Bloomberg Law
April 1, 2022, 8:00 AM

State Experiments With NIL Rules Put Athletes on Defense

Derin Dickerson
Derin Dickerson
Alston & Bird
Trenton Hafley
Trenton Hafley
Alston & Bird

When U.S. Supreme Court Justice Louis Brandeis wrote about states becoming laboratories for “novel social and economic experiments” in 1932, he likely did not have college athletics in mind. The world of sports was immensely different 90 years ago. Legendary coach John Wooden was an All-American for Purdue; the Downtown Athletic Club had yet to award the first Heisman Trophy; and Babe Didrikson Zaharias was setting multiple world records for the U.S. at the 1932 Olympics in Los Angeles.

In the last year, Brandeis’ reference to states as laboratories is proving true in the world of college athletics as states are grappling with how to regulate —or not— the nascent name, image, and likeness (NIL) marketplace following the NCAA’s June 2021 decision to allow college athletes to earn compensation for their NIL. The state-by-state NIL experiment has been in effect for almost a year and continues to change.

State Legislation, Regulation Is Moving Fast

In 2019, California passed its “Fair Pay to Play Act,” the first statewide bill allowing student-athlete compensation for their NIL. The bill was not set to go into effect until 2023, but its passage caused a swift reaction across college athletics.

Just a month later, the NCAA agreed to modernize its NIL rules and directed the three NCAA divisions to propose new rules. While various NCAA groups were formulating rules, a race among competing states to enact similar laws commenced, and 15 swiftly passed NIL laws that took effect July 1, 2021.

The support behind most of these states’ NIL laws prompted the NCAA to issue an interim NIL policy on June 30, 2021, that allowed student-athletes to be compensated for their NIL if consistent with their state’s laws. This interim policy was significant, marking the first time in the NCAA’s 116-year history that it allowed student-athletes to be paid for their NIL.

The early state NIL policies differed in their scope and specificity. For instance, the Arizona law is less than a page in length and simply required colleges and universities to allow for NIL compensation. In contrast, the Texas law is nearly seven pages long and includes additional rules and requirements for student-athletes and schools, including prohibiting athletes from endorsing certain products and requiring schools to create a financial literacy workshop for its athletes.

The diversity of NIL policies has continued as at least 28 states have now enacted their own NIL laws. Initially, the impetus for the race to enact these policies appeared to be states’ concern to avoid putting their state’s schools at a disadvantage in the all-too-important recruiting battles. More recently, however, states are crafting NIL policies to provide a recruiting advantage for schools in their states.

Alabama, where college football is king, is an illustrative example. Alabama was one of the first states to enact its NIL law designed to preclude any recruiting disadvantage its powerhouse football programs might suffer as a result of other states’ permissible NIL laws.

Interestingly enough, on Feb. 3, the Alabama Legislature repealed its NIL law, explaining that the previous law was stricter than current NCAA rules and would put Alabama at a recruiting disadvantage. The state is the first to repeal its NIL law, but it is likely not the last.

Florida and South Carolina have both considered repealing their NIL laws. Florida chose not to.

A Patchwork of State NIL Laws

This patchwork system of NIL laws is precisely what Brandeis envisioned back in 1932—a system where each state competes against each other to provide the most socially and economically optimal law. Given the wide variety of different laws, Congress is expected to ultimately step in to provide some uniformity.

But for now, there is significant uncertainty and unanswered questions. First, in the world of the NCAA transfer portal, a student-athlete must be cognizant of what state law applies to their contract both for purposes of enforcement and intellectual property protection if they change schools or attend a school outside their state of residence. Second, student-athletes must consider whether the school they choose to attend must comply with state-level NIL laws or only NCAA NIL rules.

These are not simple questions for an 18-to 22-year-old to answer on their own, especially with the pressure of recruiting. Companies seeking to participate in NIL deals, which could be any company seeking promotions for a brand or product, face these same questions. The ever-changing compliance rules put companies at risk of violating either a school’s rules, the forthcoming NCAA rules, or even worse, the law.

As states rescind laws, individual schools will begin to feel pressure from student-athletes, conferences, and boosters to create more bright-line guidelines for NIL compliance. The creation of NIL guidelines, however, presents legal risks for schools as well.

For example, schools could face antitrust exposure if a number of universities (in the same conference or otherwise) choose to adopt the same NIL policy. Section 2 of the federal antitrust law makes it illegal to conspire with other entities to monopolize any part of trade, which could include athletes’ NIL.

Universities must also ensure compliance with other state and federal laws and ask questions such as whether a school’s NIL policy potentially violates Title IX, or whether a school’s group licensing effort violates federal or state labor laws.

Much like the NIL laws, NIL opportunities for student-athletes can arise out of thin air. For example, for a small school like Saint Peter’s University, its Cinderella March Madness victories have launched its athletes into the national limelight for the first time in their careers. While the opportunity for these athletes to receive NIL deals is clearly warranted and welcomed, the finite window that is March Madness leaves these student athletes at a negotiating disadvantage in their deals and leaves little time for schools to assess compliance. It is also likely that smaller schools do not have the compliance infrastructure in place to monitor their athletes’ NIL deals.

These are just a few of the legal questions that face stakeholders in the NIL sphere, and many more are likely to arise. It will be fascinating to watch states continue to experiment with NIL rules and policies, but stakeholders must remain vigilant to avoid running afoul of legal parameters.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Author Information

Derin Dickerson is a partner in Alston & Bird’s Litigation & Trial Practice group, where he concentrates his practice on higher education and complex litigation matters.

Trenton Hafley is an associate in Alston & Bird’s Litigation & Trial Practice group. He focuses on providing a wide array of clients antitrust services including merger clearance, litigation, and counseling.

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