Hank's IP Brew — Issue #7

Howdy, y'all.

Two stories this week, and they're both really about the same thing: who controls the infrastructure that money flows through — and what happens to the people inside the system when that infrastructure doesn't work the way it's supposed to.

One involves a man who built fake infrastructure to siphon real money from real artists. The other involves a public university that built very real infrastructure to route athlete compensation around the spirit of the rules.

Let's go.

The Athletic ran a detailed piece last week with a number that stops you cold: the University of Kentucky's target annual athletics budget is $225 to $250 million. That's not what they're spending now. That's where they're trying to go.

Here's how the structure works. About a year ago, UK Athletics reorganized itself around a company called Champions Blue LLC — a holding company designed to give the department more business flexibility and to generate revenue it can deploy in the NIL and revenue-sharing era. Then Kentucky extended its multimedia rights partnership with JMI Sports through 2040, a $210 million deal, and as part of that arrangement, JMI now dedicates 80 percent of the revenue it generates to Champions Blue.

The result, as one Kentucky official described it: "It sounds like money laundering, but I swear it's not."

What it actually is: a school that brought NIL management in-house. Instead of relying on a patchwork of outside collectives, Kentucky's infrastructure funnels money through entities it controls. The $20 million revenue-sharing cap — the limit on what schools can pay athletes directly under the House settlement — is now widely treated as a floor, not a ceiling. Industry sources estimate Kentucky football's total 2026 roster budget will approach $25 million. The basketball roster already costs $22 million.

For individual athletes, this model cuts both ways.

The upside: Athletes at well-funded programs like Kentucky receive significantly more money than athletes at comparable positions at less-resourced schools. The infrastructure is real, the money flows, and you don't have to cobble together deals with ten different boosters.

The less obvious part: when the school controls the NIL apparatus, the power dynamic shifts. Your deal is being structured, approved, and managed by an entity whose interests aren't perfectly aligned with yours. The school wants competitive advantage — the right players at the right price. You want maximum value for your name, image, and likeness over time, including after you leave.

What Kentucky is building is impressive from a business standpoint. But "the school has great infrastructure" and "this deal is good for this particular athlete" are two different questions. If you're an athlete at a program running this kind of institutional model, the most important thing you can do is make sure someone who represents only you — not the school, not the collective, not the JMI deal — is looking at what you're being asked to sign.

Here's the scheme Michael Smith ran, straight from the DOJ:

He used AI to generate hundreds of thousands of songs. Fake artists, fake tracks, fake everything. Then he deployed bots — automated programs that stream music billions of times — to pump those fake songs through Spotify, Apple Music, Amazon, and other platforms. Every artificial stream generated a tiny royalty payment. Multiply that by billions, and the tiny payments added up to more than $8 million.

On March 21st, Smith, a 52-year-old from Cornelius, North Carolina, pleaded guilty to conspiracy to commit wire fraud in a Southern District of New York case. He's agreed to forfeit the money and is awaiting sentencing. This was the first criminal conviction for AI-assisted streaming fraud in the United States. It won't be the last.

Here's what makes this an AI story, not just a fraud story: the scheme only works at the scale it reached because AI can generate songs cheaply enough, and in enough volume, to flood the royalty pool. That's the thing that changed. The bot-streaming scam has been around for years — labels and distributors have dealt with it in smaller forms for a long time. What AI did was make the content side essentially free, removing the last practical constraint on how many fake tracks you could push.

Now here's the part that matters for working musicians and anyone who earns royalties from digital platforms: Smith's scheme didn't just steal from the platforms. It stole from every real artist in the royalty pool.

The way streaming royalties work, the money doesn't flow directly to you based on your streams alone — it's divided up from a total pool based on each track's share of total plays. When bots are running billions of fake streams, they dilute that pool. Your 100,000 real streams are worth less because they're now a smaller percentage of a much larger (fake) number.

Smith's $8 million didn't come from nowhere. It came, in part, from every independent artist, songwriter, and rights holder earning a living on those platforms.

The platforms are responding. Spotify and others have announced upgraded fraud detection and are withholding royalties from accounts flagged for streaming manipulation. That's a start. But the fraud-detection arms race is just beginning — and the tools for generating fake content at scale are getting cheaper, not more expensive.

For musicians and creators who rely on streaming income: this verdict won't restore what was taken. But it confirms that the DOJ is treating AI-enabled royalty fraud as serious wire fraud, not a quirky tech exploit. The sentence Smith receives will set a benchmark for how prosecutors — and platforms — treat the next one.

See you next time,

Hank

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