Category: General

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.

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.

On 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.

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 12.11.4.2, 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.

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.

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.

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.

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.

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.