NIL Round-Up: New Permissible Uses of NIL and Other Forms of Student-Athlete Compensation

Like the seasons, the NIL landscape continues to change. In the past few months, the world of college athletics has seen additional changes to the NCAA’s capacity to regulate the ability of student-athletes to profit from their name, image, and likeness (“NIL”). Perhaps most notably, these changes include a federal court in Tennessee granting a preliminary injunction to prevent the NCAA from enforcing several of its keystone NIL regulations, such as the prohibition of using NIL compensation as a recruiting inducement, which prompted responses from the NCAA and state governments. In addition, there have been new proposed methods for NIL compensation, including a new tournament guaranteeing payments to participating teams and the NCAA entering into its first NIL deal as a licensor. We are also tracking the first unionization of a collegiate sports team and a new lawsuit seeking to block NCAA rules limiting the amount of prize money student-athletes can keep from non-NCAA competitions. More on each of these changes below.

Preliminary Injunction Granted in Tennessee and Virginia v. NCAA

The State of Tennessee and Commonwealth of Virginia filed suit against the NCAA on January 31, 2024, alleging that the NCAA violated federal antitrust laws under the Sherman Act by controlling compensation for use of prospective student-athletes’ NIL as a recruiting inducement.¹ The plaintiffs are seeking a permanent injunction barring the NCAA “from enforcing its NIL-recruiting ban or taking any other action to prevent prospective college athletes and transfer candidates from engaging in meaningful NIL discussions prior to enrollment, including under the NCAA’s Rule of Restitution.”²

On February 23, 2024, United States District Judge Clifton L. Corker granted a preliminary injunction, thereby temporarily preventing the NCAA from enforcing any rule that prohibits student-athletes from negotiating compensation for NIL with any third-party entity, including but not limited to boosters or a collective of boosters.³ Furthermore, Judge Corker ordered that the NCAA may not enforce the Rule of Restitution with respect to NIL activities until the final court decision.⁴ The Rule of Restitution, under NCAA Bylaw 12.11.4.2, allows the NCAA to retroactively take retaliatory action against student-athletes and schools that compete in an NCAA competition, based on court action related to such student-athletes’ eligibility at the time, and is later overturned (meaning the student-athletes are ultimately considered ineligible).⁵ Such retaliatory actions include vacating any records, overturning awards and championships, requiring remission of television receipts, and financial penalties.⁶

In practice, Judge Corker’s granting of the preliminary injunction prevents the NCAA from enforcing NIL rules that prohibit student-athletes from negotiating compensation for NIL deals, including negotiating such deals before committing to a school, while the action is pending. During this time, the NCAA can no longer prevent the offering of NIL compensation as a recruiting inducement for a student-athlete to attend a particular school. Furthermore, the NCAA cannot retroactively pursue retaliatory actions against student-athletes, schools, or third parties that use NIL as a recruiting inducement in the meantime, so student-athletes, schools, and third parties will be able to avoid any retroactive NCAA penalties while the preliminary injunction is in effect.

The NCAA’s Response to the Preliminary Injunction

On March 1, 2024, NCAA President Charlie Baker circulated a letter notifying member schools that the Division I Board of Directors “directed NCAA enforcement staff to pause and not begin investigations involving third-party participation in NIL-related activities,” with “no penalty” for applicable conduct while the preliminary injunction is in effect.⁷ However, the letter specifies that the NCAA will continue to enforce other policies, including the prohibition on NIL compensation for specific athletics performance (i.e., “pay-for-play”), prohibition on direct institutional payment for NIL, and the quid pro quo requirement.⁸

State Government Responses to the Preliminary Injunction

The granting of the preliminary injunction in Tennessee and Virginia v. NCAA prompted state governments to take action in connection with their respective NIL rules. Most notably, North Carolina Governor Roy Cooper rescinded an earlier executive order that created NIL-related rules and guidelines for North Carolina colleges and universities.⁹

As a result, student-athletes in North Carolina will now have greater flexibility to enter NIL arrangements. However, these student-athletes should be aware of the NCAA’s ability to continue to enforce certain restrictions on NIL as noted above. For example, even though direct institutional NIL compensation is no longer prohibited under North Carolina law due to the rescission of the order, the NCAA’s rule prohibiting direct institutional compensation remains unchallenged and may be enforced against student-athletes in North Carolina.

In addition, the Oregon legislature recently passed House Bill 4119, which requires that student-athletes disclose their NIL deals and outlines certain parameters for NIL deals (e.g., pay-for-play is prohibited).¹⁰ Furthermore, Oregon joined other states, including Missouri, New York, Oklahoma, and Texas, in prohibiting the NCAA from preventing a student-athlete’s or school’s participation in college athletics due to a real or alleged violation.¹¹

Other NIL-Related Developments

As prohibitions on NIL-related compensation continue to be challenged in the courts, other organizations continue to develop new NIL compensation arrangements for student-athletes. For instance, there is discussion of a new men’s college basketball tournament launching in the fall of 2024 which will offer NIL deals to participating teams.¹² The tournament will be called “Players Era,” and the tournament operator, EverWonder Studio, is guaranteeing that each participating school will be offered $1 million in NIL money through collectives, boosters, or other NIL entities and the coaches and teams will be able to distribute the money to current players.¹³ Notably, the winning team will be eligible to earn another $1 million, which can also be distributed to current players.¹⁴ It is unclear what kind of interest will be generated in this new tournament or whether the NCAA will challenge the payments as prohibited pay-for-play.

At the same time, the NCAA continues to take actions that suggest a growing receptiveness to the reality of student-athlete compensation. The NCAA recently entered into its first-ever NIL licensing deal, with trading card manufacturer Topps.¹⁵ Under the deal, the NCAA licenses the use of the March Madness logo for Topps to use on trading cards featuring men’s and women’s college basketball players.¹⁶ Topps already has deals in place with all of the featured student-athletes, and NCAA Director of Licensing David Clendenin said “there might be [a] larger program in the future,”¹⁷ including in sports like “volleyball, FCS football, baseball, or the Women’s College World Series.”¹⁸ Brands seeking to engage with the NCAA should continue to monitor the NCAA’s involvement in NIL licensing deals as they become more prevalent.

Other Avenues of Student-Athlete Compensation

While this article focuses mainly on NIL-related developments, there have also been several notable developments that could lead to other avenues for student-athlete compensation. On March 5, 2024, the Dartmouth College men’s basketball team voted 13-2 to unionize and join Services Employees International Union Local 560.¹⁹ This decision comes after a National Labor Relations Board (NLRB) regional official ruled that the team members could be considered employees under the National Labor Relations Act which, among other rights, granted them the right to unionize.²⁰ Dartmouth has appealed the ruling to the full NLRB where it could be overturned. If the ruling is affirmed, it could give the team members the ability to collectively bargain with the school for compensation such as a salary, healthcare, and other employment-related benefits.²¹ Such compensation would be in addition to any NIL-related compensation and represents a potential additional income stream for student-athletes.

Another avenue of student-athlete compensation could become available in the form of prize money for student-athletes playing individual sports. A class action lawsuit filed by University of North Carolina tennis player Reese Brantmeier seeks to prevent the enforcement of NCAA rules that limit the amount of prize money from non-NCAA competitions that student-athletes can keep to their “actual and necessary expenses.”²² Brantmeier is seeking to represent a class of student-athletes playing “Individual Sports”²³ which typically do not generate the same NIL opportunities for student-athletes as team sports like football and basketball. The lawsuit alleges that much of the NIL payments made to student-athletes in revenue-generating sports have “little to no relation to the actual market value for the supposed NIL services” and are in reality pay-for-play; therefore, the amount of prize money student-athletes playing individual sports are able to keep while maintaining NCAA eligibility should not be limited.²⁴ Schools, conferences, and collectives should keep an eye on this lawsuit, as it could lead to the unenforceability of additional NCAA rules and open up more revenue streams for student-athletes, especially for those competing in individual sports.

Key Takeaways: What’s Ahead

The collection of NIL and other compensation-related updates from the last few months underscores the expanding forms of student-athlete compensation that are available. Universities, student-athletes, brands and other stakeholders should keep an eye out for further developments in these spaces and monitor updates to each of the relevant lawsuits challenging NCAA rules. The NIL landscape is changing quickly and nimble parties can identify and benefit from unique opportunities in the growing uncertainty around the NCAA’s enforcement powers.