March 29th, 2024

Navigating New Horizons: The Impact of the Federal Injunction on NCAA’s NIL Rule

A federal judge recently granted a preliminary federal injunction prohibiting the National Collegiate Athletic Association (NCAA) from punishing student-athletes or boosters for negotiating name, image, and likeness (NIL) deals during the recruitment or transfer portal cycle. Although an injunction is not a final ruling, the judge’s action will likely bring an immediate and consequential impact.

Previously, the NCAA rules prohibited the use of NIL contracts as an inducement when recruiting athletes. The judge’s ruling found that the NCAA’s restrictions on NIL compensation likely violated federal antitrust laws and harmed student-athletes by obfuscating the market value of their NIL rights.

The injunction marks an impactful change in the NIL landscape because college recruits are now permitted to engage in discussions and sign deals before committing to enrollment.


Understand the Implications for Student-Athletes

The patchwork of laws at the state level can be confusing, so student-athletes need to pay attention to the requirements specific to their state when evaluating and signing NIL deals.

For example, in Pennsylvania, schools can arrange deals for student-athletes, thus giving the schools more power to oversee NIL agreements. Additionally, student-athletes are required to disclose the details of their NIL deals to university officials.

Equal market value, which refers to policies that ensure student-athletes are fairly compensated for the commercial use of their NIL, protects college athletes from exploitation. Student-athletes must also comply with restrictions on partnerships with businesses involved in certain industries, such as alcohol, gambling, tobacco, pharmaceuticals, and controlled substances.

On the federal level, several proposals to regulate NIL deals are pending, including the College Athlete Economic Freedom Act, the Student-Athlete Level Playing Field Act, and the College Athletes Protection and Compensation Act; none of these have passed into law — yet.


Assess the Ramifications for Institutions

The injunction allows more flexibility in recruiting because institutions can discuss NIL opportunities pre-enrollment, which levels the playing field because all institutions are now allowed to incorporate NIL into their recruiting strategy.

As institutions navigate the interim period where the NCAA’s NIL rules are suspended, they are facing compliance complexities related to future changes to the legal landscape for NIL. The outcome of the ongoing legal battle and potential litigation is unknown; at this time, institutions are advised to stay informed and agile in case they need to adjust their policies quickly.

Furthermore, revising internal policies for student-athlete compensation and NIL protocols keeps institutions in compliance with legal standards. The NIL environment is daunting and student-athletes need to know how to assess deals, market value, contract negotiation, and pitfalls, in order to protect their personal interests.


Consider the Impact on Third Parties

The injunction removes the restrictions that previously prevented premature negotiations between student-athletes and colleges. Now that NIL negotiation prior to enrollment is permitted, recruiting discussions will begin to center around NIL and will allow athletes to be better informed on the market value of their NIL rights.

The ruling specifically addresses NIL collectives, which raise and distribute money for NIL deals and are associated with a specific university. By preventing the NCAA from classifying these collectives as “boosters” and restricting their involvement in NIL negotiations, the injunction could lead to an increase in the number and value of deals facilitated by third-party entities.

Open negotiations and involvement with third parties introduces new legal and financial considerations for both student-athletes and institutions. This includes compliance with state laws, NCAA regulations, and tax implications for NIL deals.

The injunction comes with a cost as it complicates the NCAA’s ability to enforce NIL rules, thus resulting in further unknowns on how NIL will be regulated. Without clear guidelines on what constitutes an inducement, institutions, and third parties will be operating in the gray, leading to potential conflicts and legal challenges.


Minimize Risk Exposure

The NCAA’s stance on the injunction centers on concern about a chaotic collegiate environment and diminished protections for student-athletes. Although the organization expressed support for student-athletes profiting from NIL, it has also emphasized the need for partnership with the U.S. Congress to provide clarity and stability for the future.

Lawyers can help student-athletes understand their rights under the new injunction, including interpreting state laws, NCAA policies, and institutional rules; they can also assist with market value assessment, negotiations, and contract review. This advice is crucial in a landscape of limited restrictions that will likely lead to increased values for NIL deals. With increased values and a competitive recruiting environment, disputes will arise; you should be prepared with counsel at your disposal to handle these situations.    

For institutions, lawyers can monitor legal developments, provide compliance guidance, and support policy development. Counsel can also advise on preventing legal exposure when negotiating third-party NIL deals. For risk management, lawyers can navigate conflicts with state laws, litigation, and other legal challenges requiring advocacy and representation. Organizations should use legal services to provide training for staff and student-athletes.

Third-party NIL entities benefit from advice on compliance with state and NCAA rules, particularly in an ambiguous regulatory environment. Counsel can also weigh in on prohibited activities and endorsements, associations with certain types of businesses, and transactions that jeopardize student-athlete eligibility.

Student-athletes, institutions, and third parties are all experiencing uncertainties when it comes to NIL; seeking representation when you need it protects your interests and prevents unwanted or negative legal exposure.

A skilled sports law attorney, Jacob Oldaker guides athletes, schools, organizations, coaches, and parents through the legal complexities of the novel NIL (Name, Image, Likeness) space, including support with contract formation/negotiation, compliance, and legal advising. Additionally, Jake represents many different types of clients in the sports industry, and he assists with organizational governance and formation, sports-related transactions, contract negotiation, sports injury litigation, and more.

The content found in this resource is for informational reference use only and is not considered legal advice. Laws at all levels of government change frequently and the information found here may be or become outdated. It is recommended to consult your attorney for the most up-to-date information regarding current laws and legal matters.