NCAA student-athlete compensation is at a crossroads. Since at least 2005 (putting aside issues related to the COVID-19 pandemic), elite NCAA Division I schools have been attracting ever larger revenue streams. At the same time, student-athletes have been severely restricted in their ability to simultaneously maintain their amateur status but also monetize either their athletic prowess or their popularity through licensing their names, images and likenesses (commonly referred to as “NIL”). Battles have been waged; battles continue. Whether the strict restrictions on athlete compensation ever made sense in the first place is debatable, but there is widespread recognition that the world has changed and with it the rules should change, too.
Student-athletes and companies that want to work with them should start considering now what the future might hold. One potential solution to unlocking NIL value, for certain top athletes at least, might be standardized joint ventures (“JVs”). A well-crafted, standardized JV structure could create easy opportunities for top-tier student-athletes to earn money from their NIL and create equity value in their own “brands,” while also providing a routinized and transparent roadmap to monitor compliance with NCAA, federal and/or state law rules.
The Current Framework
The NCAA Board of Governors recently approved a framework to open new avenues for student-athletes to capitalize on their popularity, while keeping meaningful restrictions in place. States are still holding the NCAA’s feet to the fire. Florida’s college athlete NIL law, which would cover student-athletes in the Sunshine State, goes into effect on July 1, 2021. The NCAA is aggressively seeking a Congressional override to the state college athlete NIL laws (as well as protection from anti-trust lawsuits challenging the enforceability of its new rules framework, when implemented) while its Divisions hammer out the details of the new rules during the remainder of 2020. Congress has held hearings, and there is reportedly some momentum behind a change in federal law. The Senate Judiciary Committee wants a plan in place by September 15. There are a number of federal options that have been proposed. Putting aside all of these cross-currents, the new NCAA rules, if implemented, would go into effect for the 2021-2022 academic year.
Key to the NCAA’s proposal are the continuing limits (“guardrails”, in NCAA parlance) on student-athletes’ ability to monetize their NIL. There are two categories of guardrails – those that the NCAA recommends that its Divisions adopt and those that it recommends that its Divisions consider adopting.
| Guardrails to Adopt | Guardrails to Consider Adopting |
|---|---|
| No school, conference or NCAA involvement in arranging opportunities or using school, conference or NCAA IP (e.g., team or conference logos) in promotional activities | Prohibitions and/or restrictions on endorsing certain products (e.g., alcohol, tobacco, or sports gambling) |
| NIL compensation should not be disguised “pay for play” (i.e., payments should be for use of NIL independent of athletic participation or performance) | Prohibitions and/or restrictions on involvement with certain industries (e.g., shoes and apparel) with histories of NCAA recruiting and other rule violations |
| NIL activities should not interfere with schools’ diversity, inclusion, or gender equity efforts | Creating educational resources regarding NIL activities consistent with gender equity |
| NIL activities should not be contingent on a school or group of schools, or otherwise used as an inducement by a school or booster | Preventing boosters from using NIL rules to circumvent amateurism rules |
| Limitations on interference with academic commitments | Limiting time burden on student-athletes of permitted NIL activities generally and on campus compliance personnel in monitoring NIL activities |
| Use of agents, advisors and professional services for NIL compensation should be regulated | Framework for student-athletes to consult with professional service providers (tax, legal and subject matter experts) |
| “[T]o the extent possible,” new NIL opportunities should not distort student-athlete school choice in a negative manner |
But the guardrails have become a flashpoint, with some in Congress skeptical that the proposed rules will bring sufficient change. And work remains to be done within the NCAA: more definitive regulations are proposed to be enacted by October 31, 2020, with the rules ultimately submitted for a vote in January 2021 to become effective for the 2021-2022 academic year. The clock is ticking.
How Might JVs Help?
When executed well, JVs bring together two (or more) parties with different skills or resources and provide much-needed structure to a business relationship. Ideally, each party to a JV contributes only its best attributes – intellectual property; back-office support; a dedicated supply chain; distribution; etc. – and the JV capitalizes on the “sum being greater than its parts.” The parties interact as partners and mutually benefit from the equity value created by their combined efforts. While JVs will not alone solve the problem of fairly compensating student-athletes for the benefits they provide their respective schools, conferences and Divisions, for a certain class of student-athlete, a JV may be the key to realizing the value of their NIL the “right” way.
Specifically, a structured JV with mostly standardized terms but that provides some room for customization can serve multiple goals:
- Equity Value. By creating opportunities for star student-athletes to create equity in their own brands, there is a reduced possibility that student-athletes will enter patently lopsided deals with more sophisticated counterparties. Brands and other JV counterparties could provide stipends for professional fees for independent valuation agents, attorneys, tax advisors/accountants and other advisors, as necessary, to further protect student-athletes’ interests.
- Predictability and Replicability. Creating a “pre-packaged” and largely uniform JV structure under which established brands can partner with student-athletes to commercialize student-athlete NILs reduces barriers to economic opportunity. Student-athletes and brands would not need to negotiate thousands of one-off deals. Further, the JV structure would be replicable across different sports, which could help, for example, enhance school gender equity efforts.
- Dissolutions and Structured Liquidity Opportunities. A standardized approach could be used to impose term limits on how long a JV can use student-athlete NIL and to provide a predictable structure for a JV party to buy out or dissolve the JV. For certain classes of student-athletes, dissolutions and buyouts could be timed to closely follow key value events, such as the Olympics. For NCAA student-athletes likely to become professional athletes, a JV could provide a bridging mechanism that allows student-athletes and brands to either “re-commit” to a professional level endorsement arrangement or dissolve the arrangement in connection with a transition to professional status and pursue other opportunities.
- Compliance. The JV approach could aid compliance with NCAA, federal and/or state law rules by creating a standardized (or semi-standardized) framework that is easier to monitor.
- Student-Athlete Education. A standardized (or semi-standardized) JV approach would make communications with NCAA student-athletes regarding these arrangements more streamlined and less likely to lead to confusion.
The next six months are going to be very interesting.
For more information on our joint venture practice, please email us at hello@moultonmoore.com.