The NCAA Declares Independence from NIL Restrictions

20 August 2021 Legal News: Sports Publication
Authors: Gregory A. Marino

For more than 115 years, the NCAA has regulated intercollegiate amateur sports in the United States. From its very founding—as the then-named “Intercollegiate Athletic Association of the United States”—the organization dedicated itself to the principle that only unpaid amateurs should be permitted to engage in intercollegiate athletics, with its original by-laws requiring that: “[n]o student shall represent a College or University in any intercollegiate game or contest who is paid or receives, directly or indirectly, any money, or financial concession.” On June 30, 2021, under mounting pressure from student-athletes, fans, legislators and activists, all three divisions of the NCAA adopted interim measures that, for the first time, allowed college student-athletes to benefit financially from their name, image and likeness (“NIL”) without fear of NCAA penalty.

The NCAA’s new interim NIL policy represents a sea change in college sports, but one that comes only as a consequence of mounting legislative pressure from state governments, as well as a jurisprudential nudge from the Supreme Court. Over the past three years, several states enacted NIL laws prohibiting colleges from restricting student-athlete NIL compensation. These state NIL laws, once effective, would directly conflict with Article 12 of the NCAA bylaws which had barred student athletes from capitalizing on their own NIL. With many of these state laws going into effect on July 1, 2021, the NCAA and these states were heading for a standoff over the NIL issue, and various stakeholders, including colleges and student-athletes were caught in between. By adopting its interim NIL policy the day before those state NIL laws took effect, the NCAA not only avoided the conflict with the early-adopting states, it also effectively pushed the NIL issue squarely into the federal government’s lap.

With 28 state NIL laws currently enacted, the NCAA, college athletic conferences, individual colleges, sports agents and student-athletes now await federal action to preempt and level an uneven patchwork of NIL laws that portends mass confusion and competitive imbalance. In the meantime, all stakeholders must familiarize themselves with this mosaic of state laws, the interim NCAA measures, and the potential face of federal legislation.

NIL Rights Generally

NIL rights generally refer to one’s ability to receive compensation from selling the rights to one’s name, image or likeness. In the context of collegiate sports, NIL rights are “sold” when a student-athlete is paid to endorse a product, autograph a photo, appear at a business opening, etc. Prior to the NCAA’s interim rule change, Article 12 of the NCAA Bylaws prohibited student-athletes from being compensated by anyone for their NIL prior to and after college enrollment with limited exceptions, as follows:

“After becoming a student-athlete, an individual shall not be eligible for participation in intercollegiate athletics if the individual:

(a) Accepts any remuneration for or permits the use of his or her name or picture to advertise, recommend or promote directly the sale or use of a commercial product or service of any kind; or

(b) Receives remuneration for endorsing a commercial product or service through the individual’s use of such product or service.”

The NCAA had long defended the importance of its NIL restrictions, and chafed at legislative reform efforts that might otherwise upset its vision of amateurism. As recently as 2019 the NCAA Board of Governors sent a letter to California Governor Gavin Newsom threatening to exclude California’s colleges from NCAA competition should California not reconsider the passage of its NIL reform bill, but California’s bill would soon be joined by dozens of others, making the NCAA’s position untenable.

State Legislative Action Forces the NCAA’s Hand

In 2019, California Governor Gavin Newsome passed the “Fair Pay to Play Act”, making California the first state in the country to create a legal right for student-athletes to be compensated (by third parties, i.e., not their schools) for commercial use of their NIL. The law, which was set to go into effect on January 1, 2023 (and will likely be fast-tracked by amendment) explicitly prohibits any college, conference, or athletic association (including the NCAA) from upholding rules that would punish California student-athletes that receive NIL compensation. Two years later, 28 states have enacted NIL laws or orders, more than a dozen of which became effective as of July 1, 2021.

Although these state NIL laws share similarities—chief among them, the explicit allowance of NIL monetization by in-state student-athletes—they are sufficiently dissimilar such that they have created an uneven playing field among schools in different states. 

For example, under the Arizona, New Mexico, or North Carolina NIL laws, student-athletes are not required to disclose their NIL endorsement agreements to their colleges, while every other state NIL law does require some sort of institutional disclosure. Regulation of sports agents and attorneys similarly varies, with states like Alabama, Arkansas, and Illinois requiring a student-athlete representative to be both registered with the state and identified to a student-athlete’s college, while Arizona, Colorado and Maryland NIL laws include no requirements concerning agents or representatives. Georgia’s law allows colleges to require “pooling arrangements” whereby student-athletes might contribute portions of their NIL earnings into an escrow account to be shared with other student-athletes upon leaving school, but no other state has such a provision. The list of differences goes on. 

The variance in these state laws naturally reflects local politics and attitudes, but also makes for a confusing national landscape which seems likely to provide significant recruiting advantages to states with more permissive NIL rules. It also creates an additional layer of regulation that will require careful navigation for all stakeholders involved.  Before July 1, 2021, those same stakeholders wondered how they might comply with any of these state NIL laws without violating the strict prohibitions in Article 12 of the NCAA Bylaws.  The NCAA addressed those general concerns, however, by suspending those prohibitions and adopting an interim policy that would allow student-athletes to be compensated for their NIL.

An Interim Measure

A confluence of factors triggered the NCAA’s decision to suspend Article 12 of its Bylaws, including the July 1, 2021 effective date of NIL laws in several states, and the U.S. Supreme Court’s decision in NCAA v. Alston, issued on June 21, 2021.  While the Alston decision did not specifically involve NIL rights, it eviscerated the NCAA’s longstanding position that its restrictions on the benefits student-athletes could receive from their schools was exempt from scrutiny under federal antitrust laws.  Efforts to extend Alston to eliminate other commercial and economic restraints on student athletes, including in relation to NIL, are already underway.  In short, with Alston failing to deliver an antitrust lifeline, the NCAA opted to stand back and allow the NIL landscape to be cultivated.   

The NCAA’s interim NIL policy is essentially a waiver that excuses compliance with Article 12 of the NCAA Bylaws until federal legislation or new NCAA rules are adopted. The policy provides as follows:

  • Individuals (including recruits) can engage in NIL activities that are consistent with the law of the state where the school is located.
  • Student-athletes who attend a school in a state without a NIL law can engage in NIL commerce without violating NCAA NIL rules
  • Individuals can use a professional services provider (i.e. an agent) for NIL activities
  • Student-athletes should report NIL activities consistent with state law or school and conference requirements to their school.

Unless otherwise contradicted by state law, the interim policy prohibits any NIL agreements that include quid pro quo compensation contingent on enrollment at a particular school or in exchange for athletic participation or achievement, and also bars institutions themselves from providing compensation in exchange for the use of student-athlete NIL.

Although the NCAA’s interim policy provides some level of clarity to student-athletes and universities, it is not designed to be a long-term solution. As adopted, universities in states with more restrictive NIL laws will continue to have a recruiting disadvantage against those with more permissive laws, while individual athletic conferences that operate across multiple states will have similar difficulty in enacting and enforcing regulations across multiple states. Increasingly the NCAA has called on the federal government to create a national NIL standard— and, as might be expected—with a significant role for the NCAA itself.  

Federal Actions

Most stakeholders in college sports—including the NCAA—agree that a state-by-state patchwork of NIL laws is an untenable long-term solution to NIL reform. This broad understanding that the state NIL “system” is prone to confusion and competitive imbalance has amplified calls for federal action to preempt state NIL laws and NCAA guidelines and establish a uniform set of nationwide standards and rules.

Following Alston, it is unlikely the NCAA will take any fight over its version of uniform, regulatory oversight of NIL into the federal courts. That means that federal action, if any, on NIL rights is likely left to the U.S. Congress, where both major political parties have pushed for legislative solutions to the NIL problem. In the past calendar year, seven bills have been introduced in Congress (one being amended and reintroduced) with an eye toward creating a national NIL framework for college athletics. Each of the bills differs markedly in its aim and scope, as best reflected in three particular examples—one drafted solely by Republicans, one drafted solely by Democrats, and one being a bi-partisan effort. 

The “College Athlete and Compensation Rights Act” (“CACRA”), introduced by Sen. Roger Wicker (R-Miss.) represents a “baby steps” approach in its narrow scope and deference to the institutional status quo. CACRA mandates that the NCAA, as well as its individual athletic conferences and schools, must allow student-athletes to earn NIL compensation, but includes several counterweight provisions that favor institutional control.

First, CACRA only requires the NCAA, athletic conferences, and schools to permit NIL compensation that is “commensurate with market value,” which might, in practice, give governing authorities the discretion to approve or disapprove of student-athlete NIL deals based on their cash value. Further, CACRA requires that college athletes must complete 12% of the college credits required for graduation before becoming eligible for NIL compensation—ostensibly excluding freshmen and newly “signed” student-athletes from NIL compensation at a time of peak marketability. CACRA also would prohibit student-athletes from entering into NIL agreements that might conflict with existing college sponsors, and—most controversially—provides the NCAA, athletic conferences, and schools broad exemption from both state and federal antitrust liability. Finally, CACRA requires schools to publish annual reports that detail specific NIL data, which would include detailed descriptions of all NIL agreements entered into by its student-athletes and would likely engender extensive reporting requirements for student-athletes and colleges alike.

On the other end of the political spectrum is the “College Athlete Bill or Rights” (“CABOR”), introduced by Sen. Cory Booker (D-NJ) and Sen. Richard Blumenthal (D-CT) on December 17, 2020. CABOR allows state governments to restrict student-athletes from endorsing certain product categories (e.g. gambling, alcohol), but only where such state laws equally restrict universities in such categories. CABOR also specifically prohibits any institution from requiring student-athletes to wear certain footwear brands, and allows student-athletes to engage in NIL relationships that conflict with their college’s sponsors, subject to certain narrow restrictions. CABOR also proposes a bold revenue-sharing provision that would require colleges to pay 50% (less scholarship expenses) of revenue earned by each of their so-called “revenue-generating sports” into a sport-specific national pool to be shared equally by all student-athletes that compete in that particular revenue-generating sport. This arrangement would represent a radical change in the university/student-athlete relationship; ostensibly inching closer to “revenue sharing” systems found in professional sports leagues.

Aside from revenue generating opportunities, CABOR also provides student-athletes with significant fringe benefits such as guaranteed athletic scholarships through graduation, the establishment of a student-athlete trust fund for student-athlete medical expenses occurring within five years of college athletic activity, guarantee of “no-penalty” transfers between universities, as well as significant financial penalties for violations by institutions, conferences and athletic associations.  CABOR would monitor compliance through extensive reporting requirements, as well as the establishment of a permanent congressional oversight board that would have the authority to mete out extensive penalties (including civil penalties as high as 30% of an institution’s annual athletic revenue for certain violations). These reporting requirements would include, for each school, the tabulation and reporting of revenues for each varsity team, as well as the academic performance, race, ethnicity, and gender of the school’s student-athletes.

In April of 2021, Rep. Anthony Gonzalez (R-OH) and Rep. Emanuel Cleaver (D-MO) re-introduced an amended bi-partisan NIL bill called the “Student Athlete Level Playing Field Act” (“LPFA”), which seeks to strike a middle ground between CACRA’s deference to the status quo and CABOR’s expansive approach. Like CACRA and CABOR, LPFA generally prohibits the NCAA, athletic conferences, and universities from restricting student-athletes’ NIL relationships. Like CACRA, it allows those rulemaking bodies to impose certain restrictions on student-athletes, but limits the restrictions to certain categories (e.g. tobacco, alcohol, controlled substances, adult entertainment and gambling). Also like CABOR, the bill requires certain reciprocal restrictions, by prohibiting any institution that limits student-athlete NIL activity in a particular category from engaging in any sponsorship activity in that same category. The bill also creates a federal antitrust exemption for any causes of action that might otherwise stem from the bill—representing a narrower antitrust exemption than the blanket exemption proposed in CACRA.  Unlike CABOR and CACRA, LPFA imposes no requirement that student-athletes disclose NIL deals to their institutions, the NCAA, or any other body.

These three proposed bills represent three distinct legislative approaches to the same problem. If passed and signed into law, each would permit student-athletes to earn compensation for the use of their NIL, and create a national governing framework for doing so. While CABOR goes much further than CACRA and LPFA in securing health benefits and revenue sharing for student-athletes, each bill would prohibit the NCAA, athletic conferences, and universities from restricting student-athlete NIL earning opportunities, and each bill would establish a uniform set of standard and rules and preempt the uneven patchwork of state NIL laws.

Conclusions

The NCAA’s interim NIL policy works in concert with the various state NIL laws to allow student-athletes to monetize their NIL rights. Passage of federal law that preempts the current state-by-state approach seems necessary if college athletics is to retain any of its familiar shape and system.  Without an overarching, federal scheme, NIL-related, systemic upheaval seems inevitable. For now, athletic conferences, colleges, agents, and sponsors must navigate the mosaic of state laws in order to ensure that they can best compete for student-athlete attention, while developing policies and undertaking practices that comport with various state laws.

Authors