The Fair Pay to Pay Act and How California Led the Way to College Athlete Pay Reform and the Development of NIL

in College Sports/Entertainment/Volume VI

By Simon Lockard

Introduction

Name, image, and likeness (“NIL”) refers to a college athlete’s ability to profit from themselves.[1] The National Collegiate Athletic Association (“NCAA”) has historically prohibited college athletes from utilizing their NIL. It has enacted harsh penalties against athletes who violate its policies while profiting off those same athletes through media rights, bowl revenues, ticket sales, royalties and licensing, and donor contributions.[2] However, in 2019, California passed the Fair Pay to Play Act, which allows college athletes to be compensated for their NIL and prohibits universities from implementing rules that try to limit the college athlete’s ability to profit off their image.[3] The California rule was shortly followed by similar laws enacted in other states nationwide.[4] The enactment of the state NIL laws and the Supreme Court ruling in NCAA v. Alston (2021) prompted the NCAA to adopt an interim policy that allows college athletes to engage in NIL activity consistent with the law of the state where the school is located.[5] Now, in states nationwide, college athletes can profit from their image through several ways, including endorsements, selling merchandise, and making paid appearances.[6]

In this article, I will discuss the NCAA’s history of prohibiting college athletes from profiting off their NIL and how they not only did not compensate athletes but would severely punish the athletes caught breaking the rules. Next, I will discuss the Fair Pay to Play Act and the Supreme Court case NCAA v. Alston (2021) and how they catalyzed nationwide enactment of NIL laws, which forced the NCAA to reverse all their old policies and now allow Athletes to profit off their image. Finally, I will discuss the current state of NIL and the issues that have been created due to the sudden and drastic change in the law and NCAA policies surrounding NIL. 

The Dark Ages: College Athletics Before The Fair Pay to Play Act

The NCAA is a membership-driven organization that governs intercollegiate athletics across three divisions, with over 102 athletic conferences and one thousand college and university members.[7] The NCAA was formed in 1906 to protect college athletes from exploitation, which was rampant then.[8] Additionally, it was started as a response to growing fears that college football was too unsafe and was tasked with developing new rules and safety measures.[9] Currently, the NCAA is the preeminent organization overseeing and regulating collegiate sports. The NCAA oversees ninety championships and twenty-four collegiate sports, including basketball, football, baseball, soccer, and volleyball.[10]Additionally, the NCAA distributes billions of dollars a year in athletic scholarships to the athletes who make up the college and university teams.[11] Currently, the NCAA determines the eligibility rules that schools and individual athletes must follow to play within their organization’s championships.[12]  

For years, the NCAA strictly enforced rules against college athletes getting paid for profiting from their NIL.[13]  Players or universities caught violating the NCAA prohibitionary rules were given harsh, often not practical, punishments. For example,  In 2010, the NCAA determined that USC Heisman-winning running back Reggie Bush received unauthorized gifts and benefits from agents while in college and subsequently placed USC on a four-year probation, forcing USC to vacate fourteen wins they had during Bushes tenure and a national championship they won in 2005, banned USC for two years from competing in postseason activities, took away thirty scholarships from USC over three years and forced USC to permanently dissociate themselves from Reggie Bush which included Reggie Bush having a lifetime ban at USC.[14] Additionally, USC removed all Bush murals and jerseys on campus and returned his Heisman trophy to the NCAA.[15]

In 2009, former college basketball player Ed O’Bannon, in the case O’Bannon v. NCAA (2015), sued the NCAA and Electronic Arts (“EA”) for violating antitrust laws by conspiring to prevent college athletes from receiving compensation for their NIL.[16] The plaintiff argues that the federal antitrust laws had been violated because the NCAA simultaneously banned college athletes from profiting from their image but then turned around and profited off licensing the college athletes’ NIL to EA, who created and made money selling college-themed sports games.[17] The Appeals Court ruled that the NCAA’s conduct did violate antitrust laws and that the rules implemented by the NCAA were more restrictive than necessary to maintain the traditional amateurism in college sports.[18] However, the court did not completely ban the NCAA from enforcing restrictive NIL rules. It even struck down the district court’s more substantial remedy, which would have required universities to pay college athletes an additional five thousand dollars a year for the right to profit off of their NIL. Instead, the court’s ruling merely required the schools to provide athletes up to the full cost of attendance to attend the school, which was already in place as an NCAA policy.[19]

The Fair Pay to Play Act and How it Revolutionized Compensation in College Sports

In 2019, The Fair Pay to Play Act, also called California Senate Bill 206, was passed. It now makes it illegal for universities and colleges in California to deny student-athletes the ability to profit from their NIL.[20] Additionally, the Act allows collegiate athletes to hire agents and other representatives to help negotiate and secure commercial deals.[21]The California Fair Pay to Play Act now meant that the NCAA was prohibited from penalizing athletes in the state of California who violated NCAA rules and personally profited off of their own NIL.[22] The California bill quickly prompted other states to start passing similar laws.[23] In 2020, Colorado, Florida, Nebraska, New Jersey, and other states passed laws prohibiting the NCAA from penalizing athletes for profiting from their own NIL.[24] Currently, thirty-two states have passed NIL legislation.[25] Due to the lack of uniformity amongst states regarding NIL laws, there have been calls to enact federal legislation that clarifies the boundaries of NIL throughout the United States, including from the current NCAA president, Mark Emmert.[26] However, a federal law regarding NIL still needs to be accomplished.[27]Additionally, in NCAA v. Alston (2021), the Supreme Court of the United States unanimously upheld a lower court ruling that the NCAA’s restrictive NIL policies violated the Sherman Antitrust Act because they unreasonably restricted athletes’ noncash education-related benefits and NCAA and its members enjoyed monopoly power over both Division One Basketball and FBS Football.[28] NCAA v. Alston (2021)  made it clear that NCAA rules that limit collegiate athletes’ ability to receive financial compensation were subject to antitrust scrutiny in the future and signaled that the NCAA’s argument for implementing the restricting laws was a losing one.[29] Due to the pressure of the new state laws and the Supreme Court ruling in NCAA v. Alston (2021), the NCAA 2021 adopted an interim policy that suspended the NCAA’s current NIL rules and has allowed collegiate athletes in states with NIL rules to defer to their state rules and has signaled to collegiate athletes in states without state NIL rules that they will not be violating NCAA rules If they choose to profit off of their NIL.[30] The NCAA has stated that they would like to implement a permanent rule. Still, the lack of uniformity and changing climate around state NIL rules has made them reluctant to adopt a uniform policy.[31]

Critics and Downsides of the Change in NIL Rules 

There have been many critics of NIL in college sports, with some critics like former University of Alabama Football Coach Nick Saban saying the current state of NIL” goes against the spirit of college athletics” and “all the things that I believe in for all these years, 50 years of coaching no longer exist,” arguing that the priority of players has shifted college football from an amateur sport to a professional minor league where the players are not driven for school pride or glory but merely business decisions.[32] Other critics argue that the NIL leads to a further power imbalance in collegiate sports. Large schools in large markets and cities now have a huge advantage over smaller schools in smaller markets that cannot provide the same financial offerings to incoming athletes.[33] Additionally, people argue that the lack of uniformity of state laws will have many negative consequences for NIL regulation and smaller, less influential programs.[34] The lack of uniformity and federal oversight could lead states to race to the bottom and offer the least regulated and restricted NIL rules to appease the colleges in their state and attract the best collegiate talent.[35] Additionally, the imbalance in state laws regarding NIL will result in universities with more restrictive rules and higher taxes being severely disadvantaged by states with fewer regulations and tax burdens. Additionally, due to a lack of oversight and uniform rules, there has been an increase in businesses exploiting college athletes through questionable business practices.[36]  Currently, businesses are taking advantage of unsophisticated college athletes and getting them to sign predatory contracts without the support or aid of agents or lawyers.[37] For example, there have been contracts where college athletes permanently sign away their intellectual property rights to businesses or agree to give the business obscenely high commission percentages.[38] Additionally, collegiate athletes have signed predatory contracts with agents where they agree to give the agents extremely unreasonable commission percentages. One example of an extremely predatory and possibly illegal contract is the contract signed by Chicago Bears rookie Gervon Dexter, and a speculative Investment Company called Big League Advance Fund (“BLA”).[39] Gervon Dexter had agreed to pay BLA fifteen percent of his pre-tax NFL earnings for the next twenty-five years in exchange for a one-time payment of $436,485 in 2022.[40] In Gervon’s first rookie deal he signed with the Bears for $6.72 million. Based on his agreement with BLA, just one his frist deal, he owes them $1 million. Additionally, Gervon will still owe 15% to BLA on all subsequent deals he makes for his entire NFL career, which potentially could mean a payday of tens of millions of dollars to BLA in exchange for only $436,485. Florida legislator Chip LaMarca likened the agreement to a predatory payday loan.[41] When Gervon signed the agreement, he was not represented by an agent and had no legal oversight over his contract.[42] This example shows the danger that can happen in an unregulated market where predatory companies can dangle relatively small sums of money over desperate and unsophisticated athletes’ heads and get them to sign away a permanent percentage of their earnings for the remainder of their careers, which likely will be much greater than the initial money given to them. 

Recommendation

The current NIL landscape would benefit from uniformity by passing a federal law that outlines the exact parameters of how NIL can be conducted in the United States. The lack of uniformity surrounding NIL laws has created an uneven landscape where states with more favorable NIL laws have huge advantages over schools in smaller markets or places with less fortunate NIL rules. There is no current incentive to stop a race to the bottom by allowing states to have laws that do little to no regulation over how NIL is conducted in the states. This power imbalance between states will only make competition worse for collegiate programs in states that either do not have NIL laws or have extremely restrictive NIL laws. Additionally, the free-for-all nature of the NIL has resulted in athletes and schools treating commitment to college programs more like a professional, free agency. The country’s top athletes choose where to play football not based on the program, education, or coaching staff but on which schools will offer them a starting position immediately, pay them the most upfront, and facilitate the most NIL opportunities. This means that schools with more financial resources and favorable markets will meet the demands of top athletes, and schools with fewer economic resources and smaller markets will be shut out. This current unregulated system creates a free market, likely resulting in very consolidated and anticompetitive college sports, where only a select few elite teams compete for the championship yearly. This lack of competition for smaller programs will render them completely irrelevant and probably result in them ceasing to exist. Suppose we want to preserve college sports and not create a pseudo-semi-pro collegiate league. In that case, we have to pass legislation that has the intent of either limiting top schools on how NIL their players can receive or creating a system where smaller schools get provided money so they can issue NIL stipends to even the playing field between smaller and bigger programs.

 Additionally, because the NIL market is highly unregulated and nonuniform, there is much potential for collegiate athletes to be taken advantage of by both agents and companies they partner with. That is why federal regulations should outline how agents, lawyers, and companies can interact with collegiate athletes. There should be a requirement that the agents representing the athletes are licensed and that all collegiate athletes have independent counsel who reviews their contracts and makes them aware of their obligations before signing them. Additionally, the percentage of compensation the athlete’s representatives should be able to receive should be capped at specific percentages. Further, there should be uniform guidelines for how much money the athlete receives for particular NIL deals, either through a flat rate or percentage. Finally, they should make it illegal for companies to try to have athletes permanently sign away their NIL rights to them. Collegiate athletes are unsophisticated teenagers who likely need help understanding the legal and long-term ramifications of the contracts they agree to sign. The current environment has no regulations to monitor and police fair business practices between the athletes and their representatives and the athletes and the companies they enter deals with. Whenever you have a situation where one of the parties to an agreement is unsophisticated, you will likely get countless individuals trying to exploit that party’s naivety. If college athletes are not given enumerated protections, then the question is not if they will get exploited but when and for how much. Currently, no collective organizations are looking out for the best interests of college athletes. Alternatively, to avoid cumbersome federal regulation, the federal law could be a requirement that all schools whose athletes participate in NIL deals must have a NIL compliance office on their campus which both monitors the NIL deals the athletes are engaged in and makes sure that the agents and laws representing the NIL athletes are adequate and non-predatory.

Ultimately, there needs to be a federal regulation that promotes equality and prevents a select few collegiate programs from using their superior resources to create a monopoly on talent. This monopoly would mean that only a few schools could be competitive, and the rest would be irrelevant. Further, there needs to be protections for unsophisticated student-athletes so that they do not get taken advantage of by people who want to represent them and the business they are entering into NIL deals with. This protection should be done by regulating the business practices in which these deals can be conducted or requiring that schools have on-campus organizations responsible for monitoring and enforcing fair business practices for their student athletes’ NIL deals. 

Conclusion

The change in the NCAA’s ability to police NIL has allowed collegiate athletes to profit off their NIL and now prohibits the NCAA from enacting harsh and draconian rules. However, the method by which this change occurred was through a slew of differing state laws, court cases, and NCAA policy changes, which have now left the NIL environment without uniformity and highly unregulated. Like any situation where you have a vulnerable population of people, a lot of money changing hands, and a lack of uniform laws or oversight, there is huge potential for exploitation. Therefore, federal regulations should dictate how NIL can be conducted in the United States to protect the interests of the athletes and ensure that college sports remain competitive.


[1] James Parks, NIL in College Football: Here is what you need to know, and what is next, Sports Illustrated, (Jan. 17, 2024), https://www.si.com/fannation/college/cfb-hq/ncaa-football/college-football-nil-rule-changes-what-you-need-to-know.

[2] Id.

[3] Steven A. Bank, The Olympic-Sized Loophole in California’s Fair Pay to Play Act, Columbia Law Review, (last visited Mar. 30, 2024), https://columbialawreview.org/content/the-olympic-sized-loophole-in-californias-fair-pay-to-play-act/.

[4] Tim Tucker, NIL Timeline: How We Got Here and What is Next, The Atlanta Journal-Constitution, (Mar. 18, 2022),  https://www.ajc.com/sports/georgia-bulldogs/nil-timeline-how-we-got-here-and-whats-next/EOL7R3CSSNHK5DKMAF6STQ6KZ4/.

[5] Id.

[6] Tyler Epps, What is the NCAA?, BestColleges.Com, (Oct. 14, 2020), https://www.bestcolleges.com/blog/what-is-the-ncaa/.

[7] The Editors of Encyclopedia Britannica, National Collegiate Athletic Association, Encyclopedia Britannica, (Apr. 19, 2024), https://www.britannica.com/topic/National-Collegiate-Athletic-Association.

[8] Id.

[9] Id.  

[10] Id. 

[11] Id.

[12] Id.

[13] Tim Tucker, NIL Timeline: How We Got Here and What is Next, The Atlanta Journal-Constitution, (Mar. 18, 2022), https://www.ajc.com/sports/georgia-bulldogs/nil-timeline-how-we-got-here-and-whats-next/EOL7R3CSSNHK5DKMAF6STQ6KZ4/.

[14] Robert Read, Reggie Bush-NCAA Timeline: Why did Former USC Star Lose His Heisman?, Newsweek, (Aug. 23, 2023), https://www.newsweek.com/reggie-bush-ncaa-timeline-why-did-former-usc-star-lose-his-heisman-1821992#:~:text=USC%20was%20placed%20on%20four,over%20a%20three%2Dyear%20span.

[15] Id. 

[16] O’Bannon v. NCAA, 802 F.3d 1049 (9th Cir. 2015), https://law.justia.com/cases/federal/appellate-courts/ca9/14-16601/14-16601-2015-09-30.html.

[17]  Id.

[18] Id.

[19] Michael McCann, In denying O’Bannon Case, Supreme Court Leaves Future of Amateurism in Limbo, Sports Illustrated, (Oct. 3, 2016), https://www.si.com/college/2016/10/03/ed-obannon-ncaa-lawsuit-supreme-court.

[20] Michael McCann, What is Next after California Signs Game Changer Fair Pay to Play Act Into Law, Sports Illustrated, (Sept. 30, 2019),  https://www.si.com/college/2019/09/30/fair-pay-to-play-act-law-ncaa-california-pac-12.

[21] Id.

[22] Id.

[23] Id.

[24] Anthony M. Dalimonte, NIL Timeline: The Events That Transformed College Sports, Foster Swift Collins & Smith PC|Attorneys, (Apr. 21, 2023), https://www.fosterswift.com/communications-timeline-NIL-cases-transform-college-sports.html.

[25] Amy L. Piccola, Your Guide to Federal and State Laws of Name, Image and Likeness Rules for NCAA Athletes, Paul Ewing LLP, (last visited Mar. 30, 2024), https://www.saul.com/nil-legislation-tracker.

[26] Dan Murphy, Everything You Need to Know About the NCAA’s NIL Debate, ESPN.com, (Sept. 1, 2021), https://www.espn.com/college-sports/story/_/id/31086019/everything-need-know-ncaa-nil-debate.

[27] Id.

[28] Kwanghyuk David Yoo, Scotus Analysis: NCAA v. Alston (2021), Emory Law New Center, (Aug. 2, 2021), https://law.emory.edu/news-and-events/releases/2021/08/scotus-yoo-ncaa-v-alston.html.

[29] Harvard Law Review, NCAA v. Alston, 135 Harv. L. Rev. 471, (Nov. 1, 2021), https://harvardlawreview.org/print/vol-135/ncaa-v-alston/.

[30] Michelle Brutlag Hosick, NCAA Adopts Interim Name, Image & Likeness Policy, NCAA.org, (June 30, 2021),https://www.ncaa.org/news/2021/6/30/ncaa-adopts-interim-name-image-and-likeness-policy.aspx.

[31] Id.

[32] Riley Conlon, This Genie is Out of the Bottle: Former Alabama Coach Nick Saban Returns to DC to Discuss NIL Concerns, WCTM13.com, (Mar. 12, 2024), https://www.wvtm13.com/article/alabama-football-nick-saban-nil-ncaa/60180098#:~:text=Saban%20said%20that%20the%20current,steer%20away%20from%20an%20employee%2D..

[33] Josh Moody, The Current State of NIL, Inside Higher Education, (June 7, 2023),  https://www.insidehighered.com/news/students/athletics/2023/06/07/two-years-nil-fueling-chaos-college-athletics.

[34] Id. 

[35] Id.

[36] Nicole Sadek, College Athletes Lured by NIL Deals, Exploited by Fine Print, Bloomberg Law, (July 18, 2023),  https://news.bloomberglaw.com/antitrust/college-athletes-lured-by-nil-deals-exploited-by-fine-print.

[37] Id. 

[38] Id.

[39] Mark Schlaback, Florida Legislator Says Bears DT Gervon Dexter’s NIL Deal Violated Law, ESPN.Com, (Sept. 5, 2023), https://www.espn.com/college-football/story/_/id/38335229/florida-legislator-says-bears-dt-gervon-dexter-nil-deal-violated-law.

[40] Id. 

[41] Id. 

[42] Id.