Weekly Column: NIL, Dealmaking and Regulation in the College Sports Market

In his capacity as a Columnist for California Sports Lawyer®, Founder Jeremy Evans has written a column about dealmaking and regulation in the college sports market with a focus on deal terms in agreements and the NCAA's role in compliance.   

You can read the full column below.

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When name, image, and likeness (“NIL”) changes swept across the country in the summer of 2021 with the help of state legislatures passing laws like the “Fair Pay to Play Act” and the National Collegiate Athletic Association (“NCAA”) deciding to remove the rule on college athletes profiting from their NIL, it changed the trajectory of college sports forever. College sports began as educational institutions and sports as a secondary measure to help students pass the time and stay active between classes. Now more than ever, education is a key component of college, which it should be as degree-earning institutions, but the changes to NIL, mixed with conference realignment, and a Supreme Court decision in Alston providing that the NCAA “cannot restrict education-related compensation benefits for student-athletes” have all led to a perfect storm in college sports. Where that perfect storm of change will lead in terms of the business of college sports, and NCAA, state, or federal regulations is anyone’s guess.

There is irony in many things and situations in life. Maybe none more than in situations of legal arguments and legislation. California’s Fair Pay to Play Act is recognized as the first NIL legislation to pass in the United States and persuaded NCAA President Mark Emmert to remove the NIL profiting rule. However, the law by its very name says exactly what college athletes, brands, conferences, collectives, businesses, and donors are not supposed to do: pay athletes to play sports. A true and pure NIL deal is one where the athlete gets paid money, equity, and/or product(s)/service(s) from a brand or business to post something on social media endorsing a product. It could also include television and radio advertisements or even appearances for products or services. It may even include personal services like consulting.

Where the conversation gets murky is when college athletes are getting paid to pay. For example, when securing an NIL deal, could a clause be included in the agreement that bases the college athlete’s NIL payment, even if partially, for performance on the field (e.g., touchdowns, sacks, points, home runs, hits, goals, etc.)? The answer is no as that would be pay to play, or pay to perform on the field in this example, which is typical in professional sports contracts not college athletics. How about paying a college athlete for being available to play or being enrolled in college as an athlete? The aforementioned situation gets even murkier because on the one hand the brand or business is paying the athlete because they are indeed a college athlete that has some notoriety and social media presence (e.g., followers and engagement). If that benefit of the bargain is taken away, then arguably the value of the deal is significantly reduced or removed entirely.

In law school, there is a famous case taught in contracts classes. It is Krell v. Henry (1903) 2 KB 740, an English law case from which many or American legal principles come from, and the case provides that where a party to a contract has a basic assumption fail to occur (e.g., frustration of purpose), the party without fault by the failure of the occurrence is discharged/excused from fulfilling their obligations. In plain English, if a college athlete is no longer a college athlete is the basic assumption of the brand or business frustrated and is the brand is discharged from its contract obligations? Of course, these matters are litigated and very particular, and this is not legal advice, but its seems that the even though pay to play is not allowed, contract principles would still guide the parties relationships. In other words, contract law cannot be excused just because the NCAA has a no pay to play rule. By the way, it is also potentially true that if a brand or business failed to be a brand or business anymore there would be excuse to exit the agreement as well.

The interesting point about NIL deals that will come to fruition in the coming months and years is that tax law, morals clauses, and breach of agreements can apply to college athlete, brand, and social media deals. In other words, the field of college sports has now entered into a new era—one where the protective shield of college sports has been pushed into the private market through NIL and even more so with Power Five autonomy and conference realignment into super leagues. It is also true that after a season of Wild West approaches, the NCAA is likely to begin issuing rules, regulations, and discipline for NIL activity after monitoring the market for a year. State legislatures will continue to pass laws to guide the college market, but it is very unlikely that Congress will get involved to commandeer the states to treat NIL the same as litigation from nearly every state in the Union would ensue. The Murphy decision is an example of the legislative authority and autonomy reserved to the states—Congress would be unwise to try again—and the legislative body has shown historically a lack of an appetite (or votes) for it.

Some questions going forward include: will a salary or talent cap be needed for colleges in super leagues? Should NIL collectives be banned? Will the NCAA and colleges put dollars toward hiring compliance officers and securing the necessary software to assist in regulation? How will the College Football Playoff change through expansion? Time will tell.

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About Jeremy M. Evans:  

Jeremy M. Evans is the Chief Entrepreneur Officer, Founder & Managing Attorney at California Sports Lawyer®, representing entertainment, media, and sports clientele in contractual, intellectual property, and dealmaking matters. Evans is an award-winning attorney and industry leader based in Los Angeles. He can be reached at Jeremy@CSLlegal.com. www.CSLlegal.com.

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Jeremy M. Evans is the Founder of California Sports Lawyer® and serves as Senior Counsel at Klinedinst PC, representing entertainment, media, and sports clients in California.