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Acronym Salad: FMV for NIL in the NCAA

When discussing how to regulate (i.e., limit)[1] name, image, and likeness (“NIL”) spending in college athletics, one idea that is constantly brought up is instituting a fair market value (“FMV”) requirement for all NIL deals. The hope is that an FMV requirement, working in conjunction with other proposed restrictions, would help eliminate the types of NIL deals that are nothing more than disguised pay-for-play deals. Whether the NIL requirement would be instituted through federal legislation or by the National Collegiate Athletic Association (“NCAA”) is yet to be seen. As discussed previously on Conduct Detrimental, new legislation[2] is currently in the works (although prior attempts at legislation have had no success thus far in the NIL era) and the NCAA is ramping up investigations into abuses of NIL deals, which hints at the likelihood of new NCAA guidelines or rules being put in place sooner rather than later.

If an athlete is making more money to, for example, shoot a commercial for a local car dealership than what the FMV would be if the car dealership were to pay anyone else to be in the commercial, the person paying the athlete, so the argument goes, is actually paying the college athlete for their performance as a college athlete rather than for their performance in the commercial itself. But how exactly do you determine the FMV of a person’s name, image, and likeness? And can any methodology accurately be used for the name, image, and likeness of all college athletes in a consistent manner?

The concept of fair market value is not a new one. United States v. Cartwright, 411 U.S. 546 (1973)[3], a 1973 Supreme Court case concerning estate tax treatment of certain property, provided a clean, simple definition of fair market value: “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.” This definition can easily be adjusted to account for other types of property or for services: fair market value is the price at which the services would be provided between a willing recipient of services and a willing provider of services, neither being under any compulsion to request services or to provide services and both having reasonable knowledge of relevant facts. In the NIL space, relevant facts would include the restriction on pay-for-play.

FMV exists in several other industries as an accepted concept for determining the appropriate value of something or someone. FMV in the real estate world seeks to determine what a certain property is worth by looking at comparable properties in comparable geographic locations with comparable amenities and comparable facilities in order to decide what a “fair” price might be for the subject property. Looking at the healthcare industry, specifically healthcare real estate, FMV is a legal concept requiring that certain real estate arrangements, including leases and purchase and sale transactions, between providers, must be consistent with FMV in order to avoid certain civil and criminal sanctions under the Stark Law and Anti-Kickback Statute, among other regulations.

FMV in real estate is more of a guideline to valuation than a fixed method of valuing property: the FMV of a property may be, for example, $300,000, but to a certain person it may be worth $350,000 (and waiving inspections and contingencies, as has been the case in a hot real estate market, for sellers, over the last year and a half or so). If the property is worth $350,000 to that person, there is nothing stopping them from paying above FMV to purchase it.

FMV in the healthcare real estate industry, however, is not a guideline to valuation but rather a fixed requirement when determining, for example, the rent to be charged by a healthcare provider leasing space to a source of potential referral sources. Under Stark, a physician is expressly prohibited from making a referral for the furnishing of designated health services for which payment under Medicare or Medicaid may be made to an entity to which it has a financial relationship unless an exception applies – FMV is a requirement of the most commonly used exceptions. Failure to meet FMV and fall under an exception in the healthcare real estate industry subjects the physician to potential civil and criminal liability.

What type of FMV requirement would one applicable to NIL deals in college athletics be? Inevitably, an FMV requirement for college athletics would have to be one that functions in much the same way as FMV requirements in the healthcare industry: FMV would be a value that must be illustrated by certain acceptable means and that could not be deviated from in application without violating the restriction. Otherwise, if FMV were just a guideline for determining value in much the same way that it functions in the real estate industry, any deviation from FMV would be permissible and the requirement would be largely toothless in preventing pay-for-play deals disguised as legitimate NIL deals.

As an example of this distinction, let’s say that FMV for a college athlete to be in a commercial for a local car dealership is somewhere between $10,000 and $12,500 (FMV is usually shown in an acceptable range of values to allow for certain unpredictable factors and to acknowledge the impossibility of valuing something exactly). Under an FMV requirement similar to the one in the real estate industry, the car dealership could see this valuation and still be completely within their rights – and the requirement – to pay the athlete $15,000 for the commercial if they determine the athlete’s appearance in the commercial is worth that amount. Maybe a rival dealership is willing to pay the athlete $12,500, and no more, and so the athlete’s value is greater because of the opportunity to make sure he/she isn’t representing a competitor. If the FMV requirement mirrors the FMV requirement in the healthcare industry, however, any payment above $12,500 would automatically be deemed impermissible and a violation of the NCAA’s ban on pay-for-play arrangements, subjecting the athlete to a possible suspension and fine, as well as possibly subjecting the university where the athlete plays to sanctions as well.

The problem with an FMV requirement for NIL is that there are entirely too many factors that play into accurately valuing the use of an athlete’s name, image, and likeness. An athlete’s NIL value could be impacted by the popularity of the sport they play generally in the United States (or the popularity of that sport in the region of the United States they play in or even just in the city they play in), the number of followers the athlete has on social media, the athlete’s prowess at their particular sport (keeping in mind that an NIL deal cannot be conditioned on performance in college sports, a higher level of performance would add value to an athlete’s NIL), specific attributes of an athlete that help make a certain type of deal work (e.g., Decoldest Crawford’s name being what it is increases his NIL value when the product being sold is A/C units because it makes for a better commercial), how personable an athlete is, or any other number of factors that may have direct ties to the person being a college athlete or that may be completely removed from the person’s status as a college athlete. Crafting an effective FMV requirement for NIL is made even more difficult by the fact that the NCAA has yet to show any NIL deals that were proven to actually be pay-for-play arrangements. As the NCAA continues to up investigations into NIL deals, it is inevitable that it will find sham arrangements that are just geared at getting an athlete to a certain school or keeping an athlete at a certain school.

But an FMV restriction is not going to prevent sham arrangements like its proponents believe. Instead, an FMV requirement will put all large NIL deals under immediate scrutiny and force athletes to find ways to justify the value being placed on their NIL. And the difficulty of finding acceptable and appropriate means of determining FMV for NIL deals will lead to litigation (or arbitration, more likely) on the point as athletes and the NCAA bring their respective experts out to battle on what exactly constitutes FMV for that particular athlete’s NIL based on differing methodologies. And, let’s be honest, the NCAA has significantly more financial power and resources to engage in these battles than any athlete does.

An FMV requirement sounds on paper like an easy way of weeding out pay-for-play arrangements. In reality, it would create an overly complex regulatory scheme where the NCAA would have a financial advantage over athletes that would cause inconsistent results and artificially lower NIL compensation to athletes.


[1] Whether you are pro-regulation of NIL or not, any regulation of NIL will function predominately to limit what college athletes can make. Nobody who is calling for more definitive guidelines on what is considered permissible name, image, and likeness spending is doing so because they’re afraid that college athletes are not being paid enough in their deals. And while there are college athletes entering into deals with unfavorable terms because of any number of reasons, lack of representation being a major one, stories of college athletes being underpaid for NIL deals are virtually nonexistent.

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