The New College Athlete Market: Madness or Bonanza?

Charles Paikert US Correspondent New York 8 April 2024

The New College Athlete Market: Madness or Bonanza?

Our US correspondent – also an author who writes about basketball and a lifelong enthusiast for the game – examines the changing wealth dynamics of this sport, and the implications for the wealth sector. This article is ahead of tonight's NCAA's men's college basketball national championship.

Money and sports, especially at an elite level, have always been inseparable. An exception – cheating aside – has been college athletics, where students only received scholarships despite helping schools reap millions of dollars in revenue for big time football and basketball programs.

That all changed in June 2021, when the United States Supreme Court unanimously decided that the limits the National Collegiate Athletic Association placed on compensation for college athletes violated US antitrust laws.

Tonight’s game between Purdue and the University of Connecticut for the NCAA men’s college basketball national championship, the culmination of March Madness, puts the impact of that landmark decision – including the fast growing and lucrative market it opened up for financial advisors – on full display.

Star players for both teams are paid handsomely for the use of their name, image and likeness (NIL) by “collectives,” groups of wealthy boosters who shell out hundreds of thousands, if not millions of dollars to make sure top athletes go to the schools they support.

UConn center Donovan Clingan’s NIL deals with brand names such as Dunkin’ and Kim Kardashian’s SKIMS clothing line will net him well over $1 million this season. Purdue’s 7’4” star Zach Edey’s NIL earnings in the US are restricted because he is a Canadian citizen with a student visa, but he will still earn over $800,000 – and can truthfully say “I feel like I’m missing out on a lot of money.”

Big numbers
Altogether, around 450,000 athletes have received NIL deals worth well over $1 billion to date. NIL deals for elite quarterbacks in big time football conferences average around $550,000 a year. Even role players who aren’t stars are cashing in. NIL deals for college football starters in major conferences average around $100,000. The average men’s basketball player with a collective contract at a major school is paid $63,450, according to Opendorse, which processes those payments. 

While not at parity with men, women athletes are also receiving lucrative NIL deals. Caitlin Clark, the University of Iowa women’s basketball superstar, will earn an estimated $3.2 million in NIL endorsements this season. And Louisiana State University gymnast Olivia ‘Livvy’ Dunne has a $3.3 million NIL valuation, according to On3, a digital media company that tracks NIL developments.

“The lump sums of money being thrown around are life changing,” Jake Bailey, a wide receiver for Southern Methodist University who has written a paper on the effect of NIL payments to student athletes told the New York Times. “Amateur is out the door. We’re pros.”

Not surprisingly, catering to these young athletes has become a market “with more mainstream appeal” for financial advisors, said Joe Faren, president of Aquilance.

While opportunities for advisory firms to grow their practice by targeting these prospects abound, there are also plenty of caveats that come with working with teenagers and athletes in their early 20s.

For starters, young people, especially those from low-income households, need to understand financial fundamentals such as budgeting, planning and tax implications.

“They don’t realize that a half-million dollar signing bonus doesn’t get them a half million dollars,” said Faren. “This is all new to them. It’s a lot to deal with for a teenager.”

Budgeting and savings are particularly critical for young people dealing with a lot of money for the first time.

“The best advice I give to my clients is to save 70 per cent of your money,” said Jamel Gordon, an advisor and certified financial planner at Rose Capital Advisors. “You may not get that kind of deal again.”

"We can be the bad guys"
Acting as a gatekeeper between young athletes and friends and family either wanting money or offering bad advice is also part of the job.

“We play the role of therapist to the family to help keep them focused on the end game,” Gordon said.

Advisors need to be a neutral third party “in the mix really early,” Faren said. “We can be the bad guys. We say ‘show me the business plan’ the way we would with any investment opportunity.”

And while the new market for student athletes is expanding, clients who are able to generate large fees as professional athletes for years to come are few and far between.

Less than 2 per cent of college athletes go on to play professionally. “Advisors should be thoughtful around what their capacity is,” counseled one advisor who works with college athletes. “You can’t take on 50 NIL clients and hope that five are going to be drafted.”

Fluid market
What’s more, the market is evolving rapidly.

As David Miller, chairman of Southern Methodist University’s board told the New York Times: “The ground is still shifting, and no one really knows where this is going to end up.”

Collectives, the primary source of NIL revenue, are coming under increased scrutiny from the Internal Revenue Service, which is beginning to challenge collectives who claim tax-exempt status.

Advisors should study the NCAA’s NIL policy and make sure that the client’s contract complies with NIL laws in the state where he or she lives and goes to school and also meet school and conference policies.

The newly-minted market of college athletes receiving professional payment may be upended yet again by House v. NCAA, a major class action lawsuit now in a federal court. 

If the plaintiffs win, colleges may be forced to share billions of dollars of revenue from broadcasting, ticket sales and endorsements annually with athletes. Revenue sharing is likely to not only increase the number of prospects for advisors, but boost clients’ income and the need for more sophisticated investment strategies, observers say.

Wild card and bogeyman
Another wild card is the possibility that student athletes may become full-time legal employees of the colleges they attend, opening up a host of legal and financial reprecussions. 

Dartmouth’s basketball team voted to unionize this season, arguing that as workers they should be able to collectively bargain their conditions of employment. 

The school is challenging the decision, and the NCAA is attempting an end run to head off employer status: the richest colleges and universities would form a new tier that allows them to cut name, image and likeness deals directly with athletes and pay unrestricted benefits nominally linked to education.

And then there’s the oldest bogeyman in sports: the spectre of a gambling scandal.

The legalization of sports betting has opened up a Pandora’s Box. While athletes who are well paid may be inured from the temptation of trying to throw a game or alter an individual performance, less highly paid players have more of an incentive to do the opposite.

The NCAA is trying to ban ‘prop’ bets on individual performance, but in the meantime college athletes with less lucrative NIL deals may be sorely tempted to make more money.

While there’s not much financial advisors can do, it is a situation that could put clients – and the advisors fees – at risk.

“I hope there’s more integrity,” Gordon said, “but we’re talking about humans so it’s plausible. And even though there’s a lot of money out there, there’s always someone on a team who’s not being paid as much as they think they should.”

Charles Paikert, besides being US correspondent for Family Wealth Report, is the co-author of Madness: The Ten Most Memorable NCAA Basketball Finals.

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