By Matthew Savare, Bryan Sterba, and Zachary Bocian, of Lowenstein Sandler
Many years ago, the state of the law regarding name, image, and likeness issues (“NIL” or right of publicity) was once described as a “haystack in a hurricane.” Such a description accurately depicted (and sadly, still depicts) this convoluted and often confusing area of the law. For college athletes, brands, and universities, the current state of affairs is more like a haystack in a category 5 twister!
Dozens of states have passed legislation regulating how National Collegiate Athletic Association (“NCAA”) athletes may capitalize on their persona. With several states’ athlete-compensation laws taking effect on July 1, 2021, the NCAA promulgated an interim policy permitting NCAA athletes to profit from their NIL. The policy, which is described in greater detail below, was passed in response to these various state laws and the U.S. Supreme Court’s NCAA v. Alston decision. It is intended to provide a national standard and some clarity for NCAA institutions, players, and brands.
How Did We Get Here?
Since the NCAA was founded in 1906, collegiate athletes have been prevented from profiting off of their persona. Throughout its 115-year history, the NCAA has justified this policy by arguing that students should play sports as amateurs. More specifically, the NCAA has kept players from being paid “to advertise, recommend or promote directly the sale or use of a commercial product or service of any kind.” The association also stated that players, with minimal exceptions, could not compete if they were represented by an agent.
Beyond receiving “educational benefits” legitimately tied to higher education, which the NCAA has restricted to scholarships, books, room and board fees, travel and other living expenses, the more than half-a-million student athletes under the NCAA’s control are not allowed to capitalize on their athletic prowess or potential celebrity. The NCAA has also argued in court (and the court of public opinion), that the amateur nature of college athletics is imperative to college sports’ popularity and that a lack of “guardrails” will destroy the competitiveness among schools, thus forcing schools to jettison non-revenue-generating programs, like Olympic sports.
The U.S. Department of Education estimates that college sports generate more than $14 billion dollars of revenue per year. With the increasingly lucrative social media presence of many high-profile collegiate athletes, the NCAA and schools alike face swelling legal and political scrutiny to allow their athletes the ability to seek alternative compensation. In late 2019, California passed the Fair Pay to Play Act, becoming the first state to allow collegiate student-athletes to earn money for endorsements, advertising, and events such as autograph signings and public appearances.
What Is Happening Now?
On June 21, 2021, the U.S. Supreme Court released its decision in NCAA v. Alston, affirming the District Court, which had held that restrictions imposed on NCAA member institutions that limit what “educational benefits” schools can provide to their student-athletes violate §1 of the Sherman Antitrust Act. The Supreme Court rejected the NCAA’s arguments that allowing players to seek alternative compensation via branding, endorsements, public appearances, and similar activities would taint collegiate sports and dilute their popularity. The Supreme Court held that because the NCAA and college athletic conferences possess monopoly control over the services of collegiate student-athletes, they cannot effectively fix the price of “educational benefits” offered. Thus far, no case challenging the Alston decision has been initiated.
After California passed the Fair Pay to Play Act, numerous other states followed suit with their own legislation. Currently, forty other states have introduced similar bills, nineteen of which have been passed thus enabling student-athletes in those states the ability to earn compensation via branding, advertising, and endorsements. Tellingly, thirteen of the nineteen active laws successfully passed this year. On June 30, 2021, the eve of when several states’ student-athlete compensation laws were to take effect (i.e., those in Alabama, Connecticut, Florida, Illinois, Kentucky, Mississippi, New Mexico, Oregon, Pennsylvania, and Texas), the NCAA released its interim policy.
The NCAA policy permits college athletes to profit from their NIL. The NCAA Bylaw 12 restrictions for all incoming and current student-athletes in all sports are now suspended. The policy also provides for the following:
- Individuals can engage in NIL activities consistent with the law of the state the school is located. Colleges and universities may be a resource for state law questions.
- Individuals can engage professional services providers such as agents, lawyers, and consultants for NIL activities.
- College athletes who attend a school in a state without an NIL law can engage in NIL activity without violating NCAA rules.
- State law and schools/conferences may impose reporting requirements.
Although each state’s individual NIL legislation varies, the laws all broadly: (i) prevent the NCAA, conferences, and schools from barring student-athletes from receiving compensation for their NIL; and (ii) allow athletes to hire agents, lawyers, and other professional advisors to advise them on their deals and take a percentage of the deal. Some of the laws require athletes to report their advertising and endorsement deals to their schools, while others regulate specific fee structures and disbursements. For example, a proposed bill in South Carolina would create a Student-Athlete Trust Fund providing $5,000 per year for each collegiate football and basketball player so long as they remain in good academic standing. The funds would be distributed post-graduation.
The NCAA’s interim policy prohibits athletes from accepting compensation in connection with the commercialization of their persona: (i) as an inducement for the athlete to enroll at a particular institution (i.e., such conduct would be an “impermissible inducement”); (ii) for athletic participation or achievement (in other words, “pay for play”); and, (iii) for services not actually performed by the athlete. It also outlines a litany of obligations for NCAA member schools, such as reporting potential violations of NCAA guidelines, certifying athlete eligibility, completing due diligence on the appropriateness of the proposed NIL activity, and potentially assessing compliance with state laws outside of the NCAA’s purview. The national NCAA office will enforce Bylaw 19 when the NIL activity violates the “pay for play” or “impermissible inducement” regulations, but much of the compliance responsibility will be left to individual athletes, as authorized under individual state laws, who choose to monetize their NIL.
Some states specify the manner in which the athlete can promote or endorse a product or service. For example, some laws detail whether the athletes are allowed to display their school’s logos or insignias while engaging in paid ads or endorsements. In other cases, states mandate exactly what college athletes cannot promote or endorse. For example, in Texas, athletes are not allowed to endorse alcohol, tobacco products, e-cigarettes, anabolic steroids, sports betting, or a sexually-oriented business. However, they may endorse firearms they can legally purchase. In states without specific product and service restrictions, such issues will presumably be left to the schools’ compliance officers to discern the permitted parameters.
Where Do We Go From Here?
Despite the passage of the NCAA’s interim policy, without a national law governing college-athlete NIL activities, the rules of the road will differ by state and even by school. Although Congress has repeatedly expressed interest in passing a new college-athlete NIL law, bipartisanship seems unlikely in the immediate future. Republicans want a narrowly-crafted measure around NIL, while Democrats want broader protections for student-athletes. Many administrators still hope that the federal government will act soon, as without any national law, these myriad state laws have the potential to create material advantages for some schools over others. For example, schools in states with legal guarantees that student athletes can earn NIL money will presumably be better positioned to recruit high-profile players, tipping the best talent in the direction of those specific institutions. This complex, patchwork of disparate state laws and NCAA policy does not lend itself to efficient deal making between brands, agencies, and athletes. Athletes will understandably be reticent to jeopardize their eligibility by running afoul of this morass. As such, we will likely see niche agencies (or niche divisions within larger agencies) and other specialized service providers spring up to assist athletes and brands. Michael Beaton, owner of Atlanta-based marketing agency Hyper Flywheel, is doing just that with his founding of www.hireacollegeathlete.com. He believes that we are in dynamic period as brands, athletes, and marketers figure out how to work together efficiently, as this marketing ecosystem evolves over the next few years. Navigating your way through this hurricane will be a challenge. Buckle up
