Name, Image and Likeness Scouting Report, Week 4: The States Quarterback NIL Change

Having covered the background history of the evolution of college athletes’ name, image and likeness (NIL) rights in our prior bulletins, our next series of bulletins will address where we are now in the current, but still changing, regulatory and rules arena. As new state laws have been the impetus for rules and guidance changes at the NCAA, conferences and schools, this bulletin focuses on state law considerations and differences which impact how NIL deals are negotiated and dealt with by competing parties.

Step on to the NIL playing field and you will find federalism at work. In the absence of a federal NIL or right of publicity law or any clarity about what a potential “uniform” federal legislation will look like — or even who will be responsible for writing and enforcing it — individual state legislatures have, since 2019, relished their role as the “laboratories of democracy”¹ by quarterbacking NIL changes. While the proliferation of state laws may be cited as the reason federal NIL legislation is now necessary, in the interim the sometimes-conflicting results from the nation’s state houses largely forced NCAA policy change announcements and set the current game plan for institutions and student athletes within their jurisdictions. As such, state law compliance is a major concern for businesses contemplating NIL deals with college athletes, and one that cannot be ignored.

State Action Drives NIL Change

With groundbreaking NIL litigation by athletes in California courts,² it is not surprising that California enacted the first state NIL legislation in 2019 — the California Fair Pay to Play Act. ³The nation’s first state NIL law was quickly joined by Colorado,⁴ Nebraska⁵ and Florida.⁶ Today, a majority of states (27⁷ as of the end of September 2021) have tackled NIL issues either through enacted legislation or executive orders, 14 ⁸ others have pending legislation, and many of the remaining states have indicated they are considering legislation.

While some cheer the states for their initiative on behalf of athletes, others decry this development as the Balkanization of an important sports issue that must inevitably yield to federal legislation due to the rough patchwork of state approaches, requirements and restrictions. Previous Congressional efforts have failed to cross the finish line, leaving only state laws to bring some legislative structure to what has become the “Wild West” of NIL activities. For the moment, all interested parties agree with the NCAA’s position that the NIL rights of athletes at schools located in states with applicable laws are subject to those laws, which take precedence over the NCAA’s interim NIL policy⁹ and applicable conference and school rules. The NCAA interim policy provides that that “[i]ndividuals can engage in NIL activities that are consistent with the law of the state where the school is located. Colleges and universities may be a resource for state law questions.”¹⁰ The NCAA has also specifically stated that “[t]he NCAA cannot provide guidance on issues of state law. The state you live in and the states where a prospective student-athlete may wish to enroll may have NIL laws with which you will want to be familiar. A prospective student-athlete may consult a professional services provider, contact the athletics compliance office of NCAA schools they may choose to attend, or research state law compliance requirements where they may wish to enroll. NCAA schools may also have specific NIL policies that should be considered.”¹¹

Conversely, for student athletes at schools in states without applicable NIL state laws, their options remain subject only to the NCAA’s interim policy, as well as the policies of their conferences and schools; the absence of another layer of rules and regulations in such states can be more beneficial to parties structuring and addressing NIL deals for those athletes.

Key Similarities and Differences Between State Laws

Just as competing collegiate teams have points of similarity as well as differences, so do state law approaches.
Still, there are certain basic common threads; many state laws:

• Spell out the activities athletes may not be compensated for¹² and prohibit payment for athletic participation, performance, attendance at a specific school¹³ or, importantly from a promotional deal aspect, activities that may conflict with existing school or team sponsorship agreements.¹⁴
• Provide that athletes may exercise NIL rights without risk to their eligibility.¹⁵
• Require NIL compensation to be commensurate with the market value of the authorized use of the athlete’s NIL.¹⁶
• Permit athletes to obtain an agent or other professional representatives to help maximize their NIL opportunities.¹⁷
• Grant or restrict the use of the athletes’ school facilities, uniforms or intellectual property.¹⁸
• Require disclosure of NIL contracts to the athlete’s athletic department, typically within a mandatory time period.¹⁹

Given the varying political dynamics in individual states, as well as the desire to give schools within their jurisdictions a competitive advantage²⁰ (or at least not place them at a disadvantage), there are some interesting differences that have not been widely adopted. For example, some state laws:

• Extend NIL rights to high school athletes, others either do not or are silent.²¹
• Restrict compensation from the schools themselves²² such as, for example, in a licensing agreement between the school and its athletes.
• Require schools provide financial literacy, life skills and time management training to student athletes.²³
• Permit the athlete’s school to require the athlete to deposit a portion of compensation received into a fund to be shared with all the school’s student athletes.²⁴
• Limit student athletes’ legal representation to licensed attorneys, and in some cases, to members of a specific state bar.²⁵
• Prohibit an athlete’s association with certain product categories, like alcohol companies/brands, controlled substances, tobacco, adult entertainment, electronic smoking and pharmaceutical products, gambling, sports betting or other companies who may have a negative reflection on the institution.²⁶
• Establish some sort of “injury” or “wage” fund that would compensate student athletes for career ending injuries.²⁷

It is important to note that despite the floodgates of NIL legislation in the past year, many state laws have delayed effective dates. While the federal government is not known for moving quickly, particularly regarding athletic matters, it is possible certain state guidance may be obsolete if superseding federal legislation takes its place.²⁸

Case Study: Nebraska vs. Oklahoma

Nearly 50 years after the “Game of the Century”²⁹ between the Cornhuskers and Sooners, the Nebraska and Oklahoma state legislatures became the third and eighteenth states, respectively, to enact NIL laws.³⁰ The similarities and differences provide an interesting case study of two legislative approaches — in college football centric states — to NIL-friendly laws for college athletes within their borders.

Both states spell out that public and private four-year college and university athletes may be paid for endorsements, sponsorships and any other activities related to their athletic reputation. However, to exercise these rights, both states require the athlete to disclose NIL-related contracts to his or her institution. Both states also prohibit agreements that involve the display of a logo or an ad during official team activities or that might conflict with the school’s sponsorship agreements. Importantly, any compensation received by the athlete for NIL activities cannot be used to affect the duration or amount or eligibility for athletic grants-in-aid or other school scholarships.

Consistent with the new national norm, both Nebraska and Oklahoma athletes are permitted to obtain representation to handle any legal services associated with these agreements. However, unlike many states, both Nebraska and Oklahoma require great detail about agreements between students and their representatives. These requirements include specifying the amount and method of calculating consideration paid for such services; the names of individuals compensated under the terms of the agreement; a description of expenses reimbursed by the athlete; a description of the services provided to the athlete; the duration of the agreement; the date of execution; and a provision similar to the following information in conspicuous boldface type in capital letters:

WARNING TO STUDENT-ATHLETE
(1) IF YOU ENTER INTO NEGOTIATIONS FOR, OR SIGN, A PROFESSIONAL SPORTS-SERVICES CONTRACT, YOU MAY LOSE YOUR ELIGIBILITY TO COMPETE AS A STUDENT-ATHLETE IN YOUR SPORT;
(2) IF YOU HAVE AN ATHLETIC DIRECTOR, WITHIN 72 HOURS AFTER ENTERING INTO THIS CONTRACT, BOTH YOU AND YOUR ATHLETE AGENT MUST NOTIFY YOUR ATHLETIC DIRECTOR; AND
(3) YOU MAY CANCEL THIS CONTRACT WITHIN 14 DAYS AFTER SIGNING IT.

Finally, both states permit athletes and postsecondary institutions to bring legal action if aggrieved by a violation of their law and allow the recovery of actual damages, equitable or declaratory relief, and reasonable attorney’s fees and other litigation costs if brought within one year of accrual. And while both Nebraska and Oklahoma provided a substantial runway — to July 1, 2023 — before the final deadline for their laws to go into effect, Oklahoma joined Nebraska in giving each postsecondary institution the unique right to choose a prior effective date.³¹ Not surprisingly, both the Cornhuskers and Sooners declared July 1, 2021 their effective date.

Future Implications

The pandemic occupied center stage during the 2020-2021 academic year and overshadowed much of the states’ legislative NIL activities. As the sports world begins to return to normalcy, it is now apparent that state laboratories have stimulated NIL debate and movement within the NCAA and Congress, which remains a work in progress.

Meanwhile, the proliferation of state-by-state NIL laws is a real-world compliance issue for both student athletes and the businesses that want to deal with them, softened somewhat by the fact that most state laws have a delayed effective date in hope that either the NCAA or Congress will adopt a better solution.

The states deserve credit for their official actions permitting athletes to share in college sports’ financial rewards by capitalizing on their own names, images and likenesses. How large the financial opportunity for college athletes will become is certain to depend upon any number of factors, known and unknown, such as the athlete’s success on the playing field, the athlete’s personality, the size of the athlete’s geographic market and, of course, the opportunity to associate with businesses and brands that do not conflict with the applicable school’s current sponsorship agreements.

For both college athletes and their potential business partners, the states deserve credit for moving the NIL ball forward to an eventual — yet to be determined — historic consensus.