Show me the money! NCAA considering paying student-athletes
Vol. 76, No. 2 / March - April 2020
Agota Peterfy and Kevin Carron
Agota Peterfy is a principal at Brown & James and practices in the firm’s St. Louis office. She focuses her practice on premises and professional liability and toxic tort. She has represented major manufacturers in asbestos claims and national real estate companies in premises liability matters.
Kevin Carron currently enrolled in the JD/MBA program at Saint Louis University. His future career interests are in civil litigation, corporate law, and/or business transactional law.
On October 29, 2019, the National Collegiate Athletic Association (NCAA) announced what amounted to reversal of a decades-old policy when its governing board unanimously voted to permit college students participating in athletics to be compensated for their name, image, and likeness (NIL).2
This announcement was undoubtedly in response to a bill signed into law by California Governor Gavin Newsom a month earlier and set to take effect January 1, 2023. The bill, known as SB 206, or the “Fair Pay to Play Act,” will allow college athletes in California to be compensated for the use of their NIL.3 The stated intent of this bill is “to develop policies to ensure the appropriate protections are in place to avoid exploitation of student athletes, colleges, and universities.”4
Although the legislature in California was the first state to take action on the issue,5 Missouri is one of several states – along with Florida, Colorado, Illinois, and Minnesota – that has introduced or is currently working on legislation with the same goals as California’s SB 206: to allow students to be compensated for the use of their NIL.6 Possible federal legislation is still in its early stages, although the “Student-Athlete Equity Act” was introduced in March 2019 in the U.S. House of Representatives.7
Missouri has a strong interest in this matter because it has several Division 1 universities under the regulations of the NCAA, including the University of Missouri (Mizzou), University of Missouri - Kansas City (UMKC), Missouri State University (MSU), Southeast Missouri State University (SEMO), and Saint Louis University (SLU).8 Missouri lawmakers taking a stand on this issue represent areas where these universities are located, so it is not surprising they are supporting the movement to assist students-athletes.9
Governance of Amateur Athletics
The Intercollegiate Athletic Association of the United States was created in 1906 and was renamed to the National Collegiate Athletic Association in 1910.10 Presidents from 62 colleges and universities founded the organization at the request of President Theodore Roosevelt, with the hope of reforming college football rules in response to serious injuries on the playing field.11 A majority of these injuries were caused by older men playing on college teams against younger college students.12 To address these problems, the NCAA quickly created the amateur rules, which included provisions requiring full-time enrollment in college and the restriction of outside compensation as prerequisites to play on a college team.13
In 1916, the NCAA defined an “amateur athlete” as “one who participates in competitive physical sports only for the pleasure, and the physical, mental, moral, and social benefits directly derived therefrom.”14 However, because membership in the NCAA was still voluntary at the time, the organization lacked the ability to enforce these provisions. Many schools abused the rules and paid athletes in creative ways, including excessive scholarships and athletic perks on campus.15
After World War II, the NCAA ramped up enforcement.16 However, the increased commercialization of college sports and the prospect of gaining vast amounts of revenue from successful sports programs created strong incentives for universities to do whatever they could to capitalize on athletic success.17 During the next several decades, the NCAA – with a revised and improved enforcement mechanism and rules addressing student-athlete eligibility, limiting transfers, and penalizing “payments on-the-side” – established the foundation for the current system of college sports.18
NCAA membership today comes with a considerable number of rules and regulations for schools and students alike, coupled with a sophisticated set of potential dispute resolution options that make non-compliance with the NCAA difficult, but easy to process and fix once an infraction has been identified.19 The responsibilities of the enforcement branch of the NCAA consist of rule creation, investigations, enforcement, providing dispute resolution options, and handling appeals.20
The Mizzou Example
The NCAA’s rule enforcement system was on full display recently at the University of Missouri in a case of academic fraud with students.21 Mizzou began investigating the academic fraud claims in early 2016 when a tutor, hired by the university for the athletics department, admitted to academic dishonesty – specifically that she had been completing coursework and tests for several students, in multiple athletic programs, so they could receive passing grades and compete in their respective sports.22 Shortly thereafter, Mizzou announced this investigation publicly and stated that it would fully cooperate with an investigation by the NCAA.23
The NCAA ultimately concluded its own investigation, confirming that academic dishonesty had taken place and Mizzou was in violation of the academic provisions in the NCAA’s bylaws.24 Since the university had cooperated during the investigation, they hoped the NCAA committee on infractions would grant a motion for summary judgment so the NCAA could make a ruling on the case without an in-person hearing.25
However, the university’s motion was denied, and a hearing was held in January 2018 by a four-person NCAA panel.26 The panel found that the tutor was not pressured by Mizzou officials to commit academic dishonesty in any way and that Mizzou had shown “exemplary cooperation.”27 Nevertheless, the panel concluded the violations that occurred at Mizzou were Level 1 (the most severe classification), and that the punishment had to fit accordingly.28 The penalties for this ruling include a three-year probation; fines; recruiting restrictions on football, baseball, and softball; scholarship restrictions; and a one-year postseason ban for the previously mentioned sports – a huge financial hit to the programs.29
Finally, Mizzou appealed the penalties on grounds that the punishment was too harsh because they fully complied with the investigation and turned themselves in as soon as the tutor’s academic dishonesty was discovered.30 After Mizzou spent $500,000 on legal fees during the appeals process, the sentencing from the hearing board was upheld by a NCAA appeals committee.31 As of early 2020, the University of Missouri is still dealing with a lingering five percent reduction in scholarships for football, baseball, and softball, as well as recruiting restrictions that will conclude at the end of the 2020-2021 academic year.32
Every college is subject to the same bylaws and rules, and what happened at the University of Missouri in this case plainly demonstrates the level of intensity and passion the NCAA has for enforcing its rules to ensure an equal playing field for every student-athlete.
The Impact of College Sports
Today, the NCAA is an organization comprised of more than 1,100 colleges and universities, with 100 athletic conferences, and 40 affiliated sports organizations governing more than 500,000 student athletes.33 Considering the enormous breadth of organizations and individuals depending on the NCAA to provide a fair and just experience in college athletics, it should be no surprise that the NCAA is passionate about its rules and structure and that changing these rules sometimes takes longer than the public is ready to wait.
College sports have become a national phenomenon in the United States. From the frenzy of March Madness to the series of televised college football bowl games, people love to tune in and watch collegiate athletics. Nearly all college sports are now televised, and the public is familiar with star players’ names, positions, and schools. The expansion in the broadcasting of college sports, in addition to video games, retail merchandise, and media outlets such as Facebook and YouTube, have created huge markets for star athletes who have gained massive popularity in their respective sports.34 This type of fame and popularity is unprecedented and likely one of the main reasons why the ability of players to be compensated for their NILs has come to the forefront of policy reform.
The amount of revenue generated from college sports has grown significantly over time. The University of Missouri earned $107,351,581 in revenue through ticket sales, licensing, advertisements, media rights, and more in 2018, the most recent figure available, and that was an almost 10 percent increase from the previous year.35 As reported by the NCAA, many entities are greatly profiting from the current system of intercollegiate sports.36 This includes the coaches at top universities who are now making millions per season (with football coaches by far making the most),37 and all colleges combined making millions of dollars from ticket sales, television and radio contracts, endorsements, licenses, merchandise, and donors.38 The public is now gambling billions of dollars on March Madness every year.39 The NCAA itself surpassed a billion dollars in revenue last year, primarily through television and marketing rights fees.40 The athletic facilities and stadiums at top colleges are worth multi-millions.41 Everything about college sports is comparable to the professional level – except the NCAA’s classification of the players as amateurs who cannot earn money from playing sports.
Classifying college athletes as amateurs is supposed to create a clear line of demarcation between college athletic programs and professional leagues.42 The athletes’ “amateur” status comes with many restrictions and limitations, including, but not limited to, the inability to enter into an oral or written agreement with an agent, receive benefits from an agent, enter into a professional league’s player draft, and of course accept income from their NIL.43 Universities are also not allowed to pay players, aside from scholarships that are limited to the amount of the student’s school expenses,44 which was increased in 2015 to cover the full cost of attendance.45
O’Bannon v. NCAA
Thus far, athletes’ only option to challenge the rules governing the use of their NILs for profit is to turn to the courts. One of the most notable examples involves Edward O’Bannon, who spent a short time in the NBA and was a former All-American college basketball player at UCLA.46 In 2008, O’Bannon was visiting a close friend when his friend’s child showed him a video game on their television that included a virtual avatar of O’Bannon, complete with his name, jersey number, and college. O’Bannon had not consented to the use of his likeness in the video game and had not been compensated for it.47
In 2009, joined by a group of current and former college student-athletes, O’Bannon filed a claim against the NCAA in the United States District Court for the Northern District of California. O’Bannon alleged the NCAA was in violation of the Sherman Act’s antitrust provision in that it excessively restricted price competition and trade among the NCAA schools, and the NCAA’s procompetitive justifications did not justify the restraint and could be achieved through less restrictive means.48 The trial court agreed, but noted the limitation of its holding by stating:
To the extent other criticisms have been leveled against the NCAA and college policies and practices, those are not raised and cannot be remedied based on the antitrust causes of action in this lawsuit. It is likely that the challenged restraints, as well as other perceived inequities in college athletics and higher education generally, could be better addressed as a policy matter by reforms other than those available as a remedy for the antitrust violation found here. Such reforms and remedies could be undertaken by the NCAA, its member schools and conferences, or Congress. Be that as it may, the Court will enter an injunction, in a separate order, to cure the specific violations found in this case.49
In 2014, the case was appealed to the United States Court of Appeals for the 9th Circuit. The appellate court largely agreed with the decision of the trial court but disagreed with one important aspect of the judgment. The trial court allowed for $5,000 per athletic year in delayed compensation for the use of players’ NILs, but the appellate court stated that increasing the amount of scholarships and financial aid to cover the full cost of attendance was an appropriate and less-restrictive alternative, therefore denying the extra $5,000 for use of the NILs.50
O’Bannon v. NCAA was pivotal in igniting the debate in several state legislatures for policy changes regarding the compensation of student athletes.
Missouri Joins the Fray
In the wake of California’s actions, lawmakers in Missouri have introduced their own versions of the “Fair Pay to Play” bill: House Bill (HB) 1564, HB 1792, and HB 1748.51 Both of these bills prohibit public or private institutions of higher education and the NCAA from preventing a student-athlete from earning compensation from their NIL or their athletic reputation.52 The bills further limit these entities from preventing a student from participating in intercollegiate athletics if the student earns compensation, or from hiring professional representation as outlined in the bill.53 However, the bills do limit student athletes from entering into any contract for compensation that would require the athlete to display a sponsor’s apparel, equipment, or beverage, or otherwise advertise for the sponsor, during official team activities. They also limit team activities to not exceed 20 hours per week during the season and eight hours per week during the off-season.54
HB 1748 was pre-filed on December 12, 2019. It is similar to the other two bills, but it also includes a provision prohibiting universities and athletic associations from compensating prospective student athletes and creates a “community college athlete name, image, and likeness working group.”55 This working group of selected governmental officials would “review existing Missouri Community College Athletic Conference (MCCAC) bylaws, along with federal and state laws regarding college athlete’s use of their name, image, and likeness for compensation.”56 This review would take place to assess if the new laws would have a beneficial effect for students in community college athletics.57
Missouri’s bills are unique in that they do not simply announce a broad policy change. Rather, each bill addresses specific details involved in allowing players to profit from their NILs, such as restricting players from wearing logos of sponsors during official team activities, prohibiting universities and athletic associations from compensating prospective student athletes,58 and forcing players to disclose their sponsors to college officials (these records are not to be made public).59
For the current or final status of the bills, visit www.house.mo.gov or contact The Missouri Bar’s Government Relations Counsel.
The NCAA Reacts
Prior to Governor Newsom’s signing of California’s SB 206, the NCAA governing board sent a letter to the governor asserting that the proposed bill was unconstitutional and could lead to unfairness in recruiting practices, resulting in California potentially being banned from NCAA competitions.60 Eventually, with many other states considering following California’s lead,61 the NCAA made its own announcement that they are starting the process to allow student-athletes to be compensated for their NILs nationwide.62 The NCAA created a 19-member working group to “gather feedback” and analyze changes in state legislatures through April 2020. The NCAA will provide the information it finds to the multiple divisions of college sports and task them with creating new rules governing NILs by January 2021.63 The NCAA described the process as the “modernization of its bylaws” and stated several guiding principles they will follow during this process,64 including: making clear the distinction between collegiate and professional opportunities; maintaining the priorities of education and the collegiate experience to provide opportunities for student-athlete success; enhancing principles of diversity, inclusion, and gender equity; and protecting the recruiting environment and prohibiting inducements to select, remain at, or transfer to a specific institution.65
California’s SB 206 was one of the few times a state legislature not only challenged the NCAA but likely caused them to change their longstanding position, effectively promoting a better state of affairs for student athletes.66 Should the newly reformed guidelines create overly restrictive regulations governing athletes’ ability to profit from their NILs, there is little doubt state legislatures will continue to be on the forefront of ensuring that student athletes’ are not exploited by their respective states’ schools or the NCAA.
It seems that the prospect of several state legislatures, such as Missouri’s, enacting laws allowing student athletes to be compensated for the use of their NIL encouraged the NCAA to reform its policies.
The NCAA understands the tides of change are upon it because it spent more than one million dollars lobbying Congress in 2019, with help from associated organizations such as the Big 12 Conference and the Atlantic Coast Conference.67 The Big 12 Conference paid former Missouri Congressman Kenny Hulshof $90,000 last year to lobby for favorable decisions for them in the halls of Congress.68 This is the largest amount of lobbying done by the NCAA since 2014, which was at the conclusion of the O’Bannon case, demonstrating that there are plans for a substantial change in policy.69 There is only speculation as to why the NCAA is lobbying so aggressively, but proponents of the NCAA’s position insist that the current lobbying strategy is a measure to ensure that states comply with the NCAA after it reforms its NIL policy; to make certain the reforms are instituted properly; and to establish an equal playing field across the United States for student-athletes.70 Opponents are concerned that this amount of lobbying is designed to maintain the status quo.71 Perhaps the NCAA is simply creating safeguards to promote a smooth transition into a new era of college sports by lobbying Congress, and not trying to use Congress as a means to stifle the efforts state legislatures are making in protecting student-athletes’ rights.72
A Level Playing Field
There appears to be a growing consensus that it is time for student-athletes to start profiting from their talent, hard work, and determination. The NCAA has taken the first step to reform its regulations so that student-athletes can profit from their NILs. If the NCAA works quickly to change its bylaws in a meaningful way before state or federal laws go into effect, it would avoid a system where rules regarding student-athletes vary from state-to-state. Such a system could establish a schism in the foundation of the NCAA, resulting in the loss of unity and structure the organization has worked so hard to preserve in American collegiate sports.
In such a scenario, states could create their own rules, leading to the development of a hierarchy among schools located in various states. Student-athletes would be allowed to choose which school to attend based on which state allows them to make the most money, rather than the strength of the academic and athletic programs of a particular school. Universities in Missouri may lose promising student athletes because of the resources and economic advantages available to student-athletes in other states. Not only would this be a great loss to fans of in-state schools, but the loss of revenue would also impact the competitiveness of the schools in general, with the effects reverberating through the entire state of Missouri. One can imagine that if profiting from NILs is left unregulated by the NCAA, local businesses could even offer lucrative bids to star players to persuade them to pick a nearby university or transfer schools in order to advertise their likeness on billboards or do promotional deals.
The NCAA needs to be cognizant of the protections and rights to which state legislatures believe the student-athletes are entitled. States may find the new rules promulgated by the NCAA are still inadequate and may pursue further legislation to protect student-athletes from what they might consider exploitation. O’Bannon v. NCAA also made it clear that the NCAA is subject to anti-trust laws, and the judicial system will provide a remedy for athletes who are exploited for profit by others.73 The NCAA could view this as a threat to their autonomy, as well as the stability of college sports in general, and make well-calculated adjustments to their rules to reassure legislatures that student-athletes are being treated fairly.
Given what we understand about the NCAA’s process, any changes regarding college athletes’ ability to profit from their NILs are likely a few years away, even though the NCAA has given time frames for rule changes by as early as January 2021.74 California started the clock with SB 206, and the NCAA has until 2023 to create, implement, and enforce a set of rules regarding student athletes’ use of their NILs.75
Missouri’s proposed legislative measures are part of a growing trend indicating that state legislatures are ready to consider the smaller details involved in reforming this policy. This could prove helpful to the NCAA in its process of policy reform.76 The NCAA has and should continue to put forth effort in accepting this change and embracing the reform in positive and fair approaches. Otherwise, college sports may lose the spirit of amateurism and fair play that has made it so enjoyable to watch over the years.
The NCAA has dominated college sports for the last century and is clearly aware that changes are in order to adapt to modern times. Time will tell if the NCAA looks to state legislatures for guidance in this transition and creates adequate policy changes for the student-athletes’ benefit. Thousands of current and future college athletes and millions of college sports fans count on them to continue to lead college sports. Certainly, fans of Missouri colleges are hoping that new NCAA regulations will continue to allow their favorite teams to attract top players from all over the country and help make their respective schools an athletic powerhouse in the Midwest.
1 Agota Peterfy is a principal at Brown & James and practices in the firm’s St. Louis office. She focuses her practice on premises and professional liability and toxic tort. She has represented major manufacturers in asbestos claims and national real estate companies in premises liability matters.
Kevin Carron currently enrolled in the JD/MBA program at Saint Louis University. His future career interests are in civil litigation, corporate law, and/or business transactional law.
2 Board of Governors starts process to enhance name, image and likeness opportunities, NCAA (Oct. 29, 2019), https://www.ncaa.org/about/resources/media-center/news/board-governors-starts-process-enhance-name-image-and-likeness-opportunities.
3 S.B. 206, California State Legislature, 1st Regular Session (Cal. 2019).
5 Michelle Brutlag Hosick, NCAA working group to examine name, image and likeness, NCAA (May 14, 2019), https://www.ncaa.org/about/resources/media-center/news/ncaa-working-group-examine-name-image-and-likeness.
6 Charlotte Carroll, Tracking NCAA Fair Play Legislation Across the Country, Sports Illustrated (Oct. 2, 2019), https://www.si.com/college/2019/10/02/tracking-ncaa-fair-play-image-likeness-laws.
7 Michael McCann, California’s New Law Worries the NCAA, but a Federal Law Is What They Should Fear, Sports Illustrated (Oct. 4, 2019), https://www.si.com/.amp/college/2019/10/04/ncaa-fair-pay-to-play-act-name-likeness-image-laws.
9 Kurt Erickson, Missouri Lawmakers Float Plan to Let College Athletes Get Paid, St. Louis Post Dispatch (Dec. 4, 2019), https://www.stltoday.com/news/local/education/missouri-lawmakers-float-plan-tp-let-college-athletes-get-paid/article_7b73917f-5b02-54de-b465-d643f211794c.html.
10 O’Bannon v. National Collegiate Athletic Ass’n, 802 F.3d 1049, 1054 (9th Cir. 2015).
12 Daniel E. Lazaroff, The NCAA in Its Second Century: Defender of Amateurism or Antitrust Recidivist?, 86 Or. L. Rev. 329, 332 (2007).
15 O’Bannon, 802 F.3d 1049 at 1054.
16 Lazaroff, supra note 11, at 331.
21 Daniel Jones, A timeline of events in Missouri’s academic fraud case, Columbia Daily Tribune (Feb. 12, 2019), https://www.columbiatribune.com/sports/20190212/timeline-of-events-in-missouris-academic-fraud-case.
31 Kevin Graeler & Eric Blum, Missouri’s NCAA appeal denied, confirming postseason ban for football, baseball and softball, USA Today (Nov. 26, 2019), https://www.usatoday.com/story/sports/ ncaaf/sec/2019/11/26/ncaa-denies-missouri-appeal-postseason-ban-football-baseball/4311250002/.
33 What is the NCAA?, http://www.ncaa.org/about/resources/media-center/ncaa-101/what-ncaa (last visited March 11, 2020).
34 Mark Emmert, If college athletes could profit off their marketability, how much would they be worth? In some cases, millions, USA Today (Oct. 9, 2019), https://www.usatoday.com/story/sports /college/2019/10/09/college-athletes-with-name-image-likeness-control-could-make-millions/3909807002/.
35 Dave Matter, Mizzou athletics sees growth in revenues, closes gap on spending, St. Louis Post-Dispatch (Jan. 30, 2019), https://www.stltoday.com/sports/college/mizzou/mizzou-athletics-sees-growth-in-revenues-closes-gap-on-spending/article_cd99933e-2b21-548b-afeb-ff3d80c882c4.html.
36 Brian Burnsed, Growth in Division I athletics expenses outpaces revenue increases, NCAA (Aug. 20, 2014), http://www.ncaa.org/about/resources/media-center/news/growth-division-i-athletics-expenses-outpaces-revenue-increases.
38 Jasmine Harris, In the name of ‘amateurism,’ college athletes make money for everyone except themselves, The Conversation (April 5, 2019), https://theconversation.com/in-the-name-of-amateurism-college-athletes-make-money-for-everyone-except-themselves-114904.
39 Hilary Russ, Americans to bet $8.5 billion on NCAA’s ‘March Madness’ basketball tournament: report, Reuters (March 18, 2019), https://www.reuters.com/article/us-basketball-ncaa-gambling/americans-to-bet-85-billion-on-ncaas-march-madness-basketball-tournament-report-idUSKCN1QZ0YH.
41 Cork Gaines, Clemson’s $55 million football complex shows how swanky college football facilities have become for the top programs, Business Insider (Jan. 8, 2019), https://www.businessinsider.com/photos-clemsons-football-facility-2017-10.
42 Lazaroff, supra note 11, at 332.
43 Amateurism, https://www.ncaa.org/student-athletes/future/amateurism (last visited March 11, 2020).
45 O’Bannon, 802 F.3d 1049 at 1054.
46 Michael McCann & Ed O’Bannon , The Fair Pay to Play Act and Dignity in College Athletics, Sports Illustrated (Oct. 2, 2019), https://www.si.com/college/2019/10/02/ed-obannon-fair-pay-act-california.
47 O’Bannon v. NCAA, 7 F. Supp. 3d 955, 962 (N.D. Cal. 2014).
50 O’Bannon, 802 F.3d 1049 at 1074.
51 Nicole Berkowitz, Samuel Strantz, & Susan Russell, More States Step Up to the Plate With New Legislation to Address Student Athlete Compensation and the NCAA Passes the Ball to Congress, Baker Donelson (Jan. 23, 2020), https://www.bakerdonelson.com/more-states-step-up-to-the-plate-with-new-legislation-to-address-student-athlete-compensation-and-the-ncaa-passes-the-ball-to-congress.
52 H.B. 1792, 100th General Assem., 2d Reg. Sess. (Mo. 2020).
55 HB 1748, 100th General Assem., 2d Reg. Sess. (Mo. 2020).
58 Berkowitz et al., supra note 50.
59 Erickson, supra note 8.
60 NCAA responds to California Senate Bill 206, NCAA (Sept. 11, 2019), https://www.ncaa.org/about/resources/media-center/news/ncaa-responds-california-senate-bill-206.
61 Carroll, supra note 5.
62 NCAA, supra note 1.
66 Derek Helling, The New Power Players in NCAA Policy Could Be State Legislators, Sports Law Blonde (Feb. 21, 2019), https://www.sportslawblondes.com/blog/2019/2/21/the-new-power-players-in-ncaa-policy-could-be-state-legislators.
67 Dean Straka, Report: NCAA, allies spent nearly $1M lobbying lawmakers in 2019, 24/7Sports (Feb. 10, 2020), https://247sports.com/Article/ncaa-acc-big-12-spent-one-million-dollars-lobbying-congress-against-likeness-laws-143636422/.
69 Ben Nuckols, AP Exclusive: NCAA, 2 conferences spend $750,000 on lobbying, The Associated Press (Feb. 10, 2020), https://apnews.com/c298c08fbaebfdcfa97943bd5c31fa21?utm_medium=AP_Top25&utm_ source=Twitter&utm_campaign=SocialFlow].
73 O’Bannon, 802 F.3d 1049 at 1074.
74 Berkowitz et al., supra note 50.
76 Kurt Erickson, Missouri proposes pay for college athletes, The Guam Daily Post (Dec. 5, 2019), https://www. postguam.com/sports/nation/missouri-proposes-pay-for-college-athletes/article_ee151ebc-1674-11ea-881d-1bf01df2ed1b.html.