As colleges and universities prepare to implement the House v. NCAA settlement, stakeholders across athletics, compliance, and legal affairs are tasked with navigating complex regulatory terrain. At the center of the conversation is a question with significant operational and legal ramifications: can payments to student-athletes under this settlement be lawfully classified as \u201croyalty income\u201d\u2014especially when received by international athletes on F-1 visas?<\/p>\n
The royalty income framing is gaining traction because it purports to offer a compliant path forward: a way to compensate athletes without triggering employment classification, payroll tax obligations, or immigration violations. But while the form of these payments can be dressed in the language of intellectual property licensing, their substance raises red flags across various legal frameworks. This article explains why \u201croyalty income\u201d is not the regulatory safe harbor many hope it to be, and why institutions should approach this classification with caution, especially when it comes to international student athletes on F-1 nonimmigrant visas.<\/p>\n
Background: The House v. NCAA Settlement and Athlete Payments<\/strong><\/p>\n The House v. NCAA settlement is a class-action agreement that, if approved, will overhaul certain NCAA restrictions by allowing Division I schools to provide significant new payments to athletes. In substance, the settlement permits: (1) a one-time distribution of ~$2.8 billion in back-pay to class members (students who competed 2016\u20132024), and (2) a new ongoing \u201cathlete revenue-sharing\u201d model distributing up to an estimated $20\u201322 million per school per year.\u00a0 While the settlement is silent on the manner of distribution, in practice, most schools are planning to distribute the funds primarily or exclusively to athletes on the rosters of \u201crevenue-generating\u201d sports \u2013 football and men\u2019s and women\u2019s basketball.<\/p>\n Crucially, the settlement does not classify athletes as employees of their universities. The agreement explicitly \u201cdoes not resolve\u201d the separate legal question of whether college athletes are employees. Instead, it creates a mechanism for schools to pay athletes in a form that the NCAA maintains is distinct from wages or salary. The expected structure is that these athlete payments will be made as non-employee compensation. Schools anticipate issuing an IRS Form 1099 to each paid athlete (as is done for independent contractors or royalty recipients) instead of a Form W-2 for employees. In particular, many universities are considering treating the payments as royalties for use of the athlete\u2019s NIL rights, reported on Form 1099-MISC (Miscellaneous Income) rather than wages. This approach is designed to bolster the argument that the income is for licensing intangible property rights \u2013 akin to a passive royalty \u2013 and not in exchange for labor.<\/p>\n As has been reported elsewhere<\/a>, legal experts agree that the distinction is especially important for international students on F-1 nonimmigrant visas, who generally cannot engage in employment in the U.S. outside narrow exceptions.<\/p>\n The Royalty Classification Argument<\/strong><\/p>\n Legal Definition of \u201cRoyalty Income\u201d (Tax and Immigration Context)<\/strong><\/p>\n U.S. Tax Law \u2013 Royalties vs. Compensation: Under the Internal Revenue Code and IRS interpretations, royalties are defined as payments for the right to use an intangible property interest, and do not include payments for services. In other words, royalty income is typically derived from licensing intellectual property (e.g., copyrights, patents, trademarks, or in this context, one\u2019s Name, Image, and Likeness rights) to another party, who pays a fee (often a percentage of revenues) for that usage. For example, an athlete could license the use of her image or name to a company producing apparel or a video game, and payments based on sales would be characterized as royalties. Such payments are reported on Form 1099-MISC (Box 2 for royalties) under IRS reporting rules. Royalties are generally taxed as ordinary income, but if they qualify as passive income (the licensor is not actively performing services), they are not subject to self-employment tax. By contrast, compensation for performing services (e.g., wages, salaries, or fees for work performed) is not a royalty and is typically reported on Form W-2 (for employees) or Form 1099-NEC (for non-employee service compensation). The key distinction is the service or labor component: if the payor is paying for the person\u2019s labor or active participation, the IRS views it as compensation for services rather than a royalty.<\/p>\n Immigration Law (F-1 Visa Restrictions): U.S. immigration regulations do not explicitly define \u201croyalty\u201d income, but they make a sharp distinction between employment (active work for compensation) and passive income. F-1 student visa holders are severely restricted in their ability to work: they may only engage in on-campus jobs or authorized practical training, and virtually all off-campus employment is barred unless specifically authorized by DHS. However, F-1 students are allowed to receive passive income from things like investments, scholarships, or licensing of intellectual property, because such income is not considered \u201cemployment\u201d in the U.S. For instance, an international student can legally earn interest on a bank account, dividends from stocks, or royalties from a book or invention, without violating visa rules. In the NIL context, immigration authorities have informally indicated that income categorized as passive licensing income (e.g., payments from a group licensing deal for jerseys or video games) is permissible for F-1 students, whereas income from active services (e.g., paid endorsements that require the student to perform promotional work) is not.<\/p>\n The rationale is that passive royalty income does not require the student to \u201cwork\u201d in the U.S.; it is more akin to a property right yielding income. By contrast, if the student must perform an action (appear at events, promote a product, or, potentially, play a sport specifically in exchange for pay), that looks like unauthorized employment. It should be noted that the concept of \u201cemployment\u201d in immigration law is broad \u2013 it encompasses any service provided in exchange for compensation, whether labeled as an employee or independent contractor. In fact, federal law (8 U.S.C. \u00a71324a) makes it unlawful to knowingly hire or contract for labor with an unauthorized alien. The statute provides that using \u201ca contract, subcontract, or exchange\u201d to obtain the labor of an alien knowing they lack work authorization is treated as hiring them in violation of the employment ban.<\/p>\n In short, merely calling someone an independent contractor does not avoid the immigration employment restrictions if in substance they are providing labor. Immigration authorities (USCIS\/ICE) will look past labels to the underlying activity \u2013 if a student is essentially being paid for their labor or services in the U.S., it is considered unauthorized employment, regardless of whether payment is styled as a scholarship, stipend, or royalty.<\/p>\n Case Law Considerations<\/strong><\/p>\n There is limited case law specifically on royalties vs. employment in the F-1 student context, since historically student-athletes were not paid at all. However, courts and agencies have addressed analogous distinctions in other areas. Tax courts, for example, have long drawn a line between royalty income and service income \u2013 if a payment requires the creator\u2019s ongoing efforts, it may be treated as self-employment income (business profit) rather than passive royalty. On the immigration side, prior disputes have arisen with F-1 students engaging in unauthorized work (sometimes even unintentionally by \u201cvolunteering\u201d or doing freelance gigs). The consistent theme is that any active work for pay, even if called something else, risks violating the visa.<\/p>\n No specific precedent addresses NIL payments to students, but stakeholders have been grappling with this since NIL deals became allowed in 2021. We have generally advised that truly passive licensing arrangements (e.g. being part of a merchandise licensing program where the student does nothing beyond permitting their name to be used) are among the lowest-risk routes for F-1 compliance.<\/p>\n Classification of House Settlement Payments as Royalties vs. Employment<\/strong><\/p>\n Institutions relying on the \u201croyalty payments\u201d argument maintain that the new payments under the House settlement are not wages for playing sports, but rather compensation for the use of each athlete\u2019s NIL \u2013 in effect, a license fee. Under this view, each athlete would enter into an agreement allowing the school (or a conference fund) to use that athlete\u2019s name, image, and likeness in broadcasts, video games, merchandise, and other revenue-generating ventures, in exchange for a share of the revenues. The payment is thus for an intangible property right (the athlete\u2019s publicity rights), fitting squarely within the tax definition of a royalty.<\/p>\n The argument for \u00a0treating the payments as royalties rather than employment income relies in part on the following:<\/p>\n Form and Reporting:<\/strong> Schools intend to issue Form 1099-MISC with the income reported in the \u201cRoyalties\u201d box (Box 2) for these payments. This is the IRS-prescribed method of reporting royalty payments exceeding $10. No Form W-2 will be issued, and no payroll taxes (income tax withholding or FICA) will be deducted. This reporting position signals that the school does not consider the athletes to be employees receiving wages.<\/p>\n Basis of Payment:<\/strong> The payments are not a salary based on hours worked or a flat stipend for being on the team; instead they derive from revenue streams that use the athletes\u2019 personas. The House settlement ties permissible payments to a percentage of revenue from media rights, ticket sales, sponsorships, and videogame licensing. This structure mirrors a royalty arrangement \u2013 for example, an athlete could be said to be receiving X% of the revenue their NIL contributes to the broadcast or game revenue.<\/p>\n No Additional Services Required:<\/strong> Importantly, athletes are not required to perform any extra services beyond their normal participation in the sport. In other words, the payment is for the use of their identity in activities that are already occurring (games, highlight clips, jersey sales), not for doing something new at the school\u2019s behest. The absence of any separate \u201cwork for hire\u201d (such as promotional appearances or mandated social media posts) strengthens the royalty characterization.<\/p>\n Analogy to Licensing Deals:<\/strong> Even before the House settlement, some international athletes were able to monetize NIL by structuring deals as pure licensing. The House payments are analogous \u2013 they represent a group license between the school (or NCAA) and the athletes for use of NIL in monetized contexts.<\/p>\n Tax and Financial Benefits:<\/strong> Characterizing the payments as royalties provides certain benefits. For the athlete, passive royalty income reported on Schedule E is not subject to self-employment tax (Medicare\/Social Security), whereas service income would be. For the school, avoiding wage classification means no obligation to pay the employer share of payroll taxes or to include athletes in employee benefit plans or workers\u2019 compensation.<\/p>\n While these arguments lend superficial credibility to the royalty classification, they rest on a narrow and formalistic reading of the law\u2014one that isolates the NIL from the broader athletic context in which it is being used. When examined more closely, the practical realities of how revenue sharing payments are expected to be earned, distributed, and conditioned reveal a very different picture. The closer one looks, the more difficult it becomes to distinguish these so-called \u201croyalties\u201d from traditional compensation for services.<\/p>\n Payments Are Predicated on Athletic Performance:<\/strong> An athlete will receive the payment because they are on the team and actively participating in competition \u2013 but for their athletic services, there would be no NIL value to share. Unlike a passive royalty on a patent (where the inventor can sit back and collect fees while others use the invention), here the \u201clicensing\u201d is intertwined with the athlete actively performing in games that generate the revenue. The more an athlete contributes on the field or court (e.g. star players in revenue sports), the more compensation they will likely receive. This begins to look like a pay-for-performance model. Indeed, the settlement\u2019s distribution formula (though couched in NIL terms) effectively rewards those in high-revenue, high-profile roles \u2013 which correlates with the athletes\u2019 on-field contributions. That nexus between work and reward is characteristic of an employment relationship. To the extent that acceptance of the compensation restricts the athlete\u2019s transfer portal rights, the argument that the compensation is for performance as an athlete at a particular institution becomes even more compelling.<\/p>\n \u201cLicense\u201d May Be a Fiction:<\/strong> We must ask what exactly the school is licensing from each athlete that it did not already have. Historically, universities have used athletes\u2019 names and images in broadcasts and promotions without individual compensation (under amateurism rules, athletes implicitly allowed it). The House settlement effectively forces schools to pay athletes going forward \u2013 but not necessarily because the school couldn\u2019t otherwise use their NIL (many uses are arguably incidental or covered by consent forms). Rather, the payment is to settle legal claims and comply with new rules. Critics could say the \u201cNIL license\u201d label is a legal fiction to avoid calling this an athletic wage. If, in practice, the athlete is doing the same training, practicing, and playing under the control of coaches as before, and now the school is paying them money in return, agencies may see through the label. Notably, the economic reality is that these payments function as an added benefit of being an athlete, and do not derive from any independent entrepreneurial activity by the student.<\/p>\n Selective NIL Compensation and the Problem of Inconsistent Valuation: <\/strong>A critical flaw in the royalty classification argument emerges when examining how the House settlement payments are expected to be selectively distributed. While the stated justification for the payments is compensation for the use of athletes\u2019 NIL, the actual mechanism of distribution disproportionately favors athletes in revenue-generating sports such as football and men\u2019s and women\u2019s basketball. Athletes in non-revenue sports\u2014such as gymnastics, swimming, track and field, tennis, rowing, and wrestling\u2014will often receive no compensation under these agreements, even though their NIL is also being used by the university to market sporting events, fundraise, and promote institutional branding.<\/p>\n This disconnect undermines the claim that the payments are genuinely tied to the licensing of NIL rights. For example, LSU gymnast Olivia Dunne had one of the highest NIL valuations in all of college sports \u2014reportedly in the millions of dollars\u2014yet, she would likely not receive House settlement payments because her sport does not directly generate revenue for her institution. Similarly, athletes who compete in Olympic sports while in college (e.g., swimmers or runners with national profiles or Olympic medals) have considerable individual NIL value. Yet the settlement structure largely ignores these athletes because their sports programs do not bring in broadcast or ticket revenue.<\/p>\n This raises the question: if the payments were truly tied to NIL usage, why aren\u2019t athletes with demonstrable NIL value across all sports being compensated? The answer, it seems, lies not in the valuation of NIL per se, but in whether the athlete\u2019s sport generates institutional profit. That is, the payments are tethered to the revenue a program brings the school, not to the economic value of each athlete\u2019s NIL.<\/p>\n This inconsistency becomes even more stark when considering that, under the proposed distribution model, an unknown walk-on on a football team may receive more money than a decorated Olympic swimmer, simply because football is a revenue-generating sport. This example underscores the reality that the compensation model is not evaluating the intrinsic market value of the athlete\u2019s NIL, but rather rewarding participation in profit-driving programs. The arbitrary nature of this distinction is at odds with the theoretical basis of royalty income, which is meant to reflect payment for the use of valuable intangible property.<\/p>\n This strongly supports the counterargument that the House payments are not compensation for the passive use of NIL (a hallmark of royalty income), but rather function as revenue-sharing compensation for participation in a profit-generating team activity. In effect, the settlement aligns payments with the athlete\u2019s role in generating value through competition, not with the licensing of an individual\u2019s intellectual property. The fact that non-revenue athletes continue to have their NIL used in marketing and receive nothing further undermines the consistency of the \u201croyalty\u201d framing.<\/p>\n Regulators or courts could reasonably conclude that if NIL licensing were truly the source of the income, then all athletes whose NIL is used\u2014regardless of the profitability of their sport\u2014would be compensated accordingly. Instead, the payments appear to function more like a bonus system for athletes participating in high-value competitions, a hallmark of a wage or service-based compensation model. This inconsistency may significantly weaken the defensibility of the royalty classification and expose institutions to greater risk of recharacterization.<\/p>\n Control and Active Involvement:<\/strong> Under common-law tests of employment (used by the IRS and other agencies), one factor is the degree of control the payor has over the payee. Here, the university controls virtually every aspect of the student\u2019s athletic performance \u2013 practice schedules, game tactics, conduct rules, etc. The athletes\u2019 \u201cwork\u201d (playing the sport) is wholly directed by the school and done for the school\u2019s benefit (wins, revenue, publicity). Now add the fact that the athlete is receiving compensation for this role: this aligns with the traditional hallmarks of an employment relationship. The recent Johnson v. NCAA decision in the Third Circuit underscores this point. The court held that college athletes can be employees under the Fair Labor Standards Act when they \u201c(a) perform services for another party, (b) primarily for that party\u2019s benefit, (c) under that party\u2019s control or right of control, and (d) in return for compensation or in-kind benefits.\u201d<\/p>\n College sports clearly meet elements (a), (b), and (c) already; the House settlement\u2019s direct payments now supply element (d) (compensation). Thus, under that test, a strong case can be made that these athletes are employees, which implies the payments are wages for those services.<\/p>\n NIL vs. Play Distinction Blurs:<\/strong> The notion of \u201cpassive\u201d NIL income works well when the athlete\u2019s NIL is used in a context separate from actual competition \u2013 for example, a video game might pay everyone for use of their avatars, or a company might pay to put a star\u2019s name on a product, while the athlete\u2019s on-field role is unchanged. But the House revenue-sharing model blurs this line because it is fundamentally distributing game revenue. The athletes are being paid as a result of games being broadcast and tickets sold \u2013 which occurs because they are playing. Unlike a one-time licensing of a photo or a name, this revenue-sharing feels akin to a business paying its workers a share of profits attributable to their work. This is not a far-fetched interpretation \u2013 the payments are coming directly from the school\u2019s athletics department to the athlete, rather than from an unrelated third party, and they reward the athlete\u2019s ongoing participation at that school. Those are hallmarks of an employment-type benefit (as opposed to an arm\u2019s-length IP licensing deal).<\/p>\n Conclusion<\/strong><\/p>\n The classification of House settlement payments as royalty income is an elegant legal theory that may serve certain administrative goals. However, it is not a compelling or sustainable argument under the scrutiny of existing tax and immigration frameworks. In particular, its reliance on formalistic distinctions between NIL value and athletic performance cannot withstand the economic and legal realities of how these payments are earned.<\/p>\n This issue is particularly acute in the current immigration enforcement climate. In light of the Trump Administration\u2019s aggressive posture toward immigration compliance, the margin for error in how institutions structure and report these payments has never been narrower. If DHS or USCIS determine that these payments constitute unauthorized employment, international athletes could face severe consequences, including visa revocation, removal proceedings, or bars to reentry. Institutions, too, could face sanctions under 8 U.S.C. \u00a71324a for knowingly engaging the services of unauthorized individuals, even if such employment was styled as a licensing arrangement.<\/p>\n In light of these risks, now is the time for industry stakeholders to advocate for a practical solution. Athletic administrators and university counsel should use this opportunity to press lawmakers for a policy mechanism that provides clear and lawful avenues for compensating international student-athletes. This may include statutory amendments, agency guidance, or even a new visa classification specifically tailored to the unique realities of collegiate athletics in the NIL era.<\/p>\n Until such a solution is achieved, institutions must recognize that the \u201croyalty income\u201d classification, while facially appealing, is legally fragile. A cautious and proactive approach\u2014grounded in substantive compliance, not semantic workarounds\u2014is the only viable path forward.<\/p>\n By Ksenia Maiorova, Esq<\/a>., Partner and Individual and Olympic Sports Practice Group Leader, Green & Spiegel, LLC\u00a0 and Amy Maldonado, Esq.,<\/a> Managing Attorney at the Law Office of Amy Maldonado LLC.\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"As colleges and universities prepare to implement the House v. 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