NCAA Passes NIL Legislation, Moves Forward with Examining NCAA President’s Governance/Compensation Proposal

Less than a month later, the Division I Council adopted at the NCAA’s annual convention the first name, image, and likeness (NIL) legislation that will, among other things, obligate student-athletes to report certain NIL deals and create a voluntary registry for NIL service providers. The Division I Board of Directors also directed the Division I Council to examine Baker’s governance and compensation proposal and provide recommendations within the year. These developments were accompanied by renewed lobbying from the NCAA for Congress to pass NIL legislation and create a special status to define the financial relationship between schools and athletes.

Collectively, these advancements reflect both a shift from the “hands off” approach the NCAA initially adopted with NIL, and a concerted effort to create an environment within the existing system whereby schools can provide enhanced benefits and compensation directly to student-athletes without student-athletes being categorized as employees.

NCAA Passes NIL Legislation

On June 30, 2021, in response to the Alston Supreme Court decision and the passage of NIL laws by a number of states, the NCAA issued interim NIL “guidance” that rescinded its prohibition on student-athletes receiving compensation for endorsements or their name, image and likeness. This triggered an explosion in student-athletes taking advantage of their newfound ability to permissibly earn money, and the NCAA’s retreat from the topic gave rise to additional states codifying NIL into state law, several attempts to pass federal legislation, and third-party booster “collectives” becoming the dominant facilitator for NIL agreements.

The NCAA’s NIL guidance was subsequently updated from time to time, but failed to grapple with the variances between state laws and clarify for the membership precisely what was—and was not—permissible.

On January 10, 2024, the NCAA passed the first set of NIL legislation through the creation of Bylaw 22. Baker characterized the new rules as providing “clarity” for schools and “protection” for athletes, while acknowledging more work remained. Generally, the legislation creates a definition for NIL that prohibits pay-for-play, imposes reporting obligations on student-athletes for NIL deals that total $600 or more, creates a voluntary registry for NIL service providers, commits the NCAA to develop and promulgate comprehensive NIL educational materials, and to create NCAA-approved “standardized contract terms” for NIL agreements.

Prospective student-athletes will be required to make NIL disclosures to the school when a written scholarship offer is made.

Member institutions are also subject to liability for violations of the new rules: under Bylaw 22.2.1.4, a violation of the new NIL rules “shall be considered an institutional violation” under the NCAA’s monitoring and reporting Bylaw 8.01.3. And schools will have the obligation to report “[a]ggregated” NIL information to the NCAA twice a year.

The adoption of this legislation coincides with the NCAA’s adjudicative body—the Committee on Infractions—announcing the assessment of substantial penalties against Florida State University for violating existing bylaws through recruiting and NIL activities. The penalties, which were agreed upon by both Florida State and the NCAA’s enforcement staff through a negotiated resolution, include (i) the dissociation of the university from a booster for three years and (ii) the disassociation of the university from the at-issue NIL collective for one year. Relevant to the topic of enforcement, the legislative package recently passed by the Division I Council includes enhanced “show cause” penalties through amendments to Bylaw 19.12.

Examination of Baker’s Governance/Compensation Proposal

The adopted NIL legislation, however, may only be a preview of larger changes on the horizon.

On January 11, 2024, the Division I Board of Directors formally directed the Division I Council to examine Baker’s recommendation calling for (i) providing unlimited educational enhancements to student-athletes, (ii) allowing schools to directly enter into NIL deals with student-athletes, and (iii) creating a new voluntary subdivision within Division I, whereby schools that join would be obligated to set aside $30,000 per year, per athlete (male and female), for at least 50% of the school’s student-athletes.

The Division I Council will examine the “key elements” of Baker’s proposal and provide recommendations. As Baker has acknowledged on several occasions, he anticipates there will be changes during the process and his December letter was intended to be a conversation starter.

As detailed in Pillsbury’s December alert, the NIL component of Baker’s proposal would be a significant change from past and current practice, allowing schools to directly enter into NIL contracts with student-athletes, potentially displacing booster-led third-party collectives as the primary facilitator of NIL agreements.

Assuming such responsibilities would, in theory, allow the NCAA to exert greater control over NIL activities and enhance the NCAA’s ability to enforce existing bylaws for potential violations; however, it would also impose additional burdens on the schools themselves, requiring that they develop sufficient infrastructure to fundraise, educate, budget and facilitate the agreements.

Renewed Call for Federal Legislation

Baker also used his annual address at the convention to, once again, lobby Congress to pass legislation not only addressing NIL, but also legislatively conferring a special status or carve out for student-athletes that would allow member institutions to provide enhanced benefits or direct compensation without triggering an employment relationship.

There are several pending legal actions that seek recognition of employment status for student-athletes. If successful, the ramifications would be immediate and far reaching. Among them, thousands of college athletes would immediately be covered by a number of federal and state employment and labor laws. And benefits provided to student-athletes (e.g., scholarships, access to training table, housing allowance, monthly stipends) could immediately become taxable income. Baker categorized the impact of such a change as “staggering.”

On January 18, 2024, Baker will testified before the House Subcommittee on Innovation, Data, and Commerce in connection with the draft bill sponsored by Rep. Gus Bilirakis, the “Fairness, Accountability, and Integrity in Representation of College Sports Act.” Bilirakis’ bill is one of a number of federal efforts to pass NIL legislation. The latest draft of the bill includes language that would preclude a student-athlete from being “considered an employee of an institution” by competing “in a varsity intercollegiate athletics program” and would create an independent, non-governmental entity—the U.S. Intercollegiate Athletics Commission—to set and enforce NIL rules.

Guidance for Clients

In December, Pillsbury advised that schools should promptly take steps in preparation for anticipated governance/compensation changes in collegiate athletics, including ascertaining the likely cost of compliance with a direct compensation system. The Division I Council being directed to examine Baker’s recommendations and recent uptick in congressional activity underscores the time-sensitivity of such preparations.

The NCAA’s new NIL rules also impose compliance obligations on member institutions that they should be prepared to meet by ensuring that sufficient resources and personnel are available to:

• Develop and promulgate compliance education materials.
• Collect, track and aggregate NIL information internally and with an eye toward satisfying the NCAA’s biannual reporting requirement.
• Educate current student-athletes on:

-  Disclosure requirements,

-  Student-athlete ineligibility, and

-  The availability of NCAA-developed NIL educational materials.

• Educate coaches and staff members on the NIL legislation’s disclosure requirements, their applicability to prospective student-athletes, the continued bar on NIL as an inducement, and the risk to the school for non-compliance.

Pillsbury’s higher education and sports legal teams are keeping apprised of all current developments in NIL, NCAA governance, compliance and enforcement actions. Pillsbury regularly counsels sports teams, investors, sponsors, leagues and sports figures. Most recently, Pillsbury’s William M. Sullivan, Jr. and Alex G. Anderson achieved a significant victory on behalf of the University of Kansas and head men’s basketball coach Bill E. Self in the long-running enforcement action arising out the Southern District of New York criminal prosecutions of rogue adidas representatives and sports agency affiliates.

Pillsbury is closely monitoring NCAA-related legislative and regulatory developments. Our nationally ranked White-Collar team helps institutions and individuals navigate the ever-changing NCAA regulatory landscape. For insights on these rapidly evolving topics, please visit our Corporate Investigations & White Collar Defense practice page.

In addition, Pillsbury’s multidisciplinary Education team represents a wide variety of public and private colleges, universities and academic medical centers. For more information, please visit our Education practice page.