By Daniel Henry, Stetson University College of Law, JD Candidate 2024
(Editor’s Note: What follows is a modification for Sports Litigationn Alert of a law review article written Henry, who is also a former Division I basketball player.)
What is the impact of Sunset Clauses on NIL contracts? For student athletes in at least seven states this unexplored question has no legal answer. The economic and legal consequences of this question are extremely impactful, and yet have been unnoticed and unchallenged. Do Sunset Clauses benefit the offerors of the NIL contracts, such as brands, schools, and collectives? Or does it transfer the leverage in favor of the athletes? Did seven out of thirty states, with the seven being predominantly SEC states, include this provision to protect universities or to look out for the best interests of the young eighteen-to twenty-five-year-old athletes?
The sun has risen when states and the NCAA authorized college athletes to earn money off their name, image, and likeness (NIL), changing college sports forever. While most states have similar laws governing how student athletes can make money off their NIL, seven states differ from the rest. Texas, Oklahoma, South Carolina, Tennessee, Louisiana, Mississippi, and Illinois have implemented a mandatory Sunset Clause to govern the length of all NIL contracts. Six out of these seven states are within the purview of the SEC. The SEC, or Southeast Conference, is one of the premier conferences in the NCAA, with their schools boasting the best of the best in football, basketball, and various other sports. Could implementing Sunset Clauses into their NIL statutes give schools in these states an edge in recruiting? Or was it a measure to protect offerors like collectives, brands, and companies in this new age of NIL compensation?
As a former Division One student athlete who played at the highest level, I know exactly what current players experience firsthand, on a day-to-day basis. The opportunity to earn life changing money at a young age is very real, but so is the chance of unfair exploitation by powerful organizations. These large universities and companies will pounce on any opportunity to collect income off important assets, which now includes athletes. The purpose of the law is to balance the playing field, bringing both parties to a neutral ground. It is not meant to place one party at a significant disadvantage in both negotiations and future transactions.
What Are Sunset Clauses?
Sunset Clauses are clauses in a statute, regulation, or contract that expire automatically on a specified date. It provides for an automatic end once the Sunset Date is reached. So, upon reaching this date, the contract will be deemed void. One of the main advantages of Sunset Clauses is that both parties will no longer have obligations once the Sunset Date arrives. It provides an easy out of the contract since there are no formal actions either side must take to trigger its termination. Normally, both sides know the exact end date, making the drafting and execution of the contract effortless. Also, the Sunset Clause is usually negotiated upfront by the parties. However, in these seven states it is unknown when the exact Sunset Date is, and the parties are unable to negotiate the statutorily established Sunset Clause. This can lead to potential confusion and predatory acts by parties aware of the Sunset Date who have better access to legal representation.
For example, a party can use the provision to combat changing market conditions. One party can delay performing their end of the contract until the clause is triggered, thus leaving the other party without legal recourse. So, in an NIL context, if the offeror knows of the Sunset Clause’s existence in the state statute and the athlete does not, they could spring the end of the contract on the unsuspecting athlete.
Legal Uncertainties
There are several legal uncertainties arising from the wording of these Sunset Clauses. While there are several subtle differences between the Sunset Clauses of each state, the main objective is to limit the length of NIL contracts and force them to expire when a student athlete stops competing in collegiate sports. But one commonality between all seven states is a potential “game-changing” loophole stemming from the word participation. The seven statutes state, to some effect, “the contract cannot extend beyond a student athlete’s participation in the athletic program at a college.” Yet, none of the seven states define the term participation. This raises several important questions.
First, what exactly does participation mean? After all, participating in a sport can have several different meanings—if not clearly defined. Does participating mean being on the team or playing in the games? Or does it mean “dressing” for the games? Based on how one views the term, participation could mean any one of those definitions. Both the player and the offeror could broaden or narrow the definition of participation to fit their argument and escape contracts. If a player suffers an injury that keeps them from participating for some time, can an offeror terminate the contract? Technically, the player is not participating in the program while injured. Or what if the player is ill, requiring significant time away from the team, program, and cameras? If those scenarios qualify as not participating, then offerors can terminate NIL contracts. This would be significant leverage for the offeror because they could use this loophole to escape contracts with injured or sick players who have little NIL value while sidelined. It is no mystery that injured players are not very marketable, regardless of what they have accomplished on the court or field.
Does a suspension count as not participating in the athletic program? When a player is suspended by the team, school, or NCAA, their marketability takes a significant hit. So, when that suspension period begins, does that trigger the Sunset Date because the athlete would technically not be participating in the program during the suspension? Each year NCAA athletes are suspended for different reasons, so this is a vital ambiguity that must be addressed. The suspension periods can range from a few practices and games to entire seasons. This opens the door for offerors to back out of any contract they have with a suspended player by citing how the athlete is no longer participating in the athletic program. Even though the athlete is suspended and may have violated rules unrelated to the contract, this potential escape is not fair to the athlete. Or what happens if a student athlete takes a leave of absence from the team? With athlete mental health awareness at an all-time high, these leaves of absences among athletes are becoming common and necessary for the student athlete’s overall wellbeing. Could this create another potential out for the offeror to cite and escape a contract with a player who is not in the spotlight? The student athlete in both scenarios likely entered the NIL contract with the intention of it lasting until their playing career ended. Letting brands, collectives, or other third parties “kick athletes while they are down” hardly seems fair, equitable, or the intention of any of the seven states.
The potential loopholes do not end here. Expanding off the participation loopholes are some more questions surrounding when exactly the Sunset Date commences. Does the Sunset Date end the contract on the date of the student athlete’s last game played for their school? Or does it last all the way until they graduate?
What happens if the player declares for the draft, then returns to school? In this scenario would the contract have been deemed void because at one point the player’s participation in the athletic program was over? For these instances, Sunset Clauses may provide some leverage to the player. To illustrate, if the Sunset Clause voids the contract when the player declares for the draft, there may be a strong possibility that they can renegotiate the contract with better terms because they are likely coming off a successful season.
What happens to NIL contracts if the player transfers? Since the student athlete has transferred from one program to another, their participation in the initial program—the one they were with when they signed the NIL deal—would be considered over. Brands could use this scenario to terminate the contract, citing the Sunset Clause. On the opposite side, players would argue that they are still participating in an athletic program, just not the athletic program they were when the deal was agreed upon.
Potential Impacts
Ambiguously worded Sunset Clauses in the NIL statutes will lead to expensive litigation. Potential scenarios include where parties litigate the meaning of the term participation, the exact time of the Sunset Date, and what happens to the contract in the instances laid out above. Sunset Clauses can also lead to inefficiency if every NIL deal only lasts one to six years. There will be a significant increase in transaction costs because parties will have to renegotiate the contract once a player’s college career ends. Depending on skill level, popularity, and outlook of the player’s future, the negotiating leverage may become unfair. Opportunities presented to athletes who were once college stars but don’t turn pro will dwindle because Sunset Clauses force an automatic end and renegotiation of any contract. The leverage the offering party possesses after the Sunset Date is difficult for the former student athlete to counter. This will lead to athletes entering contracts where they are underpaid and undervalued based on the argument that their marketability has decreased because they are no longer competing. On the flip side, brands could be placed at a major disadvantage when negotiating with a superstar who has a bright future in the pros. These players will then be able to secure huge paydays and escape the contract they signed when they were budding college players. The renegotiation process would consume valuable time, energy, and resources, delaying the inevitable partnership. Confining parties by using ambiguous and unclear Sunset Clauses hurts their freedom to contract. These problems could be addressed and fixed before ever existing if the Sunset Clauses are clarified or fully removed.
Recommendations
The first solution to solving the Sunset Clause issue is to remove them and allow the parties to negotiate an agreed upon end date. As a former player who spent four years as an NCAA student athlete and current law student, I believe Sunset Clauses in NIL contracts are counterproductive. These clauses create more issues than benefits and are unfairly one sided. Leverage is removed from the hands of the student athlete, opportunities for athletes to earn income is capped, and the current statutes create confusion or unintended loopholes. Sunset Clauses should be removed from NIL contracts altogether, allowing each side to freely negotiate the length of the contract. If a player and brand find it advantageous and equally enticing to agree upon a length beyond a player’s collegiate career, this should not be precluded. Players should be allowed to bet on themselves and plan several years ahead when negotiating a contract. Brands will also benefit because they could establish a partnership with a player that could create prospective returns far greater than what they agree to pay the athlete. With both sides profiting from the removal of Sunset Clauses, it follows that the legislation of these seven states should adopt the view of the majority and abolish Sunset Clauses within their NIL statutes.
The second solution to the Sunset Clause issue is to preserve them in the statute but define the term participation. By clarifying this term, unfair escapes out of the contract will be prevented and both sides will fully understand what it means to participate in an athletic program. Brands, collectives, and other third parties will not be able to argue the Sunset Date has commenced when a player is injured, suspended, or takes a leave of absence. The definition of participation in NIL contracts should be when a student who is a player on the team engages in all team activities. Participation ceases only when a player is kicked off the team and dismissed from the athletic program entirely. Being injured, suspended, or on a leave of absence does not impact a player’s participation in an athletic program. Student athletes cannot prolong participation by becoming a member of the staff upon the end of their playing career because they are no longer athletes at this point. Declaring for a professional draft and choosing to return to school does not impact one’s participation in an athletic program. Further, a player transferring to a new school does not end participation as long as the player continues to play the same sport.
Solution three to the Sunset Clause situation is to enact a clear Sunset Date. Questions regarding whether it is the date of the player’s last game, when they graduate, or when they leave the school will be answered. The most logical decision would be to end the contract on a student athlete’s graduation date.
I strongly support the abolition of Sunset Clauses within NIL contracts altogether. They are unnecessary, out of date, unfair, and ambiguous. Texas, Oklahoma, South Carolina, Tennessee, Louisiana, Mississippi, and Illinois should join the rest of the country and remove Sunset Clauses from their statutes. Fewer restrictions are better for all parties involved. With negotiation as a priority, parties do not have to worry about tiptoeing around unclear end dates. If Sunset Clauses are removed, confusion and ambiguity surrounding the term and meaning of participation will also cease. The uncertainty of Sunset Dates will not create disputes among the player and offeror. By eliminating Sunset Clauses, serious litigation will be avoided because loopholes will no longer exist. Approaching this issue proactively will solve problems before they ever arise to the level of litigation. Tremendous amounts of money will be saved by avoiding litigation, brands and players will be placed on even grounds free to negotiate in good faith, and both sides will be in positions to prosper. Abolishing Sunset Clauses is the best approach to solve the uncertainty surrounding these statutes while protecting student athletes.
By following the legal recommendations provided, fairness can be achieved, and the Sun will not Set on the SEC.
