Name, image, and likeness (NIL) licensing isn’t a new concept. It is part of every athlete endorsement and influencer deal and flows from the basic rights of publicity. Historically, the National Collegiate Athletic Association (NCAA) has restricted student athletes’ rights to profit from their NIL opportunities. But the tide is turning.
What are NIL Collectives?
“Collectives” has become the common term for independent supporter-funded groups designed to source or create opportunities for student-athletes to license their NIL rights for compensation, provide marketing and branding support, and offer professional guidance.
Brief history of NIL in college athletics
In the past, student-athletes at higher education institutions were unable to receive compensation (outside of traditional scholarships that covered attendance costs and support services). Athletes’ fight for a share of the earnings generated by the use of their NIL evolved into NIL collectives as we know them today.
O’Bannon v NCAA
In 2009, student-athletes filed an antitrust class action lawsuit against the NCAA, challenging the rules that banned them from receiving revenue shares from athletes’ NIL licensed to media and gaming entities. While the student-athlete plaintiffs argued that the restrictions violated the Sherman Antitrust Act, the NCAA argued that the ban was nonetheless needed to maintain a balance between academics and athletics and reinforce a clear boundary between amateur and professional athletes.
The federal district court ruled in favor of the plaintiffs in 2014, finding that the NCAA’s rules were more restrictive than necessary to achieve its stated goals and amounted to an unfair restriction of trade but did not go as far as permitting direct cash compensation for NIL. The O’Bannon case is regarded as one of the foundational legal decisions that previewed the recent modernization of NIL rules.
State laws guiding student-athlete NIL rights
Beginning in 2019 with California’s Fair Pay to Play Act, which sought to enable student-athletes to earn compensation from endorsements and sponsorships without jeopardizing their education and athletic eligibility, many state legislatures followed suit and endorsed similar laws. Currently, about 30 states have proposed or passed legislation allowing college athletes to profit from their NIL rights.
The NCAA responded to pressure from state legislatures and issued recommendations in April 2020, which included a proposed timeline for adopting modernized NIL rules. The NCAA followed with an Interim Policy in June of 2021, paving the way for some of the first NIL collective activity. The Interim Policy has been supplemented by NIL guidance to member schools. More recently, the NCAA has proposed additional policies relating to NIL deal disclosure, transparency, and enforcement, with the specter of more changes to come over the course of the next year.
proposed NIL Settlements
Proposed settlements in federal NIL litigation between former and current Division I athletes and the NCAA could permit schools to pay Division I athletes directly, which would further reshape the future relationship between educational institutions and student-athletes. Schools would then have to weigh how to allocate funds, determine whether Title IX applies to these payments, and contend with the possibility that the NCAA could alter its transfer rules or directly enforce its pay-for-play restrictions against schools.
Types of NIL collectives and deal structures
Alongside the NCAA’s modernization of NIL restrictions, many supporters sought to form groups focused on ensuring their preferred institution has NIL opportunities available to help attract and retain student-athlete talent. While many groups are structured to bring together a collective pool of funds from various supporters and direct funds to athletes, these groups can take a variety of different forms:
Athlete Agency NIL collectives
Some collectives provide services mirroring athlete agencies. They enter into agreements with individual athletes that give the group the right and ability to seek NIL deals on each athlete’s behalf. Certain groups reportedly provide upfront marketing guarantees, which may be recoupable from the NIL compensation the group procures for the student-athlete.
Participation-based NIL collectives
Some collectives function similarly to booster clubs and pay athletes for promotional appearances, merchandise signings, and influencer activities for the collective itself. The individual athlete’s contract with the collective will determine the required level of engagement, fee schedule, and termination rights.
Brand-focused NIL collectives
Many collectives provide services that closely resemble the work of a brand-side agency and serve as a connection point between third-party companies seeking to pay student-athletes for use of their NIL rights and the student-athletes. The companies may be supporter-owned businesses or independent third parties. However, a key difference from other structures is that these collectives primarily connect outside companies with student-athlete endorsers instead of making direct payments from collective funds.
Group licensing
Some NIL collectives engage in group licensing by aggregating the rights of groups of athletes (e.g., entire teams), which they market to third-party companies as a package to create income-generating opportunities (such as apparel sales, exclusive memorabilia/product auctions, etc.) split amongst the pool of participating athletes.
Nonprofit NIL collectives
Some NIL collectives, formed as nonprofit corporations under state law, applied for and received recognition of tax exemption under Internal Revenue Code Section 501(c)(3). Other NIL collectives worked with existing Code Section 501(c)(3) organizations either as an activity or program, or through a fiscal sponsorship arrangement. However, in May 2023, the IRS opined that the activities of most collectives provide more than incidental private benefit—both qualitatively and quantitatively—to the student-athletes and, therefore, do not qualify as exempt organizations under Code Section 501(c)(3). Specifically, the primary purpose of most NIL collectives is to pay compensation to student-athletes rather than further charitable purposes. Accordingly, most collectives are structured as for-profit LLCs or corporations.
The future of NIL collectives
The proposed House settlement would create a path for institutions to pay student-athletes directly, and while some have called into question the necessity of NIL collectives moving forward, many have speculated that collectives are here to stay. There are a variety of reasons why collectives are likely to continue in some form(s):
Endorsement deals
Regardless of what the next chapter of college athletics looks like, endorsement deals (NIL deals) are a constant in sports. With professional athlete endorsements, there are a range of third-party businesses involved in bringing deals together (including athlete agencies, brand agencies, group licensing entities/players’ unions, and others). Licensing of professional athlete NIL is not handled exclusively at the league and team level. Future rights licensing in the NCAA space is likely to take a similar form.
Simplifying compliance
While certain direct payments from schools may become possible, schools may prefer that NIL activities remain managed by third parties for compliance reasons. Supporters are not subject to the same NCAA bylaws as member institutions and may not be subject to the requirements of Title IX. While the NCAA has indicated it will enforce certain limitations on NIL activity, supporters of a properly structured collective have more operational flexibility than an NCAA athletic department would.
Versatile NIL options for supporters
On the supporter side, many like the flexibility of operating with more limited institutional involvement, the direct contact with student-athletes, and the ability to be involved in structuring deals. NIL collectives also open up the possibility of additional student-athlete earnings on top of and separate from the amount the school may be able to disburse directly.
Further NCAA rule changes may pave the way for other types of funders, such as private equity firms, to get involved in student-athlete NIL. This is already happening on an institutional level. Those changes may impact the ways supporters and contributors interact with institutions, and NIL collectives may become an even better outlet for those supporters to provide financial support.
Nixon Peabody’s Sports & Stadiums Higher Education Labor & Employment, and Corporate practice attorneys help clients structure NIL collectives and deals, develop policies and compliance programs, defend NIL and Title IX litigation, and maximize investment opportunities in the NIL space.
