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States are Passing Their Own Laws on NIL Deals for Students
States are Passing Their Own Laws on NIL Deals for Students

States are Passing Their Own Laws on NIL Deals for Students

Since the passing of California’s Fair Pay to Play Act in 2019 that allowed college athletes to receive monetary compensation on behalf of their names, images and likenesses (NIL), states were quick to begin considering similar legislation of their own.

Just three years later, some college students are racking upwards of a million dollars. The top 100 current NCAA student-athletes making the most money off NIL deals have earned well over $500,000. From July 2021 to June 2022, NIL platform Opendorse estimates the total amount of NIL deal money spent to be $917 million, reports NBC New York.

“You see kids making their sole decision on where to play college sports based on how much money they’re gonna get paid,” says Zack Sarf, co-founder of Create Every Opportunity, a learning platform for student-athletes to learn the fundamentals of financial literacy. “I don’t really blame them. They’re getting paid so much money, and 95% of these college athletes probably won’t go on to play a professional sport.”

With student prospects now able to weigh which institutions in the recruitment process guarantee the most bang for their buck on NIL deals, the million-dollar question remains: Is federal regulation anywhere in sight?

In June 2021, the NCAA adopted an interim rule to formally allow student-athletes to make money off their fame, but its broad language pushed states to form their own laws. So far, 31 states have laws designating student-athlete NIL deals. However, their lack of universal conformity has led to some new college recruitment tactics—and whether that’s fair is up to debate.

“Right now, we just have a patchwork of state laws that are often inconsistent with one another, and it creates confusion for institutions and student-athletes,” says Derin Dickerson, a partner in Alston & Bird’s Litigation and Trial Practice Group. “It can also create a competitive disadvantage for some schools depending on the states where they are located if they don’t have competent rules set up on allowing students to leverage their NIL.”

State law allows students to make money off their NIL, but in many cases, they don’t specify what schools can and can’t do, Sarf says. And in states with little regulation, big donor and fanbase money can influence student recruitment, sapping resources from smaller schools. “It’s going to be a massive problem for these schools that are smaller and low-budgeted,” Sarf says.

In February, for example, Texas A&M tried to create an in-house NIL program that allowed the institution to have a more direct influence in the moneymaking process, such as by rewarding donors with athletic department points and other perks in exchange for donations to provide NIL compensation to athletes. However, the IRS stomped it out earlier this month. 

The big money in college sports and the subsequent decisions institutions make beg the question of whether the integrity of athletic programs as extensions of higher ed institutions is beginning to deteriorate. The PAC-12, one of the most historic athletic conferences in the nation, is facing a complete dissolution due to programs chasing big TV deals.

“It all starts with the school. The current laws are allowing many schools to do things they shouldn’t be doing,” Sarf says. “They have a lot of control over what the athlete gets paid, but they need to tighten the laws where the schools shouldn’t make a difference.”

The benefits of federal regulation on NIL deals

Between a multitude of nuanced state laws and the NCAA’s timid guidance, student-athletes face a cacophony of different regulation efforts and new recruitment tactics, all while embracing the great responsibility of immediate riches.

The College Athletes Protection & Compensation Act, for example, would establish the College Athletics Corporation (CAC), which would bring oversight to the NIL space and help develop, administer and enforce its uniform guidelines on NIL deals.

The bill would require colleges and universities to publicly report their revenues and expenditures and the average number of hours students spend on athletic events. The feds would also require schools to report students’ academic outcomes.

The federal regulation is interested primarily in putting students first, such as by building financial literacy programs for students. Florida, one of the first states to pass its own NIL legislation, requires its students to take a two-tier course on financial literacy, as well as a course on entrepreneurship. “They’re getting paid all this money, but they don’t know how to handle it,” says Sarf.

“For far too long, the NCAA and powerful special interests have held sway, putting athletes second to dollars,” said Sen. Richard Blumenthal (D-Conn.), according to The Hill. “Athletes deserve national NIL standards, a Medical Trust Fund, scholarship safeguards, protection against mistreatment and abuse, and more.”

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