The debate over the extent to which student athletes should be compensated is hardly new, but antitrust challenges brought against the NCAA, and new state legislation allowing athletes to receive compensation for the use of their name, image or likeness (commonly abbreviated as “NIL”) has shone a fresh light on the issue. This state legislation, along with a call for national action, may drastically change the world of collegiate athletics as we know it. Will this change be for the better or worse? Views differ, and time will tell.
New legislation in several states, such as the Fair Pay to Play Act in California, will not limit the academic institutions’ ability to use an athlete’s name, image and likeness to generate revenue, marketing and sponsorship deals, but it will allow for sponsors and brands to contract directly with a student athlete for deals concerning their NIL. These laws are contrary to current NCAA rules.
Pre-Game Background and the O’Bannon Decision
The NCAA is the governing body behind college athletics. Although it is a nonprofit organization, college sports is big business, and the NCAA’s massive television contracts, global media power, and strict policies have a direct effect on the sports industry and the student athletes that are its lifeblood. Significant revenues are generated in connection with college sports, and, for the most part, student athletes do not share in the wealth.
Historically, the NCAA has ensured that student athletes (also known as “amateur athletes”) were prohibited from receiving pay for their NIL rights through Article 12 of the NCAA Bylaws (the Bylaws), which provides that “only an amateur student athlete is eligible for intercollegiate participation in a particular sport” (emphasis added).1 While the NCAA does not explicitly define “amateurism” in the Bylaws, it does define a “professional athlete” as “one who receives any kind of payment, directly or indirectly, for athletics participation except as permitted by the governing legislation of the Association.”2 Student athletes lose eligibility if they, among other things, get an agent, enter a professional draft after enrollment, or accept pay in any form in their sport.3 The requirement that student athletes maintain their “amateur status” has created a hurdle for student athletes with any hope of seeing a cut of profits from use of their NIL.
In 2008, UCLA basketball standout Edward O’Bannon saw himself in avatar form in a videogame.4 The character looked like him, played for the same team, and wore his jersey number. He had not consented to this use of his NIL and received no compensation for it. In O’Bannon v. NCAA, O’Bannon was drafted as the lead plaintiff in a federal lawsuit against the NCAA.5 He claimed that the NCAA’s restriction on Division I Men’s basketball and football players’ ability to receive pay for use of their NIL was an unlawful restraint on trade prohibited by the Sherman Antitrust Act.6
The trial court agreed, holding that NCAA rules are not immune from the antitrust laws and that, when challenged, they must be tested by the Rule of Reason, a three-step, burden-shifting process applied in antitrust challenges, where the court considers (1) the anti-competitive effects of the alleged restraint in a given market, (2) the pro-competitive effects, and (3) whether less restrictive alternatives could achieve the same legitimate objectives.7 The court held that the NCAA prohibition on paying athletes for NIL use was anti-competitive in the relevant market; that maintaining “amateurism” in college sports was a legitimate pro-competitive objective because it increased consumer demand for college sports and integrated academics and athletics; and that the plaintiffs had shown less restrictive alternatives for achieving that objective, namely, allowing schools
to provide scholarships to athletes up to the full “cost of attendance” and
to pay cash compensation of up to $5,000 per year to be held in trust until after graduation.8 The US Court of Appeals for the Ninth Circuit largely agreed and affirmed on appeal, though it limited the injunction only to the first of the proffered alternatives. As to the $5,000 per year trust payment, the appellate court determined that allowing a student to be a “poorly-paid professional athlete” would not be virtually as effective as retaining full amateur (non-professional) status.9 Thus, the court held that a rule prohibiting cash payments unrelated to education was not an antitrust violation.10 This case was perhaps a win for student athletes, but it can hardly be called an upset — compensation for NIL use could be capped at whatever remained for the cost of attending the school.
Student Athletes Get a Rematch
Since August 2015, the Bylaws have allowed many exclusions to their no-pay rules, authorizing a wide range of above-cost-of-attendance payments, both related and unrelated to education, including athletic participation awards, disbursements for tutoring, study abroad expenses, car repair, insurance policies, mandatory medical care, per diem charges, and many other expenses.11 But, the general prohibition on receiving pay remains. In In re NCAA, three classes of athletes comprising FBS football players, Division I men basketball players, and Division I women basketball players, again, challenged the NCAA’s amateurism rules as unlawful restraints of trade.12 Their argument was similar in nature to O’Bannon, but the relaxed rules on permissible compensation allowed the plaintiffs to target additional gaps in the NCAA’s pro-competitive defense, more broadly attacking the interwoven set of NCAA rules that restrict the amount of compensation students may receive in exchange for their athletic-related services.
The district court entered a permanent injunction, implementing less restrictive alternatives to the NCAA rules, namely (1) allowing the NCAA to continue limits on grants in aid at no less than the cost of attendance, (2) allowing the NCAA to continue to limit compensation and benefits unrelated to education, and (3) enjoining limits on most compensation and benefits related to education but allowing certain limitations.13 The NCAA appealed.
On appeal, the Ninth Circuit emphasized the district court’s conclusion that “not paid” and “amateurism” are not synonymous, as shown, in part, by the numerous carve-outs allowing money to go to student athletes unrelated to education expenses.14 The Ninth Circuit affirmed and reiterated that the crux of the problem comes from the actual price-fixing of student athlete compensation.15 The NCAA echoed its pro-competitive argument from O’Bannon, but the Ninth Circuit found that only some of the challenged rules were pro-competitive. Preventing the receipt of “unlimited cash payments akin to professional salaries” was justified, but rules restricting “non-cash education-related benefits” did not foster or preserve demand for college athletics.16
The relaxation of payment to student athletes since O’Bannon affirmed that “non-education-related cash payments in excess of cost of attendance are no longer a ‘quantum leap’ from current NCAA practice,” as they were once described in O’Bannon (emphasis added).17 The Ninth Circuit affirmed, holding that “NCAA limits on education-related benefits do not ‘play by the Sherman Act’s rules.’”18 The Supreme Court granted certiorari on December 16, 2020, and arguments are currently scheduled for March 31.
Full Court Press: The Rulebook is Changing
In the wake of O’Bannon and In re NCAA, states around the country quickly began passing legislation allowing athletes to receive payment for their NIL rights. California’s Fair Pay to Play Act (the California FPPA) was the first of its kind and paved the way for other states to follow suit. The California FPPA blatantly went against the rules of the NCAA. Effective January 1, 2023, the California FPPA not only allows athletes to receive compensation for NIL rights, it also bars the NCAA from retaliating against players or teams for pursuing such compensation. Florida, Colorado, Nebraska, and New Jersey have passed similar legislation, with Florida’s new law on Intercollegiate Athlete Compensation and Rights (SB 646) taking effect July 1, 2021.19 All states so far have included prohibitions against a student athlete entering into a contract involving NIL rights where a provision of that contract would conflict with a provision in the team’s contract.20 For example, if UCLA has an endorsement deal with Under Armour, a player on that team may not enter into a conflicting contract with Nike to use his likeness in advertising.
With multiple state laws poised to go into effect and grant NIL rights to student athletes, the federal government and the NCAA are now considering a uniform body of laws regulating NIL rights compensation. In addition to benefiting college athletes, uniform regulations would benefit the NCAA, allowing it to regulate compensation for NIL rights in a uniform fashion, rather than on a state-by-state basis. In turn, the NCAA could help maintain competitive fairness in college athletics. Companies would have the opportunity to sponsor players across the country — not just in those states that passed NIL rights legislation — allowing them to maximize profits generated through student-athlete endorsement deals. There is, of course, another side: if student athletes are poised to see more revenue, that money has to come from somewhere. There is a risk that the line between college and professional athletics is further blurred.
The NCAA has called on Congress to pass federal legislation regulating NIL compensation and has even presented Congress with its own version of legislation: The Intercollegiate Amateur Sports Act of 2020. Although the NCAA’s proposal was not introduced, multiple bills have been. There’s US Senator Roger Wicker’s Collegiate Athlete and Compensatory Rights Act, US Senator Marco Rubio’s Fairness in Collegiate Athletics Act, US Representatives Anthony Gonzalez’s and Emanuel Cleaver’s Student Athlete Level Playing Field Act, and US Senators Cory Booker’s and Richard Blumenthal’s College Athletes Bill of Rights, all of which were introduced during the last session of Congress. One issue that differs in the various proposals is whether a new law would protect the NCAA from future antitrust challenges. All of the proposals would permit student athletes the right to earn compensation for use of their NIL.
Thus far, the current session of Congress has not taken up any of the bills introduced last session or introduced any new bills concerning NIL rights for student athletes. And, the NCAA, despite voting unanimously last year to permit student athletes to benefit from the use of the NIL and directing
updates to the Bylaws, announced on January 11 that it was tabling the proposal, citing “external factors, including recent correspondence with the U.S. Department of Justice.”21 Electronic Arts (EA), a videogame producer who was involved in the O’Bannon case but settled and has refrained from releasing any college football videogames since 2013, just announced that it plans to bring the game back, but it will be different. Pursuant to a deal reached with the NCAA’s licensing company, the game will feature real teams, uniforms and logos, but it will not include any player-specific NIL.22
But Florida’s law is set to go into effect this summer, ahead of the start of the next college football and basketball seasons. While the NCAA and Congress may continue to struggle with the task of compensating student athletes while preserving the amateur nature of college athletics, it is reasonable to expect that some form of NIL rights compensation regulation is coming on a larger scale. With athletes able to receive NIL rights compensation, brands should be prepared for new endorsements or sponsorship deals. The world of college sports remains an interesting area to watch.
This article is based, in large part, on an article written by Jennifer Vliet and Quincy Wolff during their time participating in Katten’s 2020 Summer Associate Program. The project was supervised by Chicago Intellectual Property partner Jeffrey Wakolbinger and New York Litigation associate Zachary Beal. The content has been updated to reflect ongoing developments. Jennifer and Quincy will be joining Katten as new associates upon their graduation from law school.
(1) NCAA Bylaws, Article 12.01.1 (2020) available at https://www.ncaapublications.com/productdownloads/D110.pdf.
(2) Id. § 12.02.11
(3) Id. § 12.1.2.
(4) O'Bannon v. Nat'l Collegiate Athletic Ass'n, 802 F.3d 1049, 1055 (9th Cir. 2015).
(7) Id. at 1057, 1070.
(8) Id. at 1052–53.
(9) Id. at 1076–77.
(10) Id. at 1079.
(11) In re Nat'l Collegiate Athletic Ass'n Athletic Grant-in-Aid Cap Antitrust Litig. 958 F.3d 1239, 1244–45 (9th Cir. 2020).
(12) Id. at 1247.
(13) Id. at 1251–52.
(14) Id at 1258–59.
(15) Id at 1254.
(16) Id. at 1257–58.
(17) Id. at 1255.
(18) Id at 1265–66 (quoting O’Bannon, 802 F.3d at 1079).
(19) Fla. Stat. § 1006.74.
(20) See, e.g., Id. § 1006.74(2)(h); Cal. Educ. Code § 67456(e)(1).
(21) See Division 1 Council tables proposals on name, image, likeness and transfers, Jan. 11, 2021, available at https:// www.ncaa.org/about/resources/media-center/news/ division-i-council-tables-proposals-name-image-likeness-and-transfers.
(22) Sarah E. Needleman & Laine Higgins, EA to Return to College Football Arena, Wall St. J., Feb. 2, 2021, at B8