NCAA, Student Athlete Pay Deal Faces Early Enforcement Fumbles

The NCAA’s decision to allow its athletes to use their names, images, and likenesses for commercial purposes fundamentally changed the organization’s model of amateurism. It also prompted landmark legal challenges and changes to the NCAA’s enforcement role.

Following the class settlement in House v. NCAA and corresponding NCAA bylaw changes, NIL compliance is now under a new enforcement entity: the College Sports Commission. CSC enforcement hasn’t come without its complications, however, and the commission’s future, efficacy, and authority are up for debate.

The final form of House challenged NCAA restrictions on compensation that student-athletes may receive for their NIL and their athletic services, as well as limits of Division I scholarships. The House settlement provides for a damages fund (NIL backpay), as well as prospective, future available compensation from revenue sharing.

Revenue sharing is money paid directly by the school to the athlete from the school’s revenues. NIL, meanwhile, is essentially a fee paid to athletes in exchange for licensing their persona, such as through an endorsement deal.

Revenue sharing is capped at $20.5 million in year one per school that opted in to the settlement, with a percentage escalator in subsequent years for the life of the settlement. Most schools allocate 75% of the revenue-sharing cap to football, 15% to men’s basketball, and 5% to women’s basketball. The remaining 5% is spread among a participating school’s remaining sports. This mirrors the damages allocation model in the settlement agreement.

NIL is separate. NIL payments can come from the school, a collective, or outside third parties such as local businesses. Generally, NIL deals worth more than $600 (including multiple smaller deals from the same source that exceed $600 in the aggregate) must be submitted for approval to NIL Go, the clearinghouse platform developed and run by Deloitte.

Commission Enforcement

Through NIL Go, the CSC evaluates whether NIL deals are “for a valid business purpose related to the promotion nor endorsement of goods or services provided to the general public for profit” at rates NIL Go believes match the market.

The CSC’s review of valid business purposes aims to root out pay-for-play agreements or those that simply pay the athlete a large sum of money with no deliverables. Critics, however, point out that a third-party, non-governmental entity such as the CSC dictating what constitutes a valid business purpose in private business transactions poses several legal concerns, including related to labor and antitrust.

The CSC bases its fair-market valuation of a NIL on an athlete’s deal deliverables, athletic performance, social media reach, and local market reach, as well as the “market reach of his or her institution or program” and “external benchmarks,” though those benchmarks are undefined.

While greater gametime production can yield greater brand value for an athlete’s NIL (and vice versa), the consideration of athletic performance as an evaluation metric could face challenges [RB8] [MI9] as inconsistent with the CSC’s mission to prevent payments based on athletic performance.

And there’s also the concern that enforcing its view of athletes’ “fair” market value, the CSC is doing precisely what the NCAA did that led House in the first place.

Early Fumbles

Perhaps the industry’s most pressing concern with NIL Go process is the results. On Sept. 4, the CSC’s first report represented it had cleared 8,359 deals totaling more than $80 million in approved NIL agreements. The report stated that it declined to clear only 332 submitted deals.

But none of this was correct, and the CSC retracted those figures the very next day. Its updated report revised down approval numbers by nearly 2,300 deals, from 8,359 to 6,090, and dropped the aggregate value of CSC approvals by over half, from $79.8 million to only $35.42 million.

Timeliness also has been a source of concern. Some deal approvals hang in limbo and, as a result, athletes have reported failing to meet their deliverable timelines or losing the opportunity altogether. Some reports are that there are more than $10 million worth of deals waiting for approval weeks (or longer) after they were submitted to NIL Go.

The CSC offered explanations for the delays, but the consequences persist. Some collectives now pay out deals before getting approval and athletes aren’t reporting deals for fear of delay or rejection, further exacerbating concerns about the completeness of Deloitte’s market data as well as the CSC’s ability to adequately police the industry.

Because of lean staffing (just four employees, with supplemental help from Deloitte and outside counsel), the CSC is stretched to complete its reviews and police violations. To help, it recently set up a tip line for anonymous reporting. Deterrence also has been a primary enforcement tool, as the specter of CSC-imposed postseason bans loom.

The NCAA Division I Board of Directors on Oct. 28 adopted an emergency bylaw amendment, effective immediately, requiring schools to disclose any reporting failure to the CSC within two business days of its discovery. If the athlete doesn’t report the deal within two days, the CSC must rule the athlete ineligible until the deal is reported. Schools and players who knew about reporting issues before the amendment are now on the clock to disclose them.

Therefore, early implementation issues shouldn’t create a false sense of security. The CSC eventually will steady itself, and practitioners and industry members should prepare for enforcement actions as the CSC establishes its footing as the new top cop for NIL. In the meantime, the NCAA has shown a willingness to assist the CSC’s efforts through emergency legislation.

Besides postseason penalties, athlete eligibility, limitations on transfer classes, and even financial penalties could be on the table for violations. Each of these can put schools and players at a competitive disadvantage in a landscape where rosters are never settled and program success is increasingly unpredictable.

Whether representing players, schools, or collectives, professionals should be mindful of the long-term risks of taking short term chances, even where the contours of what may be “compliant” remain unclear.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Mike Ingersoll is an associate at Womble Bond Dickinson who practices extensively in the area of name, image, and likeness with athletes, businesses, universities, agencies, and collectives.

Jennifer Van Kirk is partner at Womble Bond Dickinson where she counsels clients on a wide variety of intellectual property matters, including all aspects of ‎trademark and brand protection.

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