Legal Framework for NIL One Year After NCAA v. Alston – Next Steps for Universities

Schnader Harrison Segal & Lewis LLP

Schnader Harrison Segal & Lewis LLP

On June 21, 2021, the U.S. Supreme Court issued its decision in National Collegiate Athletic Association v. Alston and forever changed the world of college sports. In a unanimous decision, the Court struck down NCAA caps on education related benefits. Perhaps even more influential than the Court’s main holding was the concurrence by Justice Kavanaugh, criticizing the NCAA’s business model and stating that it “would be flatly illegal in almost any other industry.” Now, almost a year later, college sports has undergone a major overhaul at every level.

Changes at the NCAA Level

Following Alston, the NCAA released an Interim Policy on July 1, 2021, allowing college athletes to benefit from their name, image, and likeness (“NIL”). The Interim Policy states that athletes can engage in NIL activities consistent with the law of the state where their school is located. If a state has not enacted NIL legislation, college athletes in that state can still engage in NIL activities without harming their eligibility.

Although the Interim Policy outlines certain restrictions, such as the prohibition on using NIL as an improper recruiting inducement and the prohibition on pay-for-play, it does not provide a uniform set of NIL rules. The NCAA left the task of defining the limitations on NIL up to the respective regulating bodies, such as the individual states, athletic conferences, and educational institutions.

In keeping with its decision to cede power to other regulating bodies, the NCAA adopted a new Constitution on January 20, 2022, granting the three NCAA Divisions significant power to regulate their own activities. The three NCAA Divisions and the individual conferences are now tasked with establishing new regulations that will govern the institutions and athletes under their authority. For example, in order to establish new regulations, the NCAA Division I has created the NCAA Division I Transformation Committee, charged with developing a new governance model and deciding what the future of the Division I will look like.

Legislative Changes Affecting NIL

Prior to the NCAA announcing its Interim Policy, several states had begun enacting legislation allowing college athletes to benefit from their NIL. To date, twenty-eight states have enacted NIL legislation and several other states have pending NIL bills. Although many of the state statutes include similar provisions, there are often variations in how states regulate NIL activity. This patchwork of state NIL legislation has resulted in disparities for athletes and educational institutions.

Some of the differences in NIL statutes relate to categorical restrictions on the types of products, brands, or industries that college athletes can endorse. For example, some states prohibit athletes from promoting alcoholic beverages, while other states do not. In addition, some states require a percentage of proceeds from athletic event ticket sales to be distributed to athletes. Other states require a percentage of athlete endorsement fees to be contributed to a catastrophic injury fund.

These differences in categorical restrictions and requirements may influence athletes’ commitment decisions, since many athletes will want to attend institutions with minimal NIL restrictions. Similarly, states that have chosen not to enact NIL legislation may present fewer restrictions and may be more attractive to athletes. In an attempt to mitigate the disparities created by the patchwork of NIL legislation, several states have begun repealing or amending their existing NIL statutes in order to attract more talent to their universities, and this trend is likely to continue in the coming months.

The constant flurry of state activity has motivated the NCAA and others to urge Congress to adopt federal NIL legislation. Although several bills have been introduced in Congress, there has been little action at the federal level and most of the bills have stalled in committee. With no federal legislation on the horizon, there will continue to be little uniformity in NIL rules. States will continue seeking to provide the most appealing NIL framework in order to attract top athletes to their college institutions.

Recent Developments for Athletes and Schools

The adoption of the NCAA Interim Policy has certainly benefited college athletes, businesses and schools by providing visibility and new endorsement and sponsorship opportunities. Although top tier Division I football players have obtained the most lucrative NIL deals, female athletes have also been at the forefront and are seen by many as the biggest beneficiaries of NIL reforms. In addition, Historically Black Colleges and Universities have been able to recruit top talent by utilizing NIL opportunities. Similarly, smaller businesses that had traditionally been unable to secure athlete sponsorships are increasingly using NIL deals as a way to reach new target audiences.

Despite the benefits of NIL, serious challenges and new issues have been raised by lawsuits attacking NIL rules and other aspects of athlete compensation. In re College Athlete NIL Litigation, pending in the U.S. District Court for the Northern District of California, was brought on behalf of current and former Division I athletes. The lawsuit alleges that the NCAA violated antitrust laws by prohibiting NIL activity in the past. Among other things, the lawsuit seeks damage awards for revenue lost by former college athletes.

Another hot topic recently raised is whether college athletes may be considered “employees” under the Fair Labor Standards Act (“FLSA”). The NCAA has remained steadfast in its classification of college athletes as “amateurs.” The NCAA’s amateurism stance has previously been supported by courts and the National Labor Relations Board (“NLRB”). However, the NLRB General Counsel, Jennifer Abruzzo, released guidance in September of 2021, stating that college athletes should be considered “employees.”

In Johnson, et al., v. The NCAA, et al., a group of Division I athletes brought suit against the NCAA and several member schools, alleging that college athletes are “employees” and are entitled to compensation under the FLSA. Judge John R. Padova from the Eastern District of Pennsylvania denied the NCAA’s motion to dismiss the case, finding the schools had not shown that the athletes were not employees. The case is now pending in the Third Circuit Court of Appeals, which is expected to decide the question of whether college athletes can be considered employees under the FLSA.

Sal Stewart v. Florida High School Athletic Association, Inc., another recent lawsuit pending in Florida, involves the rights of high school athletes to monetize their NIL. Although the NCAA Interim Policy allows this, most states still prohibit high school athletes from engaging in NIL activity. Several states are now considering whether high school athletes should be allowed to enter into NIL deals.

Next Steps for Colleges and Universities

After almost a full year of NIL upheaval, much uncertainty still remains regarding the future of college athletics. Educational institutions have made significant changes to their athletics programs to provide their athletes with NIL opportunities, while making sure the athletes remain in compliance with applicable laws and regulations.

As the legal and business landscape continues to shift, schools may benefit by focusing on four main areas:

  1. Balance support for NIL activity by athletes with obligations for compliance with NCAA rules, state laws, and institutional values.
  2. Engage business and legal advisors to help navigate the intricacies of NIL legislation and establish policies that benefit both athletes and the institution.
  3. Consider the possibility of setting up an online information exchange portal to enhance athletes’ ability to connect with boosters and sponsors, if permitted by state law.
  4. Prepare for the possibility of future change in the amateur status of college athletes.

In conclusion, athletes, schools and businesses should expect the industry to continue changing at a rapid pace. Pending lawsuits, government policy developments, and innovative NIL activities around the nation will have a lasting impact on the future of college sports.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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