Legal Battle Over NIL Collectives and Athlete Incentives
For the past month, the states of Tennessee and Virginia (the Plaintiff States) and the Defendant NCAA have been embroiled in a legal battle surrounding the specific issue of NIL collectives and related financial and other incentives influencing athletes’ decisions to commit to and transfer among certain schools. The NCAA has long classified these NIL “recruiting” practices as “improper” in the context of its regulations. NCAA regulations classify NIL collectives as “boosters” who are not supposed to influence athletes’ commitment decisions.
This lawsuit is not the first time the NCAA’s NIL restrictions post-Alston have come under fire. Recently, the Northern District of West Virginia granted two temporary orders against the NCAA, preventing it from enforcing a “double transfer” restriction, preventing athletes from entering the transfer portal twice. That court held that the double transfer restriction amounted to an unlawful trade restriction under the Sherman Act.
Court Ruling Against NCAA’s NIL-Recruiting Ban
The Plaintiff States initiating the most recent suit against the NCAA sought to enjoin the “booster” classification of NIL collectives, which they labeled the NCAA’s effective “NIL-recruiting ban.” On February 23, U.S. District Judge for the Eastern District of Tennessee, Clifton L. Corker, issued a ruling in favor of the Plaintiff States, preventing the NCAA from enforcing its NIL-recruiting ban. This article explores the reasoning behind the challenge, the NCAA’s response, and what this all means for the future NIL landscape.
The Plaintiff States Challenge NCAA Policies on Antitrust Grounds
The Plaintiff States’ complaint harped on the Alston decision’s implication that the NCAA is “subject to the Sherman Act” including in connection with its “amateurism” restrictions. The complaint emphasized “the tremendous value [student athletes] bring to their States, cities, and schools” and underscored Tennessee and Virginia laws passed with he expressed intent to protect student athletes’ rights to earn fair compensation without the “interference” of athletic associations including the NCAA.
While, under present NCAA policies, current students may earn money for their NIL rights, prospective students are still restricted from pursuing pre-commitment NIL deals. The Plaintiff States classified this arrangement as an artificial restriction that served to “artificially decrease[] NIL compensation that college athletes could otherwise obtain in a free market.”
Plaintiffs argued that the court should permit a free market for student-athletes marketing their talents not only to their prospective colleges, but also to their prospective NIL opportunities to maximize, among other things, their “economic well-being.” Notably, the complaint declined to challenge the NCAA’s restrictions on “pay-for-play,” or direct compensation for athletic participation under NCAA Bylaw 12.1.
The complaint alleges that students hold their highest bargaining power at the stage in which schools effectively compete for their attendance. Emphasizing the time-sensitive nature of the relief requested, the Plaintiff States focused on the short windows for athlete commitment during the “early” and “regular” signing periods in which athletes can sign a National Letter of Intent. The Plaintiff States also emphasized that, because many college athletes never “go pro” in their sports, their NIL value is likely at its height while the athletes are in college. The single-count complaint alleges the NCAA’s recruiting and transfer restrictions violate the Sherman Act, which prohibits illegal agreements to restrain and suppress competition within given markets.
The NCAA Defends its Policies Limiting “Pay-for-Play” and “Improper Recruiting Inducements”
The NCAA’s response to the Plaintiff States’ motion for a temporary restraining order emphasized the “longstanding and fundamental prohibitions against the professionalization of college sports” that have been at the heart of NCAA guidelines for decades, and noted that NCAA member institutions have agreed to abide by NCAA policies. Opposition, p. 1. The NCAA further alleged an inexcusable “delay” by the Plaintiff States seeking emergency relief, given that the “improper recruiting inducement” rules have been in place for years. Id. at p. 3.
Ongoing class action litigation in California has been initiated by athletes seeking what the NCAA labeled “broader relief” and challenging NIL restrictions as “exploitative” in violation of the Sherman Act. See in re College Athlete NIL Litigation, 4:20-cv-03919-CW (N.D. Cal). The NCAA posited that money damages would be adequate to compensate the alleged injuries at issue in this latest suit, meaning the Plaintiff States should not be entitled to an emergency order preventing the NCAA from enforcing its rules before the California litigation is resolved.
The NCAA noted that its regulations frequently operate “in tandem” with the challenged rules. Opposition, p. 14. The NCAA claimed that its rules protect recruits by preventing recruits’ exposure to “an uncapped number of third parties, for unregulated periods of time” while their time is particularly precious during the recruiting process. Id. The response also alleged a risk that permitting the injunction would cause students to be effectively directly paid for athletic participation “under the guise of NIL” agreements or be subjected to abusive and exploitative deals. Id., at pp. 19, 22.
What Does this Mean for Present and Future Athletes?
In places outside of Tennessee and Virginia, where the temporary restraining order is not in effect, the NCAA’s rules remain in place (for now). The NCAA’s Manual currently permits athletes to earn money for their NIL, but subjects athletes to certain restrictions. Since 2021, the NCAA’s interim policy maintains limitations on “pay-for-play and improper recruiting inducements[.]” The NCAA guidance classifies NIL collectives as “boosters.” A “booster” is defined by NCAA policies as “an individual, independent agency, corporate entity (e.g., apparel or equipment manufacturer) or other organization who is known (or who should have been known) by a member of the institution’s executive or athletics administration to have participated in or to be a member of an agency or organization promoting the institution’s intercollegiate athletics program or to assist or to have assisted in providing benefits to enrolled student-athletes or their family members.” Under the current rules, an NIL collective cannot, for example, offer an athlete an NIL opportunity that hinges on the athlete’s commitment to a particular school and prohibits collectives from engaging in “recruiting conversations” whatsoever. The NCAA recently found one such recruiting violation at Florida State when an assistant football coach contacted a transfer prospect and an NIL “booster,” incurring significant penalties, including a fine, a reduction in recruiting activities, and a reduction in the overall football budget.
Whether the NCAA will change its rules in response to the legal setback of the injunction remains to be seen. The NCAA has long been calling for federal legislation to provide consistency in the face of the present patchwork of state laws which complicate the activities of institutions, athletes, and NIL collectives. If you are an athlete attempting to navigate the complex and changing world of NIL, KJK’s attorneys can help.
For more information or to discuss further, please contact KJK attorneys Anna Bullock (AEB@kjk.com) or Samir Dahman (SBD@kjk.com).