Watching the explosion of activity in the name, image, and likeness “collective” space, one might easily forget that neither the 2015 decision of the 9th Circuit federal appeals court in O’Bannon nor the 2021 decision of the Supreme Court in Alston, affirming another decision of the 9th Circuit, had anything to do with third party payments to college athletes.
At issue in both those cases was the validity of NCAA rules limiting payments colleges themselves might make to athletes, and both decisions accepted that it was reasonable to limit those payments to the “cost of attendance,” albeit more broadly defined than the NCAA had previously allowed.
But even while Alston was still pending Supreme Court review, state legislatures had begun enacting statutes that would forbid colleges or the NCAA or its constituent conferences to enforce rules that would penalize college athletes for being compensated by third parties for the use of their rights of publicity.
And the NCAA capitulated, announcing in its June 2021 “interim” policy statement that it would defer to state legislation, while still at least nominally holding onto a prohibition against boosters using NIL compensation as an inducement to an athlete to enroll or remain at a particular school or to transfer to another. This is an inherently inconsistent position.
Some of the recently enacted state statutes forbid a college to pay current or “prospective” athletes for their publicity rights. Other statutes expressly allow this. None replicates the NCAA policy against boosters using NIL as a recruitment tool, and some directly override that policy.
Flag on the play
The NCAA has indicated that it does want to take enforcement action against booster collectives or athletic departments that engage in improper recruitment activity.
It will be “interesting,” at least for lawyers and legal academics, to see how this will play out if and when the NCAA attempts to impose sanctions on a player or a team in a state where the statute seems to permit what the association’s policies forbid.
Without naming names, and maybe changing some of the facts, let us take as an example a booster-sponsored collective based in Florida, securing NIL opportunities for athletes playing for a team based in California. And let us suppose that the collective is openly promoting these opportunities as a recruitment tool, going so far as to provide a “base salary” to every member of the team, regardless whether she provides any actual services exploiting her individual publicity rights.
On its face, this arrangement would violate the NCAA’s guidance issued in May 2022, saying NIL compensation arrangements cannot be contingent on enrolling in any particular school, and payments must be based on a case by case determination of the actual value an athlete brings to the arrangement.
The California athletic department does want to recruit some of these players, but does not want to incur NCAA penalties, possibly disqualifying the very players they are trying to reach. But the California statute says the college cannot interfere with the NIL compensation arrangement.
The California statute also says the NCAA cannot sanction the student athletes for accepting NIL compensation from the Florida booster collective, but this raises one of those “interesting” questions. Ostensibly the NCAA is a voluntary association of colleges who have agreed to uphold certain standards of amateurism in college sport. And the NCAA as a corporate entity is based in Indiana — which, as a footnote to this discussion, has not enacted an NIL statute. Can the California statute actually prevent the NCAA enforcing its rules?
Maybe the California college would like to offer an alternative to what the Florida collective has on offer, to deter their recruiting targets from getting involved in a sanctionable arrangement. Unfortunately, the California statute says the college cannot directly pay players for use of their publicity rights, but maybe the college could align itself with a collective that more closely adheres to the NCAA guidance.
If we were to turn the tables, a Florida college facing a similar dilemma would not have that alternative available. Under the Florida statute, a college may not be involved in NIL compensation arrangements even indirectly. One “interesting” question here is whether a Florida college can offer “soft credits” to boosters who contribute to a collective that provides NIL compensation opportunities to its athletes.
The tax exempt collective
Several dozen of these NIL “collectives” have secured tax exempt status from IRS. Presumably none of these sought exemption by reciting as their purpose recruiting athletes to enter or refrain from entering the transfer portal or connecting athletes with commercial opportunities.
At the moment, apart from the NCAA’s own rules and pronouncements, there is not anything resembling national public policy on any of the questions implied by the scenario sketched above. The Congress has failed repeatedly to step in with legislation, and state laws are a patchwork.
But there may nonetheless be some limits beyond which a tax exempt collective cannot engage in recruitment or “pay to play” without endangering its exempt status.
Note: As this article was posted, the Florida legislature enacted and the governor signed H7B, repealing many of the restrictions on colleges working directly with athletes on NIL opportunities. Meanwhile, the NCAA has issued its first, albeit very mild, sanctions order relating to a recruitment violation arising from contact between a booster and a transfer prospect.