NCAA Suspends Certain Transfer Rules in Light of Mounting Antitrust Pressure

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.

$1 Billion Private Equity Investment in Big 12 Conference

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.

Private Equity Takes Aim at the College Sports Industry

Following the landmark proposed $2.8 billion settlement announcement in the House v. NCAA class action litigation, in late May 2024, two high-profile private equity firms announced they are launching a college sports-specific investment fund designed to provide substantial monetary loans and operational expertise to athletic departments in exchange for a share of additional revenue generated under their partnership. This development signals how bullish the financial industry is on the future of college sports, as well as previews the inevitable increased commercialization of college sports, given the recent lawsuits, settlements, and NCAA rule changes.

As we discussed in our recent Alert discussing the House v. NCAA settlement, the financial impact to NCAA member institutions and their athletic departments, especially among the major conferences, will be significant as certain schools are expected to lose as much as $30 million per year over the next 10 years to cover revenue-sharing distribution, back pay, and expanded scholarship costs. Given the expected losses if the House settlement is finalized, combined with the rapidly changing legal, financial, and legislative landscape surrounding NIL and the monetization of college sports, financial institutions have been provided with a transformative investment opportunity. For example, RedBird Capital and Weatherford Capital together have founded Collegiate Athletic Solutions (“CAS”) to provide universities and colleges with new funding sources. CAS is currently raising money and is already in talks with a number of universities to provide funding. Although the specific details of these negotiations and partnerships has been kept private, CAS’ plan appears to be to initially partner with five to ten athletic departments, offering $50 million to $200 million to each. The structure of CAS’ proposed deals is also nuanced, as CAS is neither seeking to take an equity position in any athletic department’s commercial venture, nor does it intend to secure fixed payments in return for the upfront capital. Instead, the deals appear to be structured with all returns tied to new revenue generation by the respective university and/or college. While this deal structure is not commonplace for private equity firms, CAS’ creative approach to capitalizing the college sports industry is likely to be mirrored by other financial institutions.

This new venture into the world of college athletics does not come without complexities.  Private Equity funds must keep apprised of the ever-changing (sometimes daily) rules, regulations, guidance, and laws concerning NIL payments, and the interplay between student athletes, athletic departments, and NIL collectives. Specifically, the current NIL landscape is regulated by only a meshed web of varying state laws and NCAA rules and guidance; however, Congress (and other state legislatures) could pass legislation at any time limiting the types of capital contributions and/or communications a financial institution can have with athletic departments, student athletes, and NIL collectives.  Similarly, the NCAA could attempt to issue some regulatory oversight and/or guidance for how Private Equity funds can structure their deals with athletic departments. And as set forth above, it is also important that Private Equity firms keep a close eye on state legislatures, because not only have certain states already enacted laws concerning the NIL industry, some states have also recently been targeting Private Equity firm investments into other industries—such as healthcare organizations—and it is of course possible that some states may similarly attempt to target Private Equity investments into college athletics.

Private Equity funds contemplating entering the world of NIL investments should be sure to stay up to date on all NIL-related rules, laws, and guidance to ensure compliance.

NCAA Quarterback Initiates Fraud Lawsuit Against Florida Gators Coach and Booster

The NCAA and its member universities and colleges have faced many recent challenges by current and former student athletes with respect to rules concerning eligibility and payments for their respective name, image and likeness (NIL). On May 21, 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. In the case captioned Rashada v. Hathcock et al., Case No. 3:24-cv-00219 (N.D. Fla. 2024), Rashada filed a federal complaint in the northern district of Florida alleging 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.

The complaint alleges that Rashada’s offer from Florida was comprised of two funding sources. First, a Gators booster, through an automotive company, would pay to Rashada $5.35 million, with a $500,000 signing bonus. And second, Rashada would be paid the remaining amounts from Gator Guard, which the complaint describes as one of Florida’s NIL collectives. To support its allegations, Rashada’s complaint quotes purported text messages. Those messages include texts from boosters to Rashada’s NIL agents that “We need to lock down Jaden!” and “[Florida would] want [Rashada] to flip this week.” Based on the complaint, other texts include those from an attorney for Gator Collective, with the attorney saying, “I might go to sleep if I had $500K headed my way in two weeks … But we need a commitment to get there!!!” Based on these communications, Rashada alleges that the defendants made various representations and promises to him “knowing that they lacked both the intention and the ability to fulfill them.” Further, Rashada claims that Florida’s NIL boosters made various representations that led him to believe that they “had authority to negotiate the NIL agreement” at issue. “As such, Defendants [] acted with actual and apparent authority with respect to their representations” regarding the NIL agreement.

The complaint alleges that Rashada is “the first scholar-athlete to take a stand against such egregious behavior.” However, there is precedent for fraudulent inducement claims against universities by student athletes. In 1993, a college quarterback sued the University of Miami and its head coach, alleging that he was fraudulently induced to attend the university based of false promises of playing time. Fortay v. Univ. of Miami, Civil Action No. 93-3443 (D.N.J. 1993). That case settled for an undisclosed amount. Nonetheless, with the advancements of NIL deals and NIL collectives, it is likely that the Rashada case has the potential to set important precedent for the standards courts will impose when analyzing the behavior of the currently loosely regulated NIL collective industry. Importantly, this lawsuit is yet another type of attack that the NCAA and its member institutions are likely to face in the coming months, in addition to the antitrust claims that have been launched against the NCAA in recent years, which has caused the NCAA to become unable, or unwilling, to implement legitimate regulatory oversight over NIL.

Virginia NIL Law Brings More Change to College Sports Landscape

Sports Law BlogOn July 1, 2024, Virginia’s recently passed amendments to its NIL law—which include significant restrictions on the NCAA’s ability to enforce its NIL policies—will take effect.  Virginia Governor Glenn Youngkin signed House Bill 1505 into law on April 18, 2024.  Under the updated law, it will be illegal in Virginia for the NCAA to “take any adverse action against an institution, its supporting foundations, or an entity acting on its behalf” for any NIL activity permitted under the statute, including direct compensation from an institution to its student-athletes for their name, image, and likeness rights (provided that student fees are not used).  Current NCAA rules purport to prohibit institutions from “compensating student-athletes for use of their NIL,” but Virginia’s new law puts additional pressure on the NCAA to adapt.

On top of re-affirming the rights of student-athletes to earn NIL money and limiting the enforcement powers of athletic associations and conferences, Virginia’s amended law expressly authorizes private rights of action by athletes, institutions, “supporting foundations,” and entities acting on an institution’s behalf.  Any student-athlete “aggrieved” by an institution, athletic association, conference, or similar organization may go to court for an injunction, while any institution (or its supporting foundations and entities acting on its behalf) may recover actual damages and attorneys’ fees if it is subjected to “any actual or threatened complaint, investigation, penalty, or other adverse action of an athletic association, athletic conference, or other organization with authority over intercollegiate athletics for engaging in activities permitted” under the new law.

Virginia’s decision to allow institutions to directly compensate student-athletes stands out from other states that allow colleges to enable, but not necessarily be a direct party to, NIL deals.  As we wrote about previously, states like Missouri allowed collectives to condition NIL deals on attendance at a particular school and allowed schools to “enable” such deals.  Virginia, however, may be the first to permit direct NIL relationships between student-athletes and their colleges.

While the new law could give Virginia colleges an upper hand in recruiting for now, some stakeholders still hope a federal law will make its way through Congress.  University of Virginia Director of Athletics Carla Williams made it clear that, despite the advantage that Virginia universities may gain from the new law, the ultimate goal is “a federal solution or a national solution” to NIL.  Legislation similar to Virginia’s new law that other states (South Carolina, Nebraska, Oklahoma, Illinois, Louisiana and Mississippi) are considering may increase the pressure on the NCAA and Congress to develop a NIL law that applies nationwide.  Virginia’s law could also engender support for Charlie Baker’s proposed plan from December, as major Division I schools outside Virginia will want to minimize any advantages for schools in The Old Dominion.

Update: Judge Sides with State AGs on NIL-Recruiting Ban

On February 23, 2024, United States District Judge Clifton L. Corker of the Eastern District of Tennessee granted a preliminary injunction requested by the attorneys general of Virginia and Tennessee to enjoin the NCAA from enforcing its ban on collectives, boosters, and other third parties from discussing NIL deals with a recruit before the recruit signs at a university (referred to as the “NIL-recruiting ban”).  The ruling also bars the NCAA from enforcing Bylaw, which is its “rule of restitution” (i.e., a rule that allows the NCAA to impose a retroactive punishment if an ineligible athlete is permitted to compete under an injunction, restraining order or other order of a court).

The states persuaded Judge Corker that student-athletes would suffer irreparable harm absent a preliminary injunction (though the court was critical that the states themselves, or the universities in them, suffer any irreparable harm from the NCAA’s policy).  More importantly, Judge Corker agreed that the NCAA’s policy is likely to be found to violate the Sherman Antitrust Act by unreasonably restraining trade in the relevant market and restricting competition among schools and NIL collectives to arrange the best NIL opportunities for athletes.  The decision, while not a final adjudication on the merits of the case, may be a momentous step toward further limiting the NCAA’s power to regulate compensation to student-athletes.  It also calls into question whether state laws that impose the same recruiting limitations (like Tennessee’s NIL law) are preempted by the Sherman Act.

The court’s signal that the attorneys general are likely to succeed in invalidating the NCAA’s policy may inspire other student-athletes (or attorneys general) in other states to bring challenges to other NIL policies.  While the NCAA has been in the legal crosshairs of many student-athletes, states, and universities for quite some time, this lawsuit is among the most direct challenges to the NCAA’s ability to limit compensation to student-athletes.  The court’s decision that Tennessee and Virginia are “likely to succeed” could drive interest in attacking other NCAA policies.

Although the court’s ruling temporarily lifts the NIL-recruiting ban, schools, boosters, student-athletes, and NIL collectives still need to be cautious of state laws and other unaffected NCAA policies that remain in effect.

State AGs, Division I University, and NCAA Trade Punches Over NIL

This week, media outlets reported that the NCAA is investigating alleged name, image, and likeness (NIL) violations by the University of Tennessee and its NIL collective.  Just one day later, Tennessee’s attorney general, joined by the attorney general of Virginia, filed an antitrust lawsuit against the NCAA.  The lawsuit is a counter-punch that could have significant implications for college sports and the NIL phenomenon.

Although the concrete details surrounding the NCAA’s investigation into Tennessee’s NIL activities are scant, it is widely believed that the investigation involves the university’s main NIL collective run by Knoxville-based sports marketing group Spyre Sports Group, and that it covers the football program as well as athletes in other sports.  Among the matters under investigation are reports that Tennessee’s NIL collective flew Volunteer quarterback Nico Iamaleava on a private jet during his University of Tennessee recruiting visit.  It appears likely that the investigation focuses, at least in part, on the NCAA’s policy that NIL dollars cannot be used to induce or mandate an athlete’s enrollment or attendance at a particular school.

On Wednesday, in the wake of the announcement of this investigation, Tennessee Attorney General Jonathan Skrmetti, joined by the Commonwealth of Virginia Attorney General Jason Miyares, filed suit against the NCAA for violations of the Sherman Antitrust Act.  The attorneys general filed a motion for a preliminary injunction that would bar the NCAA from enforcing its NIL policies while the lawsuit is pending.  If that motion is granted in full, (1) the NCAA would instantly lose its ability to police schools for alleged violations of its NIL policies; and (2) the court would send a signal that Tennessee and Virginia are likely to succeed on the merits of their lawsuit, potentially ending all current NCAA-driven NIL regulation as we know it.  United States District Court Judge Clifton L. Corker will hold a preliminary injunction hearing on February 13, 2024, and he could decide the motion shortly thereafter.

The NCAA’s ban on NIL-based inducements is at odds with laws in some states.  For example, in 2022, Tennessee deleted a provision from its NIL law that prohibited collectives from conditioning NIL payments on the student-athlete’s enrollment at a school.  Other states, like Missouri, have laws that expressly permit inducement, while others simply have no law that bans inducement (or no NIL law at all).  Recognizing this tension, the NCAA purports to require member schools to “adhere to NCAA legislation (or policy) when it conflicts with permissive state laws.”

This Complaint, among other things, claims that the NCAA unfairly places “protections” on college athletes to pursue NIL compensation by banning prospective college athletes (including current college athletes in the “transfer portal”) from discussing potential NIL opportunities before they actually enroll.  These restrictions, Virginia and Tennessee contend, restrict competition among schools and NIL collectives to arrange the best NIL opportunities for the athletes.  The complaint alleges that “[a] prospective athlete must commit, enroll, or transfer without understanding the NIL opportunities available at the destination or comparing those opportunities to the ones at competing schools.”  According to the states, this NIL-recruiting ban limits competition and artificially decreases NIL compensation that college athletes could otherwise obtain in a free market.

Although the investigation against the University of Tennessee and the lawsuit against the NCAA are new and developing matters, the potential for either (or both) to affect athletes, schools, collectives, and other parties involved in NIL is clear.  If the investigation results in findings against UT, it may signal that the NCAA has drawn a line in the sand that it intends to defend in spite of what state law might say.  Meanwhile, Tennessee and Virginia’s antitrust claim has the potential to become another milestone NIL decision, the likes of which we have not seen since NCAA v. Alston.

NCAA Proposes (Some) Schools Directly Compensate Athletes

This week, NCAA President Charlie Baker sent a letter to Division I member schools proposing the creation of a new subdivision in which the institutions with the wealthiest athletic programs could directly pay student-athletes for their name, image, and likeness.  If accepted, schools in this subdivision—which would likely include institutions like the University of Texas, Ohio State, the University of Georgia, and the like—would have the flexibility to set their own recruiting, roster, transfer, and NIL rules.  The NCAA’s letter may be a step toward a “super league” that some commentators believe is inevitable.

The letter’s overarching theme is that a single set of rules governing all Division I schools is no longer practicable.  Since 2021, the year the NCAA amended its transfer portal rule and the Supreme Court decided NCAA v. Alston, 141 S. Ct. 2141 (2021), the law and economics underlying college athletics have become more and more unsettled, and the legality and practicality of the NCAA’s model has come under increased scrutiny.  The letter signals the NCAA’s willingness to consider major policy changes.

In his letter, Baker acknowledged the widening financial gap between the Division I schools with the highest-funded athletic programs and other competitors, which has only grown since the Alston ruling.  To counteract this disparity, Baker proposed three changes for consideration of the NCAA’s affiliates.

The first suggested change is to create the possibility for all Division I colleges to discretionarily offer “enhanced educational benefits” to athletes. Baker did not expand upon the meaning of “enhanced educational benefits” or whether these are novel benefits. The second proposal are optional rule changes for Division I institutions to enter into NIL licensing opportunities with athletes.  Again, Baker did not elaborate on this suggestion.  Baker did, however, deem these two proposals as beneficial to gender equality, considering schools will need to follow gender regulations when contemplating investments in their athletic programs.

As noted above, the final, and most groundbreaking suggestion, is to create a subdivision allowing high revenue institutions to directly compensate athletes “[w]ithin the framework of Title IX.” Members of this subdivision would invest at least $30,000.00 per year into an “enhanced educational trust fund” for half, or greater, of the school’s student-athletes, and also commit to creating rules that differ from the rules affecting all other Division I institutions.

The letter is unclear as to whether the NCAA will abandon efforts to lobby for federal NIL legislation, and there is always the possibility that state governments will take their own actions in response to the NCAA.  As ever, the interplay between NCAA policies and state/federal law is dynamic, leaving interested parties with more questions than answers.

Student-Athletes and Former Athletes Make Their Cases to Agencies, Courts, and the President

As the holidays (and the College Football Playoff!) approach and the NCAA continues to push for federal Name, Image, and Likeness (NIL) legislation, current and former student-athletes are arguing their cases to the federal courts, White House, and the National Labor Relations Board (NLRB).

Potentially groundbreaking hearings in NLRB Region 31 (covering the Los Angeles area) began on November 7, 2023, regarding allegedly unfair labor charges.  The outcome of the hearings, arising out of claims brought by athletes against respondents including the University of Southern California (USC), the Pac-12 Conference (Pac-12), and the NCAA, may dictate whether these entities should be considered “joint employers” who systematically misclassify employees as “student athletes,” as the athletes argue.

Administrative law judge Eleanor Laws is presiding over the hearings.  If ALJ Laws decides that the athletes should be classified as employees, the respondents will have a new set of legal issues to consider under the Fair Labor Standards Act (FLSA), including minimum-wage and overtime compensation obligations (subject, of course, to appeal).  Furthermore, if the athletes prevail, other hurdles for the respondents could include developing compliance measures related to social security, workers’ compensation, health and safety protections, ensuring protections against discrimination and harassment, and recognizing a statutory right to unionize and collectively bargain for a share of collegiate sport revenues.  While ALJs are independent decision-makers, NLRB General Counsel Jennifer Abruzzo has already indicated that, in her opinion, certain players at colleges and universities should qualify as employees of their institutions.  The hearings could last until February 2024.

While the decision in this case would only directly affect the parties to the action, other athletic conferences and universities are almost certainly interested in the outcome, given that similar claims could be brought against them, in which the judge’s order could be cited as persuasive authority.

The NLRB case is not the only major legal action concerning NIL.  As our colleagues covered in detail, on November 3, 2023, Judge Claudia Wilken of the U.S. District Court for the District of Northern California certified three classes seeking to recover compensation for use of their NIL.  The plaintiffs in that case, including Power Five conference players in football, men’s basketball, and women’s basketball, have demanded back pay related to the use of their NIL during television broadcasts.  A favorable ruling could result in more than $4 billion in damages.

Outside the courtroom, President Biden and other White House officials met with former college football players to discuss the rights of college athletes.  In the meeting, former players reportedly presented their cases for player safety, compensation to student-athletes, Title IX, and unionization.  Notably, however, neither Biden nor his staff made any commitment to push for passage of any of the bills currently pending in Congress or for any other legislation or regulations.

© 2009- Duane Morris LLP. Duane Morris is a registered service mark of Duane Morris LLP.

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

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