Carfagna, McMillen Offer Insights into Current Legal Developments in Collegiate Athletics

Feb 11, 2022

(Editor’s Note: What follows is an excerpt from a LEAD1 Association webinar featuring Tom McMillen, President and CEO of LEAD1; Sports Law Professor Peter Carfagna, Chairman/CEO of Magis, LLC, a privately owned sports marketing, management and investment company; and Sports Law Professor Michael McCann.)

Here are some of the key takeaways from LEAD1 about the discussion:

  1. Athletics departments should begin preparing for a potential future with college athletes defined as employees, with such change occurring via legislative, administrative, and/or judicial outcomes.
  2. Legislative Pathway: An Iowa state representative recently introduced a bill that would classify college athletes as employees. Maryland introduced a collective bargaining bill in 2019, and New York last year. College athlete employment rights could play out the same way as NIL, with states putting pressure on the enterprise to change. It is also possible that the NCAA could argue that a state-by-state approach to college athlete employment rights would be unconstitutional under the Dormant Commerce Clause (DCC), a federal restriction that prevents states from passing laws that burden interstate commerce. The NCAA could argue that inconsistent state laws interfere with a national college sports governing structure. Like NIL, however, if more and more states pass employment rights legislation, that may make the NCAA’s DCC argument harder to defend.
  3. Administrative Pathway: The National Labor Relations Board (NLRB) recently issued a memorandum (without the force of law) that certain college athletes at private universities are employees under the National Labor Relations Act (NLRA). In addition, the College Basketball Players Association recently filed an unfair labor practice charge under the NLRA. Because of the NLRB petition process and possible political administrative changes, any NLRB ruling on college athlete employment status could take at least a couple years to play out. Although the NLRB General Counsel in her memo indicates a plan to pursue college athletes at public institutions through “joint employer” theories involving the NCAA and/or conferences, this is far from a given.
  4. Judicial Pathway: A Pennsylvania District Judge recently elevated the Johnson v. NCAA case to the U.S. Court of Appeals for the Third Circuit, certifying the case under interlocutory appeal, meaning an appeal of the case before it is decided. The essential issue is whether college athletes can be employees under the Fair Labor Standards Act (FLSA). Previous rulings in other federal circuits have ruled that college athletes are not employees (the Seventh Circuit in Berger v. NCAA and the Ninth Circuit in Dawson v. NCAA). The plaintiffs also argue that the NCAA functions as a joint employer in having significant control over college athletes. A potential ruling at the Third Circuit defining college athletes as employees could create a circuit split, increasing the possibility of the U.S. Supreme Court (SCOTUS) ruling on the issue. It is worth mentioning that FLSA protections, including federal minimum wage and overtime pay, would be somewhat modest compared to other possible versions of employment rights, such as under the NLRA.
  5. Expansion of college athlete publicity rights could mitigate employment arguments and certain legal concerns about the equitable treatment of college athletes. DeMaurice Smith, Executive Director of the National Football League Players Association (NFLPA), has stated that a conference could establish a licensing model along the lines of the one administered by the NFLPA through its own licensing arm, NFL Players Inc. NFL Players Inc. enters into licensing deals with third party entities that want to use the players’ NIL in connection with media, and other licensing categories. Similarly, college athlete NIL rights could be expanded into more of these joint licensing categories, including media, with such revenue sharing structure supporting college sports under antitrust law, and without having to define college athletes as employees.
  6. House v. NCAA could lead to current and recent college athletes receiving money they would have earned had NIL been allowed. This past summer, U.S. District Judge Wilken denied the NCAA and Power Five conferences’ motion to dismiss a lawsuit by current and former college athletes, arguing that the NCAA’s previous restrictions on NIL, dating back to 2016, violate antitrust law, including with respect to telecast revenue. The potential financial repercussions are uncertain at this point given that NIL is still in its infancy and previous court rulings may undermine the players’ argument.
  7. Although the NCAA’s Alston appeal to the SCOTUS was a miscalculation, the immediate impact of Alston has been modest. The NCAA believed that the SCOTUS would take a more conservative position on the NCAA’s principle of “amateurism” when they decided to appeal the Alston decision, however, the SCOTUS held the NCAA’s longstanding legal defense in Board of Regents v. NCAA to be dicta, in other words, comments not part of the legal reasoning and therefore not legally binding precedent. More litigation attacking the NCAA’s broader compensation restrictions could result now that the NCAA’s main legal defense has been weakened. The immediate impact of Alston, however, has been much slower than NIL, as there has been confusion among institutions and conferences as to whether outside-aid under Alston should counted against financial aid limits for athletes on scholarship.
  8. “Pay for Play” may need to be redefined. As more and more institutions form outside “collectives” to pool donor and fan resources for NIL deals, the college athlete compensation model has become closer to “pay for play” than ever before. As the NCAA redefines itself over the next several months, the association may need to concede that NIL has become a version of pay for play and that NIL has not caused less interest among fans in college sports, which they have previously argued. Institutions should also be mindful that any involvement in the creation or operation of a collective could constitute the type of institutional assistance that would trigger Title IX scrutiny. Thus, the more involved an institution is with their collective, the more careful they need to be in terms of equitable treatment between their male and female athletes.

In sum, athletics departments must continue to be nimble as legal developments could cause significant changes to college sports over the next several years.

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