The recent United States Supreme Court case, Alston v. NCAA, caused the National Collegiate Athletic Association (NCAA) to change its long-standing rules prohibiting compensation for use of a student-athlete’s name, image and likeness (NIL). While an interim rule change, it appears that the NCAA saw the handwriting on the wall as states began to enact NIL legislation that conflicts with the old prohibitions and the Supreme Court expressed concerns over the restraint of trade issues posed by NCAA regulations. Following the NCAA’s lead, other athletic associations have followed suit to allow for student–athlete NIL deals.
This new development affects three key groups: 1) student-athletes; 2) colleges and universities with athletic programs; and 3) parties wishing to exploit the NIL rights of current student athletes.
At the present time, there is NO uniform Federal law governing NIL rights (just as there is no uniform Federal law dealing with the Right of Publicity which is really the NIL right—the right to commercially exploit one’s name, image, likeness and persona). NIL is nothing new—it is just the Right of Publicity labeled differently. What is new, obviously, is that the NCAA’s prohibitions are no longer in place.
The NCAA’s new interim rule states:
“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. Individuals can use a professional services provider for NIL activities. College athletes who attend a school in a state without an NIL law can engage in NIL activity without violating NCAA rules related to name, image and likeness. State law and schools/conferences may impose reporting requirements.”
The NCAA provided a few more details, but included a caveat that all of its interim rule requirements are subject to state law (which could supersede them):
“Subject to state law, the NCAA still prohibits an “NIL agreement without quid pro quo (e.g., compensation for work not performed)…Subject to state law, the NCAA prohibits “NIL compensation contingent upon enrollment at a particular school.”…Subject to state law, the NCAA still prohibits “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.”…Subject to state law, the NCAA still prohibits “institutions providing compensation in exchange for the use of a student-athlete’s name, image or likeness.”
Pennsylvania's Name, Like and Image Legislation Among the First to Take Effect
On June 30th, 2021, Pennsylvania passed its NIL law. Pennsylvania was one of the first states to see the legislation go live, as it became effective on July 1, 2021. The Pennsylvania NIL law, contained in Senate Bill 381, Article XX-K, allows intercollegiate student-athletes (ALL intercollegiate student-athletes—not just those competing at NCAA-member institutions) the ability to earn compensation for the use of their NIL. Rather than applying to student-athletes who are residents of Pennsylvania, regardless of where they attend an institution of higher learning, the Pennsylvania law applies to all student-athletes enrolled in Pennsylvania colleges and universities, regardless of their residency status. The Pennsylvania law does state, however, that the laws of other states may also apply to their residents regardless of where they attend school. So, if there is an issue about a particular student-athlete who is not a resident of Pennsylvania, an institution should consider whether that student’s state of residency (if not Pennsylvania) has a NIL law that applies to all of their residents, regardless of the location of the school. The new law requires institutions of higher education to publish policies on these issues.
Here are nine things you need to know about Pennsylvania’s NIL law:
- College athletes may earn compensation for the use of the athlete’s NIL. However, that compensation must be commensurate with the market value of the athlete’s NIL (although there is no specified manner to determine this FMV).
- Consistent with the current rules of the NCAA, College athletes may NOT accept compensation in exchange for their attendance, participation or performance at the institution (“pay-for-play”).
- College athletes may NOT earn compensation for NIL use “in connection with a person, company or organization related to or associated with the development, production, distribution, wholesaling or retailing” of any of the following:
- Adult entertainment products and services;
- Alcohol products;
- Casinos and gambling, including sports betting, the lottery, and betting in connection with video games, online games and mobile devices;
- Tobacco and electronic smoking products and devices;
- Prescription pharmaceuticals;
- A controlled dangerous substance; or
- Other products or activities prohibited by the institution.
- Pennsylvania’s law also permits institutions to prohibit student NIL use more broadly: (i) in activities that conflict with existing institutional sponsorship arrangements; and (ii) based on other considerations that conflict with institutional values, as defined by the institution. This provision is especially applicable to a proposed NIL deal that would conflict with an existing deal that the college already has. For example, if an institution has an exclusive shoe deal with Nike, a student-athlete could be prohibited from doing an NIL deal with Adidas, depending on the specifics. The Pennsylvania law requires institutions to have policies that “specify the name, image or likeness activities [in] which the college student may not engage.”
- The Pennsylvania law requires students to disclose proposed NIL contracts to a designated official of the institution at least seven days prior to execution of the contract.
- Pennsylvania’s law prohibits institutions (i) from preventing student-athletes from earning compensation through the use of the student’s NIL, or (ii) from obtaining professional representation in relation to NIL use. While student-athletes my engage professionals (NIL agents and lawyers) to handle NIL deals, the current prohibition against hiring an agent to represent a student-athlete with respect to professional athletics still applies: “Student athletes shall be ineligible … if the individual enters into an oral or written agreement with an agent for representation in future professional sports negotiations that are to take place after the individual has completed eligibility in that sport.”
- Significantly, Pennsylvania’s law prohibits institutions from arranging third-party compensation for a student-athlete relating to NIL use as an inducement to recruit prospective students. In this regard, Pennsylvania’s law is more restrictive than many states’ laws, such as Texas, that permit schools to assist in arranging for deals (obviously, this will have an “arms race” impact on recruiting at the highest level, most especially in football and men’s basketball).
- Pennsylvania’s law requires any person producing a college team jersey, video game or trading card for profit to make a royalty payment to each athlete whose NIL or “other individually identifiable feature” is used. The law is silent as to other merchandise often licensed by colleges and universities such as player bobbleheads and photos.
- Pennsylvania’s law does NOT require institutions to facilitate or enable NIL opportunities for athletes. The law specifically states that it does not require an institution to permit athletes to use the institution’s marks, logos, mascots or other intellectual property. Our recent experience, however, indicates that most colleges and universities in Pennsylvania nonetheless have been cooperative and simply require that a license get a license from the university to use it logos (again, as long as the proposed NIL use does not conflict with other contractual obligations of the school). In such situations, the licensee must pay both the university and the student-athlete.
Some other interesting “by-products” of this new NIL situation are that it could impact students’ financial aid (if they earn enough in NIL compensation) and even visa status (for foreign students here on student visas and where employment is prohibited). Student-athletes also will have to address the tax implications of receiving this NIL revenue.
Since NIL laws vary state-by-state, it’s important to understand what laws apply and consulting with experienced legal counsel can help ensure your institution remains in compliance. Buchanan’s Entertainment, Media & Sports Law and Education industry teams stand ready to help you navigate the NIL legislation impacting your institution.