Sports & Entertainment Client Alert – November 2022

    By Christopher L. McLean, Sports & Entertainment

    Following up on the latest release of updated guidance from the NCAA on “permissible” and “impermissible” actions, below are pointers for colleges, universities, student-athletes, brands and sponsors when it comes to Name, Image, and Likeness matters.

    With respect to colleges and universities:

    • Universities should adopt NIL rules that strike the right balance between protecting the university’s interests in avoiding affiliation with “vice” industries and avoiding conflicts with school sponsors on the one hand, while not unduly restricting athletes’ abilities to enter into NIL deals on the other hand.  
    • Universities’ NIL policies should address booster collective activities and what the athletics staff are allowed to do and cannot do with respect to the relationships with individual boosters, as well as booster collectives and representatives of outside brands looking to work with the school’s student-athletes.
    • Universities should also clearly communicate their NIL rules and any applicable state NIL law to athletes, as well as staff who may interact with athletes or booster collectives. Furthermore, institutions should provide easy-to-use (and understand) forms for students to disclose NIL deals ahead of execution and to request permission to use any school trademarks, logos, or insignias in NIL activities.
    • While existing trademark law will protect universities against unauthorized use of the institution’s trademarks, logos, or insignias in student-athletes’ NIL activities, it will be better to address use of school intellectual property in NIL activities before it happens, not after. At the very least, use of the institution’s trademarks, logos, and insignias should not be permitted in NIL activities without prior written approval, and universities should explicitly communicate this to their student-athletes ahead of time.
    • Universities should also adopt an internal process to identify contracts with university sponsors, as well as the length and breadth of those contracts. Schools should also identify competitors of the institution’s sponsors and determine which ones the school would consider restricting student-athletes’ NIL activities with, and how or to what extent.

    With respect to student-athletes:

    • Student-athletes should strive to protect their personal brands, logos, and trademarks as early as possible. A student-athlete, on their own or with the assistance of legal counsel, can file a U.S. trademark application for a personal brand they have a bona fide intent to use up to three years before the student-athlete actually begins selling products or services under the personal brand’s trademark, so there is no reason to delay filing until sales begin. In the event the student-athlete’s brand becomes popular, the student-athlete will have the protections in place to have unauthorized products removed from online stores and to prevent infringement or counterfeits of the brand.
    • Student-athletes—with the help of legal counsel—should also ensure that their NIL activities will comply with any applicable state law and university NIL rules. A lot of states have adopted NIL statutes, and those universities in states without statutes have adopted their own institutional policies with which student-athletes must comply.
    • Student-athletes should always remember that NIL deals are “compensation for something in return,” meaning that the student-athlete must perform some service or activity that is identifiable in exchange for getting paid.  Universities and their NIL partners may require proof of such activity (for example, a photo at an appearance). Further, if an NIL deal is terminated with no such service or activity provided by the student-athlete, then the student-athlete cannot receive payment, or retain pre-payment, for such deal, as that would compromise the student-athlete’s amateur status.
    • Student-athletes and their families can engage a non-agent attorney at any time and not risk losing their amateur status. So, at any time that student-athletes have questions or are approached by brands or agents regarding NIL deals, they can retain and consult with legal counsel to assist with navigating any applicable laws and rules.
    • To assist with identifying, marketing, and obtaining NIL deals, student-athletes are permitted to hire NIL agents before executing an NIL deal and even before committing to play for a particular school.
    • In retaining agents, it is important to consult a non-agent attorney to ensure that all parties comply with state NIL law, which may require that the agent be licensed or registered in the state or may require that the agent has not represented a university in the last four years. Student-athletes and NIL agents should also review state NIL laws and school NIL rules to determine if the professional relationship also must be disclosed to the student-athlete’s university, as well as the appropriate timing of engaging an NIL agent, as it might have consequences for high school amateur status depending on the state law in the student-athlete’s home state.
    • Legal counsel should be consulted with respect to, and close attention must be paid to, the terms of any engagement with an NIL agent to ensure that the engagement is solely with respect to NIL matters while the student-athlete is competing in collegiate athletics and does not extend beyond such timeframe. This is especially important when considering “opting into” an institution’s collective, as some collectives have become a mechanism to become the “agent of record” for an athlete, which can have some negative implications down the road when a student-athlete moves on to the next level or transfers to another school that does not deal with such “agent of record” collectives.
    • NIL deals should be negotiated to give the student-athlete latitude to execute additional deals down the road and enable the student-athlete to continue to promote their own personal brand while not exclusively licensing their personal brand to just one outside NIL sponsor.
    • NIL deals should contain clear, understandable language describing what the service or activity the student-athlete will provide in exchange for the stated compensation. It is important that student-athletes understand what is expected of them, but also ensure that, after-the-fact, the service can be clearly shown as being provided in accordance with the terms of the NIL deal.
    • When negotiating deals, student-athletes should consider including reverse morality clauses, which would allow the student-athlete to terminate a contract with a brand in the event the brand takes any actions that severely conflict with the student-athlete’s social values.
    • NIL deals should ideally be on a year-to-year basis. In the era of “one-and-done” and the transfer portal, it is important to avoid issues of NIL deals not being portable to another institution or limiting student-athletes’ ability to engage in other deals at their next stop.  It is important to have proper legal counsel review and negotiate the terms of any NIL deal to ensure that issues of “pay-for-play” or “pay-for-enrollment” are avoided while still providing student-athletes freedom to make decisions in their own best interests and careers.
    • Most large universities have engaged with outside NIL partners to assist with NIL matters and provide a platform for student-athletes to engage in NIL activities and help educate student-athletes on NIL matters.  While most of these NIL exchanges have processes in place to review NIL deals and their reporting requirements, student-athletes should not rely on these. It is important that student-athletes remain diligent in their NIL activities, which would include having their NIL deals reviewed by legal counsel, as well as independently following up with the school’s NIL reporting department to ensure compliance with state law and school rules.
    • Remember, when it comes to receiving NIL compensation, it is not the amateur status of the NIL exchange or NIL brand-sponsor at stake-it is the student-athlete’s.

    Finally, with respect to brands and sponsors:

    • Brands should ensure all payments for students-athletes’ NIL activities are not contingent upon enrollment in a particular university or improper pay-for-play payments. No brand wants to be the cause of a student-athlete’s loss of eligibility due to improper payments, as brands are paying for exposure and need that student-athlete competing in order to receive that exposure. 
    • Brands need to also ensure that the compensation being offered to student-athletes is reasonable in light of the NIL activity being performed in order to avoid scrutiny after the fact. For example, paying $20,000 per social media endorsement post to a student-athlete that only has a few hundred followers is likely to draw scrutiny as an improper payment and risk that student-athlete’s amateurism eligibility. On the other hand, paying a student-athlete $20,000 per social media endorsement post may be perfectly reasonable if the student-athlete has millions of social media followers because the brand, in the end, is paying for exposure to those followers. 
    • It is also advisable for brands to consider including morality clauses in NIL contracts with student-athletes, which will give the brand the right to terminate the agreement in the event of certain proscribed behavior by the student-athlete. Let’s face it: university students do not always have the best judgment as they navigate maturity during college, so it’s important for brands to put in those protections at the onset. It is also important to include provisions in the contract that protect against student-athletes’ retaining payments for NIL activities not completed in the event that there is a termination of the NIL contract. 
    • Brands need to have self-awareness for their industries and their actions. If a brand is in a “vice” industry that is prohibited by state NIL legislation, or a specific school’s NIL policy, from engaging in NIL deals with student-athletes, then that brand should focus on another area of marketing rather than attempting to tie their brand to collegiate athletes. Further, brands in “vice” or prohibited industries also need to be mindful of event sponsorship opportunities, as sponsoring an NIL appearance event for a student-athlete or a collective—even if the brand is not directly paying the student-athlete—could have negative ramifications for the student-athlete.

    Schools, universities, and student-athletes can rely on Kaufman & Canoles to assist with implementing these guidelines. We look forward to navigating this particular area with you.

    The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2024.