To eliminate counterparty risk with young athletes, specialized lenders establish a direct deposit arrangement with the professional team or university. This structure ensures repayment is automatic and not subject to the athlete's spending habits. The athlete never touches the repayment funds, which go directly from the team to the lender.
To manage the uncertainty of an athlete's draft position, specialized lenders calculate a projected draft value by averaging multiple "big boards" and then applying a downward standard deviation. They further mitigate risk by lending a maximum of only 10% of this conservative, de-risked projection, ensuring a high margin of safety.
The financial structure of collegiate athletics is heavily skewed. Even a powerhouse program in a popular sport like baseball at Florida State, which sells out games year-round, operates at a loss. This highlights the immense financial burden carried by football programs, which effectively subsidize nearly all other sports at a university.
The NIL arms race has created a new financing need for universities themselves. They are now turning to private credit funds for multi-million dollar loans to cover recruiting expenses and six-figure commitment bonuses. These loans are secured by the athletic department's predictable TV revenue, creating a stable, asset-backed lending opportunity.
To avoid predatory lending accusations and adverse selection, some private credit funds apply a strict "use of funds" screen. They will not fund discretionary lifestyle purchases like jewelry or cars, regardless of the athlete's guaranteed contract value. Instead, they focus on financing career-protecting assets like insurance premiums or real estate.
The NIL market rapidly escalated from modest monthly payments to multi-million dollar contracts. The turning point was a Tennessee collective's $8.5 million deal for a junior in high school, which set a new precedent and transformed the landscape from marketing support to a full-blown talent acquisition bidding war.
Despite high earning potential, young athletes are often rejected by conventional private banks. Bank regulations require underwriting based on historical balance sheets, which a 21-year-old lacks. This creates a market gap for specialized lenders who can underwrite based on guaranteed future contract value, not past financial history.
Unlike traditional debt, selling a percentage of future earnings can lead to predatory lending lawsuits, as seen with Fernando Tatis. He received $2 million for 10% of future earnings as a teenager, which became a $33 million liability after his mega-contract. This model's high effective cost creates significant legal and reputational risk for funders.