Tennessee and Virginia v. NCAA: The Wild(er) West of NIL in College Sports

Kaufman & Canoles

Kaufman & Canoles

“The wild west” is by far the most frequent characterization used to describe college sports since NCAA v Alston, 141 S. Ct. 2141, paved the way for college athletes to be compensated for use of their Name, Image, and Likeness (NIL). With a new sheriff in town, NCAA Director Charlie Baker, the NCAA began 2024 with its highly anticipated enforcement efforts and issued its first sanctions for a violation of the NCAA NIL Interim Policy. However, the enforcement era appears to be short-lived. On January 31, 2024, the attorneys general for Tennessee and Virginia filed a complaint in the Eastern District of Tennessee alleging that the NCAA’s enforcement of its Interim NIL Policy was an antitrust violation. After denying the Plaintiffs’ initial request for a Temporary Restraining Order, the Court changed course and granted the Plaintiffs’ Motion for Preliminary Injunction. By doing so, the Court specifically restricted the NCCA from “enforcing the NCAA Interim NIL Policy, the NCAA Bylaws, or any other authority to the extent such authority prohibits student-athletes from negotiating compensation for NIL with any third-party entity, including but not limited to boosters or a collective of boosters, until a full and final decision on the merits in the instant actions.”

The latest opinion has understandably left universities, athletes, and legal experts wondering what happens next. For the time being, athletes are free to explore their NIL value in the market, NIL sponsors and collectives that were retreating have eagerly returned, and the NCAA does not have a clear way to enforce the few NIL regulations that were in place. Put simply, the sheriff has left town and the wild west rages on. Nonetheless, it is still worth considering (1) what the opinion actually says; (2) the immediate effects of this opinion; and (3) what we can reasonably expect to see in the future of college sports.

The Opinion:

The Court began its analysis by clarifying that the NCAA’s rules restricting NIL negotiations were in fact commercial activity for purposes of the Sherman Act. This is a stark distinction between this case and relevant antitrust precedent that held that the Sherman Act did not apply to collegiate athletics. This distinction is also significant because it creates a line of demarcation between pre- and post-NIL era college athletics.

The primary concern addressed by the Court was the NIL-recruiting ban set out in the Interim Policy and later clarified in the Supplemental Guidance identifying collectives as boosters. The Court described the NIL-recruiting ban as “an agreement among competitors to refuse to discuss prices with recruits until after negotiations have resulted in the initial selection of a school.” The Court reasoned that such an agreement suppresses price competition, limiting negotiating leverage and the athletes’ knowledge of their true NIL value. This reasoning ultimately overshadowed the NCAA’s multiple attempts to demonstrate a pro-competitive rationale, such as the balance between academics and athletics or distinguishing college and professional athletics.

It is noteworthy that the Court acknowledged the legitimacy of the NCAA’s desire to maintain competitive balance across schools, but here the means of doing so appeared to be anticompetitive. The Court also suggested that if the NCAA truly possessed a unique interest in preserving a competitive balance, the organization’s best recourse would be to persuade Congress to provide an industry exemption from the Sherman Act. Congress has thus far remained silent on the issue.

As for the irreparable harm necessary to acquire a preliminary injunction, the Court set aside the interests of the states and focused on the athletes. Interestingly, the Court acknowledged that most state NIL legislation mirrors that of the NCAA’s guidance but held that the potential interstate effect of athletes crossing state lines into states that do not have similar restrictions could be a source of irreparable harm. The Court also clarified that, despite its initial analysis in the denial of the TRO two weeks earlier, the potential harm did not merely consist of monetary damages. The court reasoned that the current restrictions not only hindered the earning potential of student athletes but restricted the NIL market in a manner that prevented athletes from discerning their true NIL value. To that end, the harm imposed by the NCAA interim guidelines was irreparable.

Finally, in a conclusory afterthought, the Court also enjoined the NCAA from enforcing the Rule of Restitution (NCAA Bylaw which allows the NCAA to undo or reverse records, awards, compensation, and other events that occurred during temporary cessation of one of its rules caused by a stay or injunction.

Immediate Impact:

As a result of the Court’s decision, the NCAA is “restrained and enjoined from enforcing the NCAA Interim NIL Policy, the NCAA Bylaws, or any other authority to the extent such authority prohibits student-athletes from negotiating compensation for NIL with any third-party entity, including but not limited to boosters or a collective of boosters, until a full and final decision on the merits in the instant action.” It is noteworthy that the opinion does not address the NCAA’s prohibition on “pay for play.” Accordingly, there is a presumption that compensation must still be paid in exchange for use of an athlete’s name, image, or likeness. However, with the preliminary injunction in place, it will be difficult to discern whether pre-recruitment NIL negotiations are truly centered around the use of the athlete’s NIL. Moreover, the potential cost of enforcement to investigate and identify improper inducements that do not have the requisite exchange of NIL usage will be exceedingly high.

Procedurally, the NCAA will undoubtedly appeal this opinion to try and maintain some level of enforcement power while this case is pending. If the appeal is unsuccessful, universities who have been punished during the NCAA’s recent enforcement efforts may attempt to appeal their sanctions during the pendency of this case.

In the meantime, college athletes will likely start to explore the market and develop a sense of their true NIL value unencumbered by the NCAA. It is also worth noting that this opinion comes just after the start of the National Letter of Intent signing window that runs from February 7, “National Signing Day”, until April 1, 2024, for Division 1 college football. Unless the NCAA can successfully appeal, there will likely be an immediate impact on the 2024-25 recruiting class, and potentially the top prospects of future recruiting classes.

There will also likely be an immediate increase in the involvement of NIL collectives in the recruiting process. This is somewhat ironic, as the NCAA’s investigations and sanctions in January 2024 initially appeared to cause schools to distance themselves from their respective NIL collectives. Now, this opinion provides them with an opportunity to reunite. If the Plaintiffs ultimately prevail, the same collectives may begin to pair with universities to create powerful recruiting mechanisms that could significantly reshape college sports.

What to Expect long term:

As for long term effects, if the Plaintiffs ultimately prevail, the scope of the NCAA’s authority over NIL usage will be severely diminished and replaced with an NIL market centered around free market principles. It is hard to discern who the winners and losers are in that scenario. In fact, the court acknowledged that a free-market NIL system may not actually benefit collegiate athletes, but it will reveal their true market value free from the NCAA’s allegedly anticompetitive restrictions.

There may also be a shift in state-wide NIL legislation. In the wake of the NCAA’s NIL Interim policy, many states passed NIL legislation that resembled the NCAA’s guidance. If this case ultimately ends the NIL recruitment ban, states may be inclined to amend their current legislation to gain a competitive edge over other states who do not take advantage of the opportunity to funnel top-tier talent towards their colleges and universities.

Many sources are prematurely and hyperbolically depicting this opinion as the end of the NCAA. While it will certainly change things, the NCAA is not completely out of options. In addition to the anticipated appeal, many expect the NCAA to make one final plea to Congress to intervene with federal legislation regulating collegiate NIL markets. In fact, the Court was clear that a potential solution that would solve the NCAA’s current antitrust dilemma would be an industry exemption from the antitrust standards. “The NCAA is free to argue that ‘because of the special characteristics of [its] particular industry,’ it should be exempt from the usual operation of the antitrust laws –but that appeal is properly addressed to Congress. And, up to this point, Congress has declined to do so.” This prompting from the judge should not go unnoticed. The NCAA has already expended great effort to lobby Congress for varying forms of legislation, but this specific suggestion could potentially bail the NCAA out of its current antitrust troubles.

Ultimately, the NCAA is now forced to go back to the drawing board to reconsider how, if at all, they will enforce NIL regulations. Universities will need to weigh the potential benefit of working with collectives to leverage NIL recruitment against the underlying challenges of navigating the less restrictive NIL market. Finally, for the moment, collegiate athletes are free to explore their options and discover their true NIL potential in the wild west.

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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