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 “royalty income”—especially when received by international athletes on F-1 visas?
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 “royalty income” 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.
Background: The House v. NCAA Settlement and Athlete Payments
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 2016–2024), and (2) a new ongoing “athlete revenue-sharing” model distributing up to an estimated $20–22 million per school per year. 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 “revenue-generating” sports – football and men’s and women’s basketball.
Crucially, the settlement does not classify athletes as employees of their universities. The agreement explicitly “does not resolve” 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’s 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 – akin to a passive royalty – and not in exchange for labor.
As has been reported elsewhere, 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.
The Royalty Classification Argument
Legal Definition of “Royalty Income” (Tax and Immigration Context)
U.S. Tax Law – 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’s 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’s labor or active participation, the IRS views it as compensation for services rather than a royalty.
Immigration Law (F-1 Visa Restrictions): U.S. immigration regulations do not explicitly define “royalty” 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 “employment” 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.
The rationale is that passive royalty income does not require the student to “work” 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 “employment” in immigration law is broad – 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. §1324a) makes it unlawful to knowingly hire or contract for labor with an unauthorized alien. The statute provides that using “a contract, subcontract, or exchange” to obtain the labor of an alien knowing they lack work authorization is treated as hiring them in violation of the employment ban.
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 – 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.
Case Law Considerations
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 – if a payment requires the creator’s 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 “volunteering” or doing freelance gigs). The consistent theme is that any active work for pay, even if called something else, risks violating the visa.
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.
Classification of House Settlement Payments as Royalties vs. Employment
Institutions relying on the “royalty payments” 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’s NIL – 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’s 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’s publicity rights), fitting squarely within the tax definition of a royalty.
The argument for treating the payments as royalties rather than employment income relies in part on the following:
Form and Reporting: Schools intend to issue Form 1099-MISC with the income reported in the “Royalties” 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.
Basis of Payment: 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’ 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 – for example, an athlete could be said to be receiving X% of the revenue their NIL contributes to the broadcast or game revenue.
No Additional Services Required: 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’s behest. The absence of any separate “work for hire” (such as promotional appearances or mandated social media posts) strengthens the royalty characterization.
Analogy to Licensing Deals: Even before the House settlement, some international athletes were able to monetize NIL by structuring deals as pure licensing. The House payments are analogous – they represent a group license between the school (or NCAA) and the athletes for use of NIL in monetized contexts.
Tax and Financial Benefits: 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’ compensation.
While these arguments lend superficial credibility to the royalty classification, they rest on a narrow and formalistic reading of the law—one 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 “royalties” from traditional compensation for services.
Payments Are Predicated on Athletic Performance: An athlete will receive the payment because they are on the team and actively participating in competition – 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 “licensing” 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’s distribution formula (though couched in NIL terms) effectively rewards those in high-revenue, high-profile roles – which correlates with the athletes’ 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’s transfer portal rights, the argument that the compensation is for performance as an athlete at a particular institution becomes even more compelling.
“License” May Be a Fiction: We must ask what exactly the school is licensing from each athlete that it did not already have. Historically, universities have used athletes’ 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 – but not necessarily because the school couldn’t 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 “NIL license” 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.
Selective NIL Compensation and the Problem of Inconsistent Valuation: 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’ NIL, the actual mechanism of distribution disproportionately favors athletes in revenue-generating sports such as football and men’s and women’s basketball. Athletes in non-revenue sports—such as gymnastics, swimming, track and field, tennis, rowing, and wrestling—will 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.
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 —reportedly in the millions of dollars—yet, 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.
This raises the question: if the payments were truly tied to NIL usage, why aren’t 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’s 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’s NIL.
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’s 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.
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’s role in generating value through competition, not with the licensing of an individual’s 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 “royalty” framing.
Regulators or courts could reasonably conclude that if NIL licensing were truly the source of the income, then all athletes whose NIL is used—regardless of the profitability of their sport—would 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.
Control and Active Involvement: 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’s athletic performance – practice schedules, game tactics, conduct rules, etc. The athletes’ “work” (playing the sport) is wholly directed by the school and done for the school’s 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 “(a) perform services for another party, (b) primarily for that party’s benefit, (c) under that party’s control or right of control, and (d) in return for compensation or in-kind benefits.”
College sports clearly meet elements (a), (b), and (c) already; the House settlement’s 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.
NIL vs. Play Distinction Blurs: The notion of “passive” NIL income works well when the athlete’s NIL is used in a context separate from actual competition – for example, a video game might pay everyone for use of their avatars, or a company might pay to put a star’s name on a product, while the athlete’s 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 – 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 – the payments are coming directly from the school’s athletics department to the athlete, rather than from an unrelated third party, and they reward the athlete’s ongoing participation at that school. Those are hallmarks of an employment-type benefit (as opposed to an arm’s-length IP licensing deal).
Conclusion
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.
This issue is particularly acute in the current immigration enforcement climate. In light of the Trump Administration’s 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. §1324a for knowingly engaging the services of unauthorized individuals, even if such employment was styled as a licensing arrangement.
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.
Until such a solution is achieved, institutions must recognize that the “royalty income” classification, while facially appealing, is legally fragile. A cautious and proactive approach—grounded in substantive compliance, not semantic workarounds—is the only viable path forward.
By Ksenia Maiorova, Esq., Partner and Individual and Olympic Sports Practice Group Leader, Green & Spiegel, LLC and Amy Maldonado, Esq., Managing Attorney at the Law Office of Amy Maldonado LLC.