NCAA Ban on Booster-Backed NIL Collectives Invites Legal Chaos

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The NCAA might soon restart its war on name, image and likeness. The organization, which until July 2021 aggressively forbade athletes from enjoying NIL opportunities, is considering the adoption of guidelines to sharpen the lines between NIL and pay-for-play.

As described by Sports Illustrated, the guidelines draw from existing NCAA rules—rules the NCAA hasn’t enforced since the NIL era began last July—that prohibit boosters and booster-backed collectives from partnering with recruits. Last December, Sportico reported the NCAA was probing Miami and BYU for possible rule violations stemming from the blurring of pay-for-play and NIL. The guidelines could be approved by the administrative council of the NCAA Board of Directors next week.

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The guidelines could also spark several layers of litigation.

As a starting point, a high school athlete, college athlete, booster, collective or other impacted party could petition a judge for a restraining order. If granted, the order would bar the NCAA from enforcing a rule that conflicts with a state NIL statute.

Although NIL statutes vary on details, they share a basic blueprint: make it illegal for colleges to block their athletes from signing endorsement deals, sponsoring camps, promoting content on social media, hiring an agent and engaging in other paid NIL activities that do not interfere with school contracts or university policies. NCAA rules that disallow collectives, or impose compensation caps on them, could be deemed as violating state NIL statutes and warranting injunctive relief.

The analysis is complicated, however, by the contractual relationship between a college and the NCAA.

As NCAA members, colleges assent to follow NCAA rules. The NCAA enjoys the contractual authority to punish schools that violate rules; the NCAA could even expel a college as a member.

In other words, a college that, through its membership contract with the NCAA, is legally obligated to enforce NCAA rules could simultaneously run afoul of a state NIL statute. The school could argue it should be relieved of its contractual obligation to the NCAA since meeting that obligation would necessitate an illegal act—violating an NIL statute. Few, if any schools, would at this point want to battle the NCAA, which oversees its athletics program, in a breach of contract lawsuit where membership could be lost.

Meanwhile, a battle between boosters and the NCAA could provide the NCAA with an opportunity to challenge NIL statutes themselves.

In a hearing before the U.S. Senate in June 2021, NCAA president Mark Emmert acknowledged there were potential legal strategies to contest NIL statutes’ legality. The NCAA declined to invoke those strategies, instead adopting an interim NIL policy that told schools to follow state law or, if no state law exists, adopt a set of NIL rules that distinguishes NIL from pay-for-play.

The NCAA could argue that NIL statutes, as enforced by states over the last 10 months, have muddied the line between NIL and pay-for-play and should be enjoined by courts.

The NCAA already possesses a legal playbook for that type of case.

Three decades ago, the NCAA sued Nevada Gov. Robert Miller after his state adopted a statute that supplied due process protections—including the right to an impartial hearing officer— to coaches and athletes in that state. Those protections guaranteed rights that conflicted with NCAA enforcement rules. The NCAA defeated Miller at both the district court level and before the U.S. Court of Appeals for the Ninth Circuit.

How could the NCAA win a case where it was arguing that basic legal protections were illegal?

The answer partly lies in the contractual relationship between member schools and the NCAA, and how a state statute can unlawfully interfere with that relationship.

The NCAA highlighted Article I, Section 10 of the U.S. Constitution. The so-called Contract Clause forbids states from passing laws that “impair the obligation of contracts.” The NCAA successfully argued that Nevada’s statute interfered with contractual relationships with Nevada colleges. The NCAA, U.S. District Judge Howard McKibben wrote, would have had to “treat Nevada member institutions differently than it treats the other member institutions in contravention of preexisting contractual agreements.”

The other part of the answer rests in the impact of a state NIL statute on economic activities involving the NCAA and member schools in other states.

To that end, the NCAA noted that the Commerce Clause, as found in Article I, Section 8 of the Constitution, has been interpreted to prohibit states from adopting statutes that substantially interfere with other states’ economies. Nevada’s statute, Ninth Circuit Judge Ferdinand Fernandez reasoned, made it impossible for the NCAA to equally treat schools in 50 states. Nevada’s statute forced the NCAA to treat schools in that state favorably. The NCAA’s only remedy would have been to adopt Nevada’s rules for colleges in all 50 states. But even that approach, the judge found, might fail due to what is sometimes referred to as the “patchwork problem.” It refers to the possibility of other states enacting statutes that conflict with Nevada’s, making it impossible for the NCAA to pick one set of rules.

With Miller in mind, the NCAA could maintain that a state NIL statute which prevents the NCAA from enforcing pay-for-play rules impairs the contractual obligation between the NCAA and schools in that state (Contract Clause) and substantially interferes with the NCAA’s business with schools in other states where NCAA rules are enforceable (Commerce Clause). There is also a potential patchwork problem, the NCAA might assert, if one state’s NIL statute effectively authorizes pay-for-play since other states could use their own rules and the NCAA might be unable to land on one rule for all.

This legal strategy is hardly certain to prevail. NIL, a state could contend, is outside the scope of member schools’ relationship with the NCAA. It is instead about the athlete and parties other than the school. A state could also insist that the NCAA’s interim NIL policy declined to explicitly prohibit collectives and thus the NCAA has acquiesced. Athletes and the businesses with whom they sign NIL deals could also turn the Contract Clause argument on its head and insist the NCAA can’t impair their contracts.

In any attempt to limit state NIL statutes or to constrain the economic freedom of athletes under those statutes, the NCAA could encounter problems with a different area of law: federal antitrust law.

NCAA rules are vulnerable to scrutiny under Section 1 of the Sherman Antitrust Act. It prohibits competing businesses (including NCAA member schools) from conspiring to unreasonably restrain competition. Rules that the NCAA and its members adopt to prevent athletes from enjoying booster-backed collectives are potentially problematic. Those rules adversely impact economic opportunities for athletes and, by preventing individual schools from choosing to allow those opportunities, arguably interfere with a market for players’ services.

The NCAA no longer enjoys favorable treatment under antitrust law. That era bluntly ended when the U.S. Supreme Court held, 9-0, in favor of Shawne Alston in his class action lawsuit. Alston concerned NCAA rules that limited how much each member school can compensate athletes for academic-related costs. Here, the focus would be on NCAA rules that compel member schools to prohibit or otherwise restrict NIL collectives and related booster activities. Generally speaking, the more restrictive the rule, the more vulnerable it would be to antitrust scrutiny.

No matter its form, NIL litigation wouldn’t occur in a vacuum. It could disrupt the growing NIL market. Schools, businesses and even athletes might worry about potential legal exposure. In the aftermath of the NCAA failing to change NIL rules after Ed O’Bannon defeated it in federal court, Electronic Arts declined to publish college basketball and college football video games. EA, which reached a settlement with O’Bannon, was concerned about publishing games without the NCAA agreeing to let players get paid for their NIL.

One potential solution: Congress could pass a federal NIL bill that addresses the various aspects of NIL and governs all states. This is an approach that I have advocated for in testimony before the U.S. Senate. To date, no federal bill has made it out of committee. And, in an election year with more pressing issues on the minds of Americans, NIL legislation will likely remain in the background. But as college leaders continue to express frustration over NIL morphing into pay-for-play, don’t be surprised to see the topic resurface in the next Congress.

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