The NCAA student-athlete compensation rules have changed. That change will have consequences, both intended and unintended. Of course, as with any material change involving big-money sports, bigger-money commercial opportunities, popular celebrities and the law, the change will open opportunities for the crafty and nimble, along with traps for the greedy and unwary. While it is too early to predict all those opportunities and traps, here are some issues to consider.
An athlete’s name, image or likeness (NIL) may have protectable intrinsic value. The right to license and profit from one’s NIL, often referred to as the “right of publicity,” is explicitly recognized by statute or common law in at least 35 states. In most states, any person who knowingly uses another’s name, voice, signature, photograph or likeness in any manner, on or in products, merchandise or goods or for purposes of advertising or selling or soliciting purchases, without such person’s prior consent, may be liable for any damages sustained by the person injured as a result.
Professional athletes, performing artists and other celebrities receive significant compensation for granting businesses the right to use their NIL in advertisements. While NCAA student-athletes have, for decades, received scholarships and room and board in exchange for their participation in sporting events for their schools, until July 1, 2021, they were precluded from accepting remuneration for use of their NIL due to the NCAA’s amateurism principle. That principle states that “an individual loses amateur status and thus shall not be eligible for intercollegiate competition in a particular sport” if they use “athletics skill (directly or indirectly) for pay in any form in that sport.”
Last June, the U.S. Supreme Court ruled 9-0 against the NCAA in NCAA v. Alston, affirming the lower courts’ holdings that the NCAA’s restrictions on member institutions paying education-related expenses of student-athletes violate the Sherman Antitrust Act. However, it was Justice Brett Kavanaugh’s concurring opinion that really drew the attention of the NCAA. He opined that the NCAA’s “remaining compensation rules,” which restrict student-athletes from receiving compensation or benefits from their colleges for playing sports, “also raise serious questions under the antitrust laws.” Kavanaugh’s opinion signaled to the NCAA that an antitrust exemption in the future was unlikely. To alleviate concerns of competitive advantage among member institutions in states with differing NIL laws, and to allow more time for Congress to pass legislation, the NCAA rolled out its interim policy as detailed below.
NCAA interim NIL policy
With the unfavorable ruling in the NCAA v. Alston, the lack of pertinent federal NIL legislation, along with California’s passage of the Fair Pay to Play Act and Florida’s Intercollegiate Athlete Compensation and Rights law, the NCAA took interim action addressing the application of certain NCAA bylaws to individuals and member institutions engaging in NIL activity. To coincide with the rollout of Florida’s legislation, the NCAA issued its Interim NIL Policy on July 1, 2021, which member institutions and student-athletes must follow until federal legislation or new NCAA rules are adopted. The Interim NIL Policy reads:
- NCAA Bylaws, including prohibitions on pay-for-play and improper recruiting inducements, remain in effect, subject to the following:
- For institutions in states without NIL laws or executive actions, or with NIL laws or executive actions that have not yet taken effect, if an individual elects to engage in an NIL activity, the individual’s eligibility for intercollegiate athletics will not be impacted by application of Bylaw 12 (Amateurism and Athletics Eligibility).
- For institutions in states with NIL laws or executive actions with the force of law in effect, if an individual or member institution elects to engage in an NIL activity that is protected by law or executive order, the individual’s eligibility for and/or the membership institution’s full participation in NCAA athletics will not be impacted by application of NCAA Bylaws unless the state law is invalidated or rendered unenforceable by operation of law.
- Use of a professional services provider is also permissible for NIL activities, except as otherwise provided by a state law or executive action with the force of law that has not been explicitly invalidated or rendered unenforceable.
- The NCAA will continue its normal regulatory operations but will not monitor for compliance with state law.
- Individuals should report NIL activities consistent with state law and/or institutional requirements.
About state NIL laws
While several states have unique NIL provisions, the general principles outlined in the NCAA’s Interim NIL Policy have been incorporated into most of these laws. The most common provisions found across all state NIL laws are: 1) schools, conferences and associations cannot limit a student-athlete’s ability to be compensated for their NIL; 2) student-athletes can receive professional representation if the professional is registered as an agent with the state; 3) participation in NIL-related activities will not impact a student-athlete’s athletic or scholarship eligibility; 4) NIL agreements cannot be in conflict with team contracts; 5) schools, conferences and associations cannot compensate a student-athlete for their NIL (endorsement deals are between an athlete and a company); and 6) schools may restrict student-athletes from participating in certain vice industries.
With the NCAA’s Interim NIL Policy and more than 40 states having enacted their own NIL legislation, contracts, endorsements and sponsorships must be narrowly tailored to comply with requisite state NIL laws and applicable NCAA Bylaws.
In New England, only Connecticut has NIL legislation in effect. Massachusetts, Rhode Island and Vermont all have NIL bills in their legislatures this year.
Connecticut has 20 NCAA member institutions and approximately 5,800 student-athletes affected by the state’s Act Concerning Higher Education. Effective Sept. 1, 2021, the legislation requires member institutions to create policies regarding student-athlete endorsement contracts and employment activities. According to the law, the policies must include certain provisions, such as: 1) requiring a student-athlete to disclose endorsement, employment and representation agreements to the member institution; 2) prohibiting a student-athlete from entering into an agreement that conflicts with the provisions of any agreement to which the member institution is a party; 3) prohibiting a student-athlete from using the member institution’s trademarks during the athletes performance of NIL-related activity; 4) prohibiting a student-athlete’s NIL related-activity from interfering with team activities or academic obligations; and 5) identifying all NIL-related activity prohibited by the member institution. The law’s most notable provision prohibits member institutions from disclosing the compensation received from an endorsement contract or employment activity without the express written consent of the student-athlete.
Massachusetts has 54 NCAA member institutions and an estimated 16,200 NCAA athletes. Despite the high number of NCAA schools and athletes in the state, Massachusetts has not passed any NIL laws to date. Massachusetts does have Senate Bill 2454 pending, which contains a unique provision that would require each member institution to “establish a catastrophic sports injury fund to provide a student-athlete who suffers a career-ending or long-term catastrophic sports injury during an intercollegiate athletic competition or practice with compensation upon his or her graduation.” The state Board of Higher Education will be tasked with determining the amount of compensation, along with qualifying injuries.
Rhode Island has eight NCAA member institutions and approximately 2,400 NCAA athletes. If passed, House Bill 5082, An Act Relating to Education: Compensation for Students Participating in Intercollegiate Athletics, will require that attorneys be licensed in Rhode Island if representing student-athletes in connection with NIL compensation.
Vermont has eight NCAA member institutions and approximately 2,400 NCAA athletes. Vermont’s State Bill S. 328, An Act Relating to Student-Athlete Compensation, was introduced in 2020 and remains pending. If passed, the legislation contains the most common provisions found across all state NIL laws as described above, and currently has a tentative effective date of Jan. 1, 2023.
Outside the region, key state NIL law provisions include the following:
California has 57 NCAA member institutions and approximately 17,000 student-athletes that will be impacted by the state’s Fair Pay to Play Act (FPPA). Passed in 2019, the law set the standard that many states now follow. It outlines student-athletes’ freedom to receive compensation in exchange for their NIL and use a professional service provider (i.e. sports agent or legal professional).
The FPPA requires disclosure of contractual agreements to a designated institutional official. Moreover, the FPPA expressly prohibits prospective student-athletes from participating in NIL-related endorsement activity. Thus, incoming student-athletes, which include high school seniors and transfers from other universities or colleges, should be aware of the FPPA’s restriction.
Florida has 27 NCAA member institutions and approximately 7,800 NCAA athletes affected by the Intercollegiate Athlete Compensation and Rights law (IACR). Under the IACR, a student-athlete’s compensation for the use of his/her NIL “must be commensurate with market value of the authorized use … [in order to] preserve the integrity, quality, character and amateur nature of intercollegiate athletics and to maintain a clear separation between amateur intercollegiate athletics and professional sports.” Further, such compensation may “only be provided by a third party unaffiliated with the intercollegiate athlete’s postsecondary educational institution.” The IACR requires disclosure of NIL transactions to the member institution’s athletic department in a manner to be decided by the member institution. Student-athletes may also be prohibited from entering a contract that provides for compensation for the use of his/her NIL “if a term of the contract conflicts” with any of the member institution’s existing contracts. While student-athletes are free to receive professional representation, any agency or NIL-related contract may not extend beyond their enrollment period with a tertiary educational institution.
Other standout provisions of the IACR include the requirement that student-athletes take five hours of a financial literacy, life skills and time management workshop at the beginning of their first and third academic years. Separate from the IACR, a student-athlete’s NIL-related income will not be taxable under Florida’s state income tax laws.
Georgia has 31 member institutions and approximately 9,300 NCAA athletes that will be impacted by the Name, Image and Likeness Law for Student Athletes (GA NIL Law). Like the IACR, the GA NIL Law requires member institutions to create a disclosure policy for student-athletes to report their NIL contracts, the compensation terms of which must be commensurate with the fair market value Moreover, member institutions must provide financial literacy and life skills programs for first- and third-year student-athletes.
Georgia’s most notable provision allows team contracts to contain a pooling arrangement whereby student-athletes who receive compensation for use of their NIL may agree to contribute a portion of same to a fund for the benefit of individuals previously enrolled as student-athletes in the same member institution. Specifically, if student-athletes agree to participate in a pooling arrangement, they will not be required to share more than 75% of their NIL compensation. Pooled funds will be deposited into an escrow account by the member institution’s athletic director or their designee. Interestingly, the NIL Law anticipates Title IX violations and other discrimination claims arising from the administration of the pooling arrangement and reminds member institutions not to discriminate against individuals based upon race, gender, religion or other protected categories when implementing the pooling provisions.
Oklahoma has 15 member institutions and an estimated 4,500 NCAA athletes affected by the passage of its Student Athlete Name, Image and Likeness Act, the Revised Uniform Athlete Agents Act and expansion of the Oklahoma Deceptive Trade Practices Act. Like Colorado, Georgia and six other states, Oklahoma’s Student Athlete NIL Act requires that student-athletes disclose contracts providing compensation for use of their NIL within 72 hours after entering into a contract or before the next athletic event in which the athlete is eligible to participate. Moreover, student-athletes are prohibited from entering into NIL contracts that provide compensation if a provision of the contract conflicts with the member institution’s team contract. The Student Athlete NIL Act also contains a provision protecting the member institution’s intellectual property. Specifically, it bars student-athletes from entering into contracts with third parties that provide compensation for use of the athlete’s NIL or athletic reputation if: 1) the student-athlete is required to display the third party’s logo or otherwise advertise for the third party during team activities; 2) compliance with the third-party contract would conflict with a team contract; or 3) the contract allows for the use of or consent to the use of any institutional marks during the third-party contract activities.
Among other notable state NIL laws …
New Mexico’s Student Athlete Endorsement Act bars registered agents and legal representatives from representing student-athletes if they have represented an institution within the previous four years. The NIL law also prohibits a school from preventing or discouraging a student-athlete “from wearing footwear of the athlete’s choice during official, mandatory team activities so long as the footwear does not have reflective fabric, lights or pose a health risk to the student-athlete.”
Maryland’s Jordan McNair Safe and Fair Play Act contains a provision that reaches far beyond NIL rights. To honor the life of Jordan McNair who died from heatstroke during football practice in 2018, the Safe and Fair Play Act requires institutions to set forth comprehensive sports-related medical safeguards for student-athletes. For example, athletic programs are required to adopt and implement guidelines to prevent, assess and treat serious sports-related conditions, including brain injury, heat illness and rhabdomyolysis. The Safe and Fair Play Act further mandates exercise and supervision guidelines for any student-athlete identified with a potential life-threatening health condition, including sickle cell trait and asthma. Moreover, the Safe and Fair Play Act requires return-to-play protocols for athletes who experience injury or illness during practice or play.
Legal considerations for athletes
As brands and businesses begin to engage student-athletes to be paid as spokespersons and brand ambassadors, athletes should be aware of a wide range of legal concerns that may arise.
An endorsement agreement is a contract that enables a company to use the name, image, likeness, voice, reputation and related intellectual property of an individual or a group to promote a company’s goods and services.
A student-athlete’s agent, who may or may not be an attorney, often negotiates the terms of the endorsement agreement with the company and seeks to memorialize the athlete’s obligations, compensation and provisions that protect the student-athlete as the endorser. The officers of the company, on the other hand, have a fiduciary responsibility to negotiate a deal that best suits the company. Therefore, where the interests of the company and the student-athlete are not aligned, the following contractual provisions should be carefully considered during the negotiation process: 1) industry and territorial exclusivity; 2) intellectual property ownership, control and usage; and 3) a morality clause. The scope of these terms is often subject to rigorous negotiation and should be carefully considered prior to accepting any engagement.
Industry and territorial exclusivity. Industry exclusivity clauses legally restrict student-athletes from promoting or using similar products from another brand. A company may seek to restrict a student-athlete from promoting or using a type of product such as sports drinks or swim trunks, or entering into agreements with another company that manufactures or sells products in an exclusive category (such as footballs). The most advantageous clause for the student-athlete would be a narrowly tailored exclusivity clause by product type such as a shoe agreement with Nike to the exclusion of one with Adidas. The student-athlete would prefer the ability to have an athletic shoe sponsorship with one company, and an endorsement deal with a different company for basketballs or sports apparel.
The territory of the grant of rights in an endorsement agreement can either be worldwide or limited to one or more countries. Thus, student-athletes should consider whether they are willing to provide endorsements for products sold globally, within the U.S., or to a few selected countries.
Intellectual property ownership, control and usage. Each party to an endorsement agreement usually owns certain preexisting intellectual property rights that may be exploited in an advertising or promotional campaign. Companies own patents, trademarks, copyrights, domain names and trade secrets to protect the intellectual property in their goods and services. Student-athletes also own intellectual property rights. Like professional athletes, NCAA athletes are now allowed to receive compensation from the rights of publicity in their name, image, voice, likeness and athletic reputation; trademarks for a personal name, stage name, personal identifier or signature phrase; and copyrights for artistic works including photographs, books, films and videos, music and lyrics, or musical sound recordings. The key takeaway here is that if a company wants or needs to use any of the student-athlete’s preexisting intellectual property rights, it must obtain a license to do so from the athlete and incorporate same into the endorsement agreement’s grant of rights provision.
In addition, or as an alternative, the student-athlete and company may jointly create new intellectual property rights in works produced in a variety of media including television and internet advertisements, promotional films and videos, print advertisements and promotional materials, and songs and musical sound recordings. Student-athletes should understand that companies usually retain ownership in its preexisting and jointly created intellectual property rights and will include a work-for-hire clause under the U.S. Copyright Act, which states that any copyrightable work product created by the student-athlete was created solely for the company and assign to itself all work product that does not qualify as a work made for hire.
While student-athletes are permitted to license their NIL, some universities seek to prohibit student-athletes from using school logos and other trademarks. For example, many schools have developed policies and programs that are congruent with various state NIL laws in an effort to avoid litigation in the future. As discussed above, most student-athletes will have to notify their institutions of any NIL-related engagements and are not allowed to use their NIL to promote substances in conflict with university values or expressly prohibited by the NCAA such as pornography, alcohol, tobacco products or gambling.
Moreover, prior to July 1, 2021, student-athletes were barred from wearing brands other than their school’s sponsor unless they qualified for a medical exemption. New Mexico’s Student Athlete Endorsement Act, however, is the first of its kind to prohibit a school from preventing or discouraging a student-athlete from wearing footwear “of the athlete’s choice” during team activities. If a school is sponsored by Reebok, for example, but Reebok shoes exacerbate the athlete’s tendonitis, the athlete could seek a medical exemption from a physician, which will explain the condition and recommend that a different brand be worn like Nike. Student-athletes must be cautious of intellectual property breaches when negotiating endorsement deals. For example, an athlete should not enter into an agreement that requires a team uniform be worn, since team uniforms contain the school’s logo.
Morality clauses. While endorsement agreements cannot be contingent on athletic performance, such agreements usually include morality clauses, which allow a company to terminate the agreement based on certain bad conduct. For example, last November, the Los Angeles Times reported that a UCLA athlete’s NIL partnership was terminated after a video showed the athlete directing profanity at a female student. Athletes should consider including a reverse morals clause in the event a company engages in behavior that warrants termination, for example, if the company’s reputation plummets due to a product recall or corporate scandal. Athletes should understand that absent extreme fame, most companies refuse to incorporate a reverse morals clause in an endorsement agreement. In any event, student-athletes may include other grounds for termination, including, but not limited to, bankruptcy or insolvency, breach of the endorsement agreement by the company or failure to adequately promote the student-athlete’s endorsement of the company’s products or services.
False and deceptive trade practices claims
A student-athlete’s endorsement agreement should be carefully considered and vetted by experienced legal advisors to avoid “false and deceptive” advertising claims.
The Federal Trade Commission defines an endorsement “as an advertising message that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser. These advertising messages may include verbal statements, demonstrations, or depictions of the name, signature, likeness or other identifying personal characteristics of an individual or the name or seal of an organization.” False and deceptive trade practices laws seek to ensure that consumers are not misled or deceived by sports figures, which now include student-athletes. Federal and state regulators will certainly monitor student-athlete NIL activities for legal compliance as this is a new arena for purposes of compliance.
The NCAA’s prohibitions
We know that student-athletes must comply with the NIL laws of the state in which they attend school. We also know that the NCAA will not monitor for compliance with state laws but will continue to enforce its prohibitions against compensation for athletic participation or achievement (i.e., pay-for-play), compensation for work not performed (i.e., NIL agreements without quid pro quo) or compensation contingent upon enrollment at a particular school (i.e., improper recruiting inducement). At this time, the NCAA has not provided adequate guidance or examples of NIL-related activity that would violate these prohibitions and cause an athlete to lose eligibility. Until the NCAA amends its rules or provides further guidance, the best practice for member institutions is to avoid direct involvement in organizing or facilitating student-athletes’ NIL activities except in certain circumstances.
The extent of a member institution’s involvement should be organizing student-athlete workshops, mandating certain NIL-related curriculum and arranging on-campus meetings with agents, advisors and other professional representatives who can assist the athletes with navigating the myriad of complex and uncertain legal issues involved.
Moreover, institutions should not dictate how student-athletes use their compensation. For example, an institution is not allowed to require student-athletes to use compensation for financial aid. The NCAA, in fact, warns member institutions to refrain from such involvement to avoid claims for contractual nonperformance, Title IX violations and employment-related issues.
The entire landscape for student athletes’ NIL is changing rapidly, on an almost daily basis. The rules made today are remarkably different from those of last year and may be obsolete next month. While there are new and exciting opportunities available for the athletes, commercial businesses, schools and agents, they should all keep their heads on a swivel and seek counsel to help navigate the potential traps created by these ever-changing rules.
Iciss Rose Tillis is a labor & employment attorney at Hall Estill, where her practice involves assisting employers in workplace matters, including litigation, as well as preventive advice and counseling. Prior to earning her law degree, Tillis was a professional basketball player in the Women’s National Basketball Association (WNBA) and the International Basketball Federation (FIBA). Jon A. Epstein is a shareholder at Hall Estill, practicing primarily on civil litigation and media law matters.