The New Wild West: An Update to the Existing NIL Environment in College Sports

by Jared Yaggie, Associate Member, University of Cincinnati Law Review Vol. 91

I. Introduction

It is common to see professional athletes present gifts to their teammates using their lustrous contracts. Russell Wilson gave each of his offensive lineman $12,000 in Amazon stock, Cristiano Ronaldo awarded his teammates with Bulgari watches, and LeBron James gave his teammates Apple watches ahead of the 2015 NBA Finals.¹ Now, this type of flaunting is coming to college sports. C.J. Stroud, the starting quarterback for Ohio State, was recently in headlines for gifting each of his teammates a $500 gift card to Express, a national fashion retailer headquartered in Columbus.² The gift was made possible through Stroud’s name, image, and likeness deal with Express he signed in April 2022.³ Name, image, and likeness (“NIL”) deals such as Stroud’s are spreading throughout college sports at an unpredictable rate. Aside from gift giving, top college athletes are signing huge deals, giving them deep pockets and complimentary items. As an illustration, University of Southern California wide receiver Jordan Addison will drive around a Mercedes-Benz S500 as part of an NIL deal he signed with a car dealership.⁴

Since the Supreme Court ruled on National Collegiate Athletic Association v. Alston, student athletes have been free to pursue endorsement deals, market their brand on social media, and get paid for making appearances, signing autographs, and endorsing political candidates.⁵ This change in the economics of college sports added an entirely different level to the way the industry is managed. Schools that have not developed an effective plan for navigating the new NIL controlled environment are falling far behind. Schools that have established themselves as an NIL haven are taking leaps ahead others, while all ferociously competing for top places. However, states hold the authority because the federal government has yet to create a uniform regulation on NIL deals in collegiate athletics. The National Collegiate Athletic Association (“NCAA”) has also refused to make concrete regulations for schools to follow by issuing a policy that instructs schools to follow the laws of their state.⁶

Section II of this article provides a summary of the Alston decision, a brief introduction to state NIL laws, and a background into the emergence of NIL collectives. Section III discusses how the lack of uniform federal regulations and federal involvement has made college sports the new wild west and how the NIL industry should look. Last, Section IV concludes the points made in the discussion and how those points reflect the NIL environment as it currently stands.

II. Background

Collegiate sports have become the life, face, and future for various universities across the country. Schools use their amateur level sports to draw in funding and prospective students. Men’s football and basketball are the largest college sports, bringing in an average combined $40 million per school per year.⁷ The NCAA regulates this industry with rules placing horizontal restraints on the compensation schools may award student-athletes for their contributions to the schools’ athletics.⁸ Before NIL deals became permissible, student-athletes were left with no compensation for the millions of dollars they helped generate for their schools.

A. The Gold Rush Beginnings of NIL Law

On June 21, 2021, the United States Supreme Court affirmed the Northern District of California decision—the District Court subjected NCAA regulations on student-athlete compensation to the “rule of reason” test under antitrust law.⁹ In his concurring opinion, Justice Kavanaugh called out the remaining compensation restrictions, namely the rules that restrict compensation and benefits from schools for the student’s play.¹⁰ Justice Kavanaugh importantly noted that those restrictions have historically prevented college athletes from signing endorsement deals.¹¹ In the wake of the Alston case, the NCAA changed its rules on compensation for athletes on July 1, 2021 and released an interim name, image, and likeness policy.¹² This policy allowed college athletes to cash in on endorsement deals that better reflect the value they provide for their schools.¹³ The policy was left brief and intended to be temporary awaiting federal legislation.

In the time since the NCAA released the interim policy, many states have raced to enact their own NIL laws. Currently, forty-two states have passed or pending legislation.¹⁴ The standard provisions used by state legislatures largely reiterate the NCAA interim policy ensuring the amateurism of college sports remains in place. States have also developed standard limitations student-athletes must abide by. Without uniform federal regulation current and prospective athletes have to navigate the various state laws themselves. The variety of state NIL laws further persuade student-athletes to decide which school they prefer to attend.

B. The Emergence of NIL Collectives

Reviewing the NIL environment one year after the Alston decision, the emergence of NIL collectives has dominated the space. A collective is typically a cooperative enterprise.¹⁵ In the NIL industry, a collective is a third-party entity organized as either a for-profit business or a non-profit entity with 501(c)(3) status under the Internal Revenue Code.¹⁶ Collectives take monetary donations to provide NIL opportunities for student-athletes.¹⁷ Collectives come in numerous forms using various business models, but the most common are (1) marketplaces collectives, (2) donor-driven collectives, and (3) dual collectives.¹⁸

First, marketplace collectives are powerful marketing tools for student-athletes—giving them a place to market their personal brand and connect with businesses searching to make NIL deals that match a student-athlete’s brand or seek to develop it.¹⁹ This collective acts as the middleman between students and businesses by providing agency representation and facilitating deals.²⁰ A typical marketplace collective is a separate legal entity but obtains support from business organizations looking to support the university and its student-athletes.²¹ The collective signs students, providing framework for future deals, while business organizations partner with the collective to use their student-athletes for marketing.²² Marketplace collectives fund future efforts through fees placed on the business, student, or both.²³ A typical deal looks like this: the business pays the student-athlete $10,000 and provides free clothes to wear around campus, while the student-athlete promotes the business through social media posts.²⁴

Next, donor-driven collectives use a model that pools funds from boosters, business entities, and fans via a subscription service.²⁵ Subscription services offer rotating or one-time payments of various amounts with no cap that provide contributors special access to events ran by the collective where players make appearances.²⁶ This collective signs student-athletes and pays them directly for conducting a variety of different activities, including subscriber events or charitable service.²⁷ Compensation for athletes also comes from sponsorship deals the collective brings to the table.²⁸ Under that method, prospective businesses sign deals directly with the collective, and in return the collective makes student-athletes available for marketing opportunities.²⁹

Finally, adding deal facilitation with other businesses creates a dual collective, because it combines the marketplace model with donor-driven funding.³⁰

III. Discussion

The donor-driven collective model has drawn the most criticism and is likely to be the source of the first legal actions taken against the NIL industry, as it borders on the fine line of pay-for-play—meaning student-athletes are paid for their athletic achievements like professional athletes. An example of a contentious collective is Texas A&M’s The Fund, which drew media attention in the spring of 2022 when Alabama’s head football coach, Nick Saban, called out Texas A&M’s head football coach, Jimbo Fisher, for buying recruits using NIL deals from The Fund.³¹ The controversy behind the donor-driven collective mainly arises from the large sums of money paid to men’s football and basketball recruits, inducing them to play for a school and labeling these payments as NIL deals.³² Donor-driven collectives thus essentially control the school’s recruitment process, creating a race to the top with no limit in sight. Even where students are required to conduct some type of service to receive compensation, that compensation can be extremely high for merely making social appearances or carrying out charitable work.³³

This flow of money complies with current NCAA rules, but the NCAA has already attempted to address the problematic donor-driven collective model and create some sort of regulation.³⁴ On May 9, 2022, NCAA Division I Directors released an interim NIL policy guidance regarding third-party involvement in recruitment (“NCAA May Policy Guidance”).³⁵ This policy attempts a direct attack on donor-driven collectives by clarifying that third parties like collectives are boosters under current NCAA legislation.³⁶ As a booster, a collective cannot communicate with recruits; guarantee an NIL agreement upon enrollment; or design NIL deals that compensate student-athletes for athletic performance, achievements, or enrollment decisions (e.g. signing a letter of intent or transferring).³⁷ In its entirety, the NCAA May Policy Guidance just reminds schools of the regulations the NCAA already has in place to prevent improper recruiting and pay-for-play. It also gives the impression that the NCAA is cracking down on collectives being too active in the recruiting process. However, the donor-driven model will continue because in the early stages of the unregulated NIL market, it has proven to be the most successful at competing with other schools for recruits, and the NCAA has been reluctant to enforce the rules they imply to be cracking down on.

With the absence of federal regulation on the NIL market, individuals and entities have nearly unrestricted power to create and adapt to the rapidly evolving environment. Despite Commissioners from the Power Five Conferences pushing NIL legislation at the federal level, it is unlikely there will be uniform regulation in this year or in the next.³⁸ Until then, it would be beneficial for existing collectives and those looking to start one to develop a model that is likely to stay within legal bounds and avoid conflicting with future federal legislation.

Moving forward in the NIL space, the benefits and ease of access for students navigating the NIL marketplace will drive the industry. Collectives like BLVD, affiliated with the University of Southern California, have tested an alternative in-house model.³⁹ An in-house option is a collective model where a third-party entity, usually a marketing-focused business, signs a contract officially affiliating itself with the university.⁴⁰ Another form of an in-house option is a third-party NIL manager placed in a university athletic department, which is what Altius Sports Partners is doing with schools like the University of Cincinnati.⁴¹ In-house collectives can provide NIL legal education and support, agency representation, deal facilitation, financial literacy courses, accounting services, and develop a student-athlete’s personal brand, attracting deals that fit the student and the prospective business.⁴²

Affiliating with a university requires a bargaining system between the school and collective, so a contract can place restrictions on a collective’s invasive impact on recruitment, while maintaining the collective’s ability to attract top recruits by providing top tier service for its signed student-athletes. Under the current NCAA definition of a booster and the NCAA May Policy Guidance, it is unclear whether an in-house option would be considered a booster. Carrying the booster label prevents any athletic department staff members from involving themselves in a student-athlete’s search for NIL deals.⁴³ However, university athletic departments want to be involved to avoid the disruptive recruitment practices donor-driven collectives have been using. Athletic departments know that NIL deals will control recruitment, but the deals need to be done in a fair manner that follows the original intentions of NIL opportunities for student-athletes. In-house collectives provide an institution with that assurance of a non-invasive, fair and student minded NIL approach. Therefore, if the NCAA or Congress ever passes NIL regulations, it should allow affiliated in-house collectives greater protection in a separate category as a non-booster. An in-house collective benefits the athletic department, which wants to ensure its student-athletes are represented by a collective that shares its same values and intentions and is NCAA rule compliant. The two parties are able to create an effective NIL plan that focuses on student-athlete development and mitigates recruitment risks. The purpose of the rules on boosters is to avoid the precise issues donor-driven collectives are creating in the recruiting process by abusing the NIL label and paying students in a pay-for-play scheme. In the unregulated NIL market, the in-house collective is a more sustainable model because it better represents the intentions of NCAA rules.

IV. Conclusion

The bottom line is donor-driven collective models are legal because Congress has not yet said otherwise. The true intentions of NIL are not represented by pure donor-driven collectives and they should be eliminated by federal legislation. The most sustainable method for the future of the NIL industry is for in-house collectives to affiliate with schools so student-athletes are put first, not the dreams of wealthy alumni. Donor-driven collectives get too involved with the recruiting process, creating large disparity in the NIL market. The NIL market is supposed to be a way for student-athletes to receive fair compensation for what they offer their schools using their name, image, and likeness. The market is intended to allow student-athletes to develop their own brand and award them for those efforts. The NIL market is not meant to create a pay-to-play scheme—such a system belongs to professional sports. The current situation weakens the NIL market with unfair recruitment practices and has potential long-term consequences for college athletics.

Cover Photo by Dave Adamson on Unsplash

Jared Yaggie

Jared Yaggie was born in Philadelphia but raised in Western New York. Before law school he attended Texas A&M University majoring in Urban and Regional Planning. Jared’s background in planning gives him an understanding of land use and real estate law. In addition to real estate law, Jared’s contributions to the Law Review will be a mix of his other interests such as sports law and copyrights and trademarks. Jared enjoys exercising and watching sports in his free time.

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