In today’s ever-changing world of college athletics, the term that student-athletes and fans have become accustomed to is “Name, Image, and Likeness” (“NIL”). This phrase has become synonymous with college athletics and clears a path for players capitalizing on their own name and their own image. This legal briefing will walk through the current state of affairs in college athletics and what players and collectives alike should be aware of moving forward regarding NIL.
The United States Supreme Court ruled on a case that was discussed in a previous legal briefing (The U.S. Supreme Court Issues Opinion in NCAA v. Alston (lawpf.com)). Shortly after this case, the NCAA then offered some guidelines on how student-athletes can now profit from NIL. Since this ruling and over the past couple of months, states have weighed in on creating their own laws and sets of rules to further the NCAA’s guidelines.
The laws and court decisions of NIL revolve around the central legal concept known as the “right of publicity”. This legal concept stems from the rights of individuals controlling their own identity and the profit that comes from this concept.
Misappropriation of these rights occurs when an entity or another individual uses NIL without consent. A plaintiff needs to show that his/her identity has been used unlawfully and that the plaintiff’s identity used is protected by law. A student-athlete can subject himself/herself and the university to liability if he/she is not careful in the marks used in advertisements or other medium that use an athlete’s NIL.
Student-athletes need to be aware of any agreement for the use of his/her NIL. In particular, there are different categories of “uses” a student-athlete should be aware of when entering an NIL deal. First, an exclusive right to market NIL is allowed under the right of publicity. An exclusive right is something in which a company would look to market a student-athlete for a specific product. Next, a student-athlete needs to be aware of any use that gives an entity or another person the ability to perpetually use a right. This would give a company the ability to use a student-athlete’s NIL for an undefined or undetermined amount of time. Finally, a student-athlete needs to also be aware of any agreement that irrevocably uses his/her NIL. A student-athlete needs to have proper guidance when negotiating these rights. There is a risk of entering into an agreement that gives an entity the right to modify a student-athlete’s NIL without first consulting with the athlete and/or university.
When a student-athlete receives a benefit for using his/her NIL, there are concepts that each student-athlete should understand. For example, there are tax implications to any benefit that is received. If a student-athlete has received a benefit that is not money, that student-athlete will need to pay taxes on the value that is assigned to that benefit. The student-athlete can be responsible for paying State, Federal, and/or Federal Insurance Contributions Act taxes. It is very important for a student-athlete to consult with and hire an accountant when determining the value of benefits received from any NIL deal.
A well-defined agreement is best for any legal document. However, for student-athletes, an NIL agreement can affect how a company uses the athlete’s name and how the athlete’s image is portrayed. Companies using an athlete’s name or image can also affect the athlete's eligibility status with the NCAA. The colleges and universities also need to be careful in how their student-athletes are portrayed and the marks that come along with the image used.
Current Collective Formations
Colleges and universities not only need to be strategic in forming collectives, but student-athletes also should realize the benefits of separating out liability and forming separate entities. For schools, the collective is not allowed to be an arm of the college or university under the rules. However, a school can partner with a particular collective. Most of the collectives are set up to assist athletes in finding companies in their respective communities to help cultivate partnerships. In addition, the school collectives are set up as a not-for-profit organization as well as having a limited liability (“LLC”) company in the umbrella of the non-profit entity that can help pay student-athletes for NIL and find these partnerships. The larger collectives are able to get better deals for their school’s student-athletes which could lead to more oversight from the Federal Government and the NCAA.
It is also important to keep in mind that student-athletes should be thinking about separating out their liability risks for specific NIL deals. If a student-athlete is running an event where there are risks to the public for injury or loss, separating out liability risks so that the student-athlete is not personally liable is very important. An LLC is the most popular entity to form due to the tax benefits of “passing-through” where the student-athlete is able to just pay taxes on the money earned from NIL deals that involve the LLC.
State Specific Laws
Each state has different sets of laws that govern NIL deals. There are common elements with these laws with each state and these laws have some differences as well. Some states are more student-athlete friendly than others. The argument for states to have less strict laws is for premiere student-athletes across the country to come play collegiate athletics at an institution in the state. Moreover, some states even permit interscholastic student-athletes the ability to make money off of their own NIL. However, not every state has its own NIL law. Look for the federal government and the NCAA to get more uniform rules as this ever-changing world of college athletics continues to evolve.
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This Legal Briefing is intended for general informational and educational purposes only and should not be considered legal advice or counsel. The substance of this Legal Briefing is not intended to cover all legal issues or developments regarding the matter. Please consult with an attorney to ascertain how these new developments may relate to you or your business. © 2023 Law Offices of Pullano & Farrow PLLC