The House settlement was supposed to bring clarity and calm to big-time college sports, but attorneys who negotiated the deal already disagree on what it means for NIL collectives.
The disagreement won’t imperil the multibillion-dollar truce, but it’s an early test of an arrangement crafted by attorneys who may have agreed on language but not on what the words mean.
Last Friday, Yahoo Sports reported on attorneys Jeffrey Kessler and Steve Berman—the duo representing the plaintiff athletes and class members—sending a letter to the NCAA and power conferences demanding retraction of a guidance issued last Thursday by the College Sports Commission (CSC). As Sportico detailed, the guidance clarified that an entity whose purpose is to pay athletes or colleges rather than to sell goods and services to the general public likely won’t satisfy a House settlement requirement that the payor of an NIL deal worth at least $600 use the athlete’s NIL for a valid business purpose.
The letter stated that the purpose of the requirement is to prohibit NIL collectives from “simply receiving donations and paying athletes for pay,” not to prevent them from paying athletes for use of their NIL such as to appear at a golf tournament or attend an autograph signing. The letter demands that the CSC “clarifies that the valid business purpose requirement applies to NIL collectives in the same manner as any other entity.”
At the heart of the debate is interpretative disagreement about NCAA Bylaw 22.1.3, which governs the involvement of so-called associated entities in NIL deals.
As U.S. District Judge Claudia Wilken explained in her June 6 order granting final approval to the settlement, an associated entity “is one that is closely affiliated with an NCAA member school for the purpose of promoting the school’s athletics program or its student-athletes.”
In the pre-NIL era, entities closely affiliated with a school’s athletics program were sometimes labeled “representatives of an institution’s athletics interests” or “third-party entities that promote an athletics program.” Those terms include boosters who try to recruit athletes to attend a particular college. Boosters are still around and sometimes run afoul of NCAA rules by paying or otherwise providing benefits to recruits as inducements to attend a college. Boosters have been known to act as proxies for coaches, who accept NCAA rules prohibiting them from inducing recruits via compensation.
Associated entities is a phrase that includes NIL collectives, which perform similar functions as boosters but under the guise of NIL. Collectives are groups formed by boosters and other supporters of an athletic program for the purpose of collecting or pooling money to facilitate NIL opportunities for athletes. Some collectives have arranged for “NIL deals” where recruits are only be paid if they matriculate to a particular school. Those types of deals resemble pay-for-play arrangements, which the NCAA continues to prohibit, since they’re designed to incentivize an athlete to commit to a school.
Inducing an athlete to attend a college performs a different function from the intent of NIL, which draws from the right of publicity. This right forbids misappropriation of the unique and marketable qualities of a person.
When Ed O’Bannon sued over NIL, it was so that college athletes could be compensated for their likenesses appearing in video games—just like NBA, NFL, MLB and NHL players are compensated for the same usage. When a professional athlete is paid to endorse a shoe company in a TV commercial or to influence a brand on social media, that too is use of NIL. A company is paying the athlete to promote a product or service the company is selling to the public in hopes of securing a profit.
Back to NCAA Bylaw 22.1.3. It requires a valid business purpose “related to the promotion or endorsement of goods or services provided to the general public for profit.” This language is designed to ensure that the payment reflects use of the athlete’s NIL to promote the sale of “something” that the public buys.
The bylaw also requires “compensation at rates and terms commensurate with compensation paid to similarly situated individuals.” If a collective pays a recruit 10 times what a comparable endorser would normally be paid for the same activity, that’s a sign the payment is more pay-for-play than NIL.
The CSC’s guidance says that a valid business purpose for an NIL deal must involve an entity that is providing goods or services to the public for profit. This standard means 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, because the money collected would be intended to pay the athlete(s) and not sell a product or service to the public. The Kessler and Berman letter refutes this interpretation, arguing the settlement does not preclude a collective from paying athletes for use of their NIL in the entrance fee situation and related contexts.
There are several ways the situation could play out. The CSC could alter its guidance to conform more to Kessler and Berman’s wishes, and the NCAA could modify 22.1.3 for the same purpose. The parties could ask U.S. Magistrate Judge Nathanael Cousins, who Wilken designated to oversee implementation of the settlement, to consider the dueling arguments and issue an order. Meanwhile, athletes and NIL collectives whose deals are rejected by the CSC could commence their own litigation. They could bring federal antitrust and state NIL statute claims, though those claims could face sizable hurdles. Alternatively, collectives could alter their structures so the sale of products and services to the public is a core part of their missions. Others could fold as athletic departments offer to share revenue with recruits.
In theory, one or more of the settlement parties could petition Wilken to terminate the settlement on grounds the parties incorrectly believed they had a meeting of the minds. If that sounds far-fetched, it’s because it is. Wilken would point out the parties negotiated the settlement for more than a year and had ample opportunity to clarify what words meant.
Many thousands of athletes, parents, college administrators and others have also relied on the settlement in making important life decisions. To unwind the settlement because of textual ambiguity could cause sizable harm.
There’s also something called money. The settlement has a lot of it. There’s the $2.8 billion damages payout to D-I athletes in reflection of lost NIL, video game and broadcasting opportunities. There’s the revenue share of up to 22% of the average power conference athletic media, ticket and sponsorship revenue. And just last Friday, Wilken approved class counsel’s petition for $515.2 million in fees, plus $9.4 million in litigation expense and court costs. It’s hard to envision the deal collapsing with so much money on the line.
NIL collectives may be important industry players, but don’t expect the settlement to blow up over their fate.
