NIL Law in College Sports: The Basics

When the NCAA adopted interim rules allowing college athletes to profit from name, image and likeness (“NIL”) in July 2021, it called upon Congress to implement NIL laws at a national level. Nearly three years into the NIL era, that hasn’t happened. Meanwhile, the NCAA had a busy start to 2024, imposing NIL-related sanctions against Florida State University, introducing new transparency requirements for NIL deals, and being sued by several states over its NIL policies.

To understand the current NIL landscape, let’s back up. NIL regulation currently flows from three sources: state government, the NCAA, and schools themselves. Athletes, donors, and businesses should be familiar with each level of regulation to ensure their NIL deals don’t put them–or schools they support– at risk of serious penalties.

North Carolina’s NIL Law

North Carolina’s current NIL law was established via Executive Order No. 223, signed by Governor Cooper on July 2, 2021. The important points to know are: (1) schools cannot make NIL deals directly with student-athletes; (2) NIL deals cannot be used as a direct inducement for a student-athlete to enroll or remain enrolled at a school, and (3) NIL deals cannot be conditioned on performance in competition.

These restrictions are intended to preserve the amateurism of college athletics by ensuring NIL does not create a “free agency” of the kind we see in professional sports, where teams attract players using high salaries and performance-based bonuses. You’ll find that much of the current NIL regulatory scheme was made with that same intent. That notwithstanding, the Order does allow student-athletes to hire agents, so long as they comply with the same state and federal laws that apply to agents for professional athletes.

Finally, North Carolina also gives discretion to its own colleges and universities to establish additional regulations, should they choose to. More on that later.

NCAA Rules

The next layer of regulation comes from the NCAA’s interim rules. The NCAA’s interim policy and supplemental guidance hit many of the same notes as North Carolina’s law – including that NIL opportunities may not be used to induce recruits to attend a particular school.

The NCAA also emphasizes that compensation without quid pro quo is prohibited. Accordingly, NIL agreements must contain expected deliverables, such as endorsement and marketing activities, that the student-athlete has promised in exchange for compensation. In other words, businesses cannot simply write a check with “NIL” in the memo line. It should be clear how the student-athlete’s name, image, and likeness will be used.

Like North Carolina’s law, the NCAA prohibits compensation based on athletic participation and achievement. So, NIL agreements cannot have any of the performance-based incentives that have become so common in professional sports, such as bonuses for reaching thresholds for innings pitched, rushing yards, or games played.

In January, the NCAA concluded its first major case for NIL violations, sanctioning Florida State University after an FSU assistant coach arranged a meeting between a recruit and an FSU booster, during which the booster extended a 1-year, $180,000.00 NIL offer–contingent on transferring to FSU. Following an investigation, the NCAA suspended the coach for three games. Perhaps more damaging, FSU was required to “disassociate” from the booster for three years. Disassociation means the booster cannot provide assistance (financial or otherwise) to FSU, nor can the booster receive any athletics benefit from FSU which would be unavailable to the general public.

The NCAA’s Division I Council also unanimously adopted new disclosure requirements in January. Beginning August 1, 2024, student-athletes must disclose information to their schools regarding all NIL agreements exceeding $600.00 in value. They must disclose the involved parties, terms of the agreement, and any compensation for the student athlete’s service provider (agent, financial advisor, etc.) within 30 days of signing the deal. The NCAA will also be developing standardized contracts and recommended, but not mandatory, contract terms.

While the NCAA’s NIL rules are harmonious with North Carolina’s, that’s not the case everywhere. The attorneys general of Tennessee and Virginia filed suit against the NCAA this week to abolish the NCAA’s NIL regulations on antitrust grounds. The lawsuit follows the NCAA’s investigation into the University of Tennessee’s recruitment of a five-star quarterback from California.

School-Specific Rules

The final layer of regulation comes at the school level. North Carolina’s NIL law gives colleges and universities discretion to prohibit certain deals for reasons specific to that school. For example, schools may prohibit NIL deals which conflict with an existing contract of the institution. So, because NC State has a deal with Adidas for its athletic uniforms, it could prohibit an athlete from signing an NIL deal with Nike, or another competitor.

Schools may also limit the categories of brands a student athlete may enter NIL agreements with. For example, the University of North Carolina at Chapel Hill’s policy prohibits athletes from engaging in NIL deals involving alcohol, gambling, or adult entertainment.

Schools may limit compensation during official team activities and events—probably to prevent a student-athlete from attempting, and brands expecting, promotion of their sponsor’s brand during a game or press conference.

Schools may also require that NIL deals are commensurate with fair market value. So, if an athlete is offered a million dollars for a de minimis obligation, schools have the authority to tamp down. However, that’s something schools are clearly disincentivized to do as it could put them at a competitive disadvantage compared to schools who don’t have the same requirement.

Institutions may also limit NIL pertaining to the school’s intellectual property. For example, Wake Forest could prevent one of its players from using Wake Forest’s logos in the course of an NIL deal. Knowing each school’s policies on intellectual property use in NIL deals is vital to avoid exposure to trademark and copyright infringement.

That’s an overview of the current landscape. But that landscape could change–fast. Support for amateurism in college sports appears to be waning, with polls indicating that a majority of Americans support the notion of directly paying college athletes. Whether Congress will act to standardize NIL law remains to be seen. In the meantime, stakeholders should vet their NIL contracts, both in form and presentation, to ensure they aren’t exposing themselves – or their beloved alma maters – to serious penalties.