Dawn of the NIL Era: NCAA Interim Policy and What It Means for Brands | Wiley Rein LLP
The National Collegiate Athletic Association (NCAA) is set to adopt this week an interim policy that will transform the definition of amateurism in varsity sports and open up significant new opportunities for the promotion of products and services by enabling varsity athletes to take advantage of their name, image, and likeness (NONE). The new policy is a response to laws passed in several states – some of which are expected to come into effect on July 1 – that would ban restrictions on the ability of student-athletes to enjoy their NIL.
What will the interim policy do?
The interim policy, which the NCAA Division I board voted to recommend on June 28, 2021, will change how the NCAA enforces Rule 12, which pertains to amateur and athletic eligibility:
- For student-athletes enrolled in a college or university in a state that has passed laws for the NIL, student-athletes may engage in NIL activities that are “consistent with and protected by valid and binding law of. the state in which the institution in which such individual registrations are located. Each college or university will be responsible for determining whether a student-athlete’s NIL activities comply with state law.
- For student-athletes enrolled in a college or university in a state that has not passed laws for the NIL, the NCAA will refrain from applying Rule 12 to change a student-athlete’s eligibility. .
While student-athletes are permitted to use a professional service provider (agent, attorney, etc.) for activities related to the use of NIL, other NCAA rules, including prohibitions on payment for the inappropriate gambling and recruitment incentives will remain in effect. .
More specifically, the draft policy prohibits:
- Pay a student-athlete, except for the work done;
- Condition NULL compensation to a student enrolling or remaining enrolled in a particular college or university;
- Condition the NIL remuneration to future benchmarks of sports performance; or
- Provide student-athlete benefits that are not available to the general student body.
When is the interim policy effective?
If passed, the interim policy will come into effect on July 1, 2021 and will remain in effect until: (1) the federal government passes legislation addressing nil; or (2) the NCAA adopts a permanent NIL policy.
Why is the NCAA now adopting an interim NIL policy?
The rules are the NCAA’s temporary fix to what would otherwise have been a significant imbalance on the NIL front due to a wave of state-level legislation coming into effect next month. On July 1, laws will come into effect in Alabama, Florida, Georgia, Mississippi, New Mexico and Texas that would have violated previous NCAA rules by generally allowing college athletes to earn money. with their NIL. A number of other states are rushing to pass NIL legislation or policies or to speed up the date of entry into force of previously passed legislation. With no preventative federal law in sight, the NCAA faces a choice: either adopt its own policy or allow a situation in which athletes in some states could take advantage of their NIL while others could not.
While not directly related to NIL, the Supreme Court ruling last week in NCAA v. Alston also provides a boost to the action of the NCAA. There, the court unanimously found that the NCAA’s restrictions on colleges offering athlete education benefits violate antitrust law. In a concurring opinion, Judge Brett Kavanaugh warned that “the remaining NCAA compensation rules also raise serious questions under antitrust laws.” According to Justice Kavanaugh, “The NCAA and its member colleges are cutting the salaries of student-athletes who collectively generate Billions dollars in revenue for colleges each year. While the NIL Interim Policy does not address all student-athlete compensation, it could help avoid immediate challenges to NCAA amateur policies.
What does the interim NIL policy mean for brands?
The NCAA Interim NIL Policy provides an immediate opportunity for brands to benefit from the approval and relationships with student athletes whose approval was previously prohibited. This opportunity comes with both responsibilities and risks.
On the one hand, there will most likely be a race for brands to align with the best student-athletes. Companies will need to consider both the current value that a varsity athlete can bring as well as the potential value of developing a relationship now with athletes who could be the stars of the future. Because this market has been artificially constrained up to this point, pent-up demand is expected to generate significant activity in the weeks and months to come.
At the same time, businesses and student athletes would do well to move forward cautiously in this area. Unlike NIL’s relationships with professional athletes, which are largely unregulated, student-athlete relationships will be subject to a myriad of rules and regulations, including state (and possibly federal) laws and policies enacted by the NCAA, athletic conferences, and individual colleges and universities. If the NCAA’s draft policy is any indication, given the haste with which these policies are enacted, there will be many unanswered questions and potential obstacles for all parties. Failures to comply could have far-reaching consequences: a brand could not only tarnish its reputation, but could also jeopardize an athlete’s college eligibility and professional prospects.
To minimize their risk and prepare for the inevitability of NIL relationship investigations, companies wishing to work with college athletes should consider:
- Adopt internal policies to ensure that their NIL provisions comply with applicable laws and regulations;
- Provide training to all employees, subcontractors and other representatives who will be involved in the NIL collegiate process and obtain recognition from these employees and subcontractors (including disclosures from any schools in which these individuals may be considered to be boosters, which may require additional precautions); and
- Maintain detailed documentation on: (i) how they selected the athletes to be prosecuted, (ii) all contact with these athletes and their representatives, and (iii) any benefits conferred on these athletes and their representatives.