California's New Law Worries the NCAA, but a Federal Law Is What They Should Fear

With California becoming the first state to enact a legal right for college athletes to gain compensation for the commercial use of their identities, the college sports industry is about to enter a volatile and transformative era. Legislators in other states—including New York, Florida and Illinois—have already proposed similar legislation while legislators in a half-dozen other states plan to do so as well. Meanwhile, members of Congress eye a federal statute as the more appropriate vehicle to address the commercial use of college players’ names, images and likenesses.

The sequence in which these complementary, yet also complicating, developments play out will have a significant impact on whether, and when, college athletes reap financial gains.

As a starting point, California’s Fair Pay to Play Act is now law—and, to date, the only law on this subject matter. Scheduled to go into effect on January 1, 2023, the Act makes it illegal for California colleges to deny their student athletes opportunities to hire agents or gain compensation for the use of their names, images and likenesses. The Act is closely inspired by the successful litigation of Ed O’Bannon, a former NBA player and UCLA basketball star. O’Bannon proved that by denying DI men’s basketball and football players the commercial value of their identities, the NCAA violated federal antitrust law.

For its part, the NCAA adamantly opposes the Act. This new law effectively obligates California colleges to defy NCAA rules and puts those colleges at risk of expulsion from the NCAA.

There are also important limitations to the Act, including that athletes lose the Act’s protections should they sign endorsement deals which conflict with school sponsorships or if they hire agents who aren’t licensed by the state. Also, the Act shouldn’t be confused or conflated with legal efforts to require colleges to pay their athletes—the Act is about contractual relationships between college athletes and companies that wish to use the players’ names, images and likenesses.

Big picture: college athletes in California will soon be able to be paid to sponsor summer camps, endorse local and national businesses and license their personas for the creation of “life like” avatars in college sports video games.

Recruiting advantages and other rationales for states to pursue Ed O’Bannon laws

If the NCAA permits California colleges to remain in the NCAA in 2023, those colleges would obtain a decisive advantage in recruiting. Their likely pitch to high school athletes: not only would you receive an athletic scholarship at our school, but, unlike at schools in other states, here you could be paid by companies with whom you sign identity-rights deals.

That competitive advantage is likely one reason why legislators in other states are pursuing their own versions of the Act. Another reason is that legislators genuinely believe that college athletes should have some control over the use of their identities. Still another reason, as O’Bannon articulated in a recent Sports Illustrated commentary, is that African American college athletes are disproportionately represented in basketball and football, the two sports that generate most of the revenue in college sports.

The domino effect: California is first but other states will likely follow

Although California is first to pass an “Ed O’Bannon law”, it might not be the first to see such a law go into effect.

In New York, State Senator Kevin Parker (D) has introduced SB 6722A. This legislation, which is currently before the Senate Rules Committee, would take effect immediately if passed by the legislature and signed by Governor Anthony Cuomo (D) into law. Similar to California’s Act, Senator Parker’s bill proposes that New York college athletes be able to hire agents and gain compensation for their identity. Unlike the Act, the bill would also compel New York colleges to create and fund “injured athlete” accounts that would provide financial benefits to athletes who suffer career ending or long-term injuries. The legislation further mandates that these colleges set aside 15% of revenue from athletics ticket sales and divides that revenue among college athletes.

In Florida, State Representative Kionne McGhee (D) has introduced HB 251. If the legislative branch passes HB 251 and if Governor Ron DeSantis (R) signs it into law, key provisions would go into effect on January 1, 2023. Representative McGhee’s bill is very similar to California’s Act. It instructs that a college athlete must be permitted to earn compensation from the use of their name, image or likeness without any impact on his or her scholarship eligibility. HB 251 contains analogous limitations, too, including one that would bar college athletes from signing contracts with companies that are competitors of companies that sponsor the athletes’ colleges. The bill also contemplates the formation of a task force on name, image and likeness issues by December 1, 2020. This task force would review existing laws and policies and eventually propose how changes would be implemented in 2023.

On Friday, a second bill to protect players’ identity rights was filed in the state of Florida. State Representative Chip LaMarca (R) introduced HB 287, which carries the moniker, “The Student Athlete Achievement Act.” Like the other bills, HB 287 attempts to create a right for college athletes to hire agents and profit from the use of their names, images and likenesses. As part of that goal, the bill contemplates a college athlete licensing his or her identity while performing services as an actor, musician, model or related professions. One key distinction with this particular bill: if passed and signed into law (and if not successfully challenged in court), it would go into effect on July 1, 2020. That is two and a half years before California’s Act is set to start, thereby leaving Florida colleges with much less time than California colleges to transition to a new system and much less time for the NCAA to decide on a response.

Illinois is also contemplating a related legislative proposal. Representative Emanuel "Chris" Welch (D) has introduced HB 3904, which if passed by the legislature and signed by Governor J.B. Pritzker (D) into law would prevent colleges, conferences and the NCAA from adopting or enforcing rules that tie college athletes’ scholarships to their capacity to earn from their names, images and likenesses. HB 3904 would go into effect on January 1, 2023.

These states are not alone in contemplating legal changes to compel colleges to stand down in enforcement of certain NCAA rules. Senators and representatives in Colorado, Kentucky, Minnesota, Nevada, Pennsylvania and South Carolina are all expected to soon introduce legislation that would resemble California’s Act. Expect the list to grow in the weeks and months ahead.

Be careful what you wish for: the legal risk of a “state-by-state” approach

While the greater the number of states considering legislation related to college players’ identities might seem like momentum for those who advocate for change in college sports, this trend might unintentionally and counterintuitively favor the NCAA.

As discussed more fully in an accompanying SI legal story, the NCAA gains a more persuasive legal argument against these laws as more and more states adopt them. That may sound strange, but here’s why: the NCAA can more compellingly argue that there is “chaos” among states with member schools if those states place different requirements on schools and conferences and thus make it impossible for the NCAA to apply uniform rules across its membership.

This argument succeeded for the NCAA in NCAA v. Miller, a federal case from 1993. In it, the U.S. Court of Appeals for the Ninth Circuit held that Nevada violated the U.S. Constitution’s Commerce Clause by creating new procedural rights for college athlete accused of wrongdoing by the NCAA. The Commerce Clause generally bestows Congress with the exclusive power to regulate interstate commerce. As interpreted over the years, it also prohibits states from enacting laws that unduly impact commerce in other states. There are many examples of commerce in college sports that cross state lines. They include travel, broadcasts and merchandise sales.

To that end, the NCAA might logically insist that it can’t effectively function as a national association of member schools if it must adopt conflicting or inconsistent rules in different states. Consider the legislation discussed above in just two states, California and New York. New York’s proposed legislation is structured differently from California’s Act. It includes a requirement that an injured athlete account be adopted and funded. The Act also features a sharing obligation for certain types of revenue. The more dissimilar these state laws, the better for the NCAA.

A “Model Code” for all states might work in theory, but in reality?

You might intuit that all 50 states could simply agree to adopt identically worded laws related to college athletes’ names, images and likenesses. In theory, sure, that is possible.

But reality tells a different story. For starters, there would be administrative challenges in getting a bill introduced in every state. In addition, the ideologies and politics of each state vary, in some cases considerably. That, in turn, impacts which bills are likely to advance in the legislative process, how bills are modified through committee hearings and markup sessions and which bills are likely to gain support from a governor who might be conservative, liberal or hold other political views. There are also different lobbyists in each state who influence legislation. It’s thus difficult for bills in all 50 states to land in the same place.

Perhaps instead a group of policy experts from each state could form a commission to draft a model code that each state could consider and adopt. The Uniform Commercial Code is one example of a model code enjoying a good deal of success. It is a set of proposed legal rules concerning sales, leases, bank deposits, investment securities and other types of financial transactions. The basic idea behind the U.C.C. is to provide states with a strategy on harmonizing their commercial laws. If every state uses the same rules for these types of transactions, economic development should be facilitated. Another example is the Uniform Athlete Agents Act, which, among other things, regulates how agents pursue college athletes as clients. The Act is a code that states choose to adopt.

There would be logistical hurdles with a model code-type approach for name, image and likeness rights. For one, it would likely take years from start to finish. The U.C.C., which was published in 1952, took seven years to draft and more than a dozen years for 48 states to pass (it wasn’t until 1990, when Louisiana adopted the U.C.C., for all 50 states to have passed it). Even then, states have only adopted certain portions of the U.C.C. and the wording of each state’s U.C.C. laws at times varies. Meanwhile, as to the U.A.A.A., while 42 states have largely adopted similar versions of it, there are nonetheless modifications in wording and structure. Plus there are proposed revisions to the U.A.A.A. that are sometimes but not always adopted. Also, while 42 states comprise most of the 50 states, eight is not an insignificant number of holdout states.

Federal legislation likely to be more effective

There is an alternative to the state-by-state approach: passage of a federal law that addresses college players’ identity rights.

A federal law would avoid some of the potential pitfalls of states laws. Most notably, the NCAA could not credibly argue that multiple states are forcing it into a confused and conflicting set of rules. A federal law would set the rules for all states. Likewise, it would prevent any state from gaining a competitive advantage in recruiting. Each and every state would play by the same set of rules.

Passage of a federal law also seems plausible given that members of Congress from different political ideologies seem to agree on college players being able to gain from their names, images and likenesses.

Congressman Mark Walker, a Republican from North Carolina, is leading the charge for reform in the U.S. House of Representatives. He introduced House Resolution 1804, also known as the “Student-Athlete Equity Act” (Equity Act). The Act’s co-sponsors include Congressmen Cedric Richmond, a Democratic from Louisiana; Congressman John Ratcliffe, a Republican from Texas; and Congressman John Yarmuth, a Democrat from Kentucky. The Act links players’ identity rights to the U.S. Tax Code. Specifically, it proposes that the Internal Revenue Code of 1986 be amended to condition the NCAA’s status as a non-profit to the NCAA permitting college athletes to gain compensation for third parties’ use of their names, images and likenesses. Essentially, the Act would tell the NCAA either allow O’Bannon’s victory to become NCAA rule or you and your members will pay a lot more in taxes.

The Student-Athlete Equity Act might soon be joined by another piece of proposed federal legislation. Congressman Anthony Gonzalez, a Republican from Ohio and former wide receiver for the Indianapolis Colts and New England Patriots, plans to introduce a bill that would create a federal right for college athletes to be compensated for the use of their identities.

Other members of Congress seem clearly supportive of these types of initiatives. Congressman Matt Gaetz, a Republican from Florida, earlier this week tweeted, “The NCAA has devised a system where predominantly young, black adult student-athletes create value at huge cost to their bodies. Then, predominantly old, white administrators see the benefit. BS!” In the Senate, Senator Chris Murphy, a Democrat from Connecticut, has taken the lead in advocating for change in college sports. He recently authored, “Madness, Inc.: How Everyone is Getting Rich Off College Sports—Except the Players” a publication that details the degree to which colleges profit from their athletes.

These days, Republicans and Democrats don’t seem to agree on much. But there is clear daylight on the treatment of college athletes. Perhaps there is a track for Congress to pass a bill along those lines.

There is another factor in this equation: President Donald Trump and whether he would sign this type of legislation into law. His views on this subject aren’t known. However, the President might find the combination of entrepreneurial incentives and racial justice to be appealing rationales. Also, President Trump has at times welcomed significant legal reforms that enjoy bipartisan support. This was true last year when he signed into law the First Step Act, which reduces certain types of prison sentences and attempts to restore more equity in sentencing. Furthermore, perhaps the President’s background as the owner of a USFL team in the 1980s makes him more inclined to support athletes access to professional opportunities.

Maybe we’ll find out.

Of course, the NCAA could preempt this entire discussion by voluntarily changing its rules so that college athletes can hire agents and sign endorsement deals without forfeiting their eligibility. The NCAA has charged a working group, led by Big East commissioner Val Ackerman and Ohio State athletic director Gene Smith, with exploring possible rule changes related to this topic.

Still, given the NCAA’s hostile reaction to California’s Act, it doesn’t appear likely that the NCAA will dramatically change its rules anytime soon.

It might take a new law for that to happen.

Michael McCann is SI’s Legal Analyst. He is also an attorney and Director of the Sports and Entertainment Law Institute at the University of New Hampshire Franklin Pierce School of Law.