What is NIL?
NIL or name, image, and likeness have been a game changer for NCAA student-athletes. Recent changes to NCAA policies now allow college athletes to profit from their brand through endorsement deals.
College athletes can now sign sponsorship deals with college brands and charge for autograph signings just like the pros.
In 2009, Ed O’Bannon, a former UCLA basketball star, and 11 other student-athletes filed a class action lawsuit against EA Sports and the NCAA for the use of their NIL in the popular NCAA video games.
In 2014, District Judge Claudia Wilken ruled that the NCAA’s model of amateurism and not paying athletes violated antitrust laws. As a result, EA stopped its NCAA video games and was forced to pay $60 million after the lawsuit.
In July 2021, the Supreme Court heard arguments in NCAA v. Alston on whether the NCAA may cap the education-related compensation provided to NCAA athletes. The court ruled that the NCAA limiting education-related compensation violated antitrust laws.
After several state legislatures, including California and Illinois, began enacting laws allowing college athletes to receive compensation for their NIL.
The NCAA needed to act swiftly so that all college athletes could benefit from NIL compensation. In an interim policy released in July of 2021, the NCAA repealed its ban on college athletes being able to be compensated for their NIL.
Before the rule change, the NCAA prohibited student-athletes from earning additional income, outside of what their scholarship provided. If found in violation, players could risk losing both their scholarship and eligibility.
Now that the dynamics have changed and athletes can receive compensation under certain circumstances, businesses and athletes must ensure their NIL deals do not jeopardize athletes’ eligibility, make sense financially for all parties involved, and comply with various legal requirements.
What Is NIL Money?
The term NIL money refers to the compensation athletes can receive for their name, image, and likeness deals. The amount of compensation a student-athlete can receive for a NIL endorsement can vary depending on their market value, social media following, and the sport played.
Currently, football and basketball student-athletes have raked in the most NIL money from promotions and sponsorships, but other athletes in various sports such as gymnastics and tennis have also received substantial compensation.
How Can Athletes Make NIL Money?
When first announced, one of the main concerns was that only top student-athletes would be able to benefit from their name, image, and likeness. Since the NCAA’s interim policy has gone into effect, thousands of student-athletes in the United States have found ways to earn income.
The more notable student-athletes can partner with brands like Nike and Apple. Others take advantage of appearances, autograph signings, and photoshoots with local businesses and fans.
Student-athletes also take advantage of their social media following to promote brands and products through paid advertisements. Social media is the most straightforward way for athletes of every caliber to earn income.
As more opportunities for NIL money present themselves it’s crucial student-athletes in the NCAA and high school should understand the fine print before signing their name on the dotted line.
NIL Endorsements in High School Sports
One of the most talked about NIL deals of the year has been Nike’s deal with Bronny James, the son of basketball phenom LeBron James.
This deal was interesting because it was between a global brand and a high school athlete. High school sports stars like Bronny James have some of the highest valuation potentials in the entire industry with millions of people following them and being influenced by their posts.
While collegiate athletes can enter most deals for their likeness based on the NCAA’s interim NIL policy, many state high school athletic associations across the country still do not allow their high school athletes to profit off of their NIL without risking their eligibility to participate in interscholastic athletics.
Currently, only about 20 states allow their high school athletes to profit from their name, image, and likeness and enter deals with businesses. These states include New York, California, and Texas.
The remaining states have various rules related to high school athlete NIL and some states like Illinois and Texas flat out prohibits their high school athletes from making money for their NIL. This makes the legal landscape surrounding NIL deals quite tricky.
NIL Legal Considerations
Athletes and businesses taking advantage of NIL deals should understand contract law and other legal considerations before inking a deal. A highly valued deal could fall through if not carefully outlined and reviewed.
3 of the most important legal considerations to be aware of in a NIL deal are:
- Compliance with NCAA and HSA rules and regulations
- Adequate Compensation
- Compliance with FERPA, FTC, and SEC guidelines
To avoid losing an endorsement deal or worse, we always recommend consulting with an experienced attorney to help avoid any legal pitfalls.
Compliance with NCAA and HSA Rules
One of the first steps to accepting a NIL deal is making sure it has been cleared by the athletic department’s compliance department. Compliance departments have certain rules detailing what type of deals the athlete can or cannot enter.
For example, a NIL deal can’t include performance-based incentives.
Similarly, brands and high school athletes need to make sure they are not adversely impacting the high school athlete’s eligibility by entering a deal that is not allowed by the state high school athletic association.
Each state and its high school athletic associations have different rules student-athletes must adhere to. Before entering a NIL deal, we highly recommend consulting with an experienced attorney to ensure that both sides are complying with the rules and regulations applicable to the athlete.
One of the biggest concerns regarding the new NIL policy is cases where athletes may be taken advantage of. Before student-athlete decides to endorse a company or product, they should understand the pay structure to ensure they’re being adequately compensated.
To avoid signing a bad contract and being underpaid, we recommend student athletes consult with an experienced contract attorney to review all the obligations and ensure they’re fair for both parties.
The most common pay structures for NIL deals are per-deliverable deals or commission-based deals.
In a per-deliverable deal, the student-athlete is paid for each deliverable completed. This deliverable could be an Instagram post, a TikTok, an appearance at a local event, or anything similar.
Athletes need to make sure they are being adequately compensated for each deliverable and brands need to make sure that the reach from each deliverable will allow them to attract new customers to make the deal make sense financially.
Alternatively, in a commission-based deal athletes are given a percentage of the revenue or net income from sales of an endorsed product, service, or specific offering. These deals typically involve using promo codes or the like. For athletes, these percentages need to make the deal worth their time and effort so they will be compensated for such.
For high school student-athletes, the deal is only active during the student-athlete’s high school tenure. On the other hand, Division 1 athletes’ NIL endorsements may continue well into their professional careers if previously agreed upon.
Compliance with FERPA, FTC, and SEC guidelines
While NIL deals need to follow NCAA rules, they must also adhere to local and federal laws.
As we mentioned previously, these deals need to be disclosed to the athletic department that the athlete is a part of. Most athletic departments are public entities meaning that the contracts could be subject to the freedom of information act requests.
While many deals may be protected under the Family Educational Rights and Privacy Act, some deals may be disclosed and made public. Athletes and brands should make sure that the information contained within these deals is something that both sides would not mind being made public.
Just like Kim Kardashian got in trouble with the SEC for endorsing cryptocurrency, athletes entering NIL deals need to make sure they’re complying with FTC and SEC rules surrounding endorsements.
The FTC Act bars unfair or deceptive acts or practices in or affecting commerce. Any endorsement of a product or service will be considered to affect commerce, so such endorsements cannot be deceptive, unfair, or untrue.
One of the requirements of avoiding FTC deceptive trade practices is that paid endorsements need to include notices to consumers that the influencer is being paid to endorse a certain product.
Taking it even further, SEC regulations require an endorser to disclose the nature, scope, and amount of compensation received in exchange for the promotion of a security.
If you have any questions about marketing your business with NIL deals and how this interacts with the FTC Act and SEC Regulations, schedule a consultation with an experienced FTC attorney.
Need Help with Your NIL Deal? We Can Help!
If you’re a brand, NIL deals can be extremely helpful to help advertise and market your business’s products or services. Likewise, if you’re an athlete entering a NIL deal, you need to make sure your eligibility is being protected, the deal is worth your limited time, and you aren’t violating any laws.
College athletes are often at the top of the social media game while they’re in school and NIL deals are a great way for businesses to increase their brand’s reach and for the athletes to monetize that fame when possible.
If you have any questions about how your NIL deal with an athlete or brand might interact with the law, the attorneys at the Gordon Law Group can help you navigate the potential legal issues with each deal.