After years of resisting changes that would permit student-athletes to receive compensation for the use of their names, images and likeness (NIL), the NCAA signaled a major shift on Wednesday. The Board of Governors—the NCAA’s highest body of governance—now supports modifications to rules so that college athletes can receive compensation for third-party endorsements. In general, this means that college athletes will be able to hire agents and sign endorsement deals without running afoul of amateurism rules and without losing their NCAA eligibility. The prospective changes would go into effect at the start of the 2021–22 academic year.
Specific changes have not yet been determined. As explained above, we likely won’t know important details for months. One thing is for certain: Don’t expect a free market. The changes will likely be restrained in numerous ways.
To that point, a working group retained by the NCAA recommends several important limitations. They include the adoption of so-called “guardrails” around activities that generate income for the players and the near-term rejection of group licensing. Group licensing involves individual athletes assigning their NIL to a trade association that would, in turn, negotiate on all of the athletes’ behalf. Group licensing would likely be a necessary ingredient for restoring the types of college sports video games published during the 2000s and early 2010s.
The prospective changes referenced in Wednesday’s statement only concern compensation from third parties. Examples of third parties include clothing makers, sneaker companies, social media platforms (meaning compensation for being an “influencer”), athletic camps and trading card shows that pay for autographs. These entities operate in different industries but share in the knowledge that college athletes’ identities can be commercially lucrative.
It’s important not to confuse third-party NIL compensation with other types of compensation. Most importantly, the NCAA is not contemplating changes that would allow colleges to pay college athletes. The Board of Governors remains fiercely opposed to “pay for play” and other forms of university-to-athlete compensation outside of the grant-in-aid (tuition, fees, room and board, required course-related books etc.). Third-party compensation for NIL is also not compensation for the underlying labor of playing a sport. No college will be allowed to pay their athletes for their NIL or their labor.
Likewise, the prospective changes do not mean that college athletes will become employees or gain the right to unionize. Those are separate topics involving different areas of law. Sometimes all of these subjects are lumped together under the moniker “paying college athletes,” but that leads to inaccurate conclusions. These are distinct topics and implicate different federal and state laws.
A major shift . . .
At first glance, Wednesday’s announcement constitutes a historic swing in the college sports industry.
The NCAA has spent considerable time and expense attempting to repel lawsuits brought by current and former athletes. This was especially true of former UCLA basketball star Ed O’Bannon, who defeated the NCAA in court. Those lawsuits have concerned two basic areas of law: states’ rights of publicity and federal antitrust law.
In this context, the rights of publicity concern the NCAA, its members and business partners being accused of misappropriating the identities of college athletes. Keep in mind, there is no federal right of publicity. Among states that recognize a right of publicity, there are important differences in scope. Meanwhile, federal antitrust issues concern the NCAA and its rival members (universities and conferences compete for students, faculty, grants and numerous other finite resources) conspiring to prevent college athletes from earning compensation for their NIL. Along those lines, while the NCAA is one entity it is also a joint venture of more than 1,200 member schools and conferences that both compete and collaborate.
For O’Bannon, the NCAA’s announcement on Wednesday helps to justify eight years of litigation culminating in his historic victory. “I’m glad,” O’Bannon tells Sports Illustrated, “to see our long fight lead to real, meaningful change.”
The shift is also one that should help the NCAA compete with encroachment by professional sports leagues that increasingly vie for the same talent. This is especially apparent in men’s basketball. The G League now offers players out of high school several hundred thousand dollars a year as compensation for their labor. Meanwhile, the NBA and National Basketball Players’ Association might lower the current eligibility requirement—19 years old plus one year of out of high school—in their next collective bargaining agreement. The NCAA will give five-star recruits more to think about: they will soon be able to acquire endorsement deals while they play in college.
The potential beneficiaries of third-party compensation are not limited to men’s basketball and football stars. In some ways, other athletes might have more to gain (although the lack of group licensing could limit those gains). While star men’s basketball and football players look forward to earning sizable incomes in the NBA and NFL, respectively, many college athletes won’t continue on to pro sports or if they do, their prospective earnings would be fairly modest. To the extent these men and women athletes are markable while in college—whether they are swimmers, volleyball players or field hockey stars—they might be able to license their NIL for compensation.
Sonny Vaccaro, a well-known advocate for college athletes’ NIL rights, believes that women athletes in college could stand to gain the most from NIL rights. “This is a landmark moment,” Vaccaro tells Sports Illustrated. “Women will soon gain greater market value while playing college sports.”
. . . but potential legal challenges await
Like with any major announcement of change, the details of that change will prove most important.
As a starting point, we don’t know what the actual rule changes will be. The NCAA states that by January 2021, each of the three divisions should have drafted and voted on proposals that would modify their rules to achieve overarching goals. These proposals could include new language for rules, waivers or modified statements of rule interpretations.
Notably, any changes must maintain the NCAA’s “guidance principles.” Applicable principles include a “clear distinction” between college and pro sports and the safeguarding of “the priorities of education and the collegiate experience.”
Those quoted passages are not mere rhetoric or boilerplate. They express values firmly held by university and athletic department leaders from across the country. While many rightfully question whether “big time” college sports uphold educational values, the fact remains those programs are contained within universities that tend to care very much about education.
With that in mind, the NCAA’s statement describes necessary “guardrails” as including measures to ensure that pay for play is not disguised as NIL compensation, and that boosters can’t use NIL compensation as part of the recruitment process. In addition, the NCAA demands “regulation” of agents and advisors. There’s a lot to unpack there and plenty of ground for legal challenge.
Some clues are apparent in the working group’s report. The report firmly recommends that schools, conferences and boosters be barred from any involvement in facilitating endorsement opportunities for college athletes or in securing payments. Likewise, NIL opportunities cannot be dangled to recruits as inducements. Athletes will also be prohibited from appearing in their uniforms as part of any endorsements.
The report also recommends “areas of regulation for newly permitted NIL activities.” These recommendations will surely grab the attention of antitrust and intellectual property litigators since they involve competing businesses (the colleges and conferences that comprise the NCAA) agreeing to restrain the autonomy of athletes. The recommendations include the following five:
1) Prohibiting endorsements that are inconsistent with NCAA membership values. Listed examples include no endorsements for alcohol, tobacco and sports gambling.
Legal analysis: the phrase “membership values” is vague and could potentially be construed to block a wide-range of possible endorsement deals. To that point, a private, religiously-affiliated college might espouse different “values” than a public university. Further, schools might disagree about politically-divisive topics such as endorsements for firearm or marijuana products. Any restrictions that schools conspire to agree on could lead to antitrust challenge.
2) Evaluating whether certain businesses, including sneaker companies, should be excluded from authorized companies that can do business with athletes. Companies that have been involved in recruiting infractions might be barred from doing business.
Legal analysis: Removing businesses restrains potential among businesses, and potential compensation, for college athletes. Both athletes and the excluded companies could consider antitrust litigation.
3) Adopting measures to ensure that endorsement deals are not masquerading pay for play.
Legal analysis: The world of compliance officers in athletic departments is about to become much harder (and don’t be surprised if schools ramp up hiring of compliance officers, including recent law school graduates). Consider this example. Say a local car dealership owned by a wealthy booster offers to pay a star freshman basketball player $1 million to do a TV commercial, with the understanding (though not in writing) that the player will stay for his sophomore season instead of declaring for the NBA draft. How would that transaction be judged and whom would judge it? On the surface, it’s an endorsement deal. But if its value is 30 times what the dealership normally offers in endorsement deals, there would be reason to think there is more than meets the eye. The working group notes there has been discussion regarding a “regulatory system in which payments from third parties to student-athletes” are compared to a “fair market value standard.” The group also acknowledges there would be “difficulty in creating and maintaining such a system.” Any attempt by the NCAA or a group of its members to determine “fair market value” would be vulnerable to claims of illegal price fixing under federal antitrust law.
4) No compensation for appearances in live broadcasts, rebroadcasts, news accounts or many informational items or pictures. The NCAA regards such compensation as pay for play, since the payment would be for participating in the game itself.
Legal analysis: This is a tricky area for the NCAA and involves a much-debated area of law, particularly given technology changes in broadcasting and streaming and their interplay with intellectual property law. The working group expresses fairly strident views on the right of publicity (as mentioned above, there is no singular right of publicity, it varies by state). The topic is not straightforward. Specific regulations could invite legal challenge.
5) No group licenses (for now). The recommendation is that group licenses be addressed next year or thereafter.
Legal analysis: It appears the NCAA will not allow college athletes to use a trade association as vehicle for negotiating with a video game publisher. For fans of college sports video games, that is disappointing news. However, the related subject matter is hardly straightforward. It’s possible that a video game publisher could explore signing individual college players, presumably stars, to appear in video games. Whether the NCAA would agree, separately, to license its own intellectual property in such a game is uncertain. The report makes clear that endorsement deals involving players can’t use uniforms, trademarks or other intellectual property of schools.
The NCAA still hopes for federal assistance
The NCAA’s pledge to allow college athletes to receive compensation for their NIL comes on the heels of California adopting the Fair Pay to Play Act. The Act is set to go into effect in 2023. It will make it illegal for California colleges to deny their athletes the chance to earn compensation derived from the use of their NIL, so long as endorsements do not conflict with those of the school. Other states are considering similar legislation.
The NCAA has lobbied for a federal law that would effectively preempt these laws. In pursuing a federal bill, the NCAA seeks an antitrust exemption that would extinguish the risk posed by some of the potential lawsuits hypothesized above. Proposals for antitrust exemptions tend to invite substantial debate, since they involve giving one industry preferential treatment.
It remains to be seen if a federal law passes and what it would look like. Would it embrace a market-based approach envisioned by California? Or would it exhibit the more restrained worldview expressed by the NCAA—including, as noted above, the potential exclusion of certain companies from negotiating with college athletes? We’ll see, but it could take a while: as Ross Dellenger explains, the NCAA faces a daunting political task in securing a bill. If no federal law comes to pass, the NCAA will challenge the legality of state NIL laws. It would do so on grounds that states are unlawfully interfering with interstate commerce.
While change is on the way, its details could spark years of legal conflict.
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.