Sports Law Chair Edward Schauder is quoted in Law360: Big Money On Campus: Athletes Seek Cut Of NCAA's Riches09/17/2020
By Zachary ZaggerLaw360 (September 17, 2020, 6:44 PM EDT) -- This is the third of a three-part series on how proposals to allow college athletes to be paid for the use of their names, images and likenesses, or NIL, are playing out in legislatures, courts and campuses. Read part one here and part two here.
Katelyn Ohashi "broke the internet" last year with an exuberant perfect 10 gymnastics floor routine. Within days, a video of her January 2019 performance had grabbed 750,000 views on YouTube and was trending on social media, turning the UCLA gymnast into a recognizable sensation.
A professional athlete might have leveraged the newfound fame for endorsements or turned into a paid social media influencer. But Ohashi was not able to capitalize while at UCLA under NCAA amateurism rules that strip college athletes of their right to earn money from the use of their names, images and likenesses, or NIL.
"I was handcuffed by the NCAA rules that prevented me from deriving any benefit from my own name or likeness regardless of the fact that after my final meet, I had no pro league to join," Ohashi said in a video op-ed published by The New York Times last October that again received widespread attention
Meanwhile, UCLA was able to promote the performance on social media, gaining valuable publicity for the school. The video of Ohashi's perfect-10 routine, posted by UCLA Athletics on YouTube, has been viewed more than 126 million times over the past year and a half. A tweet from UCLA gymnastics has nearly 700,000 likes and more than 200,000 retweets.
The NCAA has relented somewhat, announcing earlier this year that it will reform its rules to allow athletes to be paid for the use of their NIL while keeping some guardrails in place to ensure that college sports remain an amateur system.
However, with states opening the door for less-restrictive opportunities through legislation, college sports are undeniably changing. The question is how much.
"It is a Pandora's box," said sports marketing attorney Bob Wallace Jr., chair of the sports law group at Thompson Coburn LLP, noting that NIL pay could become a way for boosters to compensate athletes just like professionals.
"Then it becomes a question of what was initially the purpose of regulating amateur athletes," he said. "I don't have the answer, but I think we do need to think about how we let student-athletes cash in a little bit on their unique skills."
Money To Be Made
In April, the NCAA Board of Governors adopted a set of recommendations from a special working group to allow athletes to be paid for use of their NIL. The move ostensibly opened the door for sponsorship and endorsement deals, but with guardrails to prevent college sports from becoming "pay for play."
Those guardrails say NIL compensation should represent "a genuine payment for use of their NIL, and [not be] simply a disguised form of pay for athletics participation" and that "schools and conferences [should] play no role in a student-athlete's NIL activities." The working group also said steps must be taken to ensure "schools or boosters are not using NIL opportunities as a recruiting inducement" and that third parties are regulated.
Those rules are more restrictive than what state NIL bills would allow. But maintaining the distinction between NIL pay and "pay for play" is easier said than done.
"These are rights that all of us enjoy: the rights of publicity," said University of Baltimore School of Law associate dean and law professor Dionne Koller, who directs the school's Center for Sport and the Law. "We own our name, image and likeness. These are rights that are stripped away from athletes when they come to college. I think the starting point for me is that these aren't the NCAA's rights to give or take away. These are rights that you come to college with and that every student has. "
College sports, particularly football and men's basketball, generate significant revenue from fans who pay to watch college athletes compete in person or see ads on TV, and also buy merchandise and other collectibles. Division I college athletics programs generate tens of millions per year in revenue, with top schools bringing in as much as $200 million or more, according to data collected by USA Today.
At the same time, under NCAA rules, an athlete can lose eligibility to play if he or she "accepts any remuneration for or permits the use of his or her name or picture to advertise, recommend or promote directly the sale or use of a commercial product" or is paid to endorse "a commercial product or service."
An athlete is further prohibited from leveraging "the publicity, reputation, fame or personal following that he or she has obtained because of athletics ability." The rules even place a duty on the college athletes themselves to police use of their NIL to ensure it is not being used for commercial purposes.
Five states — California, Colorado, Florida, Nebraska and New Jersey — have passed laws that seek to negate these restrictions by prohibiting schools in their states from revoking a college athlete's eligibility if they do accept money for a sponsorship or endorsement or other use of their NIL. Other states are considering similar measures. Florida's law is set to take effect first, on July 1, 2021.
While these bills do not call for schools to pay athletes directly, they do open the door for third-party businesses independent from the schools to pay athletes to endorse their products or services.
"When you look at the value that the individual athletes bring to the campus, it is time that they be given the opportunity to realize that value and to remove those restrictions so that the same opportunities that anyone else on the college campus has, the athletes have," said Dustin Maguire, an attorney and former Division I college basketball player who founded nameimagelikeness.com, a marketing service for college athletes.
'A Brave New World'
Experts say easing NIL restrictions could allow athletes to realize economic value that under the current system is reaped mostly by schools.
Traditionally, the value of a college athlete's NIL was seen as the ability to sign autographs for fans for money, sell memorabilia or make paid appearances at local businesses, often car dealerships. But the influence of social media is completely changing the game, increasing the value of personal brands and providing even more opportunities for athletes to be able to profit.
"It is not the same old publicity rights when I was in school. Today, social media is so predominant now that these [athletes] can make money just doing postings every day," said Tom McMillen, a former college and professional basketball player and former member of the U.S. House who is now president and CEO of Lead1 Association, a trade group representing the interests of college athletics directors. "It is a brave new world out there, and college sports need to be nimble enough to adjust to it."
But just how much are athletes worth? Experts say the value of a college athlete could be anywhere between a few hundred dollars per year to more than $1 million. It depends on several factors including the sport, the school's geographical market and the player's social media following.
Depending on the ultimate contours of NIL changes, top athletes, like last year's No. 1 overall NBA draft pick Zion Williamson, may command sponsorships from Nike and other national brands while still playing collegiately. Williamson signed an endorsement deal with Nike's Jordan Brand for a reported $75 million, the richest deal ever for an NBA rookie, just months after finishing his freshman season at Duke University, which is sponsored by Nike.
The athlete branding and marketing company Opendorse Inc. estimates that the two top contenders for this year's Heisman Trophy, Ohio State University quarterback Justin Fields and Clemson University quarterback Trevor Lawrence, have average annual earning potential of more than $1.2 million dollars from NIL deals.
Fields could earn $11,382 per sponsored Instagram post and $1,586 per Twitter post, alone, while Lawrence could earn an estimated $10,864 per Instagram post and nearly $1,000 per Twitter post, according to Opendorse.
Money could be generated for whole teams if the athletes are allowed to package their rights into group licensing deals, something which the NCAA working group recommended against but that several proponents have said is low-hanging fruit.
And it is not just football and men's basketball. Opportunities exist for athletes of all levels of popularity across sports, and for female athletes.
In 2018, former University of Notre Dame women's basketball player Arike Ogunbowale was invited to compete on ABC's uber-popular celebrity competition "Dancing With the Stars" after she gained attention for hitting back-to-back game-winning shots in the NCAA women's Final Four. She was allowed to participate and keep prize money, but only after seeking a special waiver from the NCAA that limited her ability to market herself on the show.
NIL opportunities could allow athletes like Ogunbowale to parlay publicity from a big performance into being a social media influencer while in school. Others may have developed a social media following for reasons separate from or tangentially related to sports. Ogunbowale now plays professionally for the Dallas Wings of the WNBA.
Capitalizing on publicity while in college is especially important for female athletes like Ohashi, who may not have an opportunity to go pro after college, proponents say.
"It is not the car dealership anymore," said Koller, who testified before the U.S. Senate this year on the NIL issue. "This opens up enormous opportunities for women athletes to bring more attention to their sport generally and build fan interest in their sport and build individual interest in their own brands."
Some entrepreneurs are seeking to capitalize on a new potential regime where athletes may be paid for NIL. Student Player LLC launched this year with the goal of allowing fans to contribute money to specific schools and teams to attract better players. The money is pooled and distributed to the college athletes after they complete various endorsements.
Student Player founder Zachary Segal told Law360 the idea is to provide a way for athletes to see which schools would give them the best NIL opportunities and give college sports fans more ways to engage directly with their favorite schools and feel part of the team.
The company has already raised more than $100,000 in fan "contributions" since launching despite the poor economy amid the COVID-19 shutdown.
"I think that fans will have an appetite to contribute money in a way that it goes directly to the players," Segal said. "And the players know that if they go to this school instead of their competitor, this is the sponsorship offer that is going to be waiting for me. That is going to be a very compelling factor in someone's decision of where to attend college."
Though this seems to conflict with the NCAA's desire to not allow NIL to become a recruiting inducement, Segal said the company's goal is not to compromise any athlete's eligibility and no offers will be made "until it is legal and permissible to do so."
"I think that there is a fear that the status quo will change, but my hope is that the status quo will change because the current system is not equitable, it is not fair, and it treats student-athletes differently from every other student on campus," Segal said. "If student-athletes are students first, then they should have the same rights that every other student currently has, whether they are on scholarship or not."
The Booster 'Boogeyman'
With all of these economic opportunities, the overarching concern is that companies and boosters will exploit these new ways for college athletes to make money simply to pay athletes to play at a certain school or stay in school, turning college sports into a de facto professional pay-for-play system.
The NCAA broadly defines a "booster" as someone who is a "representative of the institution's athletics interests," including those who have donated to the athletics department or have otherwise been engaged with promoting, and already sets out guidelines regulating contact with and gifts for athletes and recruits.
However, many say there are ways to limit pay-to-play under a system that allows athlete pay for NIL without too many new rules or guardrails. Disclosure is key.
"Then it would be very, very easy to see who has a market deal and doesn't," said Koller, noting the possibility that issues with boosters paying athletes could prompt further rule changes. "But again, this is the booster boogeyman."
McMillen said there should be some sort of independent, third-party entity where deals are registered and monitored. He proposes a system that could function similarly to the U.S. Securities and Exchange Commission's EDGAR corporate disclosure system. It could be backed by technology that immediately detects and red-flags deals that seem to fall outside the market norm and identify bad actors.
"Sunlight is the great disinfectant," McMillen said. "The question really gets down to fair market value. You want kids to be able to monetize their publicity rights, but based on fair market value. There are ascribed markets for social media — you have a value ascribed to 100 followers — there are values for appearances, there are values to things."
The underlying issue for schools is a fear that if boosters and companies can pay athletes directly, they will shift the marketing dollars that they typically provide the schools to the athletes themselves. This could strain athletic budgets, particularly as schools deal with the cancellation of games due to the COVID-19 pandemic, and force them to drop non-revenue-generating programs, particularly women's sports, critics of greater NIL rights argue.
In written testimony to the Senate Judiciary Committee in July, Clemson University Director of Athletics Dan Radakovich said the school is "concerned with the potential impact that booster participation in NIL deals will have on lower-profile sports."
"Should boosters shift their funding and focus to NIL compensation for individual players in high-profile sports, many athletic programs could struggle to fund lower-profile sports," Radakovich said. "Both outcomes — the disruption of recruiting rules and revenue shifts away from lower-profile sports — would be bad for the vast majority of student-athletes."
Several schools have dropped sports programs amid losses caused by canceled games and tournaments due to COVID-19.
Ohio State director of track and field and cross country Karen Dennis told another Senate committee this month she fears that opening the door to NIL pay would force schools to cut programs and that the U.S. Olympic teams would be "decimated."
Many proponents of greater NIL rights for athletes question whether this is merely a matter of budgeting, suggesting schools could simply spend less on extravagant locker rooms and coaching salaries. And they say NIL opportunities could be a win-win for the schools and the athletes.
"Say name, image and likeness had passed in a way that Zion Williamson could have marketed himself and that schools would have been able to work with athletes," said college sports attorney Justin Sievert of Vela Wood. "There is a benefit to Duke to work with Zion to use him in commercials or whatever it would be. It helps both sides."
Title IX, a federal law that requires schools to generally provide equal athletic opportunities for men and women, could be an impediment in that companies may want to spend more to sponsor football and men's basketball players. Assuming schools are able to comply with Title IX, there is value for a school to partner with a high-profile athlete and potentially generate more revenue, though the schools and the NCAA have resisted such a change.
"I think it makes sense," Sievert said. "At some point, you have to look at this and say, 'How can we use the new way of doing things to our advantage?'"
The New Athlete Experience
Regardless of the extent of NIL reform, the conception of the college "student-athlete" is changing.
Alston v. NCAA struck down NCAA rules that limit education-related benefits, including benefits that extend past an athlete's career such as a guaranteed scholarship to graduate school.
This is a huge change for the athletes alone, Maguire said. When combined with the impending loosening of NIL restrictions, the benefits could be even longer-lasting.
"I think it is incredible because the value that an individual athlete gains from building their brand is going to have the opportunity to extend past their playing career," he said. "It is going to be brand new for college athletes."
With these improved benefits comes greater responsibility. Experts say NIL pay will be taxable. Athletes also must be smart about which sponsorship or endorsement deals they take and what the implications could be for their personal brands and legal liability, such as in the case of a false-advertising claim for backing a certain product.
"There will be a lot of people who will take money and they will regret that they did," said Edward Schauder, a corporate and sports attorney handling licensing and marketing issues at Phillips Nizer LLP. "No matter how much money these guys make, they are really going to need professional guidance that they really don't fall for a common pitfall."
If colleges provide that sort of education, it will give them an even greater role in preparing athletes for successful post-graduate careers. That would help fulfill the primary mission of universities, Maguire said: education.
"The idea is that this is going to be something for the athletes that helps them prepare for the next stage in their life," Maguire said. "If professional sports do not come to fruition and the college career is all there is, the question for the athletes is: How do you use these four years to build and capitalize on your brand? How do you use that to benefit you for the rest of your life?"
--Editing by Brian Baresch.