How a Prospective House Bill Could Reshape College Athletics with Federal Preemption & Prevent College Athletes from Having “Employee” Status
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“Modernizing” College Sports: How a Prospective House Bill Could Reshape College Athletics with Federal Preemption & Prevent College Athletes from Having “Employee” Status
Executive Summary
Establishes a Corporation to oversee student-athlete agents (AAs) and third-party licensees (TPLs) of student athlete Name-Image-Likeness (NIL) rights
AAs and TPLs must be registered and biennially certified by the Corporation on a periodic basis
Limits agency and NIL contracts between college athletes and AAs and TPLs to a term of not more than five years and permits either party to terminate without penalty
Investigations and enforcement of applicable rules will include weight of subpoena power and utilize arbitration to remedy disputes
Creates a publicly available, searchable database of registered AAs and registered TPLs, including annual disclosures
Proposes narrower definition of athletics representative or booster than NCAA’s current definition which could have far-reaching implications on how institutional control is assessed and corresponding infractions cases involving boosters are processed.
Bill grants federal preemption over state laws on matters involving college athlete compensation, employment status, publicity rights, NIL transactions, and competition eligibility
The authority of the newly created Corporation and Board presents jurisdictional questions as it pertains to the NCAA maintaining its governing authority over college athletics including matters of enforcement
U.S. Representative Steve Chabot (R-OH) has circulated a draft bill (hereinafter “bill”) entitled the “Modernizing the Collegiate Student-Athlete Experience Act” that intends to renovate college athletics with a particular focus on governing athlete agents’ (AAs) and third-party licensees’ (TPLs) involvement with college athletes, including matters tied to publicity and NIL transactions.
Although focusing on AA and TPL activity is a central focus, there are other significant provisions in the bill. Let’s take a closer look at this attempt to renew college athletics policies.
The bill would create a Corporation comprised of universities, and a Board of Directors will govern the membership. The Board will include one rep from each of the top 10 athletic conferences in annual revenue, one rep from each of the five geographic regions of institutions of higher education, two former corporate executives, three representatives of an intercollegiate athletics association, and one former student-athlete from each of the five geographic regions
From a procedural standpoint, any decision of the Board would require a majority vote of the members present at the meeting (requires two in-person meetings per year).
Funding-wise, the Corporation would be funded by fees collected from registered AAs and registered TPLs or from AAs and TPLs in connection with application for registration with the Corporation. Interestingly, the bill specifies that the Corporation may not receive any funds from an institution of higher education or the federal government.
The bill empowers universities to restrict college athlete NIL transactions immediately before, during, and after athletic competitions and events to avoid conflicts of time and focus between official team activities and outside NIL opportunities.
The bill would incorporate alternative dispute resolution (ADR) as an outlet to adjudicate disputes regarding AA or TPL agreements and transactions with college athletes. [Note: ADR is a procedural solution that could benefit college sports generally by unclogging the current volume and sluggish resolution rate of college athletics cases from NCAA athlete eligibility to NCAA enforcement matters.]
Here, the bill states that the rules specific to AA and TPL activities, registration, and compliance may require a registered AA or registered TPL to submit a dispute with a student-athlete under an agency contract or NIL agreement to arbitration by a neutral party.
The bill also requires periodic certifications. Specifically, each registered AA and TPL would be required to take, at least every two years, a compliance test developed by the Corporation that evaluates (A) the ability of the AA or TPL to comply with the rules adopted under the bill; and (B) the compliance of the AA or TPL with such rules during the preceding two-year period.
The bill also outlines a process and authority for the promulgated Board to conduct investigations and grants the Board subpoena power to compel testimony and production of evidence in matters under the purview of the Corporation.
The penalties for violations of the bill’s provisions would include suspending AA and TPL for up to three years. The Board would also be called on to refer any potential violations of other federal provisions to the respective federal agency overseeing such an area. For example, a potential Title IV, Title IX or other Federal civil rights issue born from AA or TPL activity would presumably be referred to the Office of Civil Rights under the Department of Education.
The bill also spells out that money cannot be used to induce recruits or to retain student-athletes. How inducement is proved from AA and TPL relationships may be as much art as science.
The bill says NCAA or other associations and colleges and universities cannot restrict or punish a college athlete for having an agent agreement or NIL agreement with a registered AA or TPL.
The bill empowers universities to set boundaries from NIL activities and its sports’ official activities. Specifically, the bill states that “during and immediately before and after an amateur intercollegiate athletic event or amateur intercollegiate athletic competition, an institution of higher education may prohibit a student-athlete enrolled in such institution from engaging in promotional or endorsement activities in connection with a NIL agreement.” Based on the bill’s definition section, this would cover the before, during, or after of competitions, practices, team meetings, banquets, media sessions, and other required activities related to participation in the sport.
The bill also calls for mandatory disclosure of all NIL transactions within seven days of the agreement being in place. Specifically, the college athlete must furnish a copy of the NIL agreement to his or her university. Incoming student-athletes must also disclose all prior NIL transactions once the individual signs a national letter of intent confirming their commitment to enroll and participate in athletics at a university.
Should an AA or TPL transaction go awry, student-athletes can bring complaints against an AA or TPL to the Board. The Board’s authority for receiving and reviewing complaints under this federal charter presents an interesting question on how that authority plays in the same sandbox with NCAA Enforcement. What role will the NCAA enforcement staff have here: focusing on recruiting and inducement violations under NCAA Bylaw 13? Anything more?
The Board’s findings from complaints could be reviewed and overruled, in whole or part, by the Federal Trade Commission.
The NCAA or conferences may withhold distributions to schools that make payments in violations of these rules governing NIL and AA activities.
The bill also expressly dictates that college athletes are not considered employees of their colleges or universities. A recently filed bill by Senators Murphy (D-CT) and Sanders (D-VT) directly disputes that position by attempting to legislatively define college athletes on athletic scholarships as employees.
The bill also provides for a limited liability provision that gives cover to associations, conferences, and colleges and universities from actions against them tied to trade and tortious interference claims that may be alleged by AAs or TPLs who believe a university, for example, induced their student-athlete to breach an agency agreement or NIL contract.
A federal preemption clause also makes an appearance in this bill. This is a provision long-lobbied by many in the college athletics circles as being essential to competitive fairness and consistency in opportunity. To ensure a uniform rule for college athletes across the land, the federal preemption ensures the federal law pertaining to NIL transactions, compensation, publicity rights, employment status, or competition eligibility has the right of way and state laws become neutralized.
The bill defines boosters -- aka “athletics representatives” -- in a more precise way that does not align with the NCAA's definition of an athletics representative.
The bill states that an ‘‘athletics booster’’ means any individual or entity that, directly or indirectly, through any other individual or entity or in any other manner:
(A) has provided one or more donations exceeding $5,000, in the aggregate, to obtain season tickets for any sport at an institution of higher education;
(B) has made one or more financial contributions exceeding $5,000, in the aggregate, to the athletics department or other athletics management organization of an institution of higher education; or
(C) has assisted, or been requested by an employee of an institution of higher education to assist, in the recruitment of a student-athlete.
The NCAA definition for a “representative of athletics interests” under NCAA Constitution 6.4 covers an individual, corporate entity or other organization for which the institution's executive or athletics administration or an athletics department staff member has knowledge or should have knowledge that such an individual, corporate entity or other organization has:
(a) Participated in or is a member of an agency or organization that has promoted the university’s athletics program;
(b) Made financial contributions to the athletics department or to an athletics booster organization of that institution;
(c) Been requested by the athletics department staff to assist in the recruitment of prospective student-athletes or is assisting in the recruitment of prospective student-athletes;
(d) Assisted or is assisting in providing benefits to enrolled student-athletes; or
(e) Otherwise involved in promoting the institution's athletics program.
The federal bill introduces a specific dollar threshold to its definition of an athletics representative which the NCAA definition does not. The scope and actions that trigger the definition of representative of athletics interest also are not aligned.
The last two prongs of the NCAA’s current definition of “athletic representative” encompass a very wide net of potential booster activity, yet are not covered by the bill’s proposed definition. The bill’s definition is narrower in scope. Whether this proposed federal definition will usurp the NCAA’s definition has broader implications beyond NIL transactions and representation agreements with AAs.
“Social Media Compensation” stood out in this bill as a new term of art and very relevant to the future opportunities that exist for college athletes. Social media influencing -- another NIL transactional vehicle -- by college athletes with significant followings on Twitter, Instagram, Facebook and other social media platforms will lead to social media compensation.
Other real-world application questions still exist when assessing the details of this bill. Will college athletes be able to pursue NIL endorsement activities while traveling with their university’s team for away competition? For example, the team leaves on a Tuesday afternoon to New York City for a Wednesday evening game, could a team member do a commercial shoot Tuesday night in Manhattan when it does not conflict with a team meeting or team meal? The boundaries set within the bill will need to clarify these real-world application scenarios.
Another applicability question for any legislative bill trying to create a uniform NIL policy solution relates to the internationalization of college sports. Many college athletes, some of them international, have following and notoriety well beyond the United States. How will NIL endorsement opportunities that a college athlete pursues with an overseas company that is not domiciled in the U.S. be addressed under this bill or other federal laws?
Contracts are generally governed by state law with the backstop of the Uniform Commercial Code (UCC) used by all 50 states and relied on for filling in provisions missing from an agreement. How college athletes and their professional service providers navigate NIL opportunities with a foreign-based TPL will present contractual and taxation questions. Choice of law provisions and tax treaties between countries may be pivotal guideposts.
Rep. Chabot’s bill is one of several proposed federal solutions surfacing as the unofficial July 1 target date to legalize NIL draws closer. The litigation-leery NCAA and its membership may be amenable to much of this bill as it attempts to create a universal NIL policy solution via federal preemption, it limits the NCAA, athletics conferences, and universities’ liability related to trade, competition, and unfair trade claims, and curbs any consideration that college athletes could be considered employees.
Athletics Veritas is presented for information purposes only and should not be considered advice or counsel on NCAA compliance matters. For guidance on NCAA rules and processes, always consult your university’s athletics compliance office, conference office, and/or the NCAA.
