Virginia’s new law allowing schools to enter into NIL deals could be game-changer

It would’ve been easy to miss this story among all the college sports news of the past month, but Virginia’s new law allowing schools to pay athletes directly for use of the athletes’ name, image and likeness marks a momentous shift in the current model of NIL compensation.

This law is the first in any state to prohibit the NCAA from punishing schools that enter into NIL deals with their own athletes — and it will likely prompt a wave of similar new laws in other states. While Virginia’s law does not go into effect until July 1, here are some early observations about how it will likely change the NIL landscape.

Why is this significant? When the NCAA adopted its “interim” policy allowing athletes to be compensated for use of their NIL in 2021, that policy still prohibited schools from entering into NIL deals with their own athletes. The NCAA was concerned about a number of things at the time, including that direct payments might constitute pay-for-play or impermissible inducements, suggest a potential employer-employee relationship, raise Title IX concerns or give rise to claims of contractual nonperformance if one party believes the other breached their agreement. Virginia’s new law effectively prevents the NCAA from enforcing these prohibitions on Virginia’s schools as of July 1.

What impact might this law have? First, although Virginia’s new law expressly provides that athletes should not be considered employees of their school, paying athletes directly for NIL services undoubtedly moves the school-athlete relationship farther away from the “student athlete” idea that the NCAA used to promote. Similarly, though the NCAA still prohibits any payments to athletes based on their athletic performance, schools will of course attempt to market their best or most notable athletes.  In other words, the athletes who perform best likely will receive the most NIL compensation from their schools. The athletic directors quoted in various stories about Virginia’s new law recognize that there is a “distinction” between this and pay-to-play, but also concede that this distinction may be “without a difference.”

What should we look for in the future? Just as state laws first passed in 2019 and 2020 — including New Jersey’s Fair Play Act, passed in September 2020 — forced the NCAA to scrap its previous rules against NIL compensation in 2021, look for more states to follow Virginia’s lead and allow their colleges and universities to enter into NIL deals directly with their athletes. One major consequence could be the eventual extinction of NIL collectives — separate, booster-funded entities loosely associated with a particular school, created to coordinate and often enter into NIL deals with athletes specifically because schools, themselves, were prohibited from doing so. Collectives were allowed under the NCAA’s interim policy, but NCAA rules effectively prohibited collectives from coordinating with schools or with recruits, creating a clunky and disjointed process for athletes looking to maximize their NIL compensation (and for their current or prospective schools). Virginia’s new law would effectively allow schools to bring one of a collective’s main functions in-house, streamlining the process for schools and athletes alike, and leaving the fate of collectives in the state uncertain at best.

What about New Jersey? Interestingly, there is an opportunity for New Jersey here. Gov. Phil Murphy signed the Fair Play Act into law in September 2020, placing New Jersey at the forefront of states using their legislative power to protect the NIL rights of college athletes. However, the Fair Play Act does not take effect until 2025. In other words, a law passed before the NIL marketplace even came into existence in 2021 is set to go into effect next year without the benefit of what we’ve learned about the NIL marketplace during the past three years, or what we will learn over the next year. As Virginia’s new law may prompt a wave of state legislation across the country, now is as good a time as any for New Jersey to revisit and possibly recalibrate its approach to NIL agreements.

Matthew Baker is a partner in the Newark office of Genova Burns LLC, and is a member of the Complex Commercial Litigation group. He also leads a firm initiative created to advise clients on emerging sports and entertainment law matters.