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Sports Desk: Top College Athletes Strike Endorsement Deals; Meanwhile, the NCAA Seeks to Influence Pending Federal Legislation

Summary:
By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She is currently writing a book about textile artisans. The 2021-2022 ushers in a new era for college athletes: they may now strike commercial endorsement deals and benefit from the use or their names, images, and likenesses (NIL). Before this season, the National Collegiate Athletic Association (NCAA) – the member-led organization that sets the rules for college sports programs – prohibited athletes from entering into NIL deals and tried instead to maintain the quaint fiction that big time college athletes  are mere amateurs. Profit opportunities – television deals, licensing arrangements –  were reserved for the colleges and universities that fielded the teams for which athletes play. All that changed

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By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She is currently writing a book about textile artisans.

The 2021-2022 ushers in a new era for college athletes: they may now strike commercial endorsement deals and benefit from the use or their names, images, and likenesses (NIL).

Before this season, the National Collegiate Athletic Association (NCAA) – the member-led organization that sets the rules for college sports programs – prohibited athletes from entering into NIL deals and tried instead to maintain the quaint fiction that big time college athletes  are mere amateurs. Profit opportunities – television deals, licensing arrangements –  were reserved for the colleges and universities that fielded the teams for which athletes play.

All that changed in October 2019, when the NCAA’s Board of Governors voted unanimously to reform its NIL rules (see NCAA Votes to Allow College Athletes to Benefit from the Use of Their Names, Images, and Likenesses). As I wrote at that time:

This is a classic instance of getting out ahead of a trend and calling it a parade – or in other words, bowing to the inevitable.

What caused the NCAA to change its position?

Led by California, which passed the Fair Play to Pay Act in October 2019, many states passed legislation that allowed college athletes to profit from use of their names, images, and likenesses. These state laws take effect this year.

California governor Gavin Newsom laid out the rationale for the legislation in his signing statement:

SB 206 addresses an injustice in our higher education system.Other college students with a talent, whether it be literature, music, or technological innovation, can monetize their skill and hard work. Student athletes, however, are prohibited from being compensated, while their respective colleges and universities make millions, often at great risk to athletes’ health, academics, and professional careers. Moreover, due to their demanding academic and athletic schedules, student athletes are typically unable to work a part time job to help make ends meet. This bill simply and rightfully allows student athletes to to benefit from the multi-billion dollar enterprise of which they are the backbone. The bill does not change the fundamental promise we make to student athletes – that they can participate in athletics while also gaining a meaningful education and attaining a college degree that will boost their economic opportunities for a lifetime.

Now, for most of the 500,000 athletes who play college sports (or at least did, prior to the pandemic), little has changed.

Not so for top athletes in big football or basketball programs. According to Sports Illustrated in The First Thing to Understand About NIL Is That Nobody Fully Understands NIL:

In Baton Rouge, inside the club level of LSU’s colossal football stadium, coach Ed Orgeron delivered a message in late July to hundreds of influential businesspeople gathered to hear him discuss the 2021 Tigers.

His message was something no coach would have uttered publicly six months ago. “We’re paying players now: name, image and likeness,” he said. “So if you guys wanna start paying our players, you can go ahead!”

A week earlier in San Antonio, speaking at the state’s annual high school coaches convention, Alabama coach Nick Saban told a crowd of thousands that his sophomore quarterback, Bryce Young, who hasn’t yet started a single game, was approaching $1 million worth of endorsements.

In Columbus, the nation’s top prospect for 2022, quarterback Quinn Ewers, arrived at Ohio State after skipping his senior season at Carroll High in Southlake, Texas, so he could immediately start earning endorsements.

And in Miami, a Hurricanes supporter promised each scholarship football player a monthly check of $500 if they endorsed his business, a chain of mixed martial arts gyms.

Indeed, a new era in college football is upon us. Now more than ever—or at least now more transparently than ever—the competition on the field will be decided by which programs are best able to help their players cash in off it.

Where’s the NCAA in all this? Per Sports Illustrated:

The first thing to understand about NIL is that nobody fully understands NIL. For decades, college athletes were not allowed to profit off their images. Then, last year, a patchwork of states began passing laws—all somewhat different from each other—mandating that they be permitted to. The NCAA urged Congress to pass a uniform set of rules, but no such help was forthcoming. And so, with the state laws about to go into effect, the NCAA threw the doors wide open, saying that, effective July 1, all athletes could benefit from their name, image and likeness. As if begging Congress to come to its regulatory rescue, the NCAA kept the rules vague: It has released guidelines stating only that schools cannot facilitate NIL ventures for athletes and that athletes cannot strike deals that are built around pay-for-play. Everything else is up to interpretation.

Athletes must abide by their state’s NIL law – if it has one. And they must report any deals they enter into to their schools.

I’ll turn later to the status of efforts to get Congress to pass national legislation to replace the hodge podge of different state bills.

How Much Money Can I Make at Your School?

In the interim, here’s what we’re left with, according to Sports Illustrated:

Between the NCAA’s hands-off approach and a lack of clarity around how state laws will be enforced, the schools are policing themselves. Creative interpretation of the NCAA guidelines is not only expected, but it’s also already happening. And it’s not difficult. As long as there is a documented exchange between an athlete and a business, it passes muster for not being facilitated by the school. If a restaurant wants to give an offensive lineman free meals for a year for tweeting an endorsement, it’s fine. If a local shoe store wants to pay a quarterback $10,000 a year to wear its cleats once, it’s cool.

“It’s pretty much a free-for-all,” says Tom McMillen, the CEO of Lead1, which represents the athletic directors of the Football Bowl Subdivision.

Most regular Naked Capitalism readers are well aware of how well such ‘self-policing’ works in practice.

The possibility of rich endorsement deals are now a benefit that colleges dangle before prospective athletic recruits. According to Sports Illustrated:

For years, most coaches fought against allowing athletes to be compensated for their likeness—an American right that every other college student holds. Now they have suddenly joined the chorus of change, crowing about their players’ deals, honing recruiting pitches and, some of them at least, publicly encouraging their supporters to pony up.

After all, NIL has evolved into the newest snazzy tool to woo young athletes, another question for recruits to ask.
….
“We use it,” says USC coach Clay Helton. “We have a presentation we do in recruiting to be able to show the advantages of being in a market like L.A.”

The Trojans signed the seventh-ranked recruiting class this past year, according to 247Sports’ composite list. “A big piece of it was NIL,” says USC director of player personnel Spencer Harris, who oversees the program’s 30-minute NIL pitch to prospects. “It’s a part of every recruiting conversation at every school.”

College interest in endorsements extends well beyond their value as a recruitment tool, and is unsurprising, given the beaucoup bucks involved. Colleges are also attempting to insert themselves into the endorsement process. And they can easily do so, as they own the underlying intellectual property that identifies their sports kits – logos, names, color schemes, mascots, etc. This new NIL universe has been superimposed over many extant licensing deals. Over to Sports Illustrated again for more on this brave new world:

… Experts say three things are emerging in the NIL universe that could impact the recruiting landscape: (1) colicensing; (2) group licensing; and (3) community participation.

Colicensing entails schools granting permission to use their institutional marks, such as logos, emblems and color schemes. Some schools are barred by state law, but most are working on a case-by-case basis. Schools don’t make money here, but they allow a player to, say, wear his jersey in a car dealership ad to make himself more identifiable.

Some schools are going a step further, essentially becoming business partners with their players so that both sides profit: That’s group licensing, a strategy that, for instance, allows both schools and players to make money from jersey sales that—finally—feature players’ names.

Those schools are ahead of the game, says Casey Schwab, an ex–NFL Players Association executive and the CEO of Altius, an NIL consulting company. “It’s one thing to say as a school that you support athletes in NIL deals,” Schwab says. “They are putting their money where their mouth is.”

Ohio State, Alabama and North Carolina became three of the first programs to partner with a third party, the Brandr Group, a brand management and licensing agency, in a three-way deal that allows athletes to earn compensation from jerseys and other merchandise outfitted with school logos and their names or likenesses.

Not all schools are on board with athletes using their intellectual property. Moreover, in some cases in which school logos or other trademarked material has been used, companies that thought they held exclusive licensing rights have complained or intervened.

NIL deals allow a school’s business community to get involved in compensating players . The benefit of this ‘community participation’ accrues not just to the largest institutions. Per Sports Illustrated:

The biggest NIL advantage isn’t necessarily in a school’s size and tradition, but the participation of its business community, says Henry Hays, founder and chairman of MatchPoint Connection, a digital marketplace based in Baton Rouge. “Does this just benefit the big schools? I’m not sure that’s right,” Hays says. “If you have a school with less resources but their community is set up to have these discussions, they’re in a better spot.”

Some of these direct arrangements sure look like salary arrangements, even if nominally structured as payment for their endorsements:

Dan Morgan, an Orlando-based lawyer and NBA agent who has also served as an adviser for college athletes, says he’s already learned about schools strongly encouraging their boosters to purchase their athletes’ Cameo spots or buy apparel.

But there are bigger plans afoot: Remember the Miami gym owner promising to give each Hurricanes player $500? That deal alone has already rattled enough cages that one industry executive expects supporters of other programs to return fire. He says boosters elsewhere have suggested paying their schools’ athletes not $500 monthly, but $5,000. Already, Built Brands, a protein bar company in Utah, offered $1,000 annual endorsement deals to each BYU scholarship football player, while also striking deals with walk-ons for amounts that cover their tuition.

The man behind the Miami gym offer, Dan Lambert, has also started a company whose sole purpose is raising money from fans—say through a ticketed party or event—and then donating that money to local businesses willing to use it to hire Miami athletes as endorsers. And if Lambert’s new company proves successful, it is sure to inspire others. His plan seems to be in accordance with Florida’s NIL law, and he says he cleared it with Miami.

“What’s the downside in being aggressive here?” McMillen asks. “You can speed down the highway and not get pulled over.”

One agent told Sports Illustrated that he has advised his coaching clients to facilitate NIL contracts for athletes and recruits with local businesses. That technically could run afoul of the NCAA guidelines, but who’s to stop them?

What Is To Be Done?

The combination of vague NCAA rules and the amount of money at stake is leading to a free-for-all. The NCAA has asked Congress to try to level the playing field and create one uniform national system, so that the differences in state legal regimes don’t have a bearing on recruitment or competition.

As Politico tells the story in Major college sports are under siege and they want K Street to save them, the college sports industry has turned to K Street lobbyists for help in getting its concerns enshrined in legislation. Unlike the Sports Illustrated story, the Politico account doesn’t delve into explaining how colleges have quickly adapted to exploit the new rules to advantage. In fact, Politico suggests that the college sports industry seeks to overturn the new patchwork state NIL regime outright. That, to say the least, I think is highly unlikely, especially given what Sports Illustrated has reported.

Yet some other key concerns Politico spotlighted are worth exploring, especially the college sports industry’s efforts to shut down potential legal liability:

In conversations on the Hill, [the NCAA and its large and powerful athletic conferences] sought to limit their liability from future lawsuits that could result from congressional action. Those who have worked in this space say it is among the most significant — and potentially perilous — moments for major college sports in a century.

The legal liability concern is more than a theoretical one. Recall that in June the Supreme Court handed down a unanimous ruling against the NCAA (see my post, Supreme Court Rules 9-0 Against NCAA, Opening Door to Further Antitrust Challenges of Student-Athlete Compensation Bans).

According to Politico:

The fear of potential litigation has become more acute in recent months. The practical implication of the Supreme Court decision in June was that the NCAA could not limit in kind education-related benefits for players, like laptops or a study abroad program. But the case also created “an open invitation and in some ways a roadmap to future plaintiffs to bring antitrust suits against the NCAA,” said Gabe Feldman, an expert in sports law at Tulane University.

Politico discussed the legislative state of play with former UCLA football player Ramogi Huma, who founded the National College Players Association, a nonprofit advocacy group for collegiate athletes, which spearheaded the decades-long efforts that led to California’s landmark NIL statute:

Huma’s camp has also lobbied against a liability shield for the NCAA, which he likened to “giving a criminal a badge.” Instead, he and others want better health and safety provisions for college athletes and have backed the bill [Sen. Cory] Booker and [Sen Richard ] Blumenthal introduced in December 2020, dubbed the College Athletes Bill of Rights, which would ensure that student athletes do not have to pay out-of-pocket medical expenses for sports-related injuries up to five years after a student stops playing. Schools would be required to contribute to a shared fund based on the revenues of their athletic departments. The bill would also direct the federal government to establish guidelines for how to handle sexual assault, traumatic brain injuries and other health, safety and wellness measures.

“Really, the NCAA and the conferences and the schools are asking Congress for a favor, and from our perspective they haven’t earned the favor,” he said. “There’s dead bodies, there’s people being sexually abused with no recourse that the NCAA is ignoring, so there’s a lot of issues in NCAA sports. If Congress gets involved, they should actually do something to make it better.”

I suppose I shouldn’t find it shocking that part of the college sports industry is resisting efforts to get colleges to pay for medical care for sports injuries, but I do. Politico reports:

Some industry advocates, most notably the Southeastern Conference, have pushed back against proposals that would require schools to cover student athlete injuries, given that it would likely require larger schools to compensate for lower resourced institutions that do not have the funds to do so, according to an operative with knowledge of the negotiations.

Huma minces no words when he discusses what his group is up against:

For now, Huma’s group faces a well-resourced opponent in its fight against a legal shield for the industry. He called the NCAA a “serial predator when it comes to breaking antitrust rules,” and argued that now was not the time to give the organization — which has faced criticism for its handling of sexual misconduct among coaches and team doctors as well as brain injuries among athletes — any rewards.
“It would be terrible for Congress to look past and ignore the dead bodies, to look past and ignore the abused bodies, in order to tweak some things to give the NCAA the power and favor when it clearly doesn’t deserve either,” he said.

Politico suggests prospects for legislation have stalled. Given all the other issues on the Biden administration’s  plate, I think it unlikely we’ll see a national solution emerge anytime soon. Instead, universities will use potential NIL contracts as a recruitment tool, and when permitted by state law, a means for revenue raising. Without the threat of tough enforcement – as if – there’s little cause for restraint. Permit me to repeat a passage from Sports Illustrated:

“What’s the downside in being aggressive here?” McMillen asks. “You can speed down the highway and not get pulled over.”

One agent told Sports Illustrated that he has advised his coaching clients to facilitate NIL contracts for athletes and recruits with local businesses. That technically could run afoul of the NCAA guidelines, but who’s to stop them?

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