Alon Elhanan
On September 30th 2019, next to Lebron James, Diana Taurasi, and other sports stars on James’ multimedia platform, The Uninterrupted, California Governor Gavin Newsom signed into law SB-206: The Fair Pay to Play Act.[1] The bill, the first of its kind to be passed on the state level, allows student athletes to be compensated for the use of their name, image, or likeness rights (NILs) beginning in the year 2023. The bill implements this by prohibiting any organization with authority over intercollegiate athletics (such as the NCAA) from disqualifying a student-athlete or university from competition on the basis of a student-athlete’s NIL compensation. In addition, the bill bars any university from revoking a student-athlete’s scholarship because the student makes money off of their NILs or hires a state-certified agent to represent them in negotiations for those rights.[2] While the bill represents a significant step in the liberalization of economic opportunity for college athletes, it still explicitly bars a school from paying a student-athlete for their services beyond the value of a scholarship, limits the student-athletes’ NIL opportunities to those not in conflict with any of their teams’ contracts (i.e. Adidas vs. Nike sponsored gear), and requires athlete’s agents to be licensed in the state of California.
So, now that this potentially momentous realignment of economic interests and legal rights in collegiate athletics is upon us, what’s next? Below are five responses to the bill’s passage I will be keeping an eye on to help predict how the rest of this saga will continue to unfold:
- Other States’ Response: California as First Domino or Lone Wolf?
In announcing the signing of the bill, Gov. Newsom identified a central motivation of the bill as “initiat[ing] dozens of other states to introduce similar legislation . . . to change college sports for the better by having now the interest . . . of the athletes on par with the interest of the institutions.”[3] However, at this time, no other state has passed or proposed a comparable bill. And while politicians in Florida, New York, Washington, Colorado, Maryland, North Carolina, and South Carolina have publicly supported similar laws, it is unknown whether a majority in any of those legislatures agrees. Therefore, it is yet to be tested whether California, which has long been known for its nation-leading pro-employee labor laws and pro-entertainer sentiment, will be followed into this battle by other states or whether it is a lone wolf in the fight.
Even as a lone wolf, California has a large amount of sway as one of the largest consumer, TV, and endorsement markets in the U.S. and as the home to multiple premium collegiate athletic institutions such as USC, UCLA, Stanford, and Cal-Berkeley. If student athletes at these schools were able to be compensated for their NILs while student-athletes at their Pac-12 conference and national rivals were not, that would appear to be an unfair and unsustainable advantage in attracting top college athletes, as Arizona State football coach Herm Edwards said in an interview with ESPN this August.[4] On the other hand, an athlete who goes to USC likely has at least slightly higher NIL potential post-college than an Arizona State athlete (regardless of the passage of SB-206) simply by being associated with the school, and therefore the bill might simply be verbalizing the unspoken truth of California’s market sway in college athletics. Either way, California schools playing by a now explicitly different set of rules when recruiting teenage athletes could have a large effect on collegiate athletics.
The other possibility is that multiple other states with premium collegiate athletic institutions join California in passing similar bills. If this occurs, then the system of collegiate athletics as currently overseen by the NCAA, in which student athletes cannot be compensated by anyone beyond the value of their scholarships, will likely be obsolete as the NCAA would not be able to overcome the increased level of state government pressure on this issue.
- NCAA: Evolve with the Times or Dig a Line in the Sand?
The key questions facing the NCAA is whether it will choose to compromise over NILs or draw a line in the sand and say that no compensation for student-athletes continues to be their modus operandi? The NCAA has already acknowledged that it wants to “evolve” and “modernize” its approach to NILs and that it “need[s] to make sure we have 21st century rules,” but it came out aggressively against the change due to the potential of the bill to “blur an important distinction between professional leagues and amateur college sports.”[5] For context, the NCAA itself made revenue of $1B+ last year from a total of $9B+ in revenue NCAA Division I schools made from these amateur sports.[6]
At this time, it is hard to tell whether the NCAA even has a plan to address SB-206 or the larger issue of NILs. For years, they battled individual college athletes ferociously in litigation to avoid having to admit they had any right to be compensated for their NILs. One such litigation famously settled and the NCAA was forced to pay $60M to a class of college athletes for the use of their previously uncompensated images in the NCAA Football video game franchise.[7]Today, the NCAA says it is waiting on a report from a group of university presidents, athletic directors, and conference commissioners charged with examining the ways it might update its policies, but their report was not specifically charged with addressing NILs. Therefore, it is likely, as many college sports fans are used to hearing, that the NCAA will continue to be a reactive and somewhat equivocating participant in this saga, rather than an innovative leader. For now, we wait for the report to be released.
- Endorsers: Athlete-First or Keep with the (Team) Herd?
Currently watching from the sidelines, but likely eager to take advantage of new branding and marketing opportunities, endorsers are the wild-card in the development of this saga. On the one hand, endorsers who are first-movers to snap up California student-athletes for 2023 and beyond have a distinct advantage in grabbing the best talent pool and innovating with new (and likely favorable) endorsement-deal structures. On the other hand, anyone following the recent NCAA Basketball endorsement scandal understands the current power of team sponsorships to these large sports brands. If teams indicate that they will look unfavorably upon any endorser who signs individual student-athletes or certain types of student-athletes from competitor schools, that will likely significantly cool endorser interest. This, along with the legal uncertainty and relatively long time-horizon to the bill’s implementation, is why we are unlikely to hear anything from typical major endorsers anytime soon. But, once the agent network is approved and legal hurdles are removed, back-channel communication with student athletes will likely begin, if they haven’t already.
- Athletes Themselves: Satisfied or Hungry for More?
The student-athletes in this situation face an interesting conundrum: Should they settle for this “win” and live sufficiently off this version of an NIL compensation regime, or should they continue fighting for either full compensation from the schools themselves or less limitations on their rights to endorse whatever brands they want, regardless of their school’s affiliation? This issue is especially interesting as most college athletes will not have a sufficiently high profile to make significant money off of endorsements (including almost all athletes outside of the “major” college sports of football and basketball).
As of right now, the early reaction among professional and college athletes appears to be excitement surrounding the possibility of profiting from NILs and an openness to incrementalism. After so many years of the NCAA being completely closed to any avenues of compensation, the entrepreneurial possibilities student-athletes will have to mold their own brand appears to outweigh the “justice” argument of being directly compensated by the schools they represent. Whether that reaction sustains itself as we get closer to 2023, and exactly how the student-athletes will divide up the NIL-pool amongst themselves is yet to be determined, as is the identity of the student athletes themselves in 2023. Due to the cyclical nature of collegiate sports, athlete sentiment toward this issue will inevitably change by then. To predict whether incrementalism or full compensation will win out, I will be watching out for whether collegiate athletes continue to feel that professional athletes, such as Lebron James, effectively represent them on this issue, whether non-major sport athletes continue to “negotiate” in conjunction with major-sport athletes on this issue, and whether male-female college athletes continue being unified on this question. If so, it is likely NILs with no direct compensation from schools will still be acceptable to the majority of college athletes.
- The Consumer: Do We Care?
Finally, if large numbers of consumers of the “product” appear to vocally support SB-206 and/or vocally reject the continued non-compensation of college athletes via petition or boycott, that would clearly tilt all parties toward a new compensation scheme. However, many commentators have made this request before to no avail, and it is unlikely anything will get in the way of an SEC football fan and the religion they call College Football; athlete compensation be damned. Therefore, I will not be holding my breath for any such actions, and predict it will be the more sophisticated parties (State legislatures, NCAA, Endorsers, and Athletes) who ultimately have the power to decide where we go from here, post SB-206.
[1] Gavin Newsom, Announcement of Signing of California Fair Pay to Play Act, Twitter.com, Sept. 30, 2019, https://twitter.com/GavinNewsom/status/1178672387136425985?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1178672387136425985&ref_url=https%3A%2F%2Fwww.espn.com%2Fcollege-sports%2Fstory%2F_%2Fid%2F27735933%2Fcalifornia-defies-ncaa-gov-gavin-newsom-signs-law-fair-pay-play-act
[2]California Bill SB-206, Fair Pay to Play Act, Sept. 30, 2019, https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200SB206
[3] Gavin Newsom, Announcement of Signing of California Fair Pay to Play Act, Twitter.com, Sept. 30, 2019, https://twitter.com/GavinNewsom/status/1178672387136425985?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1178672387136425985&ref_url=https%3A%2F%2Fwww.espn.com%2Fcollege-sports%2Fstory%2F_%2Fid%2F27735933%2Fcalifornia-defies-ncaa-gov-gavin-newsom-signs-law-fair-pay-play-act
[4]Dan Murphy, California defies NCAA as Gov. Gavin Newsom signs into law Fair Pay to Play Act, ESPN.com, Sept. 30, 2019, https://www.espn.com/college-sports/story/_/id/27735933/california-defies-ncaa-gov-gavin-newsom-signs-law-fair-pay-play-act
[5] Id.
[6] Ahiza Garcia, NCAA surpasses $1 billion in revenue for first time, CNN.com, Mar. 7, 2018, https://money.cnn.com/2018/03/07/news/companies/ncaa-revenue-billion/index.html
[7] The Associated Press, $60 Million Settlement Approved in N.C.A.A. Video Game Lawsuit, NYTimes.com, July 17, 2015, https://www.nytimes.com/2015/07/18/sports/ncaa-video-game-lawsuit-60-million-settlement-is-approved.html