Nearly a year has passed since the NCAA’s unprecedented adoption of its interim policy removing longstanding restrictions on student-athletes who wish to cash in on their name, image and likeness (NIL). Since then, countless sponsorship, marketing and other financial opportunities for student-athletes – at all levels of college sport – have sprung up, causing a sea change in the arms race in athletics. college. Although NIL rules specifically prohibit offering offers to recruits as an inducement, commonly referred to as “pay to play,” the amount of money an athlete can earn by attending a particular school has become a powerful recruiting tool that will continue to grow in importance as more and more lucrative offers for top athletes are announced. As such, the changing landscape has led wealthy fans and former athletes to organize businesses, also known as “collectives”, to raise funds and provide financial opportunities for student-athletes with the aim of incentivizing athletes to attend their school. While these collectives may benefit the student-athletes and the schools they are meant to benefit, they also risk violating new NIL laws and university rules and regulations. What are the five potential risks collectives should consider?
- Joint liability of the employer
Under the NCAA’s interim policy, student-athletes are allowed to sign sponsorship deals and profit from third-party marketing and advertising campaigns. As such, collectives typically partner with local or national businesses to provide opportunities for student-athletes, which can potentially subject a collective to liability as a joint employer. Co-employers must comply with various federal, state and local labor and employment laws regarding persons considered to be jointly employed by them. Additionally, while the implications of being a joint employer vary by law and jurisdiction, they can include:
- Grouping of direct and joint employees for the purpose of determining coverage threshold issues under laws such as Title VII of the Civil Rights Act of 1964 or the Americans with Disabilities Act.
- Substantial liability as an employer under federal, state and local labor and employment laws, including liability for unfair labor practice accusations or workers’ compensation claims.
- In certain circumstances, joint and several liability for wrongful acts against joint employees by the primary or secondary employer.
- Contractual liability
Although student-athletes may benefit from collective assistance in obtaining financial opportunities, payments to the athlete will generally come from the third-party company using the athlete’s NIL to promote their product or service. Therefore, if an Athlete is not paid properly, the Athlete could attempt to recover from both the Collective and the Company. This could expose the Collective not only to monetary damages, but also to damage to its reputation regarding its ability to secure financial opportunities for athletes.
- Article 1981 Liability
Section 1981 of the Civil Rights Act of 1866 prohibits discrimination on the basis of race, color, and ethnic origin in the formation and performance of contracts. However, when paying student-athletes based on NIL, not all contracts are created equally. Specifically, for most collectives, contracts vary depending on the specific athlete and the services provided by the athlete under a given contract (for example, an athlete showing up in person at a marketing event with fans would earn more than an athlete who just posts on social media). In addition, top athletes may receive higher compensation than lesser-known athletes. These differences in athletes’ earning potential could lead to claims of discrimination under Section 1981.
- Whistleblower claims
In the world of college sports, the sad truth is that not everyone operates in accordance with applicable state laws, rules, and regulations. Additionally, NIL laws are relatively new and there could be confusion as to whether certain practices are legal. Collectives should be aware that employees are likely to be engaging in protected activity if they object or refuse to participate in any activity, policy or practice of the Collective that the employee believes violates any law, a rule or regulation. Therefore, collectives should be wary of potential whistleblower claims that may arise from their business relationship with student-athletes and relatively unknown aspects of the structuring of NIL agreements.
- Legal developments relating to NIL
The NCAA intends to keep the interim policy in place until Congress enacts federal NIL legislation or the NCAA adopts new rules. However, since its passage and the uncertainty associated with the policy, the state of college athletics and student-athlete compensation has often been compared to the Wild West. As a result, on May 9, 2022, a task force of athletic directors and conference commissioners released the NCAA’s Interim Name, Image and Likeness Policy Guidance Regarding Third-Party Involvement (NIL Policy Guidance ). Among other things, the NIL Policy Guidance clarifies, in the context of the NIL Collectives, the NCAA’s rules regarding “booster” participation in player recruitment and reinforces the NCAA’s ban on pay-to-play. The NCAA also said NIL policy guidelines can be applied retroactively to punish individuals or entities who violate NCAA rules, whether those violations occurred before or after May 9, 2022. There are also reporting requirements. important for students. athlete compensation that must be adhered to, in addition to possible future IRS rulings that may affect the nonprofit collectives’ 501(c)(3) tax-exempt status.
Advice to collectives to minimize the risks
- Assess the risk of being considered as a co-employer. Joint employer status differs by law and jurisdiction, but analysis tends to focus on the degree of control over the terms of employment. Therefore, if possible, collectives should try to avoid things like directly supervising athletes when they perform services, assigning specific work to athletes, providing equipment to athletes, conducting reviews or performance evaluations or provide training.
- Structuring contracts with student-athletes to limit liability. Collectives may want to structure their contracts so that all parties understand that the collective is simply an entity to transfer the funds to pay an athlete and to reflect the agreement of the parties that in the event of non-payment of monies due , the Athlete must seek recourse from the first payer. Additionally, collectives should consider classifying athletes as independent contractors, where applicable, and including morality clauses in their contracts.
- Beware of protected concerted activities. The National Labor Relations Act expressly prohibits employers from intervening in protected concerted activities (CPAs). PCAs can range from two people simply discussing working conditions to a full-scale (legal) strike. Therefore, collectives must be aware of all activities in which the student-athletes with whom they have contracted participate and ensure that they do not engage in conduct that could be considered interference.
- Ensure VOID offers are based on an athlete’s fair market value. Ensuring that all student-athletes are paid in accordance with their fair market value can avoid potential claims of discrimination. To do this, some collectives use market price platforms or other similar tools to help determine an athlete’s fair market value. Collectives may want to document legitimate business reasons for compensation differences and also ensure that they have consistent compensation practices based on legitimate business reasons.
- Stay informed of legal developments relating to NIL. Collectives must be willing and able to adapt to changes in the law. Given the current instability and swings in collegiate athlete compensation, it’s only a matter of time before Congress steps in with federal NIL legislation or the NCAA adopts new rules. In the meantime, collectives must continue to follow any rules or guidelines provided by the NCAA or state legislatures, including assisting student-athletes with reporting requirements for any compensation they receive.
Under the NCAA’s interim policy, more student-athletes are receiving offers for their NIL from collectives, with some offers approaching eight figures. With so much money at stake, it is inevitable that future regulation, whether by the NCAA or Congress, will follow.