By Julia Heckelman, Sidne Norman, Johanna Torres, Michael Schmidtberger, Lia Higgins and Michelle Gomez-Reichman, of Sidley
Two years have elapsed since the Supreme Court held that the NCAA could not restrict education-related benefits for student athletes in NCAA v. Alston. This decision has been used to affirm the rights of student athletes to secure education-related compensation from their name, image, and likeness (“NIL”). Still in its infancy, the NIL regulatory landscape varies across states and across schools. As a result, NIL deals are a proverbial wild west of differing rules and models governing how student-athletes are compensated. This lack of clarity creates uncertainty for many student-athletes attempting to derive compensation from their NIL. This article offers a view on current trends and best practices for leveling the playing field in the NIL world.
- The NCAA, Universities and State Law
In July 2021, the NCAA implemented interim guidelines for NIL activities. The guidance carved out a limited role for the NCAA, asserting that the NCAA “will continue its normal regulatory operations but will not monitor for compliance with state law,” thereby relieving the organization of some responsibility in the ever-changing landscape of NIL law. In subsequent October 2022 guidance, the NCAA further narrowed its role, stating that issues such as “claims for contractual nonperformance, Title IX issues, and employment issues” are not under its direct purview.
However, after issuing the interim guidance, the NCAA suggested that it would take a more active role in investigating NIL infractions. Described as the NCAA’s prosecutor, the NCAA Enforcement Staff is the “entity responsible for reviewing information about potential violations.” The NCAA has recently made efforts to build out its Enforcement Staff, publicizing the creation of a role titled “Associate Director of Enforcement for Name, Image, and Likeness.”
When the Enforcement Staff alleges potential violations, it must prove its case to the Committee on Infractions (“COI”). In February 2023, the NCAA exercised its enforcement power in a NIL case for the first time. The allegations surrounded the recruitment of Haley and Hanna Cavinder (“the Cavinder Twins”) to the University of Miami. During their recruitment, the head coach for women’s basketball, Katie Meier, connected the twins with John Ruiz—a businessman and University of Miami donor who had established NIL opportunities for University of Miami athletes. The COI determined that Meier and the University of Miami had violated NCAA rules, and issued penalties including “a three-game suspension for Meier, one year of probation, a fine of $5,000 plus 1% of the women’s basketball budget, and various recruiting restrictions for the 2022-2023 school year.”
Some critics found the COI’s decision to be weak, citing the fact that there were no penalties at all for either the players involved or Ruiz. However, the COI emphasized that the case was processed before NCAA Bylaw 19.7.3 was instituted. Bylaw 19.7.3 now presumes that a violation has occurred in cases involving NIL activities. The COI asserted in its University of Miami decision that “today’s new NIL-related environment represents a new day,” and emphasized the availability of a disassociation penalty in future enforcement actions. While the repercussions for the University of Miami and Meier were minor, the COI’s message warns that future infractions will be met with a stronger response.
Seemingly in response to the COI’s statements and decision, some states have passed legislation that prohibits the NCAA from investigating and punishing schools in their jurisdiction for certain NIL activities. The NCAA has since asserted that schools “must adhere to NCAA legislation (or policy) when it conflicts with permissive state laws.” Notwithstanding this directive, the NCAA’s interim policy still places the onus on institutions to ensure NIL activities comply with state law. Further adding to the confusion, many institutions enact their own NIL policies that may conflict with state laws.
Unfortunately, this patchwork approach will likely lead to more confusion and, ultimately, litigation, as schools and student-athletes are left without an ultimate authority on permissible NIL activity. Despite the maze of directives and regulations, student-athletes inevitably consider access to NIL deals as part of their decision-making process. To remain competitive, institutions must provide access to attractive opportunities for their student-athletes, but may do so at their own peril when school or NCAA policy conflicts with state law.
- Students, Collectives, and the IRS
Given the myriad institutional restrictions, student-athletes primarily profit from their NIL through collectives. Collectives fundraise through donors and use the pooled funds to facilitate opportunities for paid endorsements. Dozens of universities have used a non-profit collective model to incentivize their donors with a tax write-off. However, in a June 2023 memorandum, the IRS revoked the IRC 501(c)(3) tax-exempt status for most non-profit NIL collectives. The IRS concludes that these collectives operate for the direct private interest of the student-athletes, who are not a recognized charitable class for exempt purposes.
That said, the IRS suggests that charitable collectives may retain exempt status by restructuring their compensation to a need-based model that addresses the financial needs of student-athletes. Consider that only 1% of student-athletes receive “full-ride” scholarships. Many schools only provide need-based aid for the most low-income student-athletes; many student-athletes from lower middle class families will not qualify for such aid. To retain exempt status while benefiting student-athletes and collegiate sports, a charitable collective could focus on meeting the financial needs of lower and middle class income student-athletes.
Speaking more broadly, the needs of student-athletes often remain lost in the shuffle of NIL regulation. The potential consequences for violations (and conflicting guidance and regulation) likely inhibit many student-athletes from making NIL deals. In addition, nearly all schools also prohibit student-athletes from entering into NIL agreements that conflict with school sponsorships and contracts. If a student-athlete signs a NIL deal with a company but their school has a non-compete agreement with that company’s competitor, the student-athlete’s NIL deal could be in violation of the school’s existing agreement. Some schools also limit certain types of products student-athletes may promote, such as tobacco and alcohol products. But even these limits vary across schools and among athletes. This variance creates more inequity in the availability and quality of NIL deals.
In soliciting deals, a vast majority of student-athletes are barred from leveraging their school as part of their brands—deeply impacting their marketability. As Columbia University student-athlete Jake Tavroff points out, “for top athletes, this works great. But for the rest, less famous or unknown athletes, this is essentially modeling as an influencer, not profiting from NIL. There is no advantage in being an athlete in marketing NIL unless you are in the top percentage of fame.”
- Best Practices for Success and Sustainability
Optimally, the student-athlete should be the central focus of NIL activity. To increase visibility, student-athletes should be allowed to use their university’s brand in a limited capacity. If universities insist on not allowing institutional branding, then student-athletes should be treated like other college influencers who are not limited in the types of products they can promote. Further, the NCAA should craft universal, clear guidance for universities to provide clarity regarding enforcement. Lastly, all stakeholders should unify to lobby for regulation and federal legislation that results in clearer, consistent policy to level the playing field for student-athletes seeking to leverage their NIL.
