When One (NCAA) Door Closes, Another (NIL) Door Opens: What Pre-Collegiate Enrollment NIL Deals Mean for Schools & NIL Collectives

Types : Alerts

For decades, the National Collegiate Athletics Association (“NCAA”) prohibited student-athletes from profiting off their name, image, or likeness (“NIL”). The NCAA justified precluding its student-athletes from earning a slice of the multi-billion-dollar collegiate athletics pie by labeling them as “amateurs.” The NCAA long held the idea that it could best promote competition amongst its member institutions by barring all athletes, no matter the level, from receiving compensation related to their participation in athletics, even tangentially. But in 2021, after increasing pressure from lawmakers, the NCAA changed course, suspended its rules against student-athletes profiting from NIL, and adopted an interim policy governing the parameters of NIL conduct.

Of note, the NCAA’s interim policy prohibited compensation that was:

• contingent upon enrollment at a particular institution;
• solely for athletic participation (i.e., “pay-for-play”);
• paid for no services in return (i.e., gifted and not a part of a “quid pro quo” transaction); and
• directly from the institution in exchange for the use of a student athlete’s NIL.

Student-athletes across all levels and competitions have since seized the opportunity to earn money through NIL in primarily two ways.

First, student-athletes earn compensation directly from brands or companies through promotions or sponsorships. Formerly an act that could jeopardize their eligibility, student-athletes are now regularly seen promoting brands through commercials, advertisements, or even on their personal social media pages.

Second, and the subject of much discussion and debate, student-athletes can earn money through NIL collectives. NIL collectives are 501(c)(3) nonprofits that are affiliated with—but operate independently from—a particular school and its athletic department. These NIL collectives vary in form and structure, but each operates in a similar manner. These collectives pool funds from donors, fans, businesses, and other sources to compensate student-athletes in exchange for the student-athlete completing certain services, such as appearing at events, promoting certain brands or businesses, or other activities centered upon utilizing their NIL.

Early data indicates these NIL collectives might be the most lucrative path for top-performing student-athletes, with some reported deals approaching eight figures. NIL collective deals have inevitably become a factor in the recruiting landscape, with high school recruits and student-athletes in the transfer portal researching and evaluating what school offers top opportunities to capitalize on NIL.

Because this newly created market inherently implicates the NCAA’s rule against persuading players to enroll via NIL-related offers, the NCAA has investigated several schools for allegedly inducing student-athletes to come to their school by promising high-paying deals via the school’s affiliated collective(s).

This issue recently came to the forefront when the NCAA announced it was investigating the University of Tennessee (“UT”) after five-star high school recruit Nico Iamaleava struck an $8 million deal with UT’s endorsed NIL collective prior to Iameleava’s enrollment at UT. The NCAA was purportedly investigating whether the deal violated the NCAA’s rule against improperly inducing students to pick a school through NIL-related deals.

In response, the Attorneys General of both Tennessee and Virginia filed for a temporary restraining order and injunctive relief to prevent the NCAA from enforcing this rule, claiming it amounts to anticompetitive conduct in violation of antitrust law because the rule ultimately harms student-athletes by limiting their autonomy in choosing schools. The NCAA, in opposition, argued the NCAA has a legitimate interest in preserving the amateur status of its athletes and that collegiate athletics would be thrown into “disarray” if institutions, through their affiliated collectives, could effectively pay prospective recruits to enroll at their respective schools. Tennessee characterized the NCAA’s position as defending “a world that doesn’t exist.”

After denying the state’s request for a temporary restraining order, U.S. District Judge Clifton Corker in the Eastern District of Tennessee ultimately issued the injunction, temporarily barring the NCAA from enforcing this rule against its member institutions. Judge Corker found that student-athletes were indeed hurt by the rule, in that their limited window to choose a school was further impeded if they could not know their individual value before committing to a school. Judge Corker, addressing the NCAA’s purported interest in maintaining balance in competition through treating student athletes as amateurs, wrote that “while the NCAA permits student-athletes to profit from their NIL, it fails to show how the timing of when a student-athlete enters into such an agreement would destroy the goal of preserving amateurism.”

And on Friday, March 1, 2024, NCAA President Charlie Baker announced in a letter to its member institutions that the NCAA has “halted investigations into booster-backed collectives or other third parties.” Baker further specified that the NCAA would not be punishing any schools for any related conduct that occurs while the injunction is in place. Baker noted, however, that the NCAA would still be enforcing three aspects of its interim policy, outlined above, including:

• pay for play;
• gifts (i.e., no quid pro quo); and
• direct payment from the school to the athlete, rather than from the collective, in exchange for the student athlete’s NIL.

Baker’s warning that these aspects of the NIL interim policy remain in place and will be enforced leaves member institutions with perhaps more questions than answers. Namely, how can collectives offer recruits NIL deals that conform to the NCAA’s “pay for play” and gifting rules if those students are not yet enrolled at the university? Schools and their affiliated collectives should therefore seek guidance on how they can benefit from the current injunction and the NCAA’s blessing to offer recruits NIL deals without violating the rules that remain in place.

If you have any questions in connection with the dynamic NIL legal framework, please contact Ashley R. Lynam, Kristen E. Mericle, or Patrick Smith of Montgomery McCracken. Our Higher Education Group, comprised of many former student-athletes, are equipped to help you navigate your institution and student-athletes through this market and its many regulations.