Issues to look for as N.J. athletes and colleges navigate NIL agreements

New state laws and an NCAA rule change that went into effect July 1 now allow college athletes to, for the first time, earn money directly from the use of their name, image and likeness.

Since that date — in fact, some athletes began endorsing products mere minutes after midnight July 1 — hundreds of athletes from a wide variety of schools and playing a wide variety of sports have signed deals and begun monetizing their NIL. And, even though this marketplace has existed for less than two months, we’re already beginning to see how the rule change is beginning to shake out and what kinds of issues it may raise for athletes and colleges alike moving forward.

Here are four ways the NIL marketplace is beginning to take shape:

  • Deals fit categories: Most NIL deals appear to fall into certain discrete categories; many are for social media promotions, but we’re also seeing athletes make deals to create and sell their own personally branded merchandise, appear at events or sign autographs, interact with fans by playing video games or leaving personalized messages, or even hosting sports-related camps for kids.
  • Partnerships: Many colleges and universities have partnered with outside marketing companies that will provide NIL-related services to the school’s athletes. These services are generally meant to facilitate brand-building, and can include locating licensing opportunities, an analysis of the athlete’s social media platforms, and classes on marketing and financial literacy. Schools appear to have recognized the new reality that recruits will judge them based on, among other things, how easily athletes can monetize their NIL once on campus.
  • Mostly football: Athletes in almost every college sport have signed NIL agreements of some sort. An analysis by one athlete-endorsement company indicates that 53% of NIL transactions during the month of July 2021 involved athletes from sports other than football and basketball. However, a separate analysis by different athlete endorsement company indicates that the overwhelming majority of NIL compensation secured during July 2020 — almost 80% — went to college football players. This may be partly because of the timing of the NCAA’s rule change or that football is the NCAA’s major revenue-generating sport, drawing local and national media attention. Nevertheless, it remains to be seen whether NIL sponsorships reinforce or countervail the current revenue models of college sports.
  • Low pay: The same NIL compensation analysis also suggested that, while some individual athletes may ultimately receive six- or even seven-figure compensation for their NIL, the median NIL agreement paid a much more modest figure — between $30 and $35 during the month of July 2020. This would indicate that the NIL marketplace is developing roughly as observers expected; the most highly visible athletes, whether from the quality of their play or from the size of their social media platform, can generate substantial compensation, while less visible athletes command more modest compensation.

As students arrive on campus this month for the start of the school year, certain issues may arise related to the proliferation of NIL agreements across schools and sports, including:

  • Logo infringement: One big issue with the potential to snag almost any athlete who signs a NIL agreement is the use of the school’s logos and trademarks, uniforms, team-issued apparel or even the school’s buildings and facilities. Many schools have issued guidelines that either strictly prohibit athletes from using the school’s real or intellectual property, or at least require school consent before doing so. While these policies are relatively clear that athletes can’t use the school’s branding, it is less clear what the prohibition on use of school facilities and buildings might mean for athletes who, for example, attempt to promote a product on social media by using a picture taken in their dorm room or on a public sidewalk somewhere on campus. And, just as it may not be clear whether such activities would violate the school’s policy, it is also not yet clear how strictly schools are willing to construe and enforce these policies. Schools certainly have the right to protect their intellectual property, but, again, schools also have an interest in protecting their image to recruits who may balk at overly aggressive content policing.
  • Group licensing: Relatedly, several major universities have recently announced “group licensing” programs that would allow athletes to basically partner with the school and use the school’s official logos and trademarks, but only in conjunction with certain promotional opportunities approved or obtained through the program. Programs like these could be a brand-enhancing boon to less visible college athletes who may find their individual marketability depends heavily on association with their school and their team. But individual sponsorship and endorsement agreements may still be prohibited from using the school’s logos and trademarks, so there is fertile ground for confusion as to who is allowed to use school branding when and while promoting which products or services.
  • Contract issues: And lastly, certain contract issues are bound to arise as more athletes sign more deals with more companies. Issues regarding exclusivity, ownership of intellectual property and social media content, nonperformance by either the athlete or the company, and brand conflicts will undoubtedly surface. In extreme cases, morality clauses may be implicated by allegations of misconduct. But more commonly, businesses owned by athletic department boosters may aggressively court athletes with too-good-to-be-true sponsorship deals or employ other more creative and complex means to funnel money to college athletes, operating in gray areas created by the NCAA’s interim policy and the presence or absence of state NIL laws.

Since the college athlete NIL market is evolving as we speak, New Jersey’s colleges and universities need to both understand the contours and character of the current marketplace, but also think ahead about policies and guidance that will put them in the best position possible as the NCAA considers making fundamental changes to its governance model. The learning curve may be steep and rocky. New Jersey’s colleges and universities need to ensure they have the right tools for the climb.

Matthew I.W. Baker is counsel in the Newark office of Genova Burns LLC, and is a member of the Complex Commercial Litigation, Criminal Defense, Investigations & Compliance, and Class Action Defense practice groups.