The Game Time Rush to Introduce Federal NIL Bills Continues

Posted on: July 31, 2023
In: Sports Law

By: Christina Stylianou & Gregg E. Clifton

The NCAA has made its goal for NIL regulation and enforcement very clear: federal legislation and intervention. After federal lawmakers have proposed more than a dozen bills to reform college sports in the past three years that have all failed to progress through the legislative process, the current lack of a nationwide standard has created a race among state legislatures to pass laws designed to give teams within their state a competitive advantage in recruiting. Congress, it seems, has heard and finally acknowledged the NCAA’s pleas. Multiple proposed NIL bills have now been introduced. Senators Richard Blumenthal (D-CT), Jerry Moran (R-KS), and Cory Booker (D-NJ), have abandoned their previous individual federal legislative efforts and joined forces to propose the third discussion bill of a potential federal NIL bill in recent months. Their bi-partisan approach to college athletes’ publicity rights is contained in the College Athletes Protection and Compensation Act (“CAPCA”). Less than one week later, a second bi-partisan bill, the Protecting Athletes, Schools, and Sports Act (or “PASS Act”) was introduced by Sens. Joe Manchin (D-WV) and Tommy Tuberville (R-AL). One day after the PASS Act’s release, Sens. Chris Murphy (D-CT) and Lori Trahan (D-MA) introduced and released their College Athlete Economic Freedom Act (“CAEFA”). The PASS Act and CAEFA are the second and third of any proposed or drafted NIL legislation, respectively, to be formally introduced to Congress this year.

The College Athletes Protection and Compensation Act (“CAPCA”)

The CAPCA tackles student-athletes’ rights from several different angles. Initially, the bill addresses the rights of student-athletes to monetize their name, image, and likeness by prohibiting the NCAA, athletic conferences, and universities from punishing athletes or interfering with their eligibility for exercising NIL rights, with certain limited exceptions. For instance, a university may prohibit a student-athlete from entering an endorsement contract with a third-party in an industry that the university either restricts in its student code of conduct for moral reasons or in an industry with which the school does not partner. Importantly, the bill makes clear that otherwise permissible endorsement deals are not to be used to recruit a prospective student-athlete to a university, nor are they to be used to induce a student-athlete to avoid exercising transfer options to stay at a particular university.

Moreover, the NCAA, conferences, and universities may not have any role in determining or negotiating the amount of compensation to a student-athlete in any deals. While the bill authorizes student-athletes to obtain legal counsel and/or agency representation in connection with the negotiation of endorsement contracts, certain limitations are present. Neither the universities, conferences, nor the NCAA may represent the student-athletes, regulate student-athletes’ representation, certify individuals to represent student-athletes, or influence student-athletes’ choice of representation relative to such deals.

The bill would also permit student-athletes who no longer participate in college athletic competition to rescind endorsement contracts with a remaining term of greater than 1 year without being held liable for breach of contract or being made to return earned payments received prior to giving notice of the rescission.

Using recent state NIL laws as a model, CAPCA would require enrolled student-athletes entering endorsement deals to provide copies of their contracts to their universities within 7 days of entering the agreements. For recruited athletes who have not yet enrolled at a university, copies of all current and expired NIL contracts pursuant to individual state authorization would have to be provided to the university before the athlete signs a Letter of Intent. (Athletes and recruited athletes are not subject to these rules if they receive less than $1,000 in total per year from endorsement deals, however.) These contracts may not be disclosed publicly without the athlete’s consent and would not be subject to state or federal open-records laws.

Also, similar to recent state NIL laws and in direct conflict to prior NCAA guidance, CAPCA would require universities to offer a financial literacy and life skills development program to their student-athletes and the athletes would be required to attend the program each year of their participation in college sports.

Interestingly, CAPCA permits student-athletes to receive “reasonable” food, rent, medical expenses, or insurance from a third party; tuition, “fees,” or books from a third party that are not otherwise paid for by the university; and “reasonable” transportation for the athlete or family members/friends of the athlete whether the athlete is experiencing a physical or mental health concern or is participating in a college athletic event or competition. This provision of the bill provides an open-ended exception, however, allowing a university, conference, or the NCAA to prohibit an athlete’s participation in an event or competition if the athlete received benefits that violate a rule established by the College Athletics Corporation, or “CAC,” discussed below. The bill makes no explicit mention of boosters or collectives, but it seems to create a grey area, allowing flexibility for student-athletes to receive certain basic needs during their college sports career without fear of sanction or loss or eligibility, but still creating a space to ban athletes’ involvement with boosters or collectives.

Aiming even further beyond just NIL and endorsement contracts, the proposed legislation also covers additional protections to student-athletes not often provided for in similar state laws or proposed state laws to date. (California is an exception for certain of these protections.) For instance, CAPCA would:

  • Require universities to honor a grant-in-aid for a college athlete until that athlete completes their undergraduate degree. This would be applicable to athletes who did not complete their undergraduate degree as a result of pursuing a career in professional sports. It would not be applicable to athletes who have transferred to another university or to athletes not in good standing or who have otherwise violated university specific codes of conduct or failed to meet academic standards for athletic eligibility. Grant-in-aid could not be reduced due to athletic performance, NIL compensation, injury, or other physical or mental medical condition.
  • Require universities to provide health care coverage and assume student-athletes’ medical expenses. For universities reporting $20 million or more in annual athletics revenue, those schools would be required to assume all out-of-pocket medical expenses for any injury sustained or communicable disease contracted while the athlete was participating in a college athletic event or competition for the two years following the athlete’s last college athletic competition. At universities reporting $50 million or more in annual athletics revenue, those schools would be required to provide or procure the athlete’s athletic-related health care coverage, as well as to assume the out-of-pocket medical expenses described above for the four-year period following the athlete’s last college athletic competition.
  • Create a medical trust fund to cover the cost of out-of-pocket expenses not covered by universities for injuries sustained or communicable diseases contracted while an athlete was participating in a college athletic event or competition during participation in college sports and for the four years thereafter, and the medical expenses for athletes diagnosed with long-term conditions related to their involvement in college sports, e.g. CTE. The trust fund is to be funded by universities, conferences, and national intercollegiate athletic associations generating $50 million or more in annual revenue.
  • Develop and establish health, wellness, and safety standards to protect athletes from injury and abuse.
  • Prohibit the NCAA from discriminating based on sex with respect to medical care, rest, hotel stays, food, athletic facilities, transportation, and sporting event promotions. This section echoes the spirit of Title IX and appears to directly address criticisms volleyed against the NCAA following a viral 2021 TikTok video displaying the disparate treatment of the facilities provided for female athletes when compared to the facilities provided to male athletes during March Madness.
  • Prohibit athletic program staff members from discouraging or interfering with a student-athlete’s course or major selection; retaliating against them based on their course or major selection; or discouraging or interfering with their decision to seek employment or internships, participate in student groups or events, or perform volunteer work (as long as these activities do not conflict with mandatory class time or mandatory college athletic events).

Perhaps one of the most critical innovations put forth by CAPCA is the aforementioned College Athletics Corporation, or the “CAC.” The CAC would be an organization assembled to “serve as a clearinghouse for best practices with respect to the rights and protections of college athletes [entering] agency and endorsement contracts.” Mildly reminiscent of the clearinghouse proposed by Sen. Lindsey Graham in his draft NIL legislation, the CAC would establish rules and investigatory processes and would bring actions against agents, schools, conferences, or the NCAA for violating these rules. It would dictate standards for reviewing and certifying NIL contracts and would create a certification process for athlete representatives. It would also investigate disputes involving agent contracts and NIL deals, and would provide conflict resolution for such agreements. At least a third of CAC’s membership would be comprised of current or former college athletes. (20% of the membership must be either current, active athletes or must have done so in the 10 years preceding appointment.) And although CAPCA is clear that the CAC is not a federal agency, the organization would be bestowed with a number of capabilities and corporate powers, including subpoena power, in order to carry out its mission.

It bears mention that the draft bill makes no mention whatsoever of student-athletes’ status as employees or non-employees of their respective universities. It also does not discuss revenue-sharing. It does, however, explicitly state that the bill is not to be construed as creating antitrust liability at either the state or federal level for conduct or actions taken before CAPCA’s date of enactment. It also makes clear that CAPCA will preempt any state laws that govern transfer rules, the benefits of financial value that CAPCA authorizes to be provided to student-athletes, NIL deals, or the certification of athlete representatives in college sports.

It is not clear how CAPCA has been received by Congress at this preliminary stage or if it will proceed through the legislative process.

The Protecting Athletes, Schools, and Sports Act of 2023 (“PASS Act”)

The PASS Act seeks to put guardrails in place for student-athletes with respect to NIL deals, recruitment efforts, and even the transfer portal, while at the same time providing certain medical expense benefits akin to those proposed in CAPCA. It begins by specifically addressing boosters and collectives, noting that these third-party entities may only promote a college athletic program, aid recruiting, or assist with providing benefits to student-athletes or their family members if the entities are formally linked to the university by way of written contract. Similarly to CAPCA (though CAPCA did not mention boosters or collectives by name), these boosters and/or collectives may not offer or provide a student-athlete compensation or any benefit intended to induce the athlete to enroll at or transfer to a particular university. They may, however, provide a bona fide grant to be used by a prospective athlete or current athlete for tuition, room and board, or other fees charged by the university. (On this point, CAPCA permitted a somewhat wider array of benefits that could be provided to athletes by third-parties.) The bill also requires that any representation or service provided by such third-party entities must be rendered equally across all athletic programs at a particular university.

The PASS Act then takes on college transfer rules, empowering the NCAA to devise rules relating to the transfer portal and superseding any preexisting NCAA rules on transfer eligibility. The bill would require that any transferring student-athlete be rendered ineligible to participate in any NCAA athletic competition during the academic year in which the athlete entered the portal.

However, the PASS Act does propose limited exceptions to this restriction. The NCAA is authorized to waive this ineligibility, however, for athletes who have already completed 3 years of athletic eligibility, who have had a family member pass or be diagnosed with terminal illness, whose head coach or primary position coach has left the university prior to the athlete’s entry to the portal, or for other reasons determined by the NCAA, as long as the athlete provides written documentation of the qualifying circumstance to their university’s athletic department within 30 days after the circumstance occurs.

Like CAPCA, the PASS Act prohibits the NCAA and universities from barring athletes’ participation in college athletics based on entry into an NIL agreement. The bill goes quite a bit further, however, in regulating these agreements. For instance, PASS sets forth certain criteria that NIL contracts are required to meet, including that the contract take effect after the athlete enrolls at a university and begins participation in an athletic program, and that it conform to the format of a standard contract template developed by the Federal Trade Commission (“FTC”). The duration of NIL agreements will also not be permitted to extend past the athlete’s enrollment at the university. Interestingly, the language of this section of the Act puts the burden of compliance squarely on the athlete, rather than on the third-party entering the deal with the athlete.

Similarly to CAPCA, PASS also creates exceptions to the athletes’ rights to enter into any NIL contracts of their choosing. PASS would authorize the NCAA or a university to prohibit a student-athlete from participating in college sports if the athlete entered into an NIL contract relating to adult entertainment or products, alcohol products, a casino or gambling, tobacco, marijuana, electronic smoking products and devices, pharmaceuticals, dangerous or controlled substances, drug paraphernalia, weapons, or any product, substance, or method prohibited in competition by the NCAA.

However, if a university does prohibit such a deal for a student-athlete, the university may not then itself enter a deal with an entity in one of these industries. The bill also makes clear that universities may not themselves provide or arrange compensation to athletes for the use of their name, image, or likeness or for participation in college sports. Additionally, the NCAA or universities may prohibit athletes from wearing anything with the insignia of an entity while also wearing athletic gear provided by the school or while participating in competition. They may also prohibit athletes from using the university’s logo or other intellectual property for any purpose without the express permission of the university.

Similarly to some of the more recent state NIL laws and to CAPCA, the PASS Act would require athletes entering endorsement deals to disclose the material terms of their contracts to their universities within 30 days of entering the agreements. (By contrast, some of the state laws and CAPCA require that copies of the contracts themselves be provided.) Moreover, agents, parties to NIL contracts, collectives, and boosters would be required to register with the FTC and to disclose the material terms of their agreements with student-athletes. (For boosters and individuals entering NIL contracts, disclosure must be made at least 7 days prior to execution of the agreement.)

Of note, in order to mandate enforcement of the Act, PASS would create certain violations of its terms (specifically those sections regulating boosters and collectives, disclosures, and registration with the FTC) that would be deemed unfair or deceptive acts or practices under the Federal Trade Commission Act.

The proposed legislation also covers a number of additional protections to student-athletes. For instance, the PASS Act would:

  • Require the NCAA to develop a financial literacy and life skills program for student-athletes. (This has been seen many times in recent state NIL laws and in CAPCA in direct conflict with prior NCAA guidance. However, the responsibility to provide this programming has typically been placed on the universities, rather than on the NCAA.)
  • Require universities to honor the original grant-in-aid commitment made to a college athlete. This would not be applicable to the former universities of athletes who have transferred, but would be applicable to the new institution. Grant-in-aid could not be reduced, revoked, or qualified due to NIL compensation or injury. It could, however, be revoked if the athlete does not remain in good standing according to the university’s standards or code of conduct. (CAPCA provides a similar protection.)
  • Require universities to provide health care coverage and assume student-athletes’ medical expenses. PASS would require universities to provide athletes with health care coverage for any academic year in which they participated in college sports. It would also require universities to assume all out-of-pocket medical expenses of an athlete's health care coverage for any injury sustained or communicable disease contracted while the athlete was participating in a college athletic event or competition. With regard to universities reporting less than $20 million in annual athletics revenue, this responsibility would apply during the period the athlete is enrolled at the university. At universities reporting $20 million or more in annual athletics revenue, this responsibility would apply during the period the athlete is enrolled at the university and for the two years following the athlete’s last college athletic competition. At universities reporting $50 million or more in annual athletics revenue, this responsibility would apply during the period the athlete is enrolled at the university and for the four years following the athlete’s last college athletic competition. (CAPCA provides the same protection, but does not impose responsibilities on universities making under $20 million and only mandates health care coverage for athletes at schools making $50 million or more.)
  • Create a trust fund to cover the cost of travel to sporting events for the immediate family members of dependent student-athletes, and all out-of-pocket medical expenses for former athletes that are not otherwise covered by PASS until the former athlete reaches 28 years of age or 8 years after their eligibility expires, whichever is later. The trust fund is to be funded by all revenue-generating collegiate-level tournaments or playoffs and is to be managed by the NCAA. (CAPCA’s trust fund focuses solely on medical expenses not otherwise covered by the Act and is funded by the schools, conferences, and national intercollegiate athletic associations making over $50 million in annual revenue.)

Critically, while the PASS Act does not create an NIL clearinghouse like CAPCA, PASS specifically empowers the NCAA by law to not only carry out the NCAA’s mission, but also to assume a number of further responsibilities and powers (some of which, CAPCA’s CAC would also be tasked with). The NCAA would be required to:

  • Establish rules to govern and provide oversight of universities;
  • Establish an enforcement process;
  • Establish and maintain processes for third-parties (boosters, collectives, parties to NIL contracts with athletes) to register with the NCAA and to regulate these third-parties;
  • Establish and maintain a method for certifying and regulating parties providing NIL compensation to athletes;
  • Develop a list of permissible activities for registered third-parties;
  • Develop a uniform standard NIL contract for use in all NIL activities;
  • Develop educational resources and financial literacy programming for athletes;
  • And, to establish a dispute resolution process for athletes in violation of the Act.

The NCAA would be authorized to conduct investigations and audits to assess potential PASS violations and would be required to report on such violations annually to Congress. In the case of a violation of the Act or a potential violation of any federal law by an agent, collective, booster, party to an NIL contract, university, conference, or athlete, the NCAA would also be permitted to revoke licenses to participate in NIL activities and refer violations of the Act to the FTC or other appropriate federal agency. On the flip side, if the NCAA fails to carry out these duties, the FTC may investigate the NCAA and assess a penalty for unfair and deceptive acts or practices and may revoke the NCAA’s tax-exempt status.

The bill does not affect student-athletes’ employment status relative to their universities or conferences, nor does it affect the tax treatment of qualified scholarships. It makes clear, however, that PASS will preempt any state laws that conflict with PASS; restrict the rights of student-athletes, the NCAA, conferences, or universities; involve athletes’ rights to receive compensation directly or indirectly from universities, affiliates of universities, boosters, collectives, NIL partners, conferences, or the NCAA; or, that are inconsistent with Title IX, including laws authorizing revenue-sharing.

PASS also shields the NCAA, conferences, and universities from liability under federal or state law for entering any agreements or adopting any rules that are otherwise consistent with PASS and affirms the validity of such agreements or rules.

It is not clear how the PASS Act has been or will be received by Congress at this early stage. Upon Congress reconvening in September after their summer recess, the PASS Act will be considered in more depth.

The College Athlete Economic Freedom Act

Where the PASS Act seeks to regulate student-athlete activity and empower the NCAA and where CAPCA aims to authorize a variety of different rights and protections for student-athletes and regulate NIL activity with a somewhat more balanced approach, CAEFA focuses almost exclusively on NIL and is the most athlete-friendly bill of the three proposals. Similarly to the other two, it prohibits the NCAA, conferences, and universities from preventing athletes or prospective athletes from entering NIL deals. Here, the only exception to this provision is where the universities, conferences, or the NCAA, and the athletes have negotiated a specific restriction as part of a collective bargaining agreement.

Consistent with his consistently expressed goal of union representation and recognition of student-athletes as employees, Senator Murphy’s CAEFA proposal would also forbid universities, conferences, or the NCAA from colluding with other universities or third parties to cap the amount of payment that might be offered to athletes under an NIL contract, unless the limitation was negotiated with a “collective representative.” Similar to a union or union representative, the bill defines “collective representative” as a representative of a group of athletes or prospective athletes to negotiate NIL contracts and includes legal representatives, athlete agents, and players' associations.

The bill would bar universities, conferences, or the NCAA from preventing athletes from forming or recognizing a collective representative to facilitate NIL contracts or group licensing agreements or to represent them. It would also bar universities, conferences, or the NCAA from preventing an athlete’s participation in college athletics based on retention of professional representation (specifically, an agent, financial advisor, collective representative, or attorney) for any contractual or legal matter. And like CAPCA, the universities, conferences, and the NCAA would not be permitted to regulate any such representation with respect to NIL.

CAEFA also deals with group NIL licensing rights. If enacted, the bill would prohibit universities, conferences, or the NCAA’s use of the name, image, or likeness of any group of athletes for promotional purposes, unless a license was obtained from the group. In order to do so, the universities, conferences, and NCAA would have to notify the athletes as to the manner in which their NIL would be used and the amount of revenue the school, conference, or NCAA would receive in connection with the promotion. This would be applicable for media rights agreements, as well as any other revenue sources derived from group athlete NIL usage.

In an effort to ensure equality in NIL, CAEFA requires that universities, conferences, the NCAA, or their affiliates make any NIL support they provide available and accessible to all athletes in a given program, regardless of gender, race, or sport. It also brings universities, conferences, and the NCAA’s NIL support to athletes under Title IX regulation and scrutiny, including how men’s and women’s sports are promoted. The bill also permits the Secretary of Commerce to award a grant and enter a contract with an entity to conduct periodic market analysis of NIL statistics and provide recommendations as to how to address any disparities by gender, race, or sport.

Like CAPCA and PASS, CAEFA would also protect grant-in-aid. Athletes’ eligibility for a grant-in-aid is not to be affected by any NIL agreements the athletes may be party to. Nor may the amount, duration, or renewal of a grant-in-aid be affected by any such agreements.

CAEFA would also recognize collectives and would require them to register with the Federal Trade Commission (“FTC”), similarly to PASS. Collectives are not to discriminate based on gender, race, or sport in facilitating NIL deals. They would also need to report certain statistics related to their NIL work to the FTC on an annual basis, including the number of agreements facilitated, total monetary value of the agreements, and number of athletes assisted, each disaggregated by gender, race, and sport. (CAPCA and PASS also impose certain NIL statistical reporting requirements in an effort to provide transparency.)

Interestingly, CAEFA takes a step not contemplated by either CAPCA or PASS and authorizes international students to monetize their NIL rights without any adverse impact on their eligibility to participate in college sports or their immigration status. The proposed legislation even considers the circumstance that student-athletes may, in the future, be declared employees of their universities, conferences, or the NCAA. If that happens, international athletes’ participation in college sports would not be deemed to have violated their immigration status and they would be permitted to receive payment for their participation in college sports just like any other student.

In order to enforce the Act, CAEFA would have violations of certain of its terms (particularly the section regulating or restricting universities, conferences, and the NCAA’s activity with respect to NIL) deemed unfair or deceptive acts or practices under the Federal Trade Commission Act. It would also create a private civil right of action for anyone affected by such violations in federal court and prevailing parties would be entitled to actual damages, as well as costs of the action and attorney's fees. This lies in stark contrast to PASS, which features a similar enforcement mechanism, but places the responsibility for potential violations on athletes, boosters, collectives, and agents.

The bill takes no formal position on student-athletes’ status as employees of their respective universities, conferences, or NCAA (like CAPCA and PASS). It also does not address the use of NIL deals to recruit athletes (unlike CAPCA and PASS), does not discuss revenue-sharing (like CAPCA, unlike PASS), and would not affect the tax treatment of qualified scholarships (like PASS). It does, however, explicitly state that a violation of CAEFA is to be deemed a per se violation of the Sherman Antitrust Act. It also makes clear that CAEFA will preempt any state laws that govern athletes’ ability to enter into NIL deals. It does permit states to enforce laws pertaining to the certification of athlete agents, however.

As with CAPCA and PASS, it is not clear how CAEFA has been received by Congress at this early stage. In light of the single party representation of its sponsors, however, it is not expected to succeed, given the lack of bi-partisan introduction and the wide disparity in views on NIL and intercollegiate athletics contained in its current form.

Looking Ahead

The recent wave of bills and proposed bill follow Rep. Gus Bilirakis’s (R-FL) discussion draft (circulated publicly), Sen. Lindsey Graham’s (R-SC) draft NIL legislation (circulated throughout collegiate stakeholder groups), and Reps. Mike Carey (R-OH) and Greg Landsman’s (D-OH) bill (formally introduced to Congress), all of which were announced and/or revealed in late May. Reps. Carey and Landsman’s bill, dubbed the “Student Athlete Level Playing Field Act” (“SALPFA”), is presently in committee. (It is also worth mentioning that, just a day after CAPCA’s unveiling, reports also surfaced about an as-yet unreleased, but long anticipated draft bill prepared by Sen. Ted Cruz (R-TX). This draft has not yet been released or announced, however.)

Since the PASS Act, CAEFA, and SALPFA are the only proposed legislation that have been formally introduced to Congress thus far, they are the only candidates for federal NIL law presently on the table. However, the other circulated drafts may still bear some influence even if not ultimately introduced, as PASS, CAEFA, and SALPFA are discussed and debated through the legislative process and given proper consideration following the end of Congressional recess in September.

CAPCA, PASS, and CAEFA, have all been proposed as Congress is about to enter its August recess. The introduction of these bills and proposed bills late in the Congressional Session, will certainly delay any activity and consideration of proposed legislation until at least September.

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