The prospect of NIL collectives being rendered extinct by the House settlement has been avoided.
For now.
Last week, attorneys for the House plaintiffs and defendants reached an agreement in conjunction with the College Sports Commission that will save collectives and avert a legal showdown. However, the fundamental question of what “NIL” means in the increasingly pro sports-like world of big-time college athletics remains in play and is sure to spark further conflicts.
In July, the CSC, which is funded by schools and conferences, issued guidance regarding an NIL Go review of NIL deals worth at least $600, as required by the House settlement. NCAA Bylaw 22.1.3 mandates that NIL deals have a valid purpose “related to the promotion or endorsement of goods or services provided to the general public for profit.” That means the athlete’s NIL is used to promote the sale of product or service that the public buys, and that the athlete’s compensation is “commensurate with compensation paid to similarly situated individuals.”
Based on this language, an NIL collective that collects and shares donations with athletes in exchange for their commitment to a university would not be engaged in an activity with a valid business purpose. The purpose would instead be pay-for-play, meaning the athlete is paid to go or stay at a school. NCAA rules, including those that remain in effect with the House settlement, prohibit pay-for-play.
Controversy arose when the CSC illustrated how a backer of an NIL deal must be an entity that provides goods for services to the public for profit. The CSC noted that even if a collective pays an athlete to appear at a golf tournament or autograph show, paying the athlete (or other athletes) a share of the entrance fees is problematic. That’s because the money collected would be intended to pay the athlete(s) and not sell a product or service to the public.
House attorneys Jeffrey Kessler and Steve Berman disputed the CSC’s depiction. They argued that while collectives can’t collect and share donations, collectives can pay athletes for use of their NIL at autograph signings and other events where the athletes are compensated in reflection of their marketability.
Had Kessler, Berman and CSC failed to resolve their interpretative disagreement, U.S. Magistrate Judge Nathaniel Cousins, who U.S. District Judge Claudia Wilken designated to oversee implementation of the settlement, could have weighed in. Instead, the two sides issued a joint statement acknowledging that the “traditional” pay-for-play “purpose” of many collectives doesn’t satisfy the valid business purpose requirement. They also stressed CSC analysis of payments will “focus on substance, not labels”—that means “nothing in the Settlement” automatically blocks collectives “from making NIL payments” to athletes, “as long as such NIL payments have a valid business purpose related to offering goods or services to the general public for profit and fall within the range of fair market value compensation.”
The statement went on to emphasize that an NIL deal’s purpose will be determined on a “case-by-case basis” by the CSC, and if there’s a challenge, it will go to a neutral arbitrator.
Collectives will thus continue, meaning some athletes can draw from three sizable sources of compensation: (1) athletic scholarships, which cover tuition, housing, health resources and other benefits; (2) revenue share payments made directly by schools, up to an initial $20.5 million cap; and (3) NIL deals, including with collectives.
It’s no surprise that some college athletes, especially those who are marketable as college stars but not quite good enough to play in the NFL or the NBA, are suing the NCAA to remain eligible after exhausting their eligibility. Right now, there’s a lot of money to be made by staying in school and playing sports.
The challenge for CSC and, by extension, the NCAA and its member conferences and colleges is how long this system will hold up before more lawsuits are filed. An early test will be CSC review of NIL deals, be they with collectives or others.
NIL is supposed to reflect use of an athlete’s right of publicity, which forbids misappropriation of the unique and marketable qualities of an athlete, entertainer, actor, musician, artist, model and other people. The right of publicity includes NIL and voice, signature and anything that makes them unique. It’s why Ed O’Bannon sued the NCAA and EA over use of college players’ likenesses in video games without their consent and without paying them. This right is essential to endorsement deals by pro athletes and celebrities, since they are paid to urge their fans and consumers to buy a product or service.
With some collectives, however, NIL has been used more like a signing bonus in that payment is contingent on a recruit picking a school. Inducing matriculation and retention at a university is not NIL as understood as part of the right of publicity. It’s also an arrangement that the CSC, through it Deloitte-run NIL Go platform, will reject.
Many have suggested CSC rejections of NIL deals will lead to lawsuits. The House settlement mitigates that risk by requiring arbitration for parties whose NIL deal is rejected. Arbitration will reduce the likelihood of litigation, not only because it contemplates a separate process before a viable lawsuit could be filed but also because federal law requires courts to give high deference to arbitration decisions. Arbitration won’t eliminate the risk, especially in light of recent statutes and executive orders in Georgia, Virginia, Texas and other states that protect NIL rights in ways that might pose conflicts with NIL as understood by the House settlement.
If the powers in college sports want to greatly reduce the risk of NIL-related litigation, there’s a playbook, but it’s not one they want to read. The NCAA, conferences and colleges could recognize athletes as employees who in turn can unionize and then bargain a CBA. There’s a lot of complexity there, including with respect to joint employment and conflicts between federal and state labor and employment laws as they apply differently to athletes at public universities and private universities.
But in a world where, hypothetically, athletes were employees of power conferences (which are private entities), those athletes could likely unionize under the National Labor Relations Act. The upside for all involved: terms in a CBA that primarily relate to wages, hours and other working conditions, including interplay with NIL, would be exempt from antitrust scrutiny through the non-statutory labor exemption (which reflects a series of U.S. Supreme Court decisions). The athletes could also remain full-time students at their colleges and thus remain subject to education-based and other academic requirements.
That outcome likely makes too much sense for college sports, which seems to prefer to litigate every move. That’s good news for attorneys and law schools, who are experiencing record-breaking application rates, but maybe not so much college sports.
(This story has been updated in the third paragraph to include House defendants as party to the revised agreement, and in the fourth paragraph to note that the College Sports Commission is funded by defendant schools and conferences.)
