Flurry of New NIL Activity in Congress

In the span of about two weeks, senators and representatives announced no fewer than four new bills that, if passed, would result in a national standard for name, image, and likeness practices which, as of now, vary from state to state.  These bills join other proposed legislation introduced earlier this year.  There are at least seven bills making their way through Congress, though not all of them have been formally introduced.  These include:

  1. The Student Athlete Level Playing Field Act, introduced by Representatives Emanuel Cleaver, II (D-MO) and Anthony Gonzalez (R-OH) (a former college athlete himself).  This act would make it illegal for universities, conferences, and organizations like the NCAA to prohibit athletes from competing as a result of entering into an NIL contract.  However, athletes could lawfully be restricted from entering into NIL deals with certain industries (e.g., tobacco, alcohol, cannabis, adult entertainment).  Boosters would be barred from paying athletes to induce them to enroll or stay at a university.  The Federal Trade Commission (“FTC”) would have the authority to enforce the law.  In addition, the Department of Education would appear to have indirect enforcement power.  This is because the law would require Program Participation Agreements (“PPAs”)–contracts that universities sign with the government to participate in federal student loan programs–to include a commitment by schools to allow athletes to exercise their NIL rights.  The Department of Education could claim broad authority to limit a university’s access to student loan programs if it breaches its PPA.
  2. The Fairness Accountability and Integrity in Representation of College Sports Act, introduced by Congressman Gus Bilirakis (R-FL).  Under this act, colleges, conferences, and governing bodies like the NCAA could not prohibit athletes from earning compensation “commensurate with market value” for use of their NIL or from signing contracts with agents.  Again, athletes could lawfully be restricted from entering into NIL deals with businesses in certain industries (e.g., tobacco, alcohol, cannabis, adult entertainment).  Students who stop participating in athletics could also rescind any NIL deal they’ve signed without giving payments back, so long as the deal had 1+ year remaining.  Licensees could not enter into NIL deals until 90 days after an athlete has enrolled at a university, use NIL deals to induce enrollment at a particular school, or base NIL deals on the athlete’s on-field performance.  The law would also establish the United States Intercollegiate Athletics Committee (“USIAC”).  All athletes, agents, collectives, boosters, and licensees would have to register with the USIAC, and all NIL deals would have to be disclosed to it.  The USIAC would present, among other data, disaggregated information about every NIL deal in the country.  The FTC would have the authority to prosecute “unregistered” agents, licensees, collectives, and boosters.
  3. The College Sports NIL Clearinghouse Act of 2023, drafted by Senator Lindsey Graham (R-SC).  Reportedly, under this act, institutions may not retaliate against athletes who enter into NIL deals, though NIL deals may still be prohibited if they would violate the school’s code of conduct or a state-wide law.  This act would also establish the “NIL Clearinghouse,” an organization exempt from antitrust laws which would police violations of the act and have authority to impose fines or bans from college sports.  It appears that the bill would limit NIL compensation to “market value” and would allow bans on NIL payments to induce enrollment or for athletic performance.
  4. The College Athletes Protection & Compensation Act, introduced by Senators Jerry Moran (R-KS), Richard Blumenthal (D-CT) and Cory Booker (D-NJ).  This act, which contains some similarly worded provisions as Senator Graham’s NIL Clearinghouse Act, protects athletes’ rights to sign with registered agents or enter into “endorsement contracts,” except endorsements with industries adverse to an athlete’s college’s code of conduct.  Payments to induce initial or continued enrollment would be prohibited, and universities, conferences, and organizations like the NCAA would be barred from representing students or from playing any part in setting their compensation for endorsements.  However, universities would be required to provide athletes with “a list of rules that govern endorsement contracts.”  It is not clear what “rules” a university would have authority to impose.  This act would also allow rescission of NIL deals with more than 1 year remaining under similar terms as Representative Bilirakis’s proposed legislation.  Furthermore, athletes could not be punished for entering into a professional draft, so long as the athlete does not obtain payment from the professional league, team, or agent and as long as the student declares their intention to resume collegiate sports within seven days after the draft ends.  In addition to these common provisions, the proposed law includes various other protections for athletes, including mandatory medical care payments, non-interference with an athlete’s choice of major, continuation of scholarships in case of career-ending injury, and others.  Finally, this act would establish a new non-profit corporation–the College Athletics Corporation–which would among other things) serve as a “clearinghouse” and “establish rules and investigatory procedures” that set standards for endorsement contracts and the authorization of individuals to serve as agents.
  5. The Protecting Athletes, Schools, and Sports (PASS) Act of 2023, introduced by Senators Joe Manchin (D-WV) and Tommy Tuberville (R-AL).  The senators had, for some time, sought to develop a national NIL standard, and they state that their act is the product of input from stakeholders throughout the college sports industry.  This act would protect athletes’ NIL rights (as with the others) but would allow exceptions for alcohol, cannabis, casinos, pharmaceuticals, and certain other industries.  This act would requires boosters to be formally associated with a university before assisting with recruiting or with providing benefits to an athlete.  Payments to induce enrollment would be prohibited.  NIL contracts would have to be written in a form provided by the FTC, and athletes could only sign NIL deals after enrolling at their chosen institution.  Contracts would have to be disclosed to the FTC.  Universities would have to provide health care coverage for sports-related industries and financial literacy training.  In terms of enforcement, the statute would direct the NCAA to investigate NIL violations and to report them to the FTC for further action.  One of the more interesting provisions, however, would affect the well-known “transfer portal.”  The law, if passed, would require “student-athletes to complete their first three years of academic eligibility before allowing them to transfer without penalty, subject to a few exceptions.”
  6. The College Athlete Economic Freedom Act, introduced by Senator Chris Murphy (D-CT) and Representative Lori Trahan (D-MA).  This act grants an unrestricted right to athletes to pursue NIL deals and authorizes athletes to organize groups and appoint a group representative to negotiate an NIL deal on a group-wide basis.  Collectives would be required to register with the FTC, track deals they facilitate, and report the disaggregated details to the FTC.  Finally, the proposed law contains unique provisions for international student-athletes, purporting to “[a]llow international college athletes to market their NIL in the same ways their non-immigrant peers can without losing their F-1 visa status.”
  7. Senator Ted Cruz’s draft legislation, which is not yet named.  The senator’s draft bill would protect athletes’ rights to obtain representation and enter into NIL deals, except deals which fall into the vaguely worded category of “violat[ing] the code of student conduct, reasonably impact[ing] the [school’s] reputation or public image, or conflict[ing] with the terms of an existing contract or agreement[ ] of the institution at which the student athlete is enrolled.”  This legislation would also set forth certain provisions which must appear in any NIL deal (e.g., scope of work, amount of compensation to be paid, length of agreement, etc.).  The draft law would allow the NCAA or conferences to publish NIL deal data to allow other athletes to estimate the value of their publicity rights.  Interestingly, the draft law would not outright prohibit payments to induce an athlete to enroll, nor would it impose new transfer portal requirements.  Instead, it gives the NCAA and conferences the authority to set their own rules on those, and other, issues.

It is important to remember that, to date, no NIL law has ever made it through Congress.  It is also important to understand that the proposals above contain many more details than what is discussed here, and that all of those details are subject to change as part of the legislative process.  Still, those who are eager to have a federal NIL standard must be encouraged by the recent uptick in congressional activity.

NIL Summer Update

While there may not be many college sports on TV this month, developments continue non-stop in the area of name, image, and likeness.  The NCAA continues to lobby for a nationwide law governing NIL.  High-profile names continue to voice their beliefs about the system currently in place.  The only constant in the NIL world is change, and we have been tracking significant changes around the country, including new state laws and a recent action from the Internal Revenue Service.

Missouri:  Student-athletes in the Show-Me State are the beneficiaries of a revised NIL law that allows coaches and other school-affiliated personnel to be more directly involved in securing deals.  Previously, coaches could only “identify” potential opportunities.  Now, they “shall have the right to identify, create, facilitate, negotiate, support, [and] enable” deals for athletes.  Missouri universities must also develop processes for permitting athletes to use the university’s intellectual property (e.g., logo, colors, etc.), though schools can still impose reasonable limitations on licenses given to student-athletes.  Breaking with traditional NIL laws, Missouri’s new statute allows collectives, businesses, and anyone else paying a student to explicitly condition payment on the student’s attendance at a particular school (though performance-based compensation is still barred).

Texas:  Texas’s revised NIL law adds to its original 2021 statute and states, in no uncertain terms, that neither the NCAA nor any athletic conference can bar Texas universities from participating in intercollegiate athletics for any activity authorized under Texas’s law.  In other words, Texas’s law explicitly purports to trump any standard, policy, or rule that the NCAA passes.  The law also frees institutions to become involved in securing NIL deals for athletes, and it allows universities to grant special benefits to collectives and donors who contribute to NIL deals.  However, like we discussed in Law360, Texas’s law still prohibits an NIL deal that pays a student “in exchange for . . .  accepting an offer of admission to attend the institution,” putting it at odds with Missouri’s new law.

Montana:  Montana’s NIL law, passed during a previous legislative session, went into effect.  Though it spans only 2 pages, the law generally prohibits the NCAA and athletic conferences taking certain actions against student-athletes who exercise their “student-athlete rights”–a term defined as “the rights of a student-athlete enrolled in a postsecondary institution to earn compensation for the use of the student-athlete’s name, image, or likeness and to contract with and retain professional representation of an athlete agent.”  Given its simplicity, the law is consistent with the nationwide trend of de-regulating NIL at the state level.

New York:  New York’s NIL law was reportedly amended to bar the NCAA from entertaining a complaint, opening an investigation, or otherwise penalizing a college whose students engage in any activity protected by the state NIL law.  New York is the latest to pass legislation that purports to strip the NCAA of any enforcement powers (provided the student or university is otherwise compliant with the state NIL law).  New York’s law appears to also state that the NCAA cannot sanction a college even if an “entity or individual whose purpose includes supporting or benefitting the college or its athletic programs or student-athletes violates the collegiate athletic association’s rules or regulations with regard to a student-athlete’s name, image, or likeness.”

NCAA Guidance:  The NCAA has reportedly sent Division I schools a memorandum demanding that they follow NCAA NIL policies even if state law “appear[s] . . . to prohibit the NCAA from enforcing its rules” (see, e.g., Texas).  The memo also purports to prohibit institutions from “provid[ing] assets (e.g., tickets, suite access, club seating) to a donor as an incentive for providing funds to [an] NIL entity.”  See again, Texas.  If it wasn’t already, the industry is undoubtedly at a point at which NCAA policy is in direct conflict with state law.

IRS Casts Doubt on Tax Deductions for NIL Donations to Collectives:  It is not all good news for collectives.  In late May, the IRS published a memorandum in which one deputy assistant chief counsel concludes that ” many organizations that develop paid NIL opportunities for student-athletes are not tax exempt and described in section 501(c)(3) because the private benefits they provide to student-athletes are not incidental both qualitatively and quantitatively to any exempt purpose furthered by that activity.”  The decision, if it sticks, could have far-reaching effects on the NIL market.  As the Wall Street Journal noted, a “top-tax-bracket donor can give $100,000 to a charity and save $37,000 in federal taxes.”  But if NOL collectives are not actually “charities,” the tax benefit to the donor disappears.  While this opinion will not end NIL by any stretch, it could impact how many dollars flow into collectives, how many dollars flow out to student-athletes, and how many dollars flow up to Uncle Sam.

To be clear, the new laws and policies above affect more than what we’ve discussed here, and, while important, they are only a small part of the ever-developing world of NIL.  Any institution, athlete, or business interested in NIL must become familiar with the ins and outs of any applicable laws, NCAA policies, the tax code, and–if one ever passes–federal law before inking a deal.

The NBA’s New Collective Bargaining Agreement Provides Key Changes in Cannabis-Related Matters

On April 26, 2023, the National Basketball Association (NBA) announced the ratification of its new, seven-year Collective Bargaining Agreement (CBA) with the National Basketball Players Association (NBPA).  The CBA will take effect on July 1, 2023, and will run through the 2029-30 season.  The CBA provides, among other things, certain key changes to cannabis-related matters, particularly in connection with the NBA’s Anti-Drug Program and NBA players’ business opportunities.

To read the full text of this post by Duane Morris attorney Robert Davydov, please visit the Duane Morris Cannabis Law Blog.

CBD Beverage Company Partner with Chicago Cubs Under New MLB Sponsorship Rules

On April 7, 2023, the Chicago Cubs announced a partnership with MYND DRINKS, a Chicago-based cannabis beverage company.  This historic partnership recognizes the Cubs as the first Major League Baseball (MLB) team to collaborate on a business venture with a cannabis company.

To read the full text of this post by Duane Morris attorney Robert Davydov, please visit the Duane Morris Cannabis Law Blog.

Florida Loosens Its NIL Law

The State of Florida–home to several major universities spanning multiple athletic conferences–has broadly reformed Florida Statutes §§  468.453 and 1006.74, which govern student-athletes who wish to capitalize on their name, image, and likeness publicity rights.  Florida’s amendments to its NIL laws effectively lift restrictions that had been in place since 2021.

Previously, Florida’s NIL law imposed certain restrictions on colleges (public and private), school personnel, and student-athletes which–while still permitting student-athletes to earn NIL money–limited (among other things) what student-athletes could be paid for and who could be involved in deal negotiations.  As of February 16, 2023, those restrictions are largely gone.

More specifically, according to the Florida Senate’s bill summary, the Sunshine State’s new law removes:

  • Requirements regarding compensation that intercollegiate athletes may earn from the use of their NIL and restrictions on institutional involvement in NIL activities;
  • Requirements and prohibitions for postsecondary educational institutions whose intercollegiate athletes seek to earn compensation or to have professional representation; and
  • Restrictions relating to contracts for the use of an intercollegiate athlete’s NIL.

In real-world terms, Florida’s repeal of these restrictions opens the doors to schools, teams, and coaches to help arrange deals for student-athletes.  Previously, some in the field viewed Florida’s ban on school officials “caus[ing] compensation” to be paid to current or prospective athletes as overly strict and inconsistent with other states’ laws.

Florida also removed its provision barring individual NIL deals from “conflict[ing] with a term of the intercollegiate athlete’s team contract.”   This sets Florida apart from other states with NIL laws prohibiting a student-athlete from entering into deals that would conflict with his or her team’s contract.  Legal issues requiring legal counsel may arise when a student-athlete’s NIL deal clashes with a contractual obligation of the athletic department as a whole.

Florida law still requires colleges to conduct two “financial literacy,” “life skills,” and “entrepreneurship” workshops for a minimum of 5 hours before graduation and maintains certain licensing and character requirements for persons who want to work as an agent for student-athletes.

One other unique facet of (previous) Florida law was that, under the former law, a student-athlete’s compensation had to be “commensurate with the market value of the authorized use of the athlete’s name, image, or likeness.”  That provision, like much of Florida’s NIL old NIL law, is no more.  The practical effect of its removal, however is unclear, because the law in its prior form neither included an enforcement mechanism nor specified who might have standing to sue under such a provision.

Duane Morris operates two offices in Florida and has attorneys ready to assist any party with an interest in, or dispute over, an NIL deal.

New NIL Laws Effective January 1, 2023

In 2022, we saw the value of NIL deals grow to higher-than-ever levels, while states, the federal government, and the NCAA continued to work out new guidance and potential new laws to govern the publicity rights of student-athletes.

Some of those laws went into effect as of January 1, 2023.  States with new NIL laws include:  Colorado, Delaware, Michigan (effective December 31, 2022), and New York.  Other states, like Montana, Nebraska, and Oklahoma are expected to see new NIL laws go into effect later in 2023.

Colorado’s law enshrines student-athletes’ rights to remuneration for use of their NIL, but still appears to permit the NCAA to regulate student-athletes’ exploitation of their NIL rights.  Colorado colleges may not impose any other limitations on NIL rights beyond those from the NCAA.

Delaware’s new law governs those who wish to act as agents of student-athletes at Delaware universities.  The law, which is not principally aimed at the rights of student-athletes to payment for use of their NIL, instead significantly regulates how persons become, and must act as, agents to athletes, going so far as to (among other things) set forth specific data which prospective agents must provide to the Delaware Secretary of State, as well as warning language that must be included in any student-agent contract for representation.

In Michigan, student-athletes’ NIL rights are preserved by the new law, similar to Colorado’s statute.  However, the Michigan statute does not appear to limit NIL rights based on the rules and regulations from the NCAA, and in that sense, could be seen as more favorable to student-athletes, collectives, and institutions.

New York’s new law is similar to Michigan’s, and also appears to not be deferential to the NCAA.  New York’s law, however, has a unique feature:  it requires any Division I college athletic program  to offer a “student-athlete assistance program,” which may include a “financial distress fund” from which student-athletes can receive payments from their school in “times of financial need.”  It is not clear what qualifies as a “financial need,” but the statute does not appear to prevent NIL payments from sponsors alongside payments directly from schools from their “financial distress funds.”

Given the state-to-state differences in NIL laws–just a few of which are outlined above–athletes, managers, and institutions should consult qualified legal counsel before pursuing or acting under potential NIL agreements.

NBA to Permit Sovereign Wealth Fund Investors in Franchises as Valuations Soar

By Alexander Chester

The National Basketball Association (“NBA”) Board of Governors has voted to permit sovereign wealth funds, pension funds and university endowments to invest in NBA teams. Major U.S. sports leagues have traditionally limited who they permit as owners of their franchises, not just for controlling general partners, but for limited partners as well, even though limited partners are traditionally passive owners with no governing rights. However, two years ago the NBA became the first major U.S. sports league to permit private equity investors, and now the league is broadening the scope of potential investors as franchise valuations continue to skyrocket. There are only so many Americans with pockets deep enough to afford franchises that are being sold for several billion dollars, and so the NBA has realized that it needs to expand the pool of possible buyers. Continue reading “NBA to Permit Sovereign Wealth Fund Investors in Franchises as Valuations Soar”

FTX’s Collapse Should Remind Sports Teams to Be Careful When Choosing Their Sponsorship Partners

By Alexander Chester

The dramatic collapse last week of the cryptocurrency exchange FTX will also affect those teams, arenas and other sports companies that have naming rights and sponsorship agreements with FTX.

When a sponsorship partner undergoes a dramatic collapse like that suffered by FTX last week, sports teams that have partnered with the company for naming rights and other sponsorship agreements suffer losses on multiple fronts. First, of course, is the loss of the contractually guaranteed income that the team has taken for granted when budgeting for years to come. But beyond that is the reputational harm. Sports is about winning and losing, and no team wants to be associated with a loser. Continue reading “FTX’s Collapse Should Remind Sports Teams to Be Careful When Choosing Their Sponsorship Partners”

NIL Plaintiffs Seek Class Certification in Antitrust Lawsuit

As we’ve previously written, in 2021, the NCAA suspended its enforcement of some of its rules prohibiting student-athletes from receiving compensation in exchange for the use of their names, images, and likenesses, but certain restrictions remain.  For example, payments to student-athletes cannot be contingent upon their on-field performance or their enrollment at a particular school (though state laws may preempt the NCAA’s rules).

At the time the NCAA partially suspended its NIL rules, three former student-athletes already had a lawsuit pending in the U.S. District Court for the Northern District of California against all of the NCAA’s NIL rules–including those prohibitions against direct payments by universities to athletes and compensating student-athletes based on their performance or enrollment at a particular school.  Those plaintiffs–Grant House, Sedona Prince, and Tymir Oliver–want to recover, for themselves, antitrust damages for the amounts they claim they would have been paid absent the NCAA’s NIL rules, plus an injunction deeming the NCAA’s NIL rules unlawful.  But the plaintiffs also want to represent sizeable classes of other student-athletes (and former student athletes) to try to secure likely hundreds of millions of dollars on their behalves.  The proposed classes include:  men’s football and basketball players who played for a Division I Power Five team (Notre Dame included) on or after June 15, 2016; women’s Power Five basketball players from the same time period; and any other Power Five student athletes (not including football/basketball players) from the same time period.

Last Friday, the plaintiffs filed a motion for class certification–a formal request to the court to “certify” that student-athletes can have their claims decided as a class, as opposed to having them adjudicated individually.  Motions for class certification are major milestones in class action litigation.  If the plaintiffs persuade the court to “certify” the class, then the NCAA and their co-defendants could be held liable to pay damages to thousands of current and former student-athletes.  But if the plaintiffs fail to convince the court that their claims are similar enough and can feasibly be decided on a class-wide basis, then they could only pursue their own individual claims (and the associated damages, if any), greatly reducing the value of their lawsuit.  Motions for class certification–and class action litigation generally–can be extremely complex, and having experienced legal counsel is an absolute necessity.

Name, Image, and Likeness Finding Its Way into High Schools

Well, that didn’t take long.

Little more than a year after the NCAA changed its rules on NIL opportunities for collegiate athletes, state legislatures and state high school athletic associations (at least in some states) have paved the way for high school students looking to capitalize on their names, images, and likenesses.  These developments expand the field of NIL-eligible students exponentially, along with all the questions, uncertainties, and legal gray areas that follow.

To be clear, most states still limit, if not prohibit, high school students from profiting from their NIL rights.  However, as with collegiate NIL, we expect the list to grow until all fifty states and DC have covered the topic, just as Oregon is about to do.  But even in those states which do purport to allow NIL agreements, the policies and procedures might be far from clear.  For example, North Dakota’s governing high school athletic association’s amateurism bylaws provide that a “student may benefit from the use of their name, image and likeness (NIL) consistent with current NDHSAA regulations.”  The problem?  The NDHSAA breaks down its regulations by sport/activity, meaning it is conceivable that student athletes could have different NIL rights depending on the sport they play.  The bigger problem?  Many of the organization’s regulations–including the regulations governing football–do not even address NIL.  This leaves players, coaches, parents, school boards, and businesses in the dark.

High school-level NIL comes with its own unique wrinkles compared to NIL at the college level.  For example, laws differ state by state regarding minors’ capacity to enter into contracts and/or the extent to which contracts may be voided by minors, even after they are signed.  And, it is not clear what will happen when a high school student signs a long-term NIL deal in one state, then goes to another state (with different NIL laws) to play their sport at the collegiate level.

The sheer number of students potentially affected by high school NIL laws and regulations is astounding.  Businesses may even explore doing deals with an entire high school team, similar to what a collective did at Texas Tech.  It is therefore crucial for all sides to understand what state and local authorities allow when it comes to high school NIL.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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