is not the university. The university is not the athletic department. But only one of them can vanish tomorrow and the other still functions.

In practice? Athletics’ money still runs through the university budget office. And fundraising? That’s more often funneled through the university’s foundation — your friendly local 501(c)(3). And yes, it still is all through the university. So whether it’s tuition dollars or charitable gifts, it all eventually lands in what folks affectionately (or not) call “the black hole.”

And here’s where the party starts to get crashed.

Remember the IRS memo that started to shut down nonprofit collectives? Let me save you from the 12 pages. Here’s the TL;DR: “...it is the view of this Office that many organizations that develop paid NIL opportunities for student-athletes are not tax exempt and described in section 501(c)(3) because the private benefits they provide to student-athletes are not incidental both qualitatively and quantitatively to any exempt purpose furthered by that activity.”

But now? As schools are bringing collectives in-house, it looks like there will be some financial maneuvering, so to speak, to ease the revenue-sharing model we live in.

The university foundation is now the pass-through for revenue share, one athletics CFO told me. In essence, it’s replacing the collective. That setup might cause more than one headache for advancement officials — or even the IRS. The donor who once wrote checks to a collective is now giving through the university again — and yes, getting a nice little tax deduction in the process.

Let’s use a made-up example to go slightly deeper:

If Extra Points University budgeted $1 million for its scholarship fund and then hit that target, what would stop administrators from shifting incoming dollars somewhere else? (In theory, what would stop them from shifting money even if EPU hadn’t hit that target?) Remember that warm, fuzzy phrase: donor intent.

“It’s a shell game,” one FCS athletic director told me. “It’s all coming back to the same account. We just move it to the right account.”

In other words, you’re robbing Peter to pay Paul ... except Peter is Paul, with the same bank account and probably the same accountant, too.

I know this sounds as if it’s all doom and gloom, but it really is a step in the right direction. It’s a positive and necessary step forward — not just legally, but culturally — as college athletics moves closer to a true settlement where the landscape begins to normalize. We’re already seeing signs of that, with the Big Ten this week taking proactive measures to assume more direct control of NIL activities, removing some of the burden from individual schools. Part of the early friction in NIL implementation came from the awkward fit between independent collectives and the slow-moving, bureaucratic processes of higher education. Many of these collectives were launched by well-meaning former student-athletes, superfans and local business leaders who weren’t accustomed to navigating university compliance systems and red tape.

“Allowing schools to make direct NIL payments has made it easier for a lot of schools to raise funds,” noted Mit Winter, one of the nation’s leading collegiate sports attorneys. “Most donors already have a relationship with the school or its foundation and have, in many cases, been contributing to them for years. There is a level of trust when donating to those entities that might not have existed with all NIL collectives.” 

That added trust, combined with more transparent governance and streamlined processes, is excellent for the collegiate athletic experience for all parties.

But still — as college athletics navigates the brave new world of revenue sharing and NIL deals, the creative accounting and financial shell games will expose that the system is broken and spawning new problems. Until true collective bargaining or stricter enforcement emerges, the money will continue to flow, lawsuits will continue to pile up, and the line between innovation and exploitation will remain very blurry.

KC Smurthwaite is a consultant for Athletics Admin, specializing in revenue generation, licensing, marketing, and higher education. If you want to continue the conversation, feel free to email him at [email protected], follow him on X or connect with him on LinkedIn, where he loves to break down contracts and talk about money in sports.