Joe Schick, Associate Member, University of Cincinnati Law Review
In early October, the National Association of Intercollegiate Athletes (“NAIA”) approved its plan to address student athlete name, image, and likeness rights (“NIL”). NIL refers to the ability of student athletes to earn income from licensing deals that use their likeness and association with his or her university’s athletics team in advertising, jersey sales, videogames, and youth camps. Thus far, California, Florida, and Colorado have passed state legislation that mandates change collegiate athletes compensation, with 33 more states considering similar legislation. This is cause for concern for the NCAA, as it must comply with several states NIL laws that include their own specific demands, which has prompted plea to federal legislators to create a national standard. All of this has occurred while the NCAA’s main competitor, the NAIA, recently took the lead by creating its new NIL policy.
The NAIA is the second largest collegiate athletics organization in the United States, following far behind the National Collegiate Athletic Associate (“NCAA”) in both revenue and amount of member schools. In 2016, the NAIA generated $6 million dollars, compared to nearly $1 billion by the NCAA. The NCAA must catch up the NAIA with a sense of urgency, as Florida’s state law requiring NIL compensation goes into effect in as early as July 2021. Many fans and stakeholders of college sports see this as necessary change, while others believe NIL rights is the first step to dramatic structural change.
This article will discuss NCAA athletes’ NIL rights historically, recent state legislation and Congressional attention, and NAIA rule changes and potential applicability as a model for the NCAA.
II. The NCAA and NIL Rights
The NCAA was established as a non-profit in 1906 to address player safety concerns in football after a rising trend of injuries and deaths. The establishment of a regulatory body in college sports was encouraged by President Theodore Roosevelt, after his son suffered a serious injury while playing at Harvard. Even before the advent of lucrative television rights deals and video games, many of the NCAA member schools were still rife with improper recruiting and financial aid methods, which caused a great imbalance in competitiveness. When the NCAA began to regulate the distribution of live and recorded television rights in 1952, it was the first sign that member schools would begin to take the regulatory body and its rules seriously. Until the 1984 Supreme Court case NCAA v. Board of Regents of Oklahoma, the NCAA completely controlled which schools would be televised through its nearly $50 million dollar television contract with CBS (worth roughly $125 in today’s dollars). The Court in Oklahoma ruled that the NCAA threatening to ban schools that sought their own television deals violated the Sherman Antitrust Act for anti-competitive behavior. Nonetheless, the NCAA has retained the rights to the NCAA Men’s Division I Basketball Tournament to this day, which in 2019 alone generated $933 million of revenue for its TV rights.
With the NCAA making so much money, the public has pondered for decades why the players on the field are not directly receiving a piece of these revenues. The NCAA rationalizes this with nearly 90% of its revenue being reinvested back into member schools, and by proxy, the student athletes, through funding of non-revenue generating sports and divisions, scholarship funds, catastrophic injury insurance, student assistance funds, etc. With nearly 480,000 athletes, the NCAA would have would only have roughly $2,000 to pay student athletes directly if it did not discriminate based on which sports and players actually contribute to revenue generation. Without substantial revenue sharing between athletic departments, as well as Title IX mandating a certain level of equity between male and female sports, it becomes difficult to pay athletes directly through their schools. Very few athletic departments make a profit, and the ones that consistently do, if given the ability to directly pay players, could create an even harsher competitive imbalance. However, many athletic departments have been accused of utilizing creative accounting, paying men’s football and basketball coaches exorbitant salaries, and investing in athletic facilities they don’t need. Nonetheless, the COVID-19 pandemic unveiled the vulnerability of several prominent athletic departments, such as Stanford discontinuing 11 of its varsity programs, and the University of Cincinnati cutting men’s soccer alongside 14 positions in its athletic department.
The NCAA’s primary rationale for limiting compensation is that players must retain their “amateurism.” According to the NCAA, this concept is what separates student athletes in college from being professionals that receive salaries, endorsements, and generally little to no restraints on their sources of their income. Under the NCAA’s definition, you are not an amateur if you do any of the following: (1) receive payment for playing or promising to play in athletics, (2) sign a contract or verbally agree to work with an agent, (3) enter a professional sports team draft (with some exceptions for Men’s basketball), (4) use your involvement in athletics to receive pay for endorsements, demonstrations, commercials, etc., (5) play on a professional sports team, or (6) receive benefits (e.g. tuition, room and board, travel, athletic wear, and food expenses) above and beyond what’s permitted under NCAA bylaws.
Under current NCAA rules, an athlete receiving NIL related compensation violates the tenants of amateurism because the compensation was earned solely because the student athlete’s athletic ability and association with his or her school. The NCAA believes promoting amateurism achieves the dual purpose of (1) creating a level playing field across schools, and (2) keeping the primary focus for student athletes on their academics. Courts have been favorable to the amateurism rationale when examining if the NCAA places unfair restrictions of trade on its members schools and athletes. Essentially, this means courts have generally found the restrictions on athlete compensation, like that from NIL rights, as not per se illegal under anti-trust doctrines. If courts were to find these restraints as unreasonable, the NCAA would not be able to restrict athlete NIL compensation, as it would leave athletes with no other reasonable alternative to pursue compensation they are entitled to for their labor. Courts have recognized that the element of amateurism, in part, drives the demand and consumption of college sports that make the industry lucrative in the first place. With courts being hesitant to be the ones to dramatically change NIL compensation for athletes, state and federal legislators have taken matters into their own hands.
California’s 2019 Fair Pay to Play Act was the first state law enacted with the purpose to loosen the NCAA’s grip on athlete NIL compensation. § 2(a)(1) of the Act mandates: “A postsecondary educational institution shall not uphold any rule, requirement, standard, or other limitation that prevents a student of that institution participating in intercollegiate athletics from earning compensation as a result of the use of the student’s name, image, or likeness.” The Act goes into effect January 1st, 2023, and disallows the NCAA from disqualifying California member schools who comply with it. The law states more changes are likely to come after the California State Legislature learns of what the NCAA does in response.
Colorado’s Senate Bill 20-123 was the next NIL to pass law passed back in March 2020. Unfortunately, the law contains convoluted language that leaves a lot to be desired. For instance, § 2(a) starts with: “except as may be required by the rules or requirements of an athletic association of which an institution is a member.” This appears to permit NIL restrictions in light of athletic association rules. However, § 2(a)(b): “An athletic association shall not: (I) prevent a student athlete from earning compensation from the use of their name, image; or (II) likeness or prevent an institution from participating in intercollegiate athletics because an athlete receives such compensation.” § 2(a) appears to be an exception to the rule in § 2(a)(b), which would mean the NCAA could still prohibit NIL compensation. One sponsor of the bill believes it allows players to make money on “social media” and with the “local pizza shop.” In opposition, the Colorado House Majority Leader Alec Garnett believes: “[the law] doesn’t let anything happen without approval from the NCAA or the conference that a school is in. I don’t feel like we pushed the NCAA or other states hard. I’m opposed to the stand we have taken.” The law is set to take affect January 1st of 2023, the same data as California.
On June 12, 2020, Florida became the latest state to formally pass NIL legislation with the Intercollegiate Athlete Compensation and Rights Bill. In contrast to California and Colorado, Florida mandates NIL compensation as early as July of 2021, giving the NCAA its earliest deadline. While the law supports NIL compensation for college athletes broadly, it pays lip service to the value of amateurism in college sports, and provides some restrictions to the types of contracts athletes can enter into. Restrictions include: disallowing athlete contracts that conflict with those of his or her school, athletes must report all of their deals, and compensation must come a from a third-party not affiliated with the athlete’s school. The amount of compensation must also be “commensurate with fair market value of the authorized use” and cannot be exchanged for an athlete’s attendance or participation of a particular or school or athletic event. An example of an athlete’s contract would conflict with his or her school is if an athlete is sponsored by Under Armour, but the school he or she plays for is sponsored by Nike, the player must wear Nike gear during all of his or her official athletic events with the school. Notably, the law also does not define “commensurate fair market value” of NIL contracts, which may be a point of confusion as the NIL market develops.
The three state’s laws contain their own nuances, and absent of federal legislation, would give the NCAA lots of issues when it tries to draft new NIL rules. As a result, the NCAA approached Congress in December 2019 in hopes to lobby for federal legislation that would supersede fragmented state laws. In April 2020, the NCAA’s Board of Governors finally officially approved a plan to move forward with reforming its NIL policies. One aspect the NCAA does not want to budge on is disallowing athletes from: “[t]he use of conference and school logos, trademarks or other involvement…” This helps avoid school trademarks and licensing issues that could be implicated from an athlete using his or her likeness and association with their member school in an advertisement. The NAIA takes the opposite approach and allows athletes complete freedom to appear in endorsements bearing the imprimatur of the school they attend.
Congress has proposed several NIL compensation bills since NCAA announced it was formally ready to reform NIL, most of which not gained traction due to being either too pro player or too pro NCAA to catch on. On September 24th, a bipartisan bill proposed the Federal Trade Commission would oversee athlete compensation and establish a 13-person committee to adapt the law as the NIL marketplace for college athletes develops. The bill still disallows NCAA schools or boosters of athletic programs to pay athletes directly, and prohibits athletes signing with alcohol, tobacco and drug companies. The bill is not as restrictive as the NCAA had hoped. For instance, athletes would be allowed to sign contracts that contradict his or her school’s existing deals (e.g. sign with Under Armour, while the school is sponsored by Nike). Ohio Representative Anthony Gonzales was concerned that a school could capture too much a particular market and exclude an athlete’s ability to be compensated fully for their abilities. The bill does not go after athlete’s nonemployment status at schools, which helps provide a barrier to the scholarship and other benefits athletes receive from being taxed. The bill also does not give rise to claims under the Sherman Antitrust Act if violations occur, which would limits the recourse of those suing the NCAA for future violations.
IV. NAIA Model
In early October, the NAIA officially amended its Amateur Code to allow NIL compensation for its 77,000 athletes, becoming the first American collegiate sports organization to do so. The NAIA went above and beyond its previous proposed changes to its NIL policy, which permitted student athletes to be compensated from their NIL rights as long as their association with member NAIA schools or involvement in athletics was not referenced. The new NAIA rule does away with this caveat, and now allows athletes to make these references in “promoting any commercial product, enterprise, or for any public or media appearance.”
Per NAIA bylaws, the following activities are now permitted: athletes and teams can appear in movies, TV, and commercials wearing their school uniform, athletes can promote and sell supplements, athletes can offer and complete youth sports lessons at an hourly rate (an advertise their services), athletes can produce and promote memoirs about their life, and athletes can monetize their online social media accounts (e.g. YouTube and Instagram).
The NAIA rules are likely more laissez-faire than the NCAA is comfortable with, however the NCAA may not have much of a choice. With athlete compensation receiving bipartisan attention, and roughly 60% of the public being in favor of athletes being paid through endorsements, there is little public sympathy for the NCAA’s concerns. The main threat to the NCAA is having to comply with fragmented state legislation during the 2021-2022 academic year if no federal legislation is passed. While legislators on both sides of the aisle want to see NIL compensation for athletes, there is no guarantee that a deal will be reached in a timely manner. Democratic Senator Cory Booker, whose NIL bill fizzled out earlier this year, wants the bill to me be more comprehensive in providing rights to college athletes, such as more health insurance coverage and revenue sharing among members and conferences. Legislation that attacks so many aspects of the current system could result in a de facto federal takeover of college sports. Nonetheless, athletes will have a right to NIL compensation in the very near future. The NCAA is now at the mercy of Congress to determine how far that right goes, and to what extent the NCAA must pony up to provide more protections and benefits to its players that help it earn a billion dollars of revenue each year.
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