Happy second anniversary of the NIL era! Unsurprisingly, the landscape is continuing to evolve, and regulators of all sizes and authorities have been tossing their hats into the ring to make their mark, so let’s dive in and get caught up. 

NCAA 

Mr. Baker Goes to Washington: It feels like the NCAA is working to claw back control after letting go of the reins – getting beat up in the courts and bringing on new leadership will do that to an organization. The new NCAA President, Charlie Baker, has been making his way around the halls of Congress and doing the media roadshow. And it appears to be working; the most recent federal bill, Manchin/Tubberville, codifies the NCAA’s role in the NIL ecosystem. 

A Friendly(?) Reminder, Maybe: After the hullabaloo created by Texas A&M’s 12th Man +Fund and subsequent passage of the Texas state law (see below), the NCAA’s Executive Vice President of Regulatory Affairs, Stan Wilcox, sent a memo to NCAA members stating in no uncertain terms that the NCAA will expect adherence to the NCAA bylaws regardless of what state law permits and suggested “[s]chools who do not like the application of a particular rule should work through the NCAA governance process to change the rule. Unless and until the membership changes a particular rule, all schools, as part of a voluntary membership, are required to comply.” So far, there have only been NIL infractions at Miami, but it looks like the NCAA may be starting to put down breadcrumbs for future university investigations – and maybe a speed bump to slow down state laws. 

Why this matters: In order to show Congress that the NCAA is up to the task of regulating NIL, despite the initial backseat driving, I believe we are going to see an increasingly active NCAA – especially through investigations. While their regulatory authority only covers member universities and student-athletes, these two groups are still at risk from non-compliant collective and/or brand activity. So what’s the best offense? A good defense! In NIL, defense is transparency and documentation. Use tools like GameDayNIL and Club NILlionaire to be your digital operations and business manager to create an audit trail – record all your NIL activities, store proof of work, and track compensation from all sources. 

State Laws

Revenue Sharing: The College Athlete Protection Act (“CAP Act”) introduced by Assemblyman Chris Holden (D-CA 41), a former San Diego State University (SDSU) basketball player, if enacted, would reset the landscape similar to how the Fair Pay to Play Act (2019) began a cascade of state NIL laws. The biggest “fear” of the CAP Act is the revenue-sharing model introduced. Beginning in the 2023-2024 academic year, athletics revenue above the 2021-2022 academic year (“baseline”) shall be shared with student-athletes. One notable addition of this law, evidence that the laws are reacting to the landscape, is the requirement that the institutions would be required to equitably split the funds between male and female athletes from revenue-generating sports – a nod to Title IX fears. The bill allows institutional discretion for distributing monies above the baseline, if any, to non-revenue-generating sports athletes (regardless of gender). 

NCAA Protection: Arkansas, Colorado, Missouri, New York, Oklahoma, and Texas have passed laws that limit and/or protect the states’ institutions from being penalized by either athletic conferences or the NCAA from negative actions. However, as stated above, the NCAA has reminded its members that membership with the NCAA is voluntary. 

Why this matters: Oh, my! This is some showmanship from both sides that could either be swiftly deescalated or be a seismic shift. State law will always preempt conference and NCAA policies and rules, however, the NCAA is not incorrect that this is voluntary membership. Should the NCAA ding a school for following state laws but not NCAA rules – is this the event that creates a P5 departure from the NCAA? We have all talked about it…but are we looking at the precipice? Maybe. The way less boring turn of events is that the NCAA changes its rules and it’s business as usual. 

Now, that being said, there’s a shortcut for universities. The NCAA does not want the schools directly compensating student-athletes, however, if a university utilizes a third-party intellectual property (IP) administrator, they can create a safe environment in which universities could earn compensation from the use of their IP and the student-athletes can create compensation and opportunity for themselves.  

Federal

Dueling Bills: Currently, there are two bills out in the wild. One from Rep Gus Bilirakis (R-FL) and one from Senators Joe Manchin (D-WV) and Tommy Tubberville (R-AL). As mentioned above, the Senators’ bill provides much more specification as to the NCAA’s role in the NIL landscape, including handling registrations for collectives and agents; developing a standardized NIL deal template to be used for all NIL deals; managing a “trust” funded from revenue generated from tournaments, such as the College Football Playoff or March Madness; and most notably full control over investigation and enforcement of the law, which can include penalties or the revocation of licenses to participate in NIL. While there does not appear to be much urgency from Congress to pass NIL legislation, it would be likely that the upper chamber’s bill would take priority…from the reading of the bill, it’s pretty clear where the NCAA has focused its attention. 

Athletes Clocking In: Way back in September 2021, the National Labor Relations Board (“NLRB”) General Counsel Jennifer Abruzzo issued a memo outlining her stance that student-athletes appear to be employees under the National Labor Relations Act (“NLRA”) – a conclusion based on the common-law definition of an employee and that “payment is strongly indicative of employee status.” In 2022, the NLRB found “merit” in an unfair labor practice charge out of the Los Angeles office. Then in May, the NLRB issued a complaint and notice of hearing on this charge. The complaint alleges that the NCAA, PAC-12, the University of Southern California (USC), and UCLA are joint employers of football and men’s and women’s basketball “players” and that the parties have intentionally misclassified them as “student-athletes” to discourage student-athletes engaging in labor activities. There is a long legal path ahead for this, but an appeal to the 9th Circuit is possible. The 9th Circuit, famous or infamous depending on your stance, for the Alston opinion, has also previously held that athletes are not employees (Dawson v. NCAA), so this ruling could be a toss-up. 

The IRS is Not Feeling Charitable: The IRS is getting back to basics and questioning 501c3 NIL collectives – read up on that here. 

Why this matters: I can understand why the idea of employment could be ~engaging~ to student-athletes, however, I fear that the short-term gains will be met with long-term downsides, e.g., performance reviews. I get that the NLRB is analyzing this under the law, however, I hope that cooler heads prevail and that student-athletes remain classified as students. 

But, the more immediate issue is if you’re involved with a 501c3 NIL collective; while this should not be a surprising move from the IRS, it could affect the collective’s sustainability. Reach out to ALC today for a risk analysis of your operations to identify  issues that could trigger an IRS review.