The Landscape for College Athletes' Commercial Rights is Changing

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Foley & Lardner LLPThis article originally appeared on SportBusiness, and is republished here with permission.

New Jersey Governor Phil Murphy recently signed into law the New Jersey Fair Play Act, making New Jersey the fifth US state, following California, Colorado, Florida, and Nebraska, to enact legislation that allows student athletes to receive compensation for the commercial use of their name, image, and likeness (NIL) without jeopardizing their NCAA eligibility.

Similar to its counterparts, the New Jersey Fair Play Act allows collegiate athletes to profit from their NIL by prohibiting colleges or universities in New Jersey from upholding any rule, requirement, standard, or other limitation that would prevent a student athlete from participating in intercollegiate athletics on account of their having received compensation for the use of their NIL.

In addition, it prohibits New Jersey schools from providing compensation directly to student athletes in relation to their NIL rights and further restricts schools’ ability to prevent student athletes from seeking professional representation in connection with NIL-related matters.

The competitive landscape among states

It is highly unlikely that any state legislator would admit to passing NIL legislation with the intent to provide a competitive advantage to his or her state’s universities. But it is also undeniable that the potential for athletes to profit from the commercial use of their NIL could provide a massive recruiting windfall for schools in those states.

To illustrate: a football player at the University of Michigan would theoretically have his earning potential capped at the amount of grant-in-aid he receives from his university, whereas at Rutgers that same player might receive both grant-in-aid and additional income in the form of a fair market value endorsement deal with a local restaurant chain.

While a recruit may weigh a multitude of factors in selecting a school, the opportunity to earn substantial endorsement income could tip the scales in favor of schools located in states where collegiate athletes can monetize their NIL rights.

This potential for competitive imbalance could explain why more than 30 states have either introduced legislation regarding NIL rights or have publicly announced their intention to do so. Given the substantive uniformity of the laws passed so far, early adoption may be what gives a state a competitive edge: the sooner a state’s NIL laws become operative, the likelier it is that schools in that state could reap a recruiting advantage.

At the moment, Florida and Nebraska look to hold the timing advantage. Nebraska’s “Fair Pay to Play Act” gives each postsecondary institution in the state until July 1, 2023 to choose when the law will apply to it and its student athletes. In other words, Nebraska schools could provide these protections to their student athletes today, although no school has opted to do so yet.

Florida’s NIL law, which passed earlier this summer, will be operative as of July 1, 2021. This compressed timeline, just over one year from passage to effectiveness, differs drastically from the phased-in approaches adopted by California, Colorado, and New Jersey, whose laws will be operative in 2023, 2023, and 2025, respectively. Perhaps more important than any competitive advantage it might provide, Florida’s blitz towards an effective NIL law has put significant pressure on the NCAA and Congress to come up with a broad-based, national framework that would serve to eliminate any potential competitive imbalances among the states and their colleges.

A federal answer?

Given its institutional knowledge and composition, the NCAA would seemingly be best positioned to craft a nationwide policy for NIL rights for student athletes. However, the NCAA is seemingly willing to abdicate this responsibility to Congress should lawmakers be willing to take it on.

The governing body’s latest proposals for Division I are being viewed skeptically by stakeholders who favor a free market for collegiate athlete NIL rights, with many balking at the degree of discretion afforded to member schools in determining what is and what is not acceptable with respect to NIL-based compensation.

Consequently, federal legislation appears to be the most promising route to create a durable framework that would serve to grant student athletes valuable rights while preventing competitive imbalance amongst states. Even amid a global pandemic, the debate over the economic rights of collegiate athletes (or lack thereof) has gained enough momentum to catch the eye of multiple members of Congress, each with varying approaches to solving the problem posed by the current patchwork of state legislation governing NIL rights.

On the heels of the passage of Florida’s NIL law, US Senator Marco Rubio introduced legislation that would require the NCAA to establish its own framework for NIL compensation by June 30, 2021, while also providing the NCAA an antitrust exemption in relation to whatever framework is established.

More recently, US Representatives Anthony Gonzalez, Ohio Republican, and Emanuel Cleaver, Missouri Democrat, introduced the Student Athlete Level the Playing Field Act, a bill that effectively mirrors and applies the state NIL laws on a national basis, while also providing for enforcement by the FTC and the establishment of a Congressional committee to review the current state of NIL rights and make further legislative recommendations to Congress.

Lastly, a group of Senators led by Cory Booker, New Jersey Democrat, and Chris Murphy, Connecticut Democrat, have announced proposed legislation for a College Athlete Bill of Rights, which would go beyond NIL reform by providing, among other things, expanded healthcare coverage for current and former student athletes and revenue-sharing arrangements among the NCAA, member conferences, schools, and college athletes.

Whether any of these federal proposals might pass in time to preempt Florida’s NIL law remains the looming question. Much will probably depend on Congress’ willingness to engage on matters concerning collegiate athletics during a period of presidential transition and amid the ongoing Covid-19 pandemic

The subject of collegiate athlete NIL rights, however, remains one of national interest and appears to present Congress with a rare opportunity for a bipartisan legislative solution. In the meantime, expect a number of states to follow the lead of California, Colorado, Florida, Nebraska, and New Jersey and enact their own NIL legislation, which will further muddy the landscape and ratchet up the pressure on the NCAA and federal lawmakers.

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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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