In May 2019, the NCAA Board of Governors created a Working Group to investigate responses to proposed state and federal legislation relating to student-athletes’ ability to be compensated for use of their name, image, or likeness (“NIL”), due in part to the threat to the NCAA’s tax exempt status that would result from the enactment of such legislation. The authors previously discussed these developments here.
On April 29, 2020, the Working Group released its final report (the “Final Report”) recommending that the NCAA’s divisional rules be “modernized” to account for the new media and promotional landscape available to college students to monetize their NIL. In the Final Report, the Working Group identified several activities for which it believes student-athletes should be permitted to receive compensation and recommended that each NCAA division draft NIL legislative proposals consistent with the Working Group’s guidance by August 30, 2020 and be ready to enact that legislation by January 31, 2021 to go into effect for the 2021-22 academic year. The Final Report signifies a handing off of the baton from the Working Group to each NCAA division to come up with compliant divisional NIL bylaws.
This article summarizes the Working Group’s recommendations, as well as its proposed “guardrails,” which are purportedly aimed at curbing abuse of the “modernized” NIL rules.
Why the NCAA Has Now Endorsed a “Modernization” of Its NIL Rules
The Final Report explains that the NCAA’s rules must be reevaluated because, in its view, (1) the current rules preclude student-athletes from pursuing promotional opportunities that are generally available to other college students, and (2) concerns about NIL compensation are better addressed through proper regulation than complete prohibition. While the Final Report noted a consensus for modernization of NIL rules, the NCAA will not sanction any proposed amendment that “would undermine, or fundamentally change, the NCAA’s overall model of amateur intercollegiate athletics” and “it is not recommending that any changes be made to the rules permitting NCAA schools or conferences to make certain promotional uses of student-athlete NIL.” So, the devil will be in the details as to the manner and scope of the forthcoming divisional NIL rules.
Working Group’s Recommendations
The Working Group’s Final Report made the following specific recommendations to the NCAA Board of Governors, which identified “guardrails” to avoid impermissible activities and two categories of permissible compensable activities:
- "Guardrails”: Changes aimed to modernize divisional NIL bylaws must be accompanied by “guardrails” sufficient to ensure that: (1) institutions encourage student-athletes to not let NIL activities distract from academics; (2) compensation is genuine and not a disguised form of payment for athletic participation; (3)-(4) “outside the context of providing financial aid up to the cost of attendance as allowed by prevailing law, schools, conferences, and the NCAA” play no role in arranging NIL payments or activities, including permitting “use of their facilities, uniforms, trademarks or other intellectual property”; (5) schools or boosters are not using NIL compensation as a recruiting tool, paying particular attention to the possibility that NIL payments may be misused as direct or indirect inducements during the recruiting process; (6) the role of third parties, such as “agents, advisors, and professional services,” is regulated; and (7) the NCAA’s efforts “in the areas of diversity, inclusion, or gender equity” are protected.
- Compensation for Third-Party Endorsements (Permissible Activity Category One): The Final Report recommends that the NCAA Board encourage the divisions to permit student-athletes to be compensated for third-party endorsements, including social media “influencer” activities and digital content creation and distribution, that “may be related in some ways to athletics” provided that schools and conferences do not (1) make endorsement payments themselves; (2) play any role in locating, arranging, or facilitating endorsement opportunities; or (3) use, or allow boosters to use, endorsement opportunities as a recruitment tool. For example, under the new permissible-compensable categories, a student-athlete at University A could be paid to endorse a product in a TV commercial or social media post, provided that University A’s uniform or mark appear nowhere in the content, and University A had no involvement in arranging the opportunity or creating the content. Moreover, it would be impermissible for the University to compensate its athletes for participation in university marketing endeavors.
- Third-Party Compensation for Non-Athletic Activities (Permissible Activity Category Two): The Final Report also recommends that the NCAA Board encourage the divisions to permit student-athletes to be compensated by third parties for the students’ NIL in his or her own work product or other business activities, including social media, that does not involve athletic participation or play. Again, schools and conferences must not: (1) pay student-athletes; (2) play any role in locating, arranging, or facilitating third parties to pay for these activities; or (3) use, or allow boosters to use, the possibility of payment as a recruiting tool. For example, a student-athlete attending University A could be compensated for making personal appearances or conducting an in-person or virtual sports camp, provided the University’s marks and facilities are not used (i.e., no appearances in University A’s jersey), and the University did not arrange for the compensable activity. And, it would be impermissible for the “student-athlete to be paid for any appearance by or on behalf of the University.”
Additional Takeaways
There are several additional takeaways from the Final Report:
- The Working Group expressly noted the following carve out to compensable athletic activities, stating it is “not recommending any changes to NCAA rules to permit student-athletes to be compensated for appearing in photographs, broadcasts, clips or other recordings of athletic contests or related activities.” According to the Working Group, “the right of publicity does not extend to such recordings” and so, any such payments “would not represent legitimate NIL licensing activity by student-athletes.” As such, NIL compensation must be limited to situations where an NIL license is legally required. Thus, student-athletes should not be compensated related to their appearance in a live sports broadcast or rebroadcast, photos or news accounts of those broadcasts, or in other situations where the law does not require an NIL license.
- The Working Group is also not recommending any rule changes to permit group licenses in products such as video games due to “legal hurdles.” The identified hurdles include that, unlike their professional counterparts, amateur athletes don’t have players’ associations to serve as bargaining units, and, unlike the case of the United States Olympic Committee, there is no federal legislation conferring antitrust immunity related to intercollegiate sports marketing. The Working Group has marked the group licensing issue as a key consideration for the Board and divisions moving forward.
- The Board and divisions must reject any approach to NIL compensation that would make student-athletes employees of their schools, or would result in NIL payments being used as a substitute for compensation related to athletics participation or performance.
- The Board should consider additional, recommended areas of regulation, including whether certain promotional products should be prohibited and whether certain third-party businesses, such as shoe apparel companies, should be precluded; how to implement safeguards to ensure that newly permitted activities “do not impose undue burdens on student-athlete time.” The Board should also consider creating resources on campus to educate student-athletes about newly permitted activities and “in a manner consistent with gender equity.”
Recommendations From the Presidential Subcommittee
In addition to recommendations from the Working Group, the Presidential Subcommittee on Congressional Action, formed in November of 2019, recommended that the Board “immediately engage Congress” to: (1) “ensure federal preemption over state NIL laws”—noting that 34 states have introduced NIL bills to date, which purport to override the NCAA’s NIL rules and “could significantly undermine the Association’s ability to take meaningful action”; (2) “establish an antitrust exemption for the Association”; (3) safeguard student-athletes’ status as non-employees; (4) maintain the amateur/professional athlete distinction; and (5) “uphold the NCAA’s values, including diversity, inclusion, and gender equity.”
The Presidential Subcommittee ultimately “concluded that it is vital for Congress to step in” to ensure that any NIL laws “be enacted at the federal, rather than state, level,” and recommended that the NCAA “partner with Congress to enact a federal [NIL] law” that preempts state law on the topic.
Timeline for Phased Divisional Implementation
- By August 30, 2020: Each of the three NCAA divisions are expected to have drafted NIL legislative proposals. The “divisions should consider modifying their rules to permit commercial or promotional use of NIL by student-athletes related to their own businesses or work product, provided that work product is not related to athletics.”
- By October 31, 2020: Each division is expected to have revised NIL legislation for commercial or promotional use of NIL in situations that are related to athletics or that involve endorsements of commercial products or services. Divisions should also consider: whether additional monitoring structures are warranted; the regulation of agents and other third parties; the extent that modifications should apply to individuals prior to collegiate enrollment; and gender equity concerns.
- January 31, 2021: Divisions should have enacted all NIL legislative proposals with effective dates no later than the start of the 2021-22 academic year.
- Future Considerations: Divisions “should continue to explore whether it is possible to support institutionally managed group licenses for athletically related activities.”
Conclusion
The Working Group’s Final Report makes clear that the NCAA is feeling the pressure mounting from pending and passed state NIL laws. And, despite holding out hope for federal guidance, the Working Group’s Final Report attempts to keep the ball moving with the burden shifting to divisions to consider, vote on, and implement NIL bylaws. Whether divisional NIL bylaws will comply with the Working Group’s framework remains unseen, and even if they do, trouble may await in the form of potential legal issues, including, but not limited to antitrust challenges. We will continue to track updates on student-athlete NIL compensation and report on legal issues as they develop.
