Duane Morris Sports Law

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.

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.

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.

Late last week, the Associated Press reported that Senators Tommy Tuberville and Joe Manchin have taken an interest in college students’ NIL rights, and have begun contacting key personnel within the industry to solicit opinions on what eventual federal legislation may look like. Currently, no federal legislation directly regulations NIL rights, and as we wrote last week, decisions from the Supreme Court also do not directly authorize students to profit from their names, images, or likenesses.

According to the AP, the senators say that their staffs have already started drafting legislation to address the comments they’ve received. It comes as no surprise that Senators Tuberville and Manchin have taken up the NIL cause; Tuberville, an Alabaman, and Manchin, a West Virginian, have major college sports programs within their constituencies.  Tuberville formerly coached at Auburn University (though we do not expect he will try to sneak a provision into the bill that says “Alabama may only play with 10 players every year in the Iron Bowl”).

Federal legislation could have a major impact on students’ NIL rights across the nation, but it does not necessarily have to. Any legislation could just as likely be narrow and unimpactful, especially once other legislators have an opportunity to weigh in, amend, and negotiate the proposed bill. And, it’s no guarantee that the senators’ bill will ever pass. Eight other bills have been proposed over the last four years, and none have progressed to become law.

But, if Senators Manchin and Tuberville are successful in passing legislation, then states, colleges, the NCAA, student athletes, and businesses interested in entering into NIL deals will have to determine the extent to which the federal law trumps their state’s laws. Under the Constitution’s Supremacy Clause, when a federal law covers a specific issue that state law also covers, the federal statute generally controls. But, often times, it is possible for state law to apply alongside federal law, and in some cases, a court may find that the federal and state laws do not actually conflict. This phenomenon–also known as preemption–is often a case-by-case problem.

Duane Morris continually monitors for developments in NIL legislation, and its attorneys and government strategies team aim to help their clients understand how legislation may affect them. If this (or any other NIL) moves forward, you’ll hear about it here.

On June 17, 2022, The Ohio State University announced it had surpassed 1,000 name, image, and likeness (“NIL”) deals during the first year of the policy’s existence.  It was almost exactly one year prior—June 30, 2021—that the NCAA first suspended its NIL rules for student-athletes.  That means that, on average, 2.7 NIL deals are signed every day with Ohio State athletes.    Other powerhouse athletic programs—Georgia, Texas, Clemson, Southern California, Alabama, and all the others—cannot be far behind.

If you are not familiar with NIL, you are neither alone nor behind the times.  It is a rapidly changing area where sports, education, law, politics, and fanaticism for one’s chosen college team intersect.  At its most basic, “NIL” refers to a college student-athlete’s agreement to allow a third party—be that a car dealership, app developer, or energy drink producer—to use his or her name, image, or likeness to promote its brand.

Until last June, the NCAA did not permit any student-athletes to receive any compensation for the use of their names, images, or likenesses.  That meant that, despite appearing on live, televised games, archived game footage, sports video games, and other media, student-athletes could not be compensated as their likenesses were used, and even though they did not give consent to their use.  The change started several years before, when former UCLA basketball player Ed O’Bannon famously sued the NCAA and, around the same time, former Nebraska and former Arizona State and Nebraska quarterback Sam Keller sued both the NCAA and Electronic Arts, Inc. (a video game company), alleging that the defendants violated the Sherman Antitrust Act and other state publicity statutes and common law doctrines.

When it was decided in 2015, O’Bannon did not result in a holding that students are entitled to payment for use of their NIL.  In fact, the Ninth Circuit Court of Appeals held that the NCAA’s rules prohibiting compensation were valid insofar as student-athletes were not entitled to up to $5,000 in deferred compensation for their NIL rights, to be paid after graduation.  But the O’Bannon case was merely the first domino to fall, and when it did, it launched NIL rights into the wider college sports discourse.

State governments began to address the NIL debate.  In 2019, California was the first state to pass legislation on this issue.  California’s Fair Pay to Play Act provides that no postsecondary school, athletic conference, or organization with authority over collegiate athletics (i.e., the NCAA) may prevent a student-athlete from earning compensation for “the use of the student’s name, image, likeness, or athletic reputation.”  At least 25 other states have since passed laws on the same issue, while at least three governors have issued executive orders on NIL rights (one of which became statutory law).

In 2021, the U.S. Supreme Court decided NCAA v. Alston, in which current and former NCAA Division I football and basketball players again challenged the NCAA’s policies forbidding compensation under the Sherman Act.  Though the Supreme Court ruled in favor of the plaintiffs, Alston, like O’Bannon, did not itself hold that student-athletes must be allowed to received compensation for their NIL.  Yet, after suffering two losses in federal court and watching state legislatures take action to promote student-athletes’ NIL rights, the NCAA voluntarily adopted a policy that suspended the prohibition against student-athletes earning compensation for their publicity rights.

The NCAA’s relaxation of its NIL policy was intended to allow student-athletes to earn money, aside from their scholarships, for their appearance in ads, at events, and the like.  From the outset, the NCAA insisted it would nevertheless “preserve[ ] the commitment to avoid pay-for-play and improper inducements tied to choosing to attend a particular school.”

But in the intervening year since Alston was decided, the NCAA’s decision has resulted in a frenzy of activity over the past year that has blurred the lines between permissible NIL activity, pay-for-play, and recruitment.  Millions of dollars’ worth of deals have been negotiated with student-athletes (at the University of Texas alone, more than 150 student-athletes have signed NIL deals that, in total, surpassed $2 million).  Almost half of that amount is going to the school’s football players.  Donor “collectives” have sprung up to fund NIL deals for students in the six- and seven-figures.  Universities have enacted NIL policies in attempts to comply with both their NCAA obligations and state law.  States, meanwhile, have reportedly changed their laws to permit these “collectives” to openly cooperate with universities and athletic departments in what may be an arms race for empowering their colleges to attract the most sought-after recruits. The potential legal issues are limitless.

Duane Morris always has its ear to the ground for developments in sports law, this blog intends to follow the major legal developments in the NIL space while providing practical updates to colleges, students, and businesses who have an interest in this ever-changing body of law. As athletes return to campus, and as NIL begins its second year in full effect, the news is certain to keep coming, and you can track key changes right here.