By Philip H. Devoe (summer associate), Michaela Cappucci (summer associate), Joseph C. Rametta (summer associate), Michelle A. Gomez-Reichman (associate), and Lia M. Higgins (associate), with Michael J. Schmidtberger, of Sidley Austin
Since the United States Supreme Court issued the NCAA v. Alston decision, the student-athlete name, image, and likeness (“NIL”) market is on track to reach $500 million in revenue. There are two emerging approaches to NIL deals that, when combined with the current NIL regulatory landscape, produce substantial benefits and risks for NIL policy that both student-athletes and colleges should be aware of.
The two emerging approaches to NIL deals are: (1) payment for service and (2) the charitable approach. The payment for service model permits businesses to compensate student-athletes for activities such as product endorsements, social media postings, promotional appearances, and participation in athletic-related business such as working at summer camps. The charitable model functions similarly: non-profits pay student-athletes for their participation in various events and programs, while also allowing them to work with NIL collectives—online platforms that connect athletes and businesses to generate NIL opportunities—or to secure NIL deals on their own.
Regulatory Environment for NIL
The current regulatory landscape for NIL consists of four layers:(1) state law (if applicable); (2) NCAA interim policy; (3) institutional policies; and (4) the student/team contract.
NIL state laws, where they exist, allow student-athletes to profit from their name, image, and likeness typically by prohibiting a school or the NCAA from blocking access to that profit stream. Most state NIL laws mandate substantive rules such as requiring the student-athlete to disclose the NIL contract to the student-athlete’s college, barring students from NIL contracts in which students endorse tobacco, alcohol, or firearms, and prohibiting colleges from using NIL contracts as a recruitment tool. Twenty-two states have passed NIL legislation now in effect and seven other states have NIL laws that will go into effect between 2022 and 2025.
At the federal level, there is currently no law that addresses NIL compensation for student-athletes. The NCAA interim policy remains the source of nationwide NIL guidance. The intent of the policy is to preserve the notion that college sports are not “pay-for-play” and maintain rules that prohibit improper recruiting tactics. To supplement the interim policy, many colleges have also instituted mandatory disclosure policies for NIL activities, offer NIL education, and have intellectual property requirements that specify whether student-athletes may use the school’s trademarks, logos, or uniforms in their deals.
Furthermore, colleges may require student-athletes to abide by a team contract, which sets out specific codes of conduct for athletes to follow. Such team contracts can include agreements between an institution’s athletic department and a sponsor or third party authorized to enter into agreements on behalf of the institution. Student-athletes should be cognizant of the existence and terms of pertinent team contracts in order to avoid potential contractual conflicts.
Pros and Cons of NIL Approaches and NIL Collectives
Colleges and student-athletes should apprise themselves of the benefits and risks of not only each NIL approach but also the NIL collective industry in general. The payment for service approach offers opportunities for a broader group of student-athletes, as it is centered on the student-athlete’s individual branding power through social media. Conversely, charitable approach deals are more focused on specific sports teams, such as men’s basketball and football teams. The payment-for-service approach also allows for greater individual autonomy and broader geographical reach. Charitable NIL deals tend to be focused on charities local to the college’s metropolitan area, which means opportunities can be sparse even at large state schools. However, since the majority of deals under the charitable approach flow directly through the charity, the charitable institution and/or involved supporters of the college can limit predatory terms that might attach to arm’s length transactional deals. Further, the charitable model creates opportunities for student-athletes to establish greater connections with their communities and empowers them to donate a portion of their NIL earnings to support local charities.
When NIL deals are organized through a collective, transactions in both models present similar benefits and risks. NIL collectives benefit student-athletes more than individualized deals because collectives are highly structured organizations that protect students from predatory deal terms. Further, as collectives are often founded and staffed by supporters of specific colleges, student-athletes have the opportunity to cultivate valuable mentoring relationships.
However, there are also risks inherent to participating in an NIL collective. First, collectives can be opportunities for boosters to reward student-athletes for competing at the college the collective supports, which is unlawful in some states. Boosters are private organizations comprised of individuals who support a specific college in an effort to organize and provide NIL opportunities to the college’s athletes. The NCAA has already investigated some colleges for working with collectives and boosters to improperly promise full-ride scholarships for enrollees. Second, some collectives publicize the value of the NIL opportunities for students who agree to compete at the college, which runs the risk of violating state laws and the NCAA interim policy. Third, because NIL collectives are run by supporters of the college and are rarely regulated by, overseen by, or affiliated with the college due to state law prohibitions, student-athletes may receive differing messaging on NIL deal compliance. For example, some collectives have portrayed their missions as primarily recruitment-based when, contrastingly, the college the collective supports may desire to avoid any appearance of promising NIL deals in exchange for recruitment. Similarly, NIL collectives that pay students directly may expose themselves to compliance issues when they openly promise payment to a student based on his or her high-school star performance rating.
Overall, the evolving patchwork of regulations continues to create substantial nationwide disparities in NIL deals. When viewed in tandem with the bifurcation of NIL deal approaches, the regulations create a fertile NIL landscape nevertheless pockmarked with risks. To maximize their ability to benefit in this new space and avoid compliance missteps, colleges and student-athletes alike should maintain an active awareness of the evolving pros and cons inherent to the variant approaches.
