College Athletes Can Now Earn Name/Fame Money…What to Know Now
Effective July 1, 2021, college athletes (“Student Athletes” or “SA’s”) are eligible to earn compensation related to the use of their Name, Image and Likeness (“NAIL$”). At least 10 states have in effect laws governing how NAIL$ will be regulated. Since the NCAA cannot create state or federal legislation, the NCAA simply suspended its rules regulating SA’s eligibility regarding NAIL$ compensation. Importantly, the NCAA retained its prohibitions on any money being used for recruitment (“pay to play”) of SAs and money compensating athletic performances (“pay for play”).
In reviewing the current, the “passed and soon to be effective”, and the proposed NAIL$ legislation from the states and (at least) five pieces of proposed federal legislation, one can discern areas of focus concerning regulation: disclosure/conflicts; professional representation; and prohibited transactions.
SA’s (or their agents-attorneys, see below) will have to disclose essential terms (parties, amount of compensation) of the NAIL$ contract to the Schools, who are obligated to designate an official representative to receive the disclosure. Disclosure ensures the SA can honor the NAIL$ contract without unintentionally creating a conflict in any contracts existing between the School and an official partner. For example, assume a School has an “official” apparel partner, who provides the SA’s with gear for games or related events. SA’s with a prospective NAIL$ contracts will not be allowed to infringe on a School’s apparel contract by wearing a competitor’s brand during any “official” team activities. The SA may have the right to sport the NAIL$’ merch at any time other than “official” team activities. Disclosure permits both the School and the SA with the opportunity to comply with their respective obligations.
SA’s now have the right to engage professional service providers – typically, a sports agent or attorney (each of whom must be appropriately licensed in the state where the School is located) – to ensure the SA remains in compliance. Engaging these professionals: 1) permits the SA to gain independent advice (i.e., not derived from either the School or the NAIL$ offeror); and, 2) permits the School to shield itself from the potentially negative effects of the breach of NAIL$ contract.
Prohibited Marketing Partners
Some SA’s will be barred from NAIL$ contracts that may be associated with vice. For example, some states limit SAs from marketing on behalf of companies in the following industries: adult entertainment; alcohol: tobacco or e-cigarettes; prescription drugs, controlled substances; weapons/firearms; or casinos/gambling/sports betting/online games.
Scholarship & Tax Implications
NAIL$ contracts are not intended to result in a reduction of the SA’s cost of attendance / Grant in Aid (a/k/a scholarship) to attend School. Some states are adding educational requirements to promote financial literacy and time management skills to provide SAs with the education necessary to make informed decisions about managing this revenue and how to maximize their time in light of competing interests such as school, athletics, work, and recreational activities.
Notably, none of the effective or proposed NAIL$’ laws expressly commented on any tax consequences associated with this newfound source of revenue. SA’s must choose wisely when engaging professional representation to ensure that they remain in compliance with not only disclosures for conflicts checks, but also for tax reporting purposes (if necessary at either the federal or state level).
The passage of any federal NAIL$ legislation would preempt any state NAIL$ law. In the absence of federal law, SA’s should defer first to the law of the state in which their School is located. In the absence of state law addressing NAIL$ compensation, SA’s should rely on their School’s, which should be consistent with established NCAA regulation.
It is an exciting time for young athletes, which coincides with new responsibilities for Schools to ensure their Student Athletes are educated in these areas. SA’s are well advised to build up their own team of trusted and experienced people to provide counsel and representation.
For questions contact the author, James J. O'Connor. He is licensed by the National Basketball Players Association (NBPA) and the International Basketball Federation (FIBA) as a player representative/agent.