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What is NIL and How Might It Fundamentally Change NCAA Sports?

June 17, 2021

By

P. Douglas Barr
Managing Director, Stoll Keenon Ogden PLLC
(859) 231-3046
douglas.barr@skofirm.com

Most avid college sports fans are aware that NCAA athletes might soon be able to make money from their Name, Image and Likeness (NIL), but opinions about the effect of this change (if it happens) range from salvation to ruination of NCAA sports.

The NCAA has long been considering changing its core “amateurism” rules against “pay for play” to allow NIL compensation in some form but other powerful forces, frustrated with the NCAA, have been hard at work. This month (June 2021), the U.S. Supreme Court is expected to issue its decision in Alston v. NCAA, the second ground-breaking case brought by NCAA athletes challenging the NCAA’s rules against pay-for-play compensation on antitrust grounds. Nineteen (19) states have passed statutes that make it unlawful for NCAA schools in their jurisdictions to deprive athletes of NIL compensation. The NIL statutes in six (6) of those states – Florida, Alabama, Georgia, Mississippi, New Mexico and Texas – are set to go into effect on July 1, 2021. Congress is considering at least six (6) bills meant to allow and regulate NCAA athletes’ NIL compensation. A monumental collision is about to take place on July 1, 2021.

As of today, the NCAA’s rules that would prohibit athletes from being compensated for NIL remain in place, but NCAA leadership is set to meet again on June 23rd to consider changes. The 19 different state statutes differ in many ways, presenting a compliance nightmare and possible recruiting advantages but all have two common aspects: (1) they make it illegal for schools to deny athletes the right to compensation for their NIL and (2) they attempt to set limits on the ways athletes’ NIL may be monetized.[1] But with the NCAA anti-compensation rule in effect and state statutes going into effect, on July 1, 2021, a Crimson Tide football player could sign a $1 Million endorsement deal and if Alabama follows its obligations under NCAA rules to declare him ineligible, the school will be in violation of state law.

              What is NIL and How Did We Get Here?

At common law, each person has a “right of privacy,” essentially, the right to be left alone and not to have private information made public, without the person’s consent or unless it is newsworthy. In the 20th century, the common law developed to recognize a “right of publicity,” as an element of the right of privacy. The right of publicity is a right to control one’s own public image and has often been described as the right to control and monetize one’s “name, image or likeness.” Most states now have statutes governing the right of publicity and many (including Kentucky and Indiana) provide that the right of publicity continues many years after the person’s death (think, Elvis Presley).

The NCAA has been built on an “amateurism” model: college athletes may not be paid compensation for their athletic performance. Their only compensation can be “Education-Related” in the form of a scholarship that pays for tuition, room, board, books and the like.

In 2009, former UCLA star Ed O’Bannon – college basketball’s player of the year and NCAA champion in 1995 – noticed that EA Sports was making money selling a video game that included avatars of college players (including him) wearing uniforms bearing their names and thought it was unfair that the names and likenesses of players were being used without their consent long after their playing days were over. On behalf of a class of NCAA athletes, O’Bannon sued the NCAA claiming its rules against athletes earning NIL compensation violated the oldest and most basic U.S. antitrust law, the Sherman Antitrust Act (1890). Section 1 of the Sherman Act makes it unlawful for anyone to enter into any agreement that restrains trade. The NCAA’s member institutions, through NCAA rules, agree with each other to limit the compensation they can pay athletes to just “Education-Related compensation” (ERC) (scholarships covering tuition, room, board, etc.)[2] By artificially setting the maximum compensation instead of allowing the market to do so, O’Bannon argued, the NCAA was restraining trade.

O’Bannon won the case in the District Court but, on appeal, the Ninth Circuit held that the NCAA’s practice of forbidding “Non-Education-Related Compensation” (Non-ERC) (such as NIL) was justified by its “amateurism” model but limits on ERC were not. The NCAA and its schools were forced to pay additional ERC in the form of stipends to athletes that represented “the Full Cost of Attendance,” again ranging from a few thousand dollars to about $15,000, per player, depending on the costs of attending a particular school.

              The Shawne Alston Case

The O’Bannon case was intended just to obtain NIL compensation. While that case was winding its way through the courts, West Virginia football player, Shawne Alston, filed another class action against the NCAA, this time alleging that the NCAA’s entire “amateurism” model was an unjustified, unreasonable restraint of trade in violation of the Sherman Act. Again, the District Court and Ninth Circuit ruled that the NCAA’s limitations on Non-ERC was justified but the “full cost of attendance” limits set in the wake of the O’Bannon case were not.

At the NCAA’s request, the U.S. Supreme Court agreed to hear the Alston case. At oral arguments in March 2021, however, most observers thought the thing the NCAA is most likely to achieve is to unite the liberals and conservatives on the Supreme Court – against the NCAA. Famously, conservative Justices Brett Kavanaugh, Clarence Thomas and Amy Coney Barrett, along with liberal Justice Elena Kagan criticized the NCAA for, in essence, making billions of dollars on the unpaid labor of young athletes.

              The State NIL Statutes

California was the first state to pass a NIL statute for NCAA athletes, but other states soon followed. As noted above, all of these statutes preclude NCAA schools from denying athletes the right to capitalize on their NIL and provide various guidelines and limits on the ways and means by which athletes may license their NIL. While all the statutes are different, there is a core set of similar “guidelines and limits” on athletes. But a few states have limits that are much different than others. Georgia, for example, creates a general pool or fund into which all athletes’ NIL compensation is paid, then paid out to all athletes, post-eligibility. And with 19 states so far having adopted statutes, distilling and harmonizing them all may be impossible. And without some uniform set of rules, more states are expected to seek to obtain a recruiting advantage for their states’ schools by passing their own NIL statute.

              What Are the Possible Outcomes of this Collision of Forces on July 1st?

As this is published, July 1st is two weeks away. Given that limited timeframe, any kind of agreed resolution seems highly unlikely, especially since there are still significant variables, that interact with other variables, that have not been decided. These are among the possible outcomes to this ever-more-complicated issue:

  1. The U.S. Supreme Court’s decision in the Alston. The NCAA’s briefs ask the Court to grant it a partial antitrust exemption for its “amateurism” rules, which seems very unlikely. It is probably more likely that the Court would go in the opposite direction and rule all the NCAA’s non-compensation rules to be antitrust violations. Most likely, though, the Court will limit its decision to just the ERC and Non-ERC issues and rule against the NCAA.
  2. Congressional action. Congress could pass (and the President sign) NIL legislation that pre-empts all of the various state statutes. While “one set of rules for everyone” would be vastly preferable to a patchwork of statutes, Congress’ practical ability to pass such complicated legislation in such a short period of time is very unlikely, especially since there are already more than a handful of bills at various stages of legislative review.
  3. The NCAA, at its June 23rd meeting, could (and likely will) change its rules against NIL compensation. The NCAA has struggled with how to do that and the likelihood of creating guidelines and rules that do not conflict with some states’ statutes, which almost certainly would lead to litigation. The only way, at this point, that the NCAA could change its NIL rules without conflicting with some states’ statutes would be to allow NIL compensation without limits or guidelines, which the NCAA is very unlikely to do.
  4. Litigation. The collision between the NCAA rules and the July 1st state statutes will most likely lead to litigation between the NCAA and the states who have passed NIL statutes. The NCAA would not be without arguments rooted in the U.S. Constitution. Article I Section 10 provides that “no state shall . . . pass any . . .law impairing the obligation of contracts.” The NCAA’s argument would be, the state statutes make it unlawful for NCAA schools to comply with their membership contract obligations to comply with NCAA rules, including not allowing NIL compensation. The NCAA may be able to obtain a temporary injunction maintaining the status quo but, in the end, the ultimate outcome cannot be predicted.

From the stand point of NCAA sports and the law, June and July of 2021 promise to be monumental. Whatever the outcome of the collision of all these powerful forces, it would be fair to expect lots of confusion, conflict and unintended consequences.

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[1] For example, most of the statutes preclude athletes from endorsing companies or products involved in alcohol, tobacco, gambling and the like.

[2] O’Bannon’s class action also sued EA Sports for misappropriating the athletes’ NIL, without their consent. After the Court ruled for the O’Bannon class plaintiffs, EA Sports paid the athletes a $40 Million settlement, amounting to about $5,000 to $20,000 per athlete.