Wake Forest Law Review
5Mar

Are College Athletes Employees?  Unpacking the NLRB’s Decision in Trustees of Dartmouth College

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By William Gilchrist

The NCAA is currently facing the latest challenge to its amateur athlete model from the National Labor Relations Board (“NLRB”), which recently found that members of the Dartmouth men’s varsity basketball team are “employees” under the National Labor Relations Act (the “Act”).[1]  The decision, which has been described as “the first step to potential employee status for college athletes,” comes at a time when the NCAA and universities across the United States are facing growing calls to treat athletes as employees.[2]

On February 5, 2024, Regional Director Laura Sacks released a Decision and Direction of Election in Trustees of Dartmouth College, finding that because “Dartmouth has the right to control the work performed . . . and because the players perform that work in exchange for compensation, the petitioned-for basketball players are employees within the meaning of the Act.”[3]

I. The NLRB

The NLRB is an independent federal agency tasked with enforcing the Act, which protects the right of private sector employees to join together to improve wages and working conditions.[4]  The NLRB’s responsibilities are carried out by a general counsel and five-member board, both of whom are appointed by the President.[5]  

Collective bargaining is one of the key rights granted by the Act, and employees have the right to petition the NLRB for a determination of who will represent them.[6]  Parties may file three types of petitions with the NLRB to determine whether an individual may represent a group of employees.[7]  An RC petition, like the one filed in Trustees of Dartmouth College, is generally filed by a union seeking to be certified as a group of employees’ bargaining representative.[8]

Once the petition is filed, a regional director will conduct an investigation and hold a formal hearing.[9]  The regional director will then issue a dismissal or decision directing election that may be appealed to the Board through a request for review.[10]  If the Board grants the request, it will issue a decision affirming, modifying, or reversing the action of the regional director.[11]

II. Trustees of Dartmouth College

Trustees of Dartmouth College involves an attempt by Service Employees International Union, Local 560 (the “Union”) to represent the fifteen players on the Dartmouth men’s varsity basketball team.[12]  As the exclusive representative of certain Dartmouth employees since 1966, the Union has negotiated several collective-bargaining agreements on behalf of employees with Dartmouth.[13]  These negotiated agreements are subject to final approval by the entire bargaining unit and typically involve employee wages, hours of work, and other issues.[14]

As a private university and member of the Ivy League, Dartmouth argues that the Union’s petition should be denied because the players are not employees, and the Board’s assertion of jurisdiction will create instability in labor relations.[15]  However, after evaluating each side’s arguments, Regional Director Laura Sacks ultimately concluded that the players are employees and that asserting jurisdiction would not create instability in labor relations.[16]

In reaching her decision, Director Sacks looked to the common-law definition of employment cited in Columbia University,[17] which “generally requires that the employer have the right to control the employee’s work, and that the work be performed in exchange for compensation.”[18]  Director Sacks also noted that the players perform work that benefits Dartmouth by generating alumni engagement, financial donations, and publicity, all resulting in increased student interest and enrollment applications.[19]

Despite an agreement among Ivy League schools not to provide athletic scholarships,[20] Dartmouth still provides significant financial benefits to its players in return.[21]  These benefits include a streamlined admissions process, tickets to games, meals, lodging, equipment and apparel, and a “Peak Performance” program designed especially for varsity athletes.[22]

The university also exercises control over the players by “designing and monitoring their summer workouts, requiring them to sign handbooks and other documents, dictating the time they spend practicing, directing those practices, and scheduling their road trips such that each meal and sleep period occurs at the coaching staff’s discretion.”[23]  Dartmouth’s significant exercise of control over the players’ work, combined with the substantial benefits it provides to the players, was ultimately enough to overcome the lack of receipt of traditional compensation in the form of a weekly paycheck or scholarship.[24]

Lastly, while there was some debate about whether the Dartmouth men’s varsity basketball team is profitable,[25] these concerns were dismissed on the grounds that “the profitability of any given business does not affect the employee status of the individuals who perform work for that business.”[26]

III. Implications outside of the Ivy League

While the decision remains a key first step in recognizing college athletes as employees, its implications for athletes in other conferences remain unclear.[27]  The Board’s decision in Northwestern University,[28] a similar case evaluating the employee status of college athletes, has the potential to limit the application of Trustees of Dartmouth College outside the Ivy League.[29]

In Northwestern University, the Board declined to assert jurisdiction over the Northwestern football team.[30]  Unlike Dartmouth, Northwestern is the only private university in its conference and one of only seventeen private institutions in the Football Bowl Subdivision (FBS), which was comprised of 125 schools at the time.[31]  Due to the “inherent asymmetry of the labor relations regulatory regimes applicable to individual teams[,]” the Board declined to assert jurisdiction in Northwestern University after concluding that doing so “would not promote stability in labor relations.”

Following the Board’s ruling in Northwestern University, the NLRB is unlikely to exercise jurisdiction over teams in conferences with a significant public-school presence.  However, as NCAA conferences continue to undergo dramatic restructuring,[32] the potential impacts of the Board’s decision are subject to change.

Although the recent decision in Trustees of Dartmouth College is a critical first step towards recognizing athletes as employees, the case is still ongoing.  An election for the players to vote on representation by the Union is currently scheduled for March 5, 2024.[33]  However, Dartmouth opposed the election on February 29th, filing a Request for Review and Emergency Motion to Stay the Election or Impound the Ballots.[34]  As a result, Dartmouth will likely appeal the decision regardless of whether the election occurs on March 5th, leaving athletes’ employee status uncertain for the foreseeable future.

[1] Decision and Direction of Election at 2, Trustees of Dartmouth College, 01-RC-325633, (NLRB Feb. 5, 2024).

[2] Ralph D. Russo, Billions in TV revenue, athletes as employees on the line as college sports faces more legal threats, AP News (Oct. 16, 2023, 10:14 PM), https://apnews.com/article/college-athletes-nil-eb702d33a87bca98084ea492eccdf84c.

[3] Decision and Direction of Election at 2, Trustees of Dartmouth College, 01-RC-325633 (NLRB Feb. 5, 2023).

[4] Who We Are, National Labor Relations Board, https://www.nlrb.gov/about-nlrb/who-we-are (last visited Mar. 3, 2024).

[5] Id.

[6] The NLRB Process, National Labor Relations Board, https://www.nlrb.gov/resources/nlrb-process (last visited Mar. 3, 2024).  Collective bargaining is “a process by which a labor organization, designated or selected by a majority of an employer’s employees, negotiates on behalf of employees with the employer over wages and other terms and conditions of employment[.]” GC Collective Bargaining Resources, National Labor Relations Board, https://www.nlrb.gov/guidance/key-reference-materials/gc-collective-bargaining-resources#:~:text=Collective%20bargaining%20is%20a%20process,%2C%20anti%2Ddiscrimination%20and%20anti%2D (last visited Mar. 3, 2024). 

[7] The NLRB Process, National Labor Relations Board, https://www.nlrb.gov/resources/nlrb-process (last visited Mar. 3, 2024).

[8] Id. The two other types of petitions are RD and RM petitions.  RD petitions are filed by employees seeking to remove a currently recognized union, while an RM petition is filed by an employer seeking an election because one or more parties have sought recognition as a bargaining representative.  Id.

[9] Id.

[10] Id.

[11] Id.

[12] Decision and Direction of Election at 1, Trustees of Dartmouth College, 01-RC-325633 (NLRB Feb. 5, 2024).

[13] Id.

[14] Id.

[15] Id. at 2.

[16] Id.

[17] Columbia University, 364 NLRB 1080, 1094 (2016).

[18] Decision and Direction of Election at 14, Trustees of Dartmouth College, 01-RC-325633 (NLRB Feb. 5, 2024).

[19] Id. at 2.

[20] See Melissa Korn, Ivy League’s Agreement to Ban Athletic Scholarships Is Illegal, Lawsuit Says, The Wall Street Journal (Mar. 7, 2023), https://www.wsj.com/articles/ivy-leagues-agreement-to-ban-athletic-scholarships-is-illegal-lawsuit-says-e1e7c29c.

[21] Decision and Direction of Election at 17, Trustees of Dartmouth College, 01-RC-325633 (NLRB Feb. 5, 2024).

[22] Id. at 11–12, 19.  Some of the financial benefits provided to players include shoes valued at $1,200 per year, equipment and other clothing valued at $2,950 per year, tickets with an estimated value of $1,200 over the course of the season, as well as travel, lodging, and meals.  Id.

[23] Id. at 18.

[24] Id.

[25] Id. at 12–13.

[26] Decision and Direction of Election at 18, Trustees of Dartmouth College, 01-RC-325633 (NLRB Feb. 5, 2024).

[27] See Northwestern University, 362 NLRB 1350 (2015).

[28] 362 NLRB 1350 (2015).

[29] See id.

[30] Id. at 1355–56.  The Northwestern University Board also declined to consider whether the Northwestern football players were employees but left open the possibility of reconsidering jurisdiction in the future.  Id.

[31] Id. at 1354.  Northwestern was a member of the Big Ten Conference in 2015 and remains the only private university in the Big Ten.  See id. at 1351; Big Ten Football, Fox Sports, https://www.foxsports.com/college-football/big-ten/teams (last visited Mar. 3, 2024).  There are currently 134 schools in the FBS.  Bill Bender, College football realignment 2024 explained: How every FBS conference will look by school, Sporting News (Oct. 25, 2023), https://www.sportingnews.com/us/ncaa-football/news/college-football-realignment-2024-conferences-school/gcxqsjmp7rxxhyxz6yhlyysi#:~:text=Sam%20Houston%20and%20Jacksonville%20State,join%20the%20FBS%20in%202024..

[32] See Matt Bonesteel & Shelly Tan, Here’s how college sports has changed after conference realignment, The Washington Post (Sept. 1, 2023, 10:29 AM), https://www.washingtonpost.com/sports/2023/08/07/college-sports-conference-realignment/.

[33] Notice of Election, Trustees of Dartmouth College, 01-RC3-25633 (NLRB Feb. 9, 2024).

[34] Motion to Stay an Election, Trustees of Dartmouth College, 01-RC3-25633 (NLRB Feb. 29, 2024).

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18Oct

College Sports More than One Year After NCAA v. Alston: Implications for College Athletes Under Federal Tax and Securities Laws

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Molly Mitchell

More than one year after the Supreme Court’s 9-0 decision in National Collegiate Athletic Association v. Alston that the NCAA is not exempt from the Sherman Act with respect to certain compensation rules, the floodgates have opened for student-athletes to profit from their name, image, and likeness (“NIL”).[1] However, the Court’s majority opinion in Alston did not cover the NCAA’s rules governing NIL deals in college athletics—it only covered compensation rules regarding education-related benefits provided directly to student-athletes by member schools.[2] Allowing NIL deals was instead a direct result of changing public opinion about compensation in college sports and changes in state law, and an indirect result of Alston.[3] The 9-0 opinion was perhaps a signal that the only thing America agrees on is that the NCAA does not fairly compensate athletes.

            Despite the narrowness of Alston’s holding, NIL deals had their moment in Justice Kavanaugh’s concurrence, which was an absolute censure of the NCAA’s compensation rules, including endorsement deals (i.e., NIL deals).[4] Just as “[l]aw firms cannot conspire to cabin lawyers’ salaries in the name of providing legal services out of a ‘love of the law,’” the NCAA cannot price-fix labor by defining the product of college sports as amateurism.[5] If the NCAA had any remaining thought that some of its other compensation rules would be easily exempt from the purview of the Sherman Act if later challenged, Kavanaugh’s concurrence was a resounding “no.”

            On June 30, 2021, only eight days after the decision in Alston, the NCAA announced that all three divisions had adopted interim rules suspending its previous NIL rules.[6] The interim policy provided four new rules.[7] First, college athletes are allowed to “engage in NIL activities that are consistent with the law of the state where [their] school is located.”[8] Second, if an athlete’s school is located in a state with no NIL law, then he or she can engage in NIL activities “without violating NCAA rules related to name, image and likeness.”[9] Third, athletes “can use a professional services provider, [like an agent,] for NIL activities.”[10] Fourth, athletes must report NIL activities to their schools.[11]

            Following this announcement, states quickly moved to pass laws allowing college athletes to receive compensation.[12] For example, Roy Cooper, Governor of The Center of the College Basketball Universe[13] and the state that is home to the greatest college basketball program in history (i.e., the University of North Carolina at Chapel Hill), issued an executive order allowing NIL deals two days after the NCAA announced its interim policy.[14]

            Contrary to the NCAA’s arguments against paying college athletes, the product of college sports has remained essentially the same since the adoption of the interim policy—16.3 million people watched UNC beat Duke to end Coach K’s career in the Final Four without a care in the world that the game likely featured some of the most highly compensated athletes in college sports.[15]

However, the NCAA’s original concern—that NIL deals are used to indirectly induce athletes to attend certain schools—remains, and several other concerns have emerged since the NCAA adopted interim rules.[16] New concerns include college athletes’ potential liability under tax law[17] and federal securities laws and regulations[18] due to a general lack of knowledge about how these laws impact them.    

Federal Income Tax Liability

            Over the last year, college athletes have learned that “in this world nothing can be said to be certain, except death and taxes.”[19] College athletes’ federal income taxes are complicated by a number of issues. First, they file a Form 1040 income tax return as independent contractors after receiving a Form 1099-NEC (i.e., non-employee compensation)[20] or some other variation of a Form 1099[21] from companies with whom they have entered into NIL deals.[22] This requires them to aggregate all 1099s they have received throughout the year when filing their tax return.[23] In comparison, “traditional workers” in the United States file their Form 1040 after receiving a Form W-2 that includes their salary and wages for the year.[24]

Second, college athletes could unintentionally underreport gross income due to the intricacies of the Internal Revenue Code (“IRC”) and related Treasury Regulations. Section 61(a)(1) of the IRC provides that gross income specifically includes “compensation for services, including fees, commissions, fringe benefits, and similar items.”[25] Compensation includes both cash and non-cash compensation, such as cars provided by dealerships or products from companies.[26] If college athletes receive non-cash compensation, then they must include in their income as compensation the fair market value of the property taken in payment.[27] Thus, if they receive something like a car in exchange for use of their NIL, they have gross income in the amount of the fair market value of the car (or fair market rental value, if the car is leased). Further, college athletes’ receipt of payment in the form of cryptocurrency further complicates computation of gross income for federal income taxes.

Liability Under Federal Securities Laws

            NIL deals for endorsing a cryptocurrency may expose college athletes to federal securities laws if the cryptocurrency is a “security” under the Securities Act of 1933. A security is broadly defined under the Securities Act to encompass many different types of instruments, including investment contracts.[28] Whether an instrument is an investment contract for purposes of the Securities Act depends on a fact-specific analysis under the Howey test.[29] In Howey, the Court held that investment contract means “a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.”[30]

If a college athlete promotes a cryptocurrency that is a security under the Howey test, then he or she is subject to federal securities laws, including anti-touting provisions.[31] Under Section 17(b) of the Securities Act, it is unlawful for any person to “publish, give publicity to, or circulate any notice, circular, advertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security for sale, describes such security for a consideration received, directly or indirectly from an issuer, underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof.”[32]

Thus, a college athlete promoting a cryptocurrency that is a security “must disclose the nature, scope, and amount of compensation received in exchange for the promotion.”[33] Further concerns for potential liability under federal securities laws arise from “violations of the anti-fraud provisions of the federal securities laws, [as well as] from participating in an unregistered offer and sale of securities.”[34]

Possible Future NIL Regulations

Since the NCAA adopted its interim policy allowing compensation from NIL deals, it has not issued many regulations or clarifications on possible sources of income or potential issues for athletes. However, we will likely see more regulations come to fruition in the future. The past year has shown that it is necessary for schools to educate athletes on liability issues and encourage them to seek guidance from agents or other professionals with knowledge of the significant implications that arise from endorsement deals.   

[1]  See e.g., Max Escarpio, College Football’s Most Unique NIL Deals in 2022, Bleacher Report, https://bleacherreport.com/articles/10045014-college-footballs-most-unique-nil-deals-in-2022 (last visited Oct. 17, 2022); College Basketball NIL Rankings, On3NIL, https://www.on3.com/nil/rankings/player/college/basketball/ (last visited Oct. 17, 2022); Sarah Eberspacher et al., National Collegiate Athletic Association v. Alston,  JD Supra (June 22, 2021), https://www.jdsupra.com/legalnews/national-collegiate-athletic-8794641/.

[2] Nat’l Collegiate Athletic Ass’n v. Alston, 141 S. Ct. 2141, 2166 (2021) (Kavanaugh, J., concurring).

[3] Alex Silverman, From Name, Image and Likeness to Pay for Play, Americans Increasingly Support Compensation for College Athletes,  Morning Consult (June 29, 2021 4:07 PM), https://morningconsult.com/2021/06/29/nil-college-athletes-compensation/.

[4] Alston, 141 S. Ct. at 2166–2167.    

[5] Id. at 2167.

[6] Michelle Brutlag Hosick, NCAA adopts interim name, image and likeness policy, Nat’l Collegiate Athletic Ass’n (June 30, 2021, 4:20 PM), https://www.ncaa.org/news/2021/6/30/ncaa-adopts-interim-name-image-and-likeness-policy.aspx.

[7] Id.

[8] Id.

[9] Id.

[10] Id.

[11] Id.

[12]NIL Legislation Tracker, Saul Ewing Arnstein & Lehr, https://www.saul.com/nil-legislation-tracker.

[13] Governor of the State of North Carolina, Proclamation that North Carolina is The Center of the College Basketball Universe (March 30, 2022), https://governor.nc.gov/media/3007/open.

[14] N.C. Exec. Order No. 223 (July 2, 2021).

[15] Duke vs. North Carolina is most-watched NCAA DI men’s national semifinal game since 2017, National Collegiate Athletic Association (April 3, 2022), https://www.ncaa.com/news/basketball-men/article/2022-04-03/duke-vs-north-carolina-most-watched-ncaa-di-mens-national-semifinal-game2017#:~:text=The%20UNC%2FDuke%20game%20delivered,of%2Dhome%20viewership%20is%20included.

[16]  Pat Forde (@ByPatForde), Twitter, (Aug. 18, 2022, 3:02 PM), https://twitter.com/bypatforde/status/1560341306811064320.

[17] Ron L. Brown, Tax Implications When NCAA Student Athletes Make Money, Kiplinger (July 21, 2022), https://www.kiplinger.com/taxes/604955/tax-implications-when-ncaa-student-athletes-make-money#:~:text=Those%20with%20NIL%20deals%20or,employed%20Internal%20Revenue%20Service%20guidelines.

[18] See e.g., Kristi Dosh, FSU Softball Lands NIL Deal With Cryptocurrency Exchange FTX, Forbes (Dec. 21, 2021, 1:21 PM), https://www.forbes.com/sites/kristidosh/2021/12/29/fsu-softball-lands-nil-deal-with-cryptocurrency-exchange-ftx/?sh=e8c8a927c882; Ross Dellenger, Florida State Football Team Scores NIL Cash Deal From Crypto Company, Sports Illustrated (Aug. 17, 2021), https://www.si.com/college/2021/08/17/florida-state-football-team-nil-deal.

[19] Letter from Benjamin Franklin to Jean-Baptiste Le Roy (November 13, 1789).

[20] Tim Shaw, The Long Read: Tax Implications of College Collectives, NIL Deals, Thomson Reuters (October 6, 2022), https://tax.thomsonreuters.com/news/the-long-read-tax-implications-of-college-collectives-nil-deals/#:~:text=By%20January%2031%20in%20the,such%20as%20Venmo%20or%20PayPal.

[21] See supra note 17.

[22] Id.

[23] Id.

[24]About Form W-2, Wage and Tax Statement, Internal Revenue Service (Oct. 3, 2022), https://www.irs.gov/forms-pubs/about-form-w-2.

[25] 26 I.R.C. § 61(a)(1).

[26] 26 C.F.R. § 1.61–2(d)(1).

[27] Id.

[28] 15 U.S.C. § 77b(a)(1).

[29] SEC v. W.J. Howey Co., 328 U.S. 293, 298–99 (1946).

[30] Id.

[31] SEC Division of Enforcement & SEC Office of Compliance Inspections and Examinations, SEC Statement Urging Caution Around Celebrity Backed ICOs (Nov. 1, 2017), https://www.sec.gov/news/public-statement/statement-potentially-unlawful-promotion-icos.

[32] 15 U.S.C § 77(b).

[33] See supra note 31.

[34] Id.

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20Oct

The Entirely New Landscape of College Athletics: An Overview

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By Daniel Cundiff

College athletics has undergone a seismic shift.  For decades, athletes participating in Division I college athletics were unable to receive compensation for the use of their name, image, and likeness (“NIL”), and they risked becoming ineligible to participate in their sport for doing so.[1]  Today, National Collegiate Athletic Association (“NCAA”) guidelines allow student athletes to profit off of their NIL,[2] over half of states have enacted some form of NIL legislation,[3] and progress is being made toward federal NIL legislation.[4]

In National Collegiate Athletic Association v. Alston,[5] the United States Supreme Court provided a push for the NCAA to change course with respect to NIL rules.[6]  While the majority of the Court avoided the question of NIL on review,[7] Justice Kavanaugh’s concurrence squarely attacked the issue.[8]  Justice Kavanaugh expressed doubt that the portion of the NCAA’s compensation rules that were unaddressed by the majority (including NIL) were legally valid, stating that “[t]he NCAA’s business model would be flatly illegal in almost any other industry in America.”[9]  Finally, seeing potential difficulties in changing NCAA compensation rules through litigation, Justice Kavanaugh proposed that the issue could be resolved through either legislation or collective bargaining by the student athletes themselves.[10]  In any event, the writing was on the wall for the NCAA, which decided to take action.

Just nine days after the Alston opinion, on June 30, 2021, the NCAA announced a change to its compensation rules that allowed student athletes to profit from their NIL beginning the next day.[11]  Now, student athletes in states that have passed NIL legislation “can engage in NIL activities that are consistent with the law of the state where the school is located.”[12]  Further, student athletes in states without NIL legislation “can engage in this type of activity without violating NCAA rules related to name, image and likeness.”[13]  So long as it is consistent with applicable law, student athletes can also engage a professional service provider for NIL activities.[14]  At least for the time being,[15] gone are the days of students being forced to choose between NCAA eligibility and compensation for their NIL.[16]

Today, twenty-eight states have passed NIL legislation with varying nuances and restrictions.[17]  Common restrictions include prohibiting contracts from extending beyond the time an athlete participates in sports at a particular institution,[18] directly tying compensation to participation,[19] otherwise known as “pay-for-play,”[20] and allowing institutions to restrict athletes’ use of team logos for personal NIL activity.[21]  Moreover, some states prohibit specific industries from contracting with student athletes.[22]  Prohibited industries include adult entertainment, alcohol, tobacco, and firearms.[23]  Other states, favoring a more ambiguous approach, prohibit all industries that “negatively impact[] the reputation or the moral or ethical standards” of the institution.[24]

North Carolina is poised to be a key player in NIL based on its position in college sports.  Home to Duke University and the University of North Carolina at Chapel Hill, each with multiple NCAA basketball championships,[25] and the current top two football teams in the Atlantic Coast Conference (“ACC”)—Wake Forest University and North Carolina State University[26]—the State has the potential to attract top-flight high school talent to its institutions.  Roy Cooper, the Governor of North Carolina, signed an Executive Order regarding NIL on July 2, 2021, providing guidance on the future of NIL in the state.[27]  Student athletes in North Carolina can now “earn compensation, and obtain related representation, for the use of their name, image, and likeness while enrolled at the institution, and such compensation and representation . . . shall not affect a student-athlete’s scholarship eligibility.”[28]  Restrictions include prohibitions against the use of NIL contracts “as a direct inducement to enroll . . . at a particular institution.”[29]  Further, the institutions themselves may not compensate student-athletes for use of their NIL.[30]  Similar to Mississippi,[31] institutions in North Carolina “may impose reasonable limitations or exclusions on the categories of products and brands that a student-athlete may receive compensation for endorsing” when the institution “reasonably determines that a product or brand is antithetical to the values of the institution or that association with the product or brand may negatively impact the image of the institution.”[32]  Moreover, as is the case in Illinois,[33] an institution in North Carolina “may limit a student-athlete’s compensation for their name, image, and likeness as it pertains to use of the institution’s intellectual property,” and the Executive Order does not give “any student-athlete the right to use the name, trademarks, service marks, symbols, logos or any other intellectual property that belong to an institution, athletic conference, or athletic association.”[34]  Finally, in anticipation of an influx of NIL compensation for student-athletes, “[p]ostsecondary educational institutions are encouraged to provide financial literacy and life-skill programs to their student-athletes.”[35]  Therefore, Governor Cooper’s Executive Order provides the framework for NIL dealings in North Carolina, though this is unlikely to be the end of the issue.

Beyond state legislation, Senator Roger Wicker of Mississippi declared that there is “broad consensus” that the federal government should pass NIL legislation, which would unify the various restrictions of states under one common federal standard.[36]  Even the President of the NCAA, Mark Emmert, called on Congress for a “federal framework.”[37]  Emmert and others claim that the current “patchwork” of state NIL legislation leads to confusion and an uneven playing field in college athletics.[38]  Therefore, while the current landscape of NIL in college athletics remains a variety of state laws and, in states without NIL legislation, NCAA rules, preempting federal legislation is likely to pass and reshape college athletics once again.

[1] See Matthew N. Korenoski, O’Bannon v. NCAA: An Antitrust Assault on the NCAA’s Dying Amateurism Principle, 54 Duq. L. Rev. 493, 497–98 (2016).

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

[3] See NIL Legislation Tracker, Saul Ewing Arnstein & Lehr LLP, https://www.saul.com/nil-legislation-tracker#2 (last visited Oct. 20, 2021) (“To date, the 28 states listed below have passed NIL laws.”).

[4] See id. (“[T]he most recent NIL bill . . . suggests that there is continued interest in getting a federal law on the books.”).

[5] 141 S. Ct. 2141 (2021).

[6] See id. at 2167 (Kavanaugh, J., concurring).

[7] See id. at 2141–66.

[8] See id. at 2166.

[9] Id. at 2167.

[10] Id. at 2168.

[11] Hosick, supra note 2.

[12] Id.

[13] Id.

[14] See id.

[15] See Gregory A. Morino, The NCAA Declares Independence from NIL Restrictions, Foley & Lardner LLP (Aug. 20, 2021), https://www.foley.com/en/insights/publications/2021/08/ncaa-declares-independence-nil-restrictions.

[16] See Barret Sallee, UCF Kicker Ruled Ineligible after Refusing to Agree to Terms over YouTube Channel, CBS Sports (July 31, 2017, 5:05 PM), https://www.cbssports.com/college-football/news/ucf-kicker-ruled-ineligible-after-refusing-to-agree-to-terms-over-youtube-channel/ (Donald De La Haye, a former Division 1 NCAA football player, chose to quit football after the NCAA determined that De La Haye could not earn income from his NIL on athletics-based YouTube videos.).  

[17] Saul Ewing Arnstein & Lehr, supra note 3.

[18] See, e.g., Fla. Stat. Ann. § 1006.74(2)(j) (2021) (“The duration of a contract for representation of an intercollegiate athlete or compensation for the use of an intercollegiate athlete’s name, image, or likeness may not extend beyond her or his participation in an athletic program at a postsecondary educational institution.”).

[19] See, e.g., Exec. Order No. 2021-418 (Ky. 2021).

[20] See, e.g., Katlyn Andrews, Navigating the NCAA’s Interim NIL Policy and State Regulations, Baker Tilly (Aug. 18, 2021), https://www.bakertilly.com/insights/navigating-the-ncaas-interim-nil-policy-and-state-regulations (“Subject to state law, the NCAA’s interim policy prohibits compensation . . . [f]or athletic participation or achievement (i.e., pay for play) . . . .”).

[21] See, e.g., Student-Athlete Endorsement Rights Act, 110 Ill. Comp. Stat. Ann. 190/1-99 (LEXIS through P.A. 102-450 of the 2021 Session of the 102nd Legislature).

[22] See, e.g., Ark. Code Ann. § 4-75-1307(b) (Westlaw through the 2021 Regular and First Extraordinary Session of the 93rd General Assembly) (effective Jan. 1, 2022).

[23] Id. at § 4-75-1307(b)(1)–(9).

[24] See, e.g., Mississippi Intercollegiate Athletics Compensation Rights Act, Miss. Code Ann. § 37-97-107(14) (Westlaw through the 2021 Regular Session).

[25] See Championship History, NCAA, https://www.ncaa.com/history/basketball-men/d1 (last visited Oct. 20, 2021).

[26] See 2021 Football Standings, ACC, https://theacc.com/standings.aspx?path=football (last visited Oct. 20, 2021).

[27] Exec. Order No. 223 (N.C. 2021).

[28] Id.

[29] Id.

[30] Id.

[31] See Mississippi Intercollegiate Athletics Compensation Rights Act, Miss. Code Ann. § 37-97-107(14) (Westlaw through the 2021 Regular Session).

[32] Exec. Order No. 223 (N.C. 2021).

[33] See Student-Athlete Endorsement Rights Act, 110 Ill. Comp. Stat. Ann. 190/1-99 (LEXIS through P.A. 102-450 of the 2021 Session of the 102nd Legislature).

[34] Exec. Order No. 223 (N.C. 2021).

[35] Id.

[36] Ralph D. Russo, Lawmakers Agree NCAA Needs NIL Help, but How Much and When?, Associated Press (June 9, 2021), https://apnews.com/article/in-state-wire-college-sports-football-stanford-cardinal-football-laws-188c6c20ad6032f6f633a1113f57904a.  

[37] Maria Carrasco, Congress Weighs In on College Athletes Leveraging Their Brand, Inside Higher Ed (Oct. 1, 2021), https://www.insidehighered.com/news/2021/10/01/congress-holds-hearing-creating-federal-nil-law.

[38] Id.

Post image by Ghana Decides on Flickr

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8Nov

Fair Pay to Play Act: The Baseline for the NCAA’s New Compensation Rules

Categories: Current Issues Blog
Comments Off on Fair Pay to Play Act: The Baseline for the NCAA’s New Compensation Rules

By Alexander Hill

On October 29, 2019, the National Collegiate Athletic Association (the “NCAA”) announced that it would begin the process of directing its divisions to consider amendments to their bylaws to allow collegiate athletes to benefit from their names, images, and likenesses.[1] In this announcement, the NCAA stated these changes would come in a manner “consistent with the collegiate model.”[2] The NCAA’s decision follows California’s enactment of Senate Bill 206, commonly known as the “Fair Pay to Play Act” (the Act), which (upon its effective date of January 2023) will allow players to profit from their names, images, and likenesses, as well as sign agents to represent them in licensing contracts.[3] Additionally, Congress and other state legislatures are considering proposed legislation that would have similar effects as the Act.[4] However, the NCAA’s language of “consistent with the collegiate model” has an eerie similarity to the argument for restriction on amateurism that it made in O’Bannon v. Nat’l Collegiate Athletic Ass’n when it argued that compensation for college athletes goes against the “identity of college sports.”[5] In comparison to the Act, how much can the NCAA limit the athletes’ ability to profit of their name, image, and likeness?

This post addresses the extent of the legal limitations under the Sherman Antitrust Act on the NCAA when implementing these changes “consistent with the collegiate model.” It analyzes these two procompetitive factors in light of the details of the California Act, and whether the rights granted to athletes under this bill hinder these purposes to the extent that the Rule of Reason allows the NCAA to structure its own likeness compensation rules more narrowly than the Act under the Sherman Antitrust Act.

The Act allows athletes to hire agents to represent them in contracts with third parties to use the athletes’ likenesses in different ways, as well as allow the third parties to compensate the athletes in turn.[6] However, the Act restricts schools from compensating the players when they use the athletes’ likenesses themselves.[7] Additionally, athletes cannot enter into contracts if those contracts conflict with the terms of contracts entered into by the teams for which they play.[8]

To this point, the prospect of amateurism as a procompetitive factor in college sports has allowed the NCAA to refuse cash compensation for name, image, and likeness under the Sherman Antitrust Act, as evidenced by O’Bannon.[9] In O’Bannon, the Ninth Circuit Court of Appeals noted that the NCAA’s rules on player compensation are subject to the Sherman Antitrust Act and should receive the scrutiny classified as the “Rule of Reason.”[10] In the Rule of Reason analysis, the court addresses whether a restriction on trade is procompetitive, and if it is procompetitive, whether there is another way to promote the goal of the restriction in a less restrictive way.[11] In the O’Bannon case, the court found that the NCAA’s restriction on cash payments from schools to athletes for their name, image, or likeness beyond grants for educational expenses of the athlete failed the Rule of Reason analysis.[12] In its reasoning, the court noted the restriction promoted two procompetitive purposes: “preserving the popularity of the NCAA’s product by promoting its current understanding of amateurism” and “integrating academics and athletics.”[13] The court held that third parties, specifically EA Sports, which for years had made video games based on college athletics, could not use the athletes’ likeness without compensating them.[14]

In the court’s reasoning, however, the court mainly addressed the procompetitive factor of “preserving the popularity of the NCAA’s product by promoting its current understanding of amateurism” and did not really address the issue of “integrating academics and athletics.”[15] The court failed to address the fact that the NCAA already has in place certain eligibility requirements that require athletes to take certain kinds of classes during their tenure in school, as well as a GPA requirement that all athletes have to meet.[16] Whether or not players are compensated appears to have no bearing on the athletes’ integration into their college’s academics in any way. Where students are required to still maintain a certain level of academic achievement, an allowance for compensation would be a less restrictive alternative to restricting compensation for athletes while still maintaining the procompetitive factor of integrating athletics to academics. Therefore, allowing compensation for athletes would pass the Rule of Reason under the third prong. So, the only procompetitive factor that could be restricted would be restricting the popularity of the NCAA’s product.

When analyzing the restriction on the popularity of the NCAA’s product, the court in O’Bannon only focused on recruitment of players and payments to the players by the colleges themselves.[17] As noted above, the court held that colleges could not compensate athletes for their likenesses because it would hinder the popularity of the NCAA’s product.[18] Similar to this holding, the Act prohibited the ability of schools to pay their athletes for their likenesses.[19] So, that requirement would actually be consistent with O’Bannon. Looking at the allowance for athletes to hire agents, there is no reason why this would restrict the popularity of the sport. Applying the Rule of Reason analysis, allowing players to hire agents would not be more restrictive on the popularity of the NCAA’s product than would allowing players to earn compensation from third parties. If mandating that third parties must pay collegiate athletes for their likeness is not restrictive on this procompetitive aspect by O’Bannon, certainly allowing the athletes to hire agents to ensure they are fairly represented in a contract would meet the same standard under the Rule of Reason. So, naturally, allowing the athletes to hire agents would pass the Rule of Reason analysis and the NCAA would not be able to prevent students from being able to hire agents.

Additionally, if the court already held in O’Bannon that third parties are required to compensate the athletes[20], the requirement in the Fair Pay to Play Act that prevents the NCAA from implementing a rule prohibiting the athletes’ ability to profit off of their likeness is consistent with the holding in O’Bannon. Therefore, it appears that the allowances for athletes in the Fair Pay to Play Act are consistent with the court’s holding in O’Bannon.

In conclusion, it appears that the Fair Pay to Play Act’s grant of rights to athletes are consistent with the holding in O’Bannon, and any restriction beyond the Fair Pay to Play Act by the NCAA would be inconsistent with the ruling in O’Bannon.

[1] Board of Governors Starts Process to Enhance Name, Image and Likeness Opportunities, NCAA (Oct. 29, 2019, 1:08 PM), http://www.ncaa.org/about/resources/media-center/news/board-governors-starts-process-enhance-name-image-and-likeness-opportunities.

[2] Id.

[3] Allen Kim, California Just Passed a Law That Allows College Athletes to Get Paid, CNN (Sep. 29, 2019, 4:01 PM), https://www.cnn.com/2019/09/30/sport/california-sb-206-ncaa-trnd/index.html

[4] Michael McCann, What’s Next After California Signs Game Changer Fair Pay to Play Act into Law?, Sports Illustrated (Sep. 30, 2019), https://www.si.com/college/2019/09/30/fair-pay-to-play-act-law-ncaa-california-pac-12

[5] O’Bannon v. Nat’l Collegiate Athletic Ass’n, 802 F.3d 1049, 1058 (9th Cir. 2015).

[6] Fair Pay to Play Act, S.B. 206, 2019 Cal. State Senate (Cal. 2019).

[7] Id.

[8] Id.

[9] O’Bannon, 802 F.3d at 1079.

[10] Id.

[11] Id. at 1070.

[12] Id. at 1079.

[13] Id. at 1076.

[14] Id. at 1067.

[15] Id. at 1076.

[16] Id.; Amateurism, NCAA (last visited Nov. 4, 2019), http://www.ncaa.org/student-athletes/future/amateurism

[17] O’Bannon, 802 F.3d at 1076.

[18] Id.

[19] Cal. S.B. 206.

[20] O’Bannon, 802 F.3d at 1067.

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