On Thursday April 18, Governor Youngkin of Virginia signed into law a bill which will allow colleges and universities in Virginia to directly compensate their student athletes for their name, image, and likeness, collectively NIL. Current NCAA rules prohibit member schools from directly compensating their student athletes for their NIL, but the first of its kind law makes it illegal for the NCAA to prevent a school from participating in NCAA competitions as a consequence of providing NIL deals to student athletes. The potential impact of this law on college athletics is immense.
Initially it should be noted the law only prohibits the NCAA from prohibiting of preventing “an institution from becoming a member of the association, conference, or organization or participating in intercollegiate athletics sponsored by such association, conference or organization.”[1] Notably this law does not restrict the NCAA from applying other forms of discipline, like scholarship reduction, for violations of current NIL rules. However, if the NCAA did choose to levy such a punishment it would likely not hold up in court. Federal courts have routinely ruled against the NCAA in lawsuits challenging its power to restrict the earning potential of student athletes.[2]
Where this law has the most potential to change the landscape of college sports is through the operation of NIL collectives. At present NIL collectives function independently of the university to collect donations or NIL endorsement opportunities which are then provided to the players. In Virginia, the necessity of these collectives is minimized as the donations can now be made, tax free, to the universities. If more states enact laws like this, or the NCAA adopts a proposed rule allowing all schools to enter into NIL deals with their student athletes, the role of an NIL collective will vastly change.
Allowing universities to directly engage in NIL deals with the student athletes could render NIL collectives obsolete entirely. Namely because the large cash donations to NIL collectives are not tax exempt, whereas the same donation to the university NIL fund would likely be fully tax exempt. Thus, the role of the collective could shift to solely focus on obtaining marketing deals for the student athletes, making the collectives highly specified marketing firms.
Alternatively, the schools may decide to outsource the administration of the NIL funds to the already existing NIL collectives. However, in this case the ability of the collectives to distribute funds could be constrained by Title IX. If the university deputizes the collectives to function on its behalf, then the dealings of the collective with the student athletes could be subject to Title IX, which prohibits sex discrimination in college athletics. While the applicability of Title IX to NIL is subject to an ongoing lawsuit, if held to apply it would greatly restrict how NIL funds and deals could be distributed.
Due to the above detailed restrictions, on the university acting as NIL fund or an affiliated collective, an NIL collective may decide to remain unaffiliated and focus its work solely on a particular sport at a university. In this case NIL collectives would likely continue to function as they presently do.
In any of these above cases, it will continue to be important for NIL collectives to be aware of, and refrain from creating, employment relationships with the student athletes; continue to monitor the changing legal landscape in each state; and structure its organization in a way to optimize its impact while minimizing risk. The attorneys at Dalton & Tomich, PLC are here to assist you in this task. We are experienced in working with nonprofit and for-profit entities from formation to governance and are ready to put this experience to work to help guide you through any and all legal complexities to help achieve your goals.
[1] https://lis.virginia.gov/cgi-bin/legp604.exe?221+ful+CHAP0638.
[2] Most recently a federal judge enjoined enforcement of an NCAA rule which banned recruits from discussing NIL opportunities before enrolling at a school. https://www.cbsnews.com/news/federal-judge-grants-injunction-tennessee-nil-case-suspends-ncaa-rules/
