Category: General

Although the House settlement approaches the decision for final approval (hyperlink to https://blogs.duanemorris.com/sportslaw/2024/10/07/judge-wilken-grants-preliminary-approval-to-the-house-v-ncaa-settlement/), lawsuits between players, coaches, schools, and collectives continue to push forward.  As outlined in our previous blog post, on May 31, 2024, University of Georgia quarterback Jaden Rashada filed a lawsuit against the University of Florida’s head football coach and a large contributor to that university’s NIL collective. Rashada’s complaint alleges that University of Florida head football coach Bill Napier and certain wealthy University of Florida boosters fraudulently induced him to forfeit a $9.5 million NIL deal to attend the University of Miami by “offering” him a $13.85 million NIL deal to attend Florida. Importantly, Mr. Rashada claims damages in the amount $9.5 million and an unidentified amount for “lost opportunity to pursue other NIL deals . . . ”

On July 23, 2024, each defendant filed a motion to dismiss Rashada’s claims, which include: (a) fraudulent misrepresentation and fraudulent inducement; (b) aiding and abetting fraud; (c) civil conspiracy to commit fraud; (d) negligent misrepresentations; (e) tortious interference; and (f) aiding and abetting tortious interference. Rashada immediately filed an amended complaint and defendants Billy Napier, former Florida Director of Player Engagement and NIL Marcus Castro-Walker, mega-booster Hugh Hathcock, and Velocity Automotive Solutions LLC re-filed their motions to dismiss in late September 2024.

Defendants’ arguments largely followed two broad themes: (1) that college football recruiting is replete with overly-optimistic “promises” and Rashada fails to allege facts showing how this situation is any different than a recruit being told that they “will be a first-round NFL draft pick if they attend this school”; and (2) that “[o]pening the doors of the federal courthouse to every college football player seeking injunctive relief or specific performance of an ‘oral contract’ when their dream doesn’t materialize would only lead to a class of plaintiffs larger than any mass tort action on record.” Additionally, the individual defendants raised a sovereign immunity argument, which generally helps shield state entities and employees.

Oral argument on the motions took place earlier today before Judge Rodgers. Universities, collectives, and athletes should all pay close attention to this case as it has the potential to set the benchmark for how courts will view “oral” promises during recruiting regardless of the outcome of the House settlement.

On September 24, 2024, University of Nevada, Las Vegas (“UNLV”) starting quarterback Matt Sluka announced that he would no longer play for the team this year because UNLV had not upheld certain off-the-field promises. Sluka stated in a social media post that: “I committed to UNLV based on certain representations that were made to me, which were not upheld after I enrolled. Despite discussions, it became clear these commitments would not be fulfilled in the future. I wish my teammates the best of luck this season and hope for the continued success of the program.” Sluka’s announcement came despite UNLV starting the 2024 season with a 3-0 record, and the timing allows Sluka to “redshirt” and not lose a year of eligibility. Comments from Sluka’s father appear to confirm that the “representations” that were allegedly not upheld were related to compensation for Sluka’s name, image, and likeness (“NIL”).

Sluka’s decision marks the next step in the evolution of college sports’ transition to a quasi-professional sports league. Similar to a professional athlete holding out during contract negotiations, college athletes are leveraging the power that they hold in negotiations with their schools in relations to NIL compensation packages—i.e., the athlete can simply decide to leave his or her team to potentially pursue better options, and preserve his or her redshirt status for that year, regardless of whether the school has upheld its compensation promises. Reports indicate that Sluka made his decision with at least some assurances of offers outside of UNLV that would lead to more money for the quarterback. Although Sluka has every right to maximize his earning potential and hold UNLV accountable for any verbal “assurances” it made, this situation certainly raises questions about whether other schools offered Sluka direct “pay-for-play” offers, which are in the “gray area” at the moment, and also displays potential issues of recruiting outside of the designated periods. There are many athletes and schools operating under verbal “assurances,” which will undoubtedly lead to more situations where players are willing to sit out and/or file lawsuits against schools, collectives, and coaches, similar to the ongoing Rashada v. Napier lawsuit.

Due to recent court decisions, the NCAA’s authority to govern player mobility and to set transfer rules has been essentially gutted, and it has led to a framework that presents more questions than answers. In other professional sports leagues, owners are able to collectively bargain with players’ unions to construct rules governing player compensation and mobility. Unless and until NCAA student athletes are able to form a union and collectively bargain with NCAA member schools, any such restrictions pose potential antitrust risks to NCAA schools. In the meantime, schools, collectives, and athletes can attempt to contract around these issues on a player-by-player basis.

In recent years, private equity and other funding sources have been active in numerous industries, in particular healthcare. In light of the fewer restrictions on student-athlete compensation in intercollegiate athletics, National Collegiate Athletic Association conferences and member institutions are looking to private equity and other sources of capital to fund future student athlete compensation, as well as for potential back-pay obligations in light of the House v. NCAA and other antitrust litigation brought by former student athletes. Originally, these deals appeared to be structured as private credit deals where the fund would invest money into an athletic department and would then be repaid by a negotiated allotment of future athletic revenues—e.g., revenues from ticket sales and media deals. This arrangement is in line with how schools have traditionally sold their multimedia rights, and allowed public universities to structure the deals in a way to avoid the rigid framework and restrictions of higher education.

Although private credit deals appear to be the easiest method for investment, many of these deals have stalled due to schools’ hesitancy to enter into such agreements contractually obligating them to pay a specific amount of future revenues, without certainty as to those future revenue streams. As a result, schools and funds will likely start discussing ways to structure deals under a more traditional private equity framework. Nonetheless, the question remains, how can an outside investor take an ownership stake and/or buy shares in an athletic department’s future revenue streams? Currently, the answer is they cannot because athletic departments are not corporate entities. Schools, however, seem to be taking steps to remedy this issue. For example, last month Clemson University announced the creation of a new entity, called Clemson Ventures, to house all of its athletics revenue generation. Clemson Ventures is a separate entity designed to handle the university’s revenue-generating functions (sponsorships, media, marketing, licensing, etc.) and will even act as an internal NIL agency for Clemson athletes.

It seems that schools intend to use entities like Clemson Ventures, which has its own governance and board of directors, to sell equity to outside parties. This affiliated organization model could allow schools to not only offer equity to institutional funds, but also to their main boosters and could also allow schools to offer athletes equity vesting opportunities as part of their NIL compensation packages. An athletes’ ability to obtain equity in the athletic department they helped grow would be a massive bargaining tool if athletes are deemed employees in pending litigation. For example, schools could seek to retain their athletic talent by offering vesting shares in the athletic department if the athlete stays for two, three, or four years.   

In sum, schools and institutional investors will continue to work to structure deals that are the most advantageous for each side. At the moment, institutional investors and funds likely favor the private credit model because they can better control the exact monetary amount paid out each year. Schools, however, will likely favor a traditional private equity model because it allocates risk between the athletic department and investors equally—i.e., if the program increases in value, both entities are rewarded, and on the flip side, if the program decreases in value, the school is not required to pay a specific monetary amount to the investors, which would greatly injure the program and school overall.

As reported in our prior Alerts (including on June 6, and August 1, 2024), the parties involved in three of the major class action antitrust lawsuits brought against the NCAA: House v. NCAA, Hubbard v. NCAA, and Carter v. NCAA — all from athletes claiming the NCAA violates the Sherman Act, conducted a fairness hearing on September 5, 2024, before U.S. District Judge Claudia Wilken. At the fairness hearing, the Court declined to rule on preliminary approval of the settlement, after hearing arguments from the attorneys for the NCAA, plaintiffs’ counsel, and other attorneys involved in other litigations against the NCAA, e.g., Fontenot v. NCAA who have raised objections to the settlement.  By way of brief background, and as set forth more fully in our August 1, 2024 alert, the settlement agreement outlines a system where the NCAA and Power Five Conference schools will pay $2.75 billion in “back-pay” damages to multiple classes of athletes, provides an opportunity for colleges and universities to opt in to a revenue sharing arrangement to share approximately 22% of the average annual power conference revenue with the athletes, and imposes restrictions on “pay-for-play” payments by third-party collectives an boosters.

At the fairness hearing, Judge Wilken declined to rule on preliminary approval after raising various concerns regarding the NCAA’s efforts to limit athlete compensation from outside entities. Specifically, and most notably, Judge Wilken stated that she was “quite concerned” with the settlement’s proposed restrictions on third-party NIL payments, particularly from boosters and NIL collectives, and the justifications for those restrictions. Under the proposed settlement, college athletes would be required to report all third-party NIL contracts worth $600 or more to a newly created clearinghouse database, and requires all such deals to be for a profit seeking business purpose and represent a “fair market value” payment. The settlement would also empower the NCAA and power conferences to form a “designated enforcement agency” that would determine whether those reported third-party NIL deals provide fair market value. In theory, this would eliminate pay-for-play inducements — which are currently against NCAA rules, but have gone unenforced since a federal ruling in Tennessee v. NCAA earlier this year.

Judge Wilken took issue with the settlement’s proposed restrictions regarding third-party NIL, and how they differed from the current NCAA guidelines, stating: “What I’m concerned about is whether the change from what’s in the guidelines to what is in the settlement agreement is going to mean that some people who are getting large sums of money in third-party NIL right now will no longer be able to get them.” Judge Wilken seemed concerned about the Settlement’s attempt to “cap” these third-party NIL deals, and how this is not just another artificial and anticompetitive cap on player compensation – asking questions such as: “What if Mr. Fan loves his team and wants to give them all a truck, or give them $1 million dollars to get a new player?” said Wilken. “Is having your team win a valid business purpose?”

Counsel for the NCAA, without referencing the current injunction on the NCAA’s third-party NIL restriction rules, expressed that it was unlikely that a deal could be reached without a provision in the settlement restricting third-party deals to fair market value.  Nonetheless, Judge Wilken expressed optimism that a settlement could be reached, but declined to rule on preliminary approval and advised the settlement attorneys to redraft the agreement to assuage with the Court’s concerns. The parties agreed to confer, and will make supplemental submissions to Judge Wilken on September 26, 2024.

Private equity funds have shown an increasing willingness to enter into financial arrangements to fund college athletic departments in exchange for future revenue sharing opportunities in the wake of the House v. NCAA settlement. Private equity offers a life raft to cash-strapped athletic departments seeking to accumulate the financial resources necessary to pay off amounts that will be owed under House settlement and to compete for student athletes in exchange for access to future revenue streams and for relationships with portfolio companies.

An example of this is the apparent discussion between Florida State University (FSU) and private equity firm Sixth Street. According to reports, FSU has been in talks with Sixth Street for over a year trying to obtain a much-needed cash infusion, and the two sides are exploring creation of a new corporate entity that would hold FSU’s commercial rights and be able to take on outside investments. Indeed, on July 10, 2024, FSU announced a new 10-year expansion of its relationship with Sixth Street’s owned portfolio company, Legends, which is a sports venue operations and experiences company co-founded by the Dallas Cowboys and New York Yankees.  In addition to Legends continuing as FSU’s premium seating partner at Doak Campbell Stadium, FSU’s football stadium, as well as managing hospitality, concessions, catering and clubs for the Seminoles, this new deal also includes multimedia rights—a catchall term that covers many licensing deals, sponsorships, advertising and broadcast opportunities. Legends intends to assist FSU in managing and commercializing their rights, yet it remains unclear if Sixth Street will provide FSU with a desired direct cash infusion.

Private equity funds will continue to seek opportunities to capitalize on the emerging college sports market and will need to navigate ever-changing (sometimes daily) rules, regulations, guidance, and laws concerning college sports.  Federal agencies and state legislatures have been keenly focused on private equity consolidation in other industries, including healthcare, and could similarly seek to regulate private equity investment in college athletics. Private equity funds contemplating opportunities in the world of student athletes’ name, image, and likeness and college sports more broadly should be sure to stay current on all NIL-related rules, laws, and guidance to ensure compliance.

Name, image, and likeness (NIL) deals have unquestionably altered the landscape of collegiate sports and sparked a billion dollar market for student-athletes. This opportunity, however, does not extend equally to all student-athletes. Indeed, international student-athletes are essentially “sidelined” when it comes to many lucrative NIL deals as a result of the restrictions on their ability to earn money in the United Stated under F-1 visas.

Because F-1 visas generally limit international student employment to under twenty hours per week during academic semesters in areas related to the student’s field of study, International student-athletes have had to find creative ways to seize NIL opportunities. For example, former University of Connecticut (UConn) center Adama Sanogo and former Purdue men’s basketball star center Zach Edey traveled outside of the United States to earn money from NIL deals. Sanogo, a Mali native, filmed an advertisement for Sunoco in the Bahamas after winning the National Championship in 2023, and Edey, a Canadian, traveled to Toronto to film commercials for KFC and to take pictures for trading cards to avoid actively earning money in the United States.

The F-1 visa – NIL payment conundrum may also create issues with the potential unionization of college sports teams.  For example, if college athletes are considered employees, schools may need to take steps to ensure continued compliance with immigration laws and rules, including the twenty-hour-per-week work restriction for those on F-1 visas. That might require schools to monitor and ensure that international athletes spend no more than twenty total hours per week on participation in team activities. Additionally, certain unions may require members to be U.S. citizens or permanent residents. College athletes in the United States on nonimmigrant visas may be ineligible for membership in such unions or may not be eligible for all the protections provided by unions.

In contrast, Hansel Enmanuel, a native of the Dominican Republic and a guard for Austin Peay’s men’s basketball team, secured an O-1 visa, which is designed for those with extraordinary abilities or achievements. An O-1 visa has stringent evidentiary burdens that even many professional athletes have been unable to meet; however, it is likely that we will see more high-level international college athletes attempt to obtain these O-1 visas and/or other non-F-1 visas in order to benefit from the new NIL industry. Regardless, without changes to immigration laws, international student athletes are at a current disadvantage in reaping the benefits in the NIL industry.

The National Collegiate Athletic Association (NCAA) is suspending enforcement of certain rules against student athletes transferring between NCAA member schools as part of its proposed settlement of antitrust litigation brought by the Department of Justice and various state attorneys general in State of Ohio, et al. v. NCAA, No. 1:23-cv-00100 (N.D.W.V.). The NCAA will no longer require that a student-athlete sit out one full year if he or she seeks more than one transfer between NCAA member institutions. This hurdle to eligibility is just one of many NCAA restrictions on student-athlete movement and compensation that has been under attack under the federal antitrust laws in recent years.

By suspending enforcement of these transfer restrictions, the NCAA has also effectively mooted related antitrust claims brought by student athletes themselves in Battle v. NCAA, Civ. No. 1:23-CV-101 (N.D.W.V. 2024).  In that case, RaeQuan Battle filed an antitrust complaint after the NCAA twice denied his request to waive its transfer rule. In addition to antirust claims, Battle also argued that the NCAA’ transfer rules constituted tortious interference and breach of contract. While the NCAA’s suspension of its enforcement of certain transfer rules mooted Battle’s antitrust claim, the court found that student athletes are “beneficiaries of the NCAA’s agreements,” allowing breach of contract claims to proceed. That finding could be significant to future litigation by student athletes challenging NCAA enforcement.

Despite the enforcement of certain transfer rules, the NCAA still only allows student-athletes to enter the transfer portal during certain times within the calendar year, which effectively prevents student athletes from switching schools mid-season. Whether and to what extent student-athletes challenge those restrictions on antitrust and breach of contract grounds remains to be seen. Please stay tuned as we monitor this rapidly changing enforcement landscape.

The Big 12 Conference is in serious discussions with Luxembourg-based CVC Capital Partners (“CVC Capital”) to enter into the first major private equity investment deal with a Power Five Conference. At the moment, the deal appears to be structured where CVC Capital would provide the Big 12 with a cash infusion of anywhere between $800 million to $1 billion in exchange for a 15-20% stake in the league. CVC Capital’s monetary contributions would then be apportioned to each of the sixteen conference members, and the partnership would give the conference more accessibility to CVC Capital’s investment services and clients—likely to help facilitate NIL deals for Big 12 student athletes.

This deal is far from finalized, but is in line with what we have seen in the college sports industry following the House v. NCAA settlement announcement. School’s athletic programs are clearly searching for additional revenue streams due to the future revenue sharing with student athletes. It did not take long for Private Equity funds to capitalize on this opportunity. It will be very interesting to following this negotiation and potential deal because while a Private Equity fund cannot take an ownership percentage in an individual school’s athletic department, they can take an ownership interest in the Conferences. For the Big 12 Conference, this new revenue stream would also help move its member insitutions closer to the Big Ten’s and SEC’s member institution’s yearly earnings, which would help the Big 12 Conference stay together unlike other Power Conferences—e.g., the Pac-12.

Private equity is an inevitability for college sports as schools seek additional revenue streams from other sources. Stay tuned for more updates on all major developments in this space.