With a view toward injecting some modicum of clarity into the volatile arena of NIL, a plethora of legislation has been enacted at the state level and proposed at the federal level.

ALM | Law.com Entertainment & Sports Law

• The convergence of myriad factors have dramatically transformed the landscape of collegiate sports.
• No other development has engendered as much confusion and angst as the rapid evolution of name, image and likeness (NIL).
• In the wake of all this turbulence, the NCAA had been for the most part a spectator in the bleachers, but in the past few months it appears the NCAA may have begun to buckle its chinstrap.

The convergence of myriad factors, including conference realignment, a seamless transfer portal and rule changes permitting athletes to profit from usage of their name, image and likeness (NIL) have dramatically transformed the landscape of collegiate sports. However, as tectonic as the ructions resulting from conference realignment and the transfer portal have been, no other development has engendered as much confusion and angst as the rapid evolution of NIL.

With a view toward injecting some modicum of clarity into the volatile arena of NIL, a plethora of legislation has been enacted at the state level and proposed at the federal level. For the past three years, in the wake of all this turbulence, the National Collegiate Athletic Association (NCAA), had been for the most part a spectator in the bleachers. But in the past few months it appears the NCAA may have begun to buckle its chinstrap.

Since the inception of the NCAA, other than scholarships and stingy board and meal allowances, athletes representing participating member institutions have been precluded from legally receiving any compensation. At least since about 1910, the NCAA has been the primary regulator of college athletics. Since the late 1970’s when vast amounts of money first began to be infused into college athletics, the NCAA has stubbornly refused to address the inequity of student-athletes being barred from receiving compensation. The injustice of this “amateur” status has been highlighted as coaches, athletic directors, college administrations and endowment funds, advertising agencies, online gaming platforms, video-game producers, television networks and apparel companies, have reaped massive revenue. The billions of dollars generated by the advent of the Bowl Championship Series (and financial projections relating to its imminent expansion) have only exacerbated this perceived inequity.

Rules on profit sharing changed drastically as a result of the 2021 U.S. Supreme Court decision in National Collegiate Athletic Association v. Alston, 141 S. Ct. (2021), which nullified the NCAA position on athlete compensation. As currently implemented, rules permitting athletes to share in profits via NIL have raised more questions than they solve.

For examples: Is NIL compensation derived from the precise marginal stream of revenue generated by the relevant athlete and, if so, how is that analytic quantified? Should athletes with the physical attributes of Kyle Hamilton, Sam Hartman, Maddy Westbeld or Natalija Marshall have to share NIL compensation with their less photogenic teammates? Of course, the most obvious elephant in the room (or more appropriately Aggie, Sooner or Duck in the room) has been the widely held perception that NIL amounts to nothing more than a smokescreen for handing bags of money to blue chip recruits, referred to as “Pay to Play.”

Until recently, to say that the NCAA had been passive in regulating NIL would be a colossal understatement. Admittedly, the NCAA had implemented a so-called “interim” procedure allowing athletes to broadly benefit from their personal image and has delegated temporary “responsib[ility] for determining the scope of college athletes’ NIL rights” to individual states and their respective schools. See, Taylor P. Thompson, “Maximizing NIL Rights for College Athletes,” 107 Iowa L. Rev. 1347 (2022). (In a nutshell, the current NCAA rule on Pay to Play is much like the “peppercorn” analysis of determining the presence of contractual consideration; as long as there is some quid pro quo on the part of the student-athlete, however minimal, the arrangement is not impermissible.)

The exact meaning of that amorphous statement has been defined in real time by shady boosters, unscrupulous promoters and self-interested family advisors often to the detriment of the overwhelmed teenage recruit. In effect, until recently, the NCAA had abdicated all responsibility for rule enforcement amidst the headwinds of the most destabilizing development in collegiate sports since the advent of the forward pass. Instead, the NCAA had basically thrown up its hands and suggested outsourcing NIL regulation to politicians in Washington.

Starting late in 2023, the NCAA suddenly became less inert. In a letter dated Dec. 5, 2023, NCAA President Charlie Baker detailed a platform of proposed modifications to the NCAA’s NIL regulations. These modifications would permit Division I institutions to participate directly in NIL arrangements with their student-athletes in ways that had been forbidden under the previous regulatory regime.

The three principal modifications to prevailing NCAA rules set forth in Baker’s letter were as follows. First, Division I institutions could now offer student-athletes “enhanced educational benefits” that the institutions “deem appropriate.” Second, Division I schools could now enter into NIL licensing opportunities with their student-athletes. Third, a certain elite subgroup of institutions with “the highest resources to invest in their student-athletes” would be required to: i) invest a minimum of $30,000 per year into an educational trust fund for at least half of the institution’s eligible student-athletes; and ii) commit to collaborating with peer schools within the elite magic circle to implement regulations that may differ from the rules in place for the lower tier Division I schools (thus finally recognizing the obvious reality that there is a wide gap in terms of profitability and exposure between institutions such as Notre Dame on one hand and Dartmouth on the other), including, in addition to NIL, in scholarship amounts, roster size, recruitment incentives and transfer portal access.

President Baker’s letter makes reference to the torrent of lawsuits that have been commenced against the NCAA. Such litigation has involved, among other things, antitrust challenges brought by state attorneys general against the NCAA’s NIL and transfer eligibility rules as well as actions from student-athletes seeking cash payments, lost earnings and status as employees. Currently, it is far from clear whether the NCAA is genuinely motivated to target the most egregious NIL abuses, particularly Pay to Play, or whether it is pursuing a policy of risk mitigation with a view towards insulating itself from liability in pending and future lawsuits.

Description of Current Federal Proposals

Post Alston, a multitude of federal legislative bills have been introduced namely: The College Athlete Economic Freedom Act; The College Athlete’s Protection and Compensation Act; The College Sports NIL Clearinghouse Act; The Protecting Athletes, Schools and Sports Act; The Student Athlete Level Playing Field Act; and the eponymous Ted Cruz Act. Currently, none of these bills has been passed into federal law. Although President Baker had previously sounded the alarm for federal legislation, in his December 5 letter he took on a critical position, characterizing such initiatives as “reform measures that, in many cases, would seriously damage parts or all of college athletics.”

Each of the aforementioned proposals has specific and often conflicting provisions that schools and corporate interests entering into NIL endorsement arrangements should be cognizant of in the event such bills are ultimately enacted. Yet there are a number of areas of alignment in the various federal initiatives. For example, five of the proposals would create a regulatory agency with investigative and enforcement powers over participating schools, or would empower the Federal Trade Commission to investigate and bring NIL actions. These bills do not clarify whether such a national regulator would complement or preempt the NCAA’s role in oversight of college sports.

Presently, NIL deals are governed primarily by state law. Thirty-one states have enacted such statutes. In many ways, these state statutes have been a step in the right direction, in addressing matters such as profit allocation and institutional transparency, as well as in the establishment of safety, insurance and health care safeguards. It is uncertain if future federal legislation would complement those state laws or create a national uniform set of rules. Two of the bills contain federal preemption provisions while others do not address such potential legislative inconsistency.

Generally, law makers have considered the implementation of an NIL disclosure and reporting system to be a priority. All the federal bills would mandate the disclosure of details of NIL deals, including compensation and some go even further in requiring the creation of comprehensive databases for all NIL arrangements. Two of the federal proposals address the employment status of student athletes in clearly stating that they are not employees of their respective schools, while others leave that question open.

Thrust of NCAA’s New Regulatory Framework

On Jan. 10, 2024, the NCAA Division I Council adopted the new NIL Protections, which go into effect on Aug. 1, 2024. According to the NCAA, the new NIL Protections are designed to protect student-athletes by promoting the sharing and centralization of information related to NIL deals, such as contract terms and ethical service providers.

The four specific new NIL protections are as follows. First, the NCAA would establish a “voluntary registration process for NIL service providers” (for example, financial advisors and agents) so student-athletes are better able to make informed decisions on retention of such parties. Second, student-athletes would be required to disclose to their schools the terms of their NIL agreements (for example, description of services rendered, contract term length, compensation and payment structure) exceeding $600 in value, no later than 30 days after entering into an agreement. The schools would be required to provide the data to the NCAA and such data would be used by the NCAA to “develop an aggregated database.” See,  “Division 1 Council approves disclosure and transparency rules,” NCAA. Third, the NCAA would develop “a template contract and recommend terms” for NIL agreements. Fourth, the NCAA would formulate a plan to “provide ongoing education and resources to support student-athletes on policies, rules and best practices pertaining to NIL.” Id. (Note that even after the decision of the Dartmouth men’s basketball team to unionize, the NCAA’s initiatives do not address the question of student-athletes’ status as employees.)

In addition to a new regulatory framework, the NCAA has demonstrated a certain degree of willingness to punish infractions related to NIL activities, including an action initiated in January 2024, by the NCAA against Florida State University. However, the FSU investigation is about coaches providing false and misleading information and not Pay to Play. Although the NCAA’s new rules ostensibly prohibit Pay to Play, the rules do not provide the NCAA with the robust enforcement power required to pursue the worst offenders. As college football is likely to reconfigure itself into two super conferences in the next decade, the stakes will inevitably get higher and the entrenched corporate and media interests opposing reform will invariably become stronger and more litigious.

Certainly, the recent NIL protections rolled out by the NCAA represent a step forward from its previous policy of ponderous inaction. Only time will tell whether in introducing the new rules, the NCAA is sincere in its desire to combat the rampant abuses of NIL or if the NCAA’s ulterior motive is merely to insulate itself from litigation or to prevent a new federal agency from usurping its role as primary regulator of college athletics.

Also far from clear is whether the NCAA will have the intestinal fortitude to aggressively, and relentlessly, enforce provisions targeting Pay to Play. The deep-pocketed corporate and media interests invested in Pay to Play are not going to back down easily and are certain to mount a formidable litigation strategy and lobbying onslaught.

But the various state and federal lawmakers should be commended for enacting or introducing NIL legislation, thereby initiating a national dialogue on NIL reform. Although the various state laws might provide a baseline for comprehensive federal legislation, except in limited instances state regulation falls short as a means of remedying NIL abuses. Ultimately, NIL cannot be effectively regulated by a patchwork of conflicting state laws. Although the concept of NIL regulation at the federal level may be popular and perceived as politically expedient, at least in theory, given the prevailing hyperpartisan climate, uniform NIL reform will probably not be coming from Washington.

For better or worse, NIL, including its Pay to Play component, is here and is not going away. Like injuries, penalties and weather-related travel delays, NIL is now part of the game. While some rhapsodize at length about a highly sentimentalized era of “sports purity” that never really existed, the reality is that big money has always been embedded in the lifeblood of college sports. The NCAA may have come to terms with this reality sooner than others and, in that sense, criticism of its passivity regarding NIL enforcement may be unfair.

If a college sports program intends to be competitive — and regarding football that means being in the conversation for the BCS playoffs in the expanded twelve team format — it must accept this reality. Lamenting the ills of Pay to Play and reciting tired bromides about “doing things the right way” will not suffice.

In a practical sense, if such a program believes that it is at a recruiting disadvantage because of NIL infractions, it has two alternatives. First, it can call out the violators, provide an explicit account of the factual bases of the exact rules violated, and then hope that these charges resonate with the NCAA or in the court of public opinion. Second, it can accept the reality of Pay to Play and then draw on its alumni network and corporate contacts to generate the funds necessary to develop a competitive recruiting paradigm. Otherwise, at long last, the only conference affiliation option for such an independent institution may be the collegiate Patriot League.

Reprinted with permission from the May 31, 2024, edition of ALM | Law.com Entertainment & Sports Law © 2024 ALM Global, LLC, All Rights Reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com.