The college sports industry faces a looming and complicated legal crisis, with at least four states’ name, image and likeness statutes will go into effect on July 1.
Barring judicial or legislative intervention, Florida, Alabama, New Mexico and Mississippi will be the first to have active NIL laws on the books. Several other states’ governors have signed NIL statutes that will take effect later this year or at the beginning of 2022, while still other state legislatures are advancing NIL bills.
This evolving dynamic raises a number of questions that implicate the law.
Will the NCAA seek court injunctions to stop NIL statutes from taking effect? Will the NCAA announce its own NIL rules to govern schools across the country? Will Congress pass, and President Joe Biden sign, a federal NIL statute? Will colleges in non-NIL states, worried about recruiting advantages ceded to colleges in NIL states, defy their NCAA membership obligations and allow NIL? Will the NCAA sanction or threaten to expel member schools that act in defiance of contractual responsibilities? Will the NCAA simply do nothing and let the market play out?
The states’ NIL statutes are similar. In Florida, for example, college athletes at Florida colleges will be able to hire agents, sign endorsement deals, sponsor businesses and be paid to influence on social media. The statute also expressly forbids Florida colleges from adopting or enforcing rules that would interfere with athletes’ NIL rights. As a consequence, a Florida school that enforces NCAA amateurism rules with respect to athletes’ NIL rights would be breaking Florida law and subject to litigation.
The Florida statute features important restrictions. An athlete can’t enter into a contract that conflicts with a contract signed by his or her team. Compensation must also be “commensurate with the market value” of an athlete’s NIL, a qualification designed to limit opportunities for boosters to cloak “play-for-pay” compensation as NIL payments. To that end, NIL compensation can’t be paid in exchange for athletic performance or attendance at a college. Such payment can only be made by a third party unaffiliated with the college. Other states’ NIL statutes feature additional boundaries. Alabama’s NIL statute, for example, forbids endorsement deals for tobacco products, casinos and adult entertainment.
Scenario I: The NCAA seeks court orders enjoining state NIL statutes from taking effect
Before July 1, the NCAA could seek judicial declarations that prevent, or at least delay, states’ NIL statutes from going into effect. The NCAA could name the relevant governors as defendants and pursue litigation in federal court.
This is not a new strategy for the NCAA. The not-for-profit tried it nearly 30 years ago on a much smaller scale—and it worked.
In the early 1990s, the NCAA successfully sued Nevada Gov. Robert Miller to block his state from guaranteeing that college coaches and players receive due process protections, including the right to an impartial hearing officer (in conflict with NCAA committee on infractions adjudications). These protections were captured in a state statute. A federal district judge and later a three-judge panel on the U.S. Court of Appeals for the Ninth Circuit agreed with the NCAA that Nevada’s statute violated the U.S. Constitution.
Two constitutional clauses were violated. The first was the “Contracts Clause” of Article I, Section 10. It instructs that “no state shall . . . pass any . . . law impairing the obligation of contracts.” The NCAA insisted that Nevada’s statute impaired its contractual relations with member schools in the state. Those schools, per their NCAA membership agreements, are contractually bound to follow NCAA rules. U.S. District Judge Howard McKibben noted that the NCAA would have been impaired in fostering fair play if forced to follow Nevada’s statute, which “direct[ed] the NCAA to treat Nevada member institutions differently than it treats the other member institutions in contravention of preexisting contractual agreements.”
The second clause was the “Commerce Clause,” in Article I, Section 8, which grants Congress exclusive authority to regulate interstate commerce. Over the years, a corollary of the Commerce Clause, dubbed the “Dormant Commerce Clause,” has been recognized. It dictates that states are forbidden from enacting economic laws that unduly burden the economies of other states. In Miller, the courts concluded that Nevada’s statute effectively forced the NCAA, as a national governing body, to apply Nevada’s statute in all 50 states and thereby impacting commerce therein. “The practical requirement,” Ninth Circuit Judge Ferdinand Fernandez wrote, “is that the NCAA would have to use the [Nevada statute] in enforcement proceedings in every state in the union.” Judge Fernandez also worried about the patchwork problem—meaning even if the NCAA adopted Nevada’s statute, other states could promulgate their own statutes, thereby making it impossible for the NCAA to craft a national standard.
The NCAA could assert analogous Contract Clause and Commerce Clause arguments against NIL statutes. Take Florida’s NIL statute. It arguably interferes with the contractual relationship between the NCAA and its member schools in Florida by forcing them to violate NCAA rules. The statute also (arguably) puts the NCAA in a position where it can’t effectively enforce amateurism rules in 50 states unless it adopts Florida’s NIL statute for all 50 states. Stated differently, if the NCAA permits Florida schools to offer NIL while disallowing it in other states, that dynamic would interfere with the NCAA’s ability to function as a national organization. Complicating matters further is the patchwork problem: Differences between Florida’s NIL statute and the various other state laws could put the NCAA in a position where it can’t bring about a national, uniform rule.
There are counterarguments. Florida and other NIL states could maintain that NIL is not about relationships between schools and the NCAA but rather relationships between athletes and third parties. In addition, the Miller case concerned procedural safeguards that are essential to the NCAA’s ability to ensure fair play. By comparison, whether a college athlete can be paid to sponsor a sneaker or summer camp seems less relevant to ensuring fair play. Florida could also question why the NCAA declined to pursue injunctive relief with regard to Nebraska’s NIL statute. The statute, which Gov. Pete Ricketts signed into law in July 2020, permits schools to determine compliance on or before July 1, 2023—meaning a Nebraska college could have already chosen to recognize NIL rights in violation of NCAA rules (none have). The NCAA took no legal action to stop that possibility.
For a state-by-state lawsuit strategy to work for the NCAA, it would require many wins and no losses. Keep in mind, a federal court in Florida that sides with the NCAA wouldn’t compel a federal court in Mississippi to do the same. Likewise, a successful appeal of a federal ruling in Florida to the applicable appeals court (the U.S. Court of Appeals for the 11th Circuit) would only govern the states within that circuit (Alabama, Florida and Georgia). One NCAA loss affirmed by a federal appeals court and this strategy likely collapses.
Scenario II: NIL statutes go into effect July 1, leading other states to disregard NCAA rules and recognize NIL
Imagine being Clemson coach Dabo Swinney on July 1. Florida’s Dan Mullen and Miami’s Manny Diaz will be able to recruit high school football stars while dangling the fact those players could sign endorsement deals. Swinney, whose state of South Carolina hasn’t passed NIL legislation, won’t be able to do that. He’ll need to convince players and their parents that even if they can’t sign endorsement deals as Tigers, Clemson is still a better fit.
Swinney is unlikely to be OK with that. It disadvantages him for recruiting and thus threatens to undermine his program. The same is true for coaches in other non-NIL states. They could urge their athletic directors and university presidents to disregard NCAA rules and allow NIL.
The risk for those schools—and one their general counsel’s office would flag—is that disregarding NCAA rules creates a potential breach of contract. The NCAA could reason that while schools in NIL states have no choice but to allow NIL, schools in other states do, in fact, have a choice. The element of choice could take on legal significance since it goes to the willfulness of conduct.
Member schools have contractually assented to follow the NCAA’s “conditions and obligations of membership” as expressed in the NCAA’s constitution, a point emphasized in the Miller litigation. In exchange for the various benefits of NCAA membership, member schools pledge to enforce NCAA rules. A school that willfully chooses to disregard those rules would seem more vulnerable to punishment, even threatened expulsion, than one that must decline those rules pursuant to a state NIL statute. Also, to the extent breaching NCAA rules causes economic harm to the NCAA, the NCAA could sue schools for breach of contract and tortious interference (among other claims) and seek monetary damages.
Scenario III: Congress passes and President Biden signs a federal NIL statute
A handful of NIL-related bills have been introduced in the U.S. House and U.S. Senate, with both Republicans and Democrats serving as sponsors. Some of the bills are focused exclusively on NIL while others propose more transformative changes, such as revenue sharing and medical trust funds. As Sportico reported in March, lobbying efforts are underway to consolidate these bills into one that would attract sufficient support. If Congress passes an NIL bill and President Biden signs it, in effect crafting a national NIL standard that tamps down individual states’ NIL recruiting advantages, it would be doing the NCAA a favor.
Here’s one problem: It’s almost May, and all of those bills are still with their committees. There haven’t been hearings, and sponsors’ discussions have usually taken the form of tweets and media interviews. To be sure, Congress has other priorities. Athlete endorsement rights might seem fairly trivial compared to a global pandemic, immigration and serious debates about voting rights and criminal justice in America. But the fact remains that the clock is ticking.
Here’s another problem: A federal NIL statute that effectively nullifies state NIL statutes could spawn its own set of legal challenges. States might challenge the federal government preempting state NIL statutes as federal overreach.
Scenario IV: The NCAA announces NIL guidelines
The NIL quandary facing the NCAA is partly its own doing. In January, the NCAA was expected to announce NIL guidelines that would have generally allowed for college athletes to profit from NIL. Some limitations, dubbed “guardrails,” were anticipated as measures to ensure compliance with other NCAA rules. The guidelines would have taken effect in the 2021-22 academic year.
Instead, the NCAA punted. NCAA officials were concerned by a warning sent from a Justice Department official whose term was set to end when President Donald Trump left office. The warning: NIL restrictions must comply with antitrust law. Whether this warning ought to have pushed the NCAA to punt is debatable. The need for NCAA rules to comply with antitrust law was hardly a revelation. Further, reasonable guidelines would satisfy antitrust scrutiny—merely being subject to antitrust law is not tantamount to a finding of unlawful conduct.
The NCAA now has another reason to wait on adopting NIL guidelines. In June or July, the U.S. Supreme Court will announce a potentially historic decision in NCAA v. Alston. To be clear, Alston is not about NIL. It concerns the legality of colleges, through the NCAA, agreeing to restrict compensation to athletes. NIL, in contrast, centers on opportunities for athletes to be paid by others, be they sneaker companies, video game publishers or other third parties. Yet the topics are interrelated in the sense that they shape NCAA amateurism rules. The NCAA might be worried by the sharp hostility expressed by several justices, particularly Justice Brent Kavanaugh and Justice Elena Kagan, towards amateurism.
Still, the NCAA could surprise stakeholders and announce NIL guidelines before July 1.
That development wouldn’t necessarily extinguish legal concerns. For one, there is (another) timing issue. There may not be enough time to implement those guidelines for the 2021-22 academic year, which begins in July. Athletics compliance officers will need time to fully understand and implement the new rules, steps that would require educating athletes and coaches. It seems more likely guidelines would go into effect in 2022-23. That, however, would beget a fair play worry. Some colleges would experience a recruiting disadvantage for up to a year as schools in Florida and other NIL states take advantage of their state laws. While schools in non-NIL states could simply recognize NIL, they would invite the breach problem discussed above.
There’s still another legal wrinkle. Any NCAA guidelines might themselves violate state NIL statues. For instance, they could limit the types of permissible endorsements, place regulatory hurdles on hiring an agent or restrict compensation levels, inviting court challenges from college athletes and recruits. Their legal argument: NCAA standards fail to comply with state law.
Summary: The NCAA can no longer delay NIL
It’s been said, “Even the hardest puzzles have a solution.” The NCAA might want to take that expression to heart. No matter how it tries to resolve NIL, the NCAA would face potential legal challenges. Yet to take no action would likely box the NCAA—which has a long history of litigating rather than capitulating—into suing.
One thing is for sure: The next few months will be among the most pivotal in the NCAA’s history.
More from Sportico.com