In September of 2019, California Governor Gavin Newsom signed a bill that would allow California’s collegiate athletes to profit from their name, image, and likeness beginning in 2023. The bill was passed in direct opposition to the NCAA regulations that prohibit ‘amateur’ athletes from receiving personal sponsorships and endorsements while they are collegiate athletes. While debates over name, image, and likeness (NIL) compensation existed prior to the passage of the California bill, the legislation’s passage sparked an intense national debate over student-athlete rights, and the duty the NCAA owes to the students whose performances fund its bank account. It seems, now, that the NCAA has been listening. As of July 1, 2021, the NCAA adopted a new regulation that permits students to be directly compensated for their name, image, and likeness. As thousands of athletes now stand to profit off of their performance in both revenue and non-revenue sports, this article takes a look at the proposed NIL laws and antitrust legislation along with the recent Supreme Court case Alston v. NCAA.
Antitrust Law & the NCAA
The relationship between collegiate sports and money has always been complex. There has long been a system of incentives and inducements for high school athletes to attend certain universities. One of the earliest regulations the NCAA enacted was the 1948 Sanity Code which forbade any student-athlete compensation outside of scholarships and jobs. The theory behind such restrictions is that student-athletes were meant to be students first, then athletes. While those students were not just at college for academic purposes, they also were not to be confused with sports professionals. In 1957, the NCAA allowed for some exceptions to student-athlete compensation, allowing student-athlete payments to include room and board fees with minor incidental expenses. Over time college athletics has grown exponentially. As demand for college sports has risen, television deals and sponsorship revenue has turned collegiate football and other revenue sports into a multi-million-dollar industry. As it stands now, there are 1,268 member schools of the NCAA which bring in over $1 billion a year for the Association. With over 504,000 student-athletes never seeing a dime, many have called for students to be able to profit off of their name, image, and likeness.
Name, image, and likeness (NIL) is essentially a student-athlete’s brand. A student-athlete with control over their NIL would be able to enjoy sponsorships from companies through endorsement deals or merchandise sales. One of the most contentious cases arising out of the past decade dealing with NIL is O’Bannon v. NCAA, which dealt with antitrust issues and student-athletes. This 2014 case was decided by a Federal District Court, which held that the NCAA’s rules prohibiting athletes from being paid for use of their names, image, and likeness violated Antitrust laws. The case was a class-action lawsuit brought forward by football and basketball athletes who challenged an NCAA rule that prohibited the players from receiving NIL profits from video games, live game telecasts, re-broadcasts, and archival game footage.
In order to succeed in an Antitrust case, the challenging party must show: (i) that there was a contract, combination, or conspiracy; (ii) that the agreement unreasonably restrained trade under either a per se rule of illegality or a rule of reason analysis; and (iii) that the restraint affected interstate commerce. The O’Bannon Court used the rule of reason analysis to determine that the NCAA restraints violated the Sherman Act. Under the rule of reason analysis, the plaintiff must show the restraint produces significant anticompetitive effects. If they are successful, the burden shifts to the defendant to show that the restraint has a pro-competitive effect. If the defendant is successful, the plaintiff must show that the proposed legitimate objectives can be achieved through substantially less restrictive means.
The procompetitive benefits of the prohibition on student-athlete compensation for NIL that the NCAA identified did not hold water with the Court. The NCAA argued that their NIL restrictions were reasonable because they preserved the Association’s tradition of amateurism, maintained a competitive balance among participating schools?, promoted the integration of academics and athletics, and increased the total output of viewership of college athletics. While the Court entertained the idea of amateurism, it found that the procompetitive benefits did not outweigh the impact on interstate commerce. Judge Wilken ordered the NCAA to allow schools to offer full cost-of-attendance scholarships and to expand scholarship coverage to living expenses. The NCAA appealed the decision, but their petition was denied by the Supreme Court.
In response to O’Bannon, student compensation rules changed to allow “autonomy” schools to adopt “cost of attendance” scholarships for their student-athletes. Now, Division I schools in the NCAA are able to provide scholarships that supplement a student-athlete’s tuition. This includes such things as cost-of-living expenses. While this shift provided some universities the chance to provide more compensation to student-athletes, the NCAA continued to adhere to the belief that paying athletes removes amateurism status. Meanwhile, non-autonomous schools continued to provide only tuition scholarships for student-athletes. Thus leaving an even larger gap between student-athletes and their ability to achieve some level of financial benefit.
NCAA v. Alston
On March 31, 2021, the Supreme Court heard the NCAA and Shawne Alston argue over whether the NCAA was violating the Sherman Act by limiting education-related benefits schools could offer student-athletes. Such benefits included rules limiting scholarships for graduate schools, payments for tutoring fees, or paid post-eligibility internships. On June 21, 2021, Justice Gorsuch delivered a 9-0 opinion that sided with Alston in finding that certain restrictions the NCAA places on student-athletes are violations of antitrust law.
Justice Gorsuch pointed out the vast amounts of money that go into collegiate athletics. The NCAA currently profits 1.1 billion annually from the March Madness basketball tournament alone. The SEC, a subdivision of the NCAA, has made $470 million in television rights associated with the College Football Playoff game. The heads of the NCAA make anywhere from $2-5 million, some coaches making upwards of $11 million, and even assistant coaches nearing $2.5 million. These numbers show the stark contrast between a college athlete receiving a meager tuition scholarship and the millions their coach could be benefitting from.
Like the O’Bannon court, the Supreme Court in NCAA v. Alston conducted an antitrust analysis under the Sherman Act, affirming the District Court’s application of the rule of reason analysis. In Alston, both the student-athletes and the NCAA agreed that the NCAA restrictions did place restraints on the labor market; the question for the Court was whether those restrictions were unreasonable. The Supreme Court reiterated the idea that the NCAA enjoys a near-monopoly of power over collegiate sports. The NCAA then uses this power to limit the amount of compensation offered to student-athletes. The NCAA’s argument that such restrictions helped maintain competitiveness and increase college sports output was rejected. The Association failed to show that their restrictions had any direct connection to consumer demand. The Supreme Court and the District Court agreed; restrictions on student-athletes’ further pay violated traditional antitrust principles.
Following this case and the passage of state legislation on student-athlete compensation, the NCAA enacted a rule change that finally allows student-athletes to profit off their name, image, and likeness. With this policy change, the door has opened for individual schools to shift their policies and for states to enact legislation in order to set the boundaries of NIL compensation.
North Carolina and NIL
Following the NCAA’s rule changes, many states began to pass legislation or sign executive orders governing NIL policies at universities within their respective state. On July 2, 2021, North Carolina Governor Roy Cooper signed Executive Order 223 which allows intercollegiate athletes to profit off of their NIL. The order is similar to enacted legislation seen in other states, with certain restrictions placed on students looking to make a profit off of their brand. The executive order allows for universities to monitor student-athlete NIL deals, impose restrictions on the types of sponsorships student-athletes can accept, and extends protections to a university’s intellectual property rights. However, with this Executive Order has come controversy, with some critics and senators looking to further shape the newly-formed NIL world.
Campbell University School of Law is also joining in on the action with their newly minted Sports Law Clinic. The clinic, in partnership with Shipman & Wright, LLP, is working with third-year law students to help students at local universities navigate the NIL landscape. The pro bono clinic is currently in full swing and looking forward to the upcoming opportunities for student-athletes.
What’s Next for Student-Athletes?
The changes with the NCAA’s student-athlete compensation policies have opened the door for companies and brands to take advantage of the multi-million-dollar market that is college athletics. Student-athletes may also take advantage of their superior play or online brand to further their professional careers. The question is, where will this take the face of sports as we know it? Student-athletes face red tape and an uphill battle in trying to make their way in the new world of NIL. Only time will tell as to how the NCAA, universities, and fans will respond.