A Brave New World: The NCAA’s New NIL Policy and the Need for Federal Legislation

by Josh H. Escovedo
The IP Law Blog

©2022. Published in Landslide, Vol. 14, No. 4, June/July 2022, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

This article was written by Josh Escovedo and Michelle Yegiyants.

The landscape has changed. After decades of the NCAA reaping the benefit of college players, their labor, and their name, image, and likeness (collectively, NIL), the NCAA has changed its policy and allowed players to market their NIL without sacrificing their amateur status. However, the NCAA only made this change after a scathing U.S. Supreme Court ruling in a related matter, where the Court affirmed a decision from a U.S. district court enjoining the NCAA from limiting universities from providing student-athletes with certain education-related benefits.[1] In Justice Kavanaugh’s concurring opinion, he warned the NCAA that it should strongly reconsider its NIL-related policies before such matters are taken before the Court.[2] The Court issued its decision on June 21, 2021. The NCAA responded by changing its policy effective July 1, 2021.[3] 

By making its decision at the last minute, the NCAA left the universities with little time to formulate their own NIL policies and protocols. The only exception to this situation was for those universities in the 11 states that had already planned to legalize collegiate athletes appropriating their NIL for economic gain on July 1, 2021. Of course, many universities have now caught up and created their own policies, but the lack of legislation in each of the 50 states has created a lack of uniformity even between universities in the same states. Even worse, the lack of federal legislation has created an absence of uniformity between universities in different states. Federal legislation may be necessary to create a uniform playing field.

What that federal legislation should look like, however, is up for debate. Congress placing limitations on student-athletes and their ability to earn from their NIL may have a disproportionate impact on people of color, who make up over 60% of the NCAA football and basketball rosters,[4] which tend to be the most popular and highest-earning collegiate sports in the nation.[5] While federal legislation may be necessary, as discussed below, it is the authors’ opinion that any such legislation should be relatively limited, and should protect athletes’ rights to market their NIL from future NCAA policy changes and state legislation.

The Supreme Court Affirms the Decision Striking Down the NCAA’s Anticompetitive Behavior

On June 21, 2021, the U.S. Supreme Court, in a unanimous opinion authored by Justice Gorsuch, released its decision in NCAA v. Alston.[6] The Court affirmed the lower court’s injunction of NCAA rules that restricted education-related benefits to student-athletes.[7]

Current and former student-athletes who played in men’s Division I Football Bowl Subdivision football and men’s and women’s Division I basketball filed an antitrust class action against the NCAA and 11 Division I conferences, alleging that the NCAA implemented anticompetitive bylaws unreasonably limiting the compensation and benefits that student-athletes might receive in exchange for their athletic participation.[8] The district court struck down NCAA rules limiting education-related compensation, such as post-eligibility undergraduate or graduate scholarships or tutoring, study-abroad expenses, and paid post-eligibility internships.[9] Nothing in the district court order, however, precluded the NCAA from continuing to fix compensation and benefits unrelated to education.[10] The court of appeals affirmed in full, and the NCAA appealed, asking for deference to its concept of amateurism and seeking immunity from the normal application of antitrust laws.[11]

In his majority opinion, Justice Gorsuch began with a historical overview of collegiate athletics dating back to the 19th century and the eventual founding of the NCAA, a now multibillion-dollar enterprise.[12] Noting that the NCAA enjoys monopsony power in the market for student-athlete services and exercises such power to restrain compensation without risking its market dominance, an issue that was uncontested even by the NCAA, the court applied “rule of reason” review.[13]

The Court agreed with the district court’s finding that the NCAA failed to establish a direct connection between the challenged compensation rules and consumer demand for its unique product (i.e., amateur college sports versus professional sports).[14] The Court affirmed the lower court’s finding of a Sherman Act violation, noting the district court’s finding that not only were the NCAA’s restraints not the least restrictive means of preserving consumer demand, but they also were “patently and inexplicably stricter than is necessary” to achieve the procompetitive benefits the association had demonstrated.[15]

Importantly, in rejecting the NCAA’s argument that the district court impermissibly defined the relevant product by rejecting the NCAA’s views about what amateurism requires, the Court noted that the NCAA itself has not adopted any consistent definition of amateurism, shifting its rules and restrictions over time without any reference to “considerations of consumer demand.”[16] Finally, the Court acknowledged that the lower court’s injunction afforded the NCAA considerable flexibility to address its concerns related to the potential that athletes would be provided impermissible benefits under the guise of permissible education-related expenses.[17]

In his concurring opinion, Justice Kavanaugh emphasized the narrow scope of the case and underscored the high possibility that the NCAA’s remaining compensation-related rules would not survive a rule of reason analysis under antitrust laws.[18] Noting that the NCAA concedes that its compensation rules set the price of student-athlete labor at a below-market rate, and that student-athletes have no meaningful ability to negotiate with the NCAA, Justice Kavanaugh rejected the NCAA’s argument that the defining feature of college sports is that student-athletes are not paid.[19] Justice Kavanaugh opined that the “NCAA’s business model would be flatly illegal in almost any other industry in America” and that “price-fixing labor is ordinarily a textbook antitrust problem because it extinguishes the free market in which individuals can otherwise obtain fair compensation for their work.”[20] In closing, Justice Kavanaugh stated that “[t]he NCAA is not above the law.”[21]

The NCAA Responds by Changing Its NIL Policy

With the Supreme Court’s writing on the wall, the NCAA made a last-minute change to its NIL policy just days before new laws permitting NIL appropriation in 11 states were to go into effect.[22] Of course, the change in policy could have been the product of the evidently changing tide represented by those new state laws and those that were being considered by the other states. However, the abrupt nature of the change suggests the change was the product of Alston. On June 30, 2021, the governing bodies of the NCAA passed a policy that suspended all NCAA NIL rules for incoming and current students.[23] In short, this suspension meant that NCAA athletes, for the first time, would have the opportunity to financially benefit from their NIL effective July 1, 2021.[24]

The NCAA offered the following guidance to its athletes and its member institutions:

  • Individuals can engage in NIL activities that are consistent with the law of the state where the school is located. Colleges and universities may be a resource for state law questions.
  • College athletes who attend a school in a state without an NIL law can engage in this type of activity without violating NCAA rules related to name, image and likeness.
  • Individuals can use a professional services provider for NIL activities.
  • Student-athletes should report NIL activities consistent with state law or school and conference requirements to their school.[25]

While enabling student-athletes to benefit from their NIL, the policy preserves the NCAA’s commitment to avoid pay-for-play and improper inducements associated with choosing to attend a particular institution by maintaining its rules to that effect.[26] The NCAA also issued a NIL question and answer document, offering additional guidance concerning the policy change.[27] Perhaps most importantly, the document identifies certain prohibitions under the interim policy.[28] Specifically, the NCAA’s question and answer document explains that, subject to state law, the following is prohibited under the new interim policy:

  • NIL agreements without quid pro quo (e.g., compensation for work not performed). . . .
  • NIL compensation contingent upon enrollment at a particular school. . . .
  • Compensation for athletic participation or achievement. Athletic performance may enhance a student-athlete’s NIL value, but athletic performance may not be the “consideration” for NIL compensation.[29]

Of course, the student-athletes are also required to comply with their school’s NIL policy, if the school has one.

So, while the NCAA’s policy change was monumental for student-athletes, the NCAA’s last-minute decision created some administrative burdens on the schools and the student-athletes. By taking a mostly hands-off approach and deferring to state law and the institutions’ rules—with the exception of the prohibitions described above—the NCAA has created a lack of uniformity from state to state, and between institutions within a single state. This lack of uniformity is the product of the NCAA deferring to the states and institutions, which are likely to have different rules from one another.

The NCAA’s Policy Change Has Created Inequities, So Federal Legislation May Be Necessary

What is the result of the NCAA’s policy change? A student-athlete in Florida may not be subject to the same prohibitions concerning which companies they can partner with as a student-athlete in California would be. If, for example, California were to prohibit student-athletes from partnering with fantasy football companies, but Florida were not to do so, Floridian student-athletes would have access to certain potentially lucrative partnerships that the California student-athletes would not. Like it or not, such incongruent rules from state to state could and most likely would drive some student-athletes to the less restrictive states. This could unfortunately have the effect of giving one state a competitive advantage over another. And this same issue could give one institution within a state a competitive advantage over another institution in the same state if they impose their own distinct rules and regulations. With such inequities already in existence, Congress may need to step in to create at least a certain level of uniformity among the states. The level of uniformity that should be imposed is up for debate.

This was recognized by Denise Trauth, the president of Texas State and the chair of the Division I board of directors, when she said, “[w]ith this interim solution in place, we will continue to work with Congress to adopt federal legislation to support student-athletes.”[30] To that end, the NCAA has begun spending hundreds of thousands of dollars on lobbying, potentially in order to impose a ceiling on how much a student-athlete can earn through NIL deals.[31] In the authors’ opinion, an earnings ceiling goes too far, and instead the government should take a laissez-faire approach to that issue and expressly prohibit the NCAA or any other institution from imposing such limitations on the student-athletes. Student-athletes have long been unable to generate revenue from their NIL, and at this point it would be impossible to predict what a reasonable earnings ceiling would be.

A relatively hands-off approach, leaving administration to the states but imposing some minimal uniformity among the states to avoid inequities from one state to another or even among different institutions within a state, may strike a balance between uniformity in earnings potential without also unreasonably limiting the same potential. Although reasonable minds could differ on what that ultimately looks like, Congress could incorporate the prohibitions identified by the NCAA in the interim policy and create uniform standards concerning what the student-athletes can or cannot endorse through NIL partnerships. Uniformity is a necessity to maintain competition among institutions in different states.

Uniform legislation is also necessary to address the disparate impact created by years of anticompetitive restraints on Black and other minority athletes. The economic inequalities of college sports are highly racialized—any analysis of student-athlete compensation and the NCAA’s policy change is incomplete without an understanding of this broader issue. As Justice Gorsuch explained in his majority opinion, Division I teams “are often the most popular and attract the most money.”[32] Within Division I, the most popular sports are basketball and football.[33] Black students make up nearly 60% of the rosters of football and basketball teams and tend to come from higher rates of poverty than students in other sports.[34]

A study conducted by the National Bureau of Economic Research revealed the highly racialized nature of NCAA exploitation.[35] The study collected revenue data from 2006 to 2019 for all 65 athletic departments in the Power Five conferences, home to the NCAA’s top Division I football and basketball programs.[36] Much of the money generated by football and basketball programs was spent on salaries for (mostly white) coaches and administrators and on the construction of lavish facilities for teams.[37] But millions of dollars also went to financially sustaining “nonrevenue” sports like sailing, tennis, and crew, played by students who tend to be white and come from wealthier neighborhoods than those who play football or basketball.[38] The net result, as lead author of the study Craig Garthwaite explained, is that “money is generated from one group that has traditionally been disadvantaged in society and it flows to a group that has not been disadvantaged.”[39] White athletes, coaches, and administrators profit off the labor of Black athletes, who, until now, were prohibited from accepting compensation for their labor.

Statistics show that the tuition aid given to student-athletes and opportunity to attend university fail to compensate student-athletes, who are risking their health and safety to generate revenue for schools. An analysis by the College Research Institute showed Black football and basketball players at Power Five colleges have graduation rates that are 22% and 35% lower than their peers, respectively.[40] In the Pac-12 Conference, the graduation gap for Black men’s basketball players is an astounding 53%.[41] Despite the NCAA’s claims that student-athletes are amateur athletes, student-athletes are forced to treat their sport as a full-time job, to the detriment of their education.[42] Thus, tuition aid and the opportunity to be at university fail to provide adequate compensation.

The long-term consequences of lower graduation rates and inadequate educational experiences, with many student-athletes pressured into treating sports as a full-time job, require that we view student-athlete compensation not just as an economic issue, but as a civil rights and racial justice issue as well. While the NCAA’s policy change is a step in the right direction, only uniform federal legislation that goes further in addressing the systematic economic and racial inequities plaguing college sports could truly create change.

The NCAA’s policy change appears to be a step in the right direction. The policy change takes a step toward ensuring that the student-athletes who generate close to $19 billion in revenue for the NCAA and the institutions every year receive fair compensation for doing so.[43] But the battle is not over. While the NCAA seems to have conceded that it cannot completely prohibit student-athletes from earning money through their NIL, it is lobbying to have Congress put a limitation on the student-athletes’ earnings.[44]

Although federal legislation is necessary to ensure uniformity among the states with respect to those aspects of NIL partnerships discussed above, the earnings cap should not be a part of such legislation for multiple reasons. First, the NCAA’s proposed federal earnings cap would have a disproportionate impact on Black student-athletes, who comprise 60% of football and basketball rosters at Power Five institutions and who have historically had a worse graduation rate than their colleagues. Second, at least as of the Alston decision, the NCAA has not been able to justify the limits it seeks to enforce on student-athletes’ ability to profit privately off their own talent and NIL. The free market should determine how much student-athletes are able to earn, whether that is $1,000 or $10,000,000. Maintaining the profit and control enjoyed by the NCAA, a private actor, is not a justification under antitrust laws for imposing restrictions that otherwise have no justification. Whether it is the NCAA or Congress, inhibiting the flow of the market to limit student-athletes’ profits off their own labor violates the foundation of antitrust laws.

Conclusion

It remains to be seen whether the NCAA’s rule change and the various approaches taken by the states will ultimately transition to a more unified and equitable system of NIL compensation for student-athletes nationwide, but it is certainly true that the current changes have already ushered in a promising new paradigm for college athletics.

[1]. Nat’l Collegiate Athletic Ass’n v. Alston, 141 S. Ct. 2141 (2021).

[2]. Id. at 2166 (Kavanaugh, J., concurring).

[3]. Michelle Brutlag Hosick, NCAA Adopts Interim Name, Image and Likeness Policy, NCAA (June 30, 2021), https://www.ncaa.org/news/2021/6/30/ncaa-adopts-interim-name-image-and-likeness-policy.aspx.

[4]. Christopher Ingraham, NCAA Rules Allow White Students and Coaches to Profit Off Labor of Black Ones, Study Finds, Wash. Post (Sept. 7, 2020), https://www.washingtonpost.com/business/2020/09/07/ncaa-student-athletes-pay-equity; Craig Garthwaite et al., Who Profits from Amateurism? Rent-Sharing in Modern College Sports, Nat’l Bureau of Econ. Rsch. (Aug. 2020), https://www.nber.org/papers/w27734; see also Shaun R. Harper, Univ. of Pa. Ctr. for the Study of Race & Equity in Educ., Black Male Student-Athletes and Racial Inequities in NCAA Division I College Sports (2016), https://web-app.usc.edu/web/rossier/publications/231/Harper%20Sports%20(2016).pdf.

[5]. Alston, 141 S. Ct. at 2150.

[6]. 141 S. Ct. 2141.

[7]. Id. at 2166.

[8]. In re Nat’l Collegiate Athletic Ass’n Athletic Grant-in-Aid Cap Antitrust Litig., 375 F. Supp. 3d 1058 (N.D. Cal. 2019).

[9]. Id. at 1109.

[10]. Id.

[11]. In re Nat’l Collegiate Athletic Ass’n Athletic Grant-in-Aid Cap Antitrust Litig., 958 F.3d 1239 (9th Cir. 2020); Petition for a Writ of Certiorari, Nat’l Collegiate Athletic Ass’n v. Alston, No. 20-512, 2020 WL 6150345 (U.S. Oct. 2020).

[12]. Alston, 141 S. Ct. at 2148–51.

[13]. Id. at 2160. The rule of reason is a legal doctrine used to interpret the Sherman Antitrust Act. The Court explains the rule as a three-step burden-shifting framework: the plaintiff has the initial burden to show that the restraint on trade has a substantial anticompetitive effect; the burden then shifts to the defendant to show a procompetitive rationale for the restraint; if the defendant can make such a showing, the burden shifts back to the plaintiff to show that the procompetitive benefits of the restraint could be achieved through less anticompetitive means. Id.

[14]. Id. at 2162.

[15]. Id. (quoting NCAA Antitrust Litig., 375 F. Supp. 3d at 1104).

[16]. Id. at 2163.

[17]. Id. at 2164.

[18]. Id. at 2167 (Kavanaugh, J., concurring).

[19]. Id.

[20]. Id. at 2167–68.

[21]. Id. at 2169.

[22]. Interim NIL Policy, NCAA (July 1, 2021), http://ncaaorg.s3.amazonaws.com/ncaa/NIL/NIL_InterimPolicy.pdf.

[23]. Name, Image and Likeness: Interim Policy Resources, NCAA, https://www.ncaa.org/about/taking-action#policy (last visited May 18, 2022).

[24]. Id.

[25]. Hosick, supra note 3.

[26]. Id.

[27]. Name, Image and Likeness Policy: Question and Answer, NCAA (Nov. 2021), https://ncaaorg.s3.amazonaws.com/ncaa/NIL/NIL_QandA.pdf.

[28]. Id.

[29]. Id.

[30]. Hosick, supra note 3. [Author: I couldn’t locate the Trauth quote in the Harper source, so I suggested moving Harper to note 4. Please review the suggested replacement citation.]

[31]. Dean Golembeski, NCAA Struggles to Keep Its Hold on College Sports, Best Colls. (Sept. 22, 2021), https://www.bestcolleges.com/news/analysis/2021/09/22/ncaa-college-sports-nil-supreme-court-lobbying; Client Profile: National Collegiate Athletic Assn, Open Secrets, https://www.opensecrets.org/federal-lobbying/clients/summary?id=D000054203 (last visited May 18, 2022).

[32]. Nat’l Collegiate Athletic Ass’n v. Alston, 141 S. Ct. 2141, 2150 (2021).

[33]. Id.

[34]. See supra note 4.

[35]. Garthwaite et al., supra note 4.

[36]. Id. at 42.

[37]. Id. at 4.

[38]. Id.; Ingraham, supra note 4.

[39]. Ingraham, supra note 4.

[40]. Coll. Sport Rsch. Inst., 2018 Adjusted Graduation Gap Report: NCAA Division-I Basketball (2018), https://www.csri.org/reports.

[41]. Chris Murphy, Madness, Inc.: How Colleges Keep Athletes on the Field and Out of the Classroom 5 (2019), https://www.murphy.senate.gov/imo/media/doc/FINAL_Sen.%20Murphy%20NCAA%20Madness%20Inc.%20Report%202%20-%20How%20Colleges%20Keep%20Athletes%20on%20the%20Field%20and%20Out%20of%20the%20Classroom.pdf.

[42]. Greg Johnson & StudentNation, The NCAA Makes Billions and Student Athletes Get None of It, Nation (Apr. 9, 2014), https://www.thenation.com/article/archive/ncaa-makes-billions-and-student-athletes-get-none-it.

[43]. Felix Richter, U.S. College Sports Are a Billion-Dollar Game, Statista (July 2, 2021), https://www.statista.com/chart/25236/ncaa-athletic-department-revenue.

[44]. See supra note 31.