Tuesday, June 29, 2021

NCAA Athletes May Get an Entrepreneurial Boon

For more than a century, the National Collegiate Athletic Association (NCAA) has sought to protect amateurism in college sports by preventing student athletes from being compensated for or otherwise profiting from their collegiate sports participation. Student athletes have been largely prohibited from receiving any compensation or benefits for playing college sports except for the direct educational benefits associated with the cost of attendance — scholarships, books, room and board, and, more recently, limited stipends for living expenses that could include travel costs. The ability of the NCAA to enforce these rules changed on Monday, June 21, when the U.S. Supreme Court unanimously ruled that restrictions under consideration in the case constituted an unlawful restraint of trade (Alston vs. NCAA). 

The Alston decision addressed only the NCAA rules limiting the benefits schools can provide to student athletes. What specifically will change as a result of this decision is as yet unknown, but we will likely see some creativity among schools scrambling to enhance offerings to attract top athletes. Examples of previously prohibited benefits that may now be available include paid internships and graduate school scholarships, broader definition of what constitutes living expenses for stipends, and the removal of caps on disability insurance for injured athletes. NCAA rules that were not at issue in this case, but which are the subject of a separate antitrust lawsuit (House vs. NCAA), are the rules prohibiting student athletes from the commercial exploitation of their name, image, and likeness (NIL) rights. 

Every person has NIL rights under legal theories of the “right of privacy” and the “right of publicity.” It is the right of each individual to prevent others from using his/her name, image, or likeness for commercial purposes, and at the same time to profit from his/her own exploitation of such rights. While it seems that every other aspect of the multi-billion dollar college sports industry has been exploited for commercial purposes, the NCAA has adhered to a strict prohibition of the rights of student athletes, even entrepreneurial ones, to profit from their own identities. Years of public pressure on the NCAA to relax its rules on this issue have been unsuccessful in bringing about any meaningful change by the NCAA, and now it may have lost its ability to control the issue. 

In October 2019, the NCAA formally announced its willingness to consider modifying its strict prohibitions regarding NIL rights, most likely spurred by California’s adoption of the Fair Pay to Play Act set to become effective in 2023. Despite a stated intention to propose and hold a membership vote on new rules no later than January 2021, the NCAA delayed further action hoping for federal legislation to establish uniform national standards and preempt state laws. In the meantime, however, many states moved forward, and a majority are either currently considering or have passed their own laws banning NIL restrictions. A handful of these state statutes are scheduled to go into effect July 1 of this year, and there is no chance that Congress will enact federal legislation before then. 

A ruling in Alston favorable to the NCAA would have lent support to the NCAA’s philosophy of protecting amateurism, and likely given the NCAA greater say in developing federal legislation, while at the same time possibly deterring further state action. Instead, the determination that the NCAA is not exempt from antitrust laws leaves the NCAA with little leverage in shaping federal law while encouraging previously lagging states to step up their activity to compete with those states with legislation already in place.

The state NIL laws that have been adopted or are under consideration differ in specific language and effective dates; they share the basic provisions that prohibit the NIL rights of an athlete from restriction by schools and conferences, permit athletes to hire an agent, and prohibit the use of NIL deals as recruiting inducements. Most also contain some form of provisions that would prevent athletes from entering into an endorsement contract that would conflict with a school contract and require permission before wearing or displaying school logos/brands (on uniforms or otherwise) in connection with any exercise of their NIL rights. Unique provisions that may appear in only one or two state laws address such things as: revenue sharing requirements; pooling of some individual NIL revenues for sharing with previously enrolled student athletes; financial literacy, life skills, and/or other educational assistance requirements; limitations on third party (e.g., booster) involvement; and prohibiting use of NIL rights for the promotion or endorsement of certain products or in association with certain businesses such as tobacco, alcohol, controlled substances, adult entertainment, gambling, illegal firearms, or in a manner contrary with honor codes. 

A currently pending bill in Texas expressly states that the federal government should take the lead in ratifying uniform NIL legislation, at the same time reflecting the view of most states — absent federal action, Texas should not be left at a competitive disadvantage to those states allowing student athletes to commercialize their NIL rights. So, in only a few days, college sports will be in disarray when a handful of states begin operating under NIL laws favorable to athletes, while still others continue to follow the NCAA’s stringent rules. Until there is federal legislation to create nationwide uniform standards, schools will be operating under different rules and will likely face recruiting difficulties when student athletes have varied (or no) NIL options to consider in addition to scholarship offerings. Assuming federal legislation is ultimately enacted, there may be a temporary period of unequal treatment of athletes on the same team or within the same school or conference, or the unwieldy process of unwinding or modifying previously exercised rights. While sports agents are salivating, athletic administrators are appropriately concerned about both the short- and long-term effects of this major change in college sports.

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