Updated: Jul 20, 2022
A five-star high school recruit in the Class of 2023 has reportedly signed a name, image and likeness (NIL) deal with a school’s collective that could pay him more than $8 million by the end of his junior year of college, according to The Athletic. According to the report, this unnamed high school athlete will be paid $350,000 immediately and then receive a monthly payment that will increase to more than $2 million per year once he starts his college career. The compensation is in exchange for the athlete making public appearances and “taking part in social media promotions and other NIL activities ‘on behalf of (the collective) or a third party.’” Collectives are third party groups, which typically consists of alumni and boosters, whose goal is to pool funds from boosters and businesses to help facilitate NIL opportunities to student athletes. The collectives must remain a third party with no affiliation to the university due to NCAA rules and state laws. The deal is believed to be the largest NIL deal signed by a non-professional athlete.
The contract presents two notable legal issues. First, whether the contract is an inducement to attend a particular school in violation of the NCAA’s rules and its interim NIL policy. Second, the contract contains an exclusivity clause, which grants the collective exclusive rights to use the high school athlete’s NIL.
Is this Inducement by the Collective?
According to the NCAA’s Q&As on its interim NIL policy, “NIL opportunities may not be used as recruiting inducement or as a substitute for pay-for-play.” In addition, the NCAA’s Q&As explicitly state that NIL compensation contingent upon enrollment at a particular school is in violation of the NCAA’s interim NIL policy. The Athletic reports that the high school athlete has not signed a letter of intent with the school yet and is not bound by the contract to do so despite the multi-million deal. “There’s an element of trust there,” said the attorney who represented the high school athlete, referring to the fact there is no written agreement the high school athlete will sign with the collective’s school. In accordance with NCAA rules, the contract reportedly states, “nothing in this Agreement constitutes any form of inducement for (the athlete) to enroll at any school and/or join any athletic team.” The contract does not mention a specific school, only that the high school athlete be “enrolled at an NCAA member institution and a member of the football team at such institution.”
Although the term “inducement” is not a defined term in the NCAA’s Division I Manual, this NIL contract poses several questions with respect to the NCAA’s inducement rules:
Does the contract constitute inducement in violation of the NCAA’s rules and interim NCAA policy?
Can the contract require the athlete to enroll at a NCAA member institution and/or play a particular sport?
Does a contract potentially worth more than $8 million “induce,” or in other words persuade or influence, the athlete to sign with the collective’s school?
Will the NCAA investigate this NIL deal as a violation of its interim NIL policy?
Should the NCAA member institution that the high school athlete eventually commits to permit the athlete to attend its school and participate on its football team?
The questions above are the types of questions the NCAA and its member institutions will be confronted with by this type of NIL deal.
Exclusivity of NIL Rights
An exclusivity clause is generally a clause in a contract that requires a party to solicit, negotiate and/or buy/sell products or services exclusively from the other party for a limited time or under certain conditions. According to The Athletic, the contract states that the high school athlete granted the collective exclusive rights for the use of his NIL in exchange for the lucrative compensation. The Athletic does not expand on the parameters, if any, of the collective’s exclusivity rights, such as the time period of exclusivity or the conditions of exclusivity, nor any termination events. Assuming there are no restrictions, the exclusivity clause means the collective has the sole right to manage the athlete’s NIL for the entirety of his college career. By holding exclusivity rights over the athlete’s use of his NIL, the collective will presumably influence all NIL deals the athlete solicits, negotiates and enters into with third parties during his college career. The NIL era has granted student-athletes more freedom to own and maintain their NIL, but the exclusivity aspect of this contract certainly restricts that freedom. Also, as The Athletic points out, this exclusivity clause could dissuade the student-athlete from transferring to another school as he would likely not be compensated for paid appearances at another school, especially if the next school is a rival. For example, if the high school athlete hypothetically lives in California (which permits high school athletes to profit off their NIL) and commits to play football at USC then later transferred to play at in-state rival UCLA, would the USC collective pay the now UCLA athlete? The answer is likely not.
Ryan Whelpley is an Associate at Morse in Waltham, Massachusetts, where he is a member of the firm’s Corporate Practice Group and focuses on venture capital financings, M&A transactions, and general corporate work for startup and emerging growth companies. He is a graduate of Albany Law School (2019) and Union College (2016). At Union, Ryan was a member and three-year captain of the Men’s Basketball Team. You can connect with him via LinkedIn.