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With legislation pending, NCAA is creating infrastructure and guidelines to manage NIL

(Clockwise from left) LSU’s Shareef O’Neal, who played first at UCLA, Oklahoma’s Ragan Smith, Ohio State’s Justin Fields and Clemson’s Trevor Lawrence all could benefit from new NIL rules.getty images / illustration by Liz Spangler

Former Ohio State and Florida football coach Urban Meyer understands why the name, image and likeness movement makes the leadership in college athletics so nervous.

Money and college sports have a checkered past, one in which athletes who made money were breaking a rule or doing something wrong.

In the NIL age, which will take effect next year, institutions will be encouraged to help athletes get paid.

Athletic departments doing the best job assisting their athletes in generating off-the-field income could enjoy a healthy advantage in recruiting the best players: “Come to State U., make more money.” That’s where administrators get anxious. It’s completely counterintuitive to how college sports basically functioned for the past 100-plus years.

What won’t change, though, is that coaches, school officials and boosters cannot pay a recruit as an inducement to go to a school. An athlete’s income must come from a legitimate commercial activity that has an established “fair market value” attached to it.

“Whenever you talk about college sports,” Meyer said, “the conversation begins and ends with recruiting. The rule that says NIL money cannot be used as a recruiting inducement. Well, that’s going to take some serious regulation.”

Name, Image and Likeness:
A primer

 

WHAT IS IT? In legal terms, NIL represents a person’s “right of publicity,” which means any situation where a person’s permission is required to use their name, image or likeness.

WHY IS IT COMING INTO PLAY? College athletes have not had rights to their NIL in the past. It has been against NCAA rules for athletes to profit from their status as a college athlete. As the money flowing through college sports ballooned into the billions annually, public and legal pressure has forced the NCAA to change its rules and permit athletes to make money.

WHY NOT JUST PAY THE ATHLETES? That would make them employees, which would fundamentally change the structure of intercollegiate athletes. The benefits of NIL are that athletes can control their rights and they’ll be paid by a third party, not by the institution.

WHO IS AFFECTED? NIL rules would theoretically make all college athletes eligible to make money, but there could be distinctions between the NCAA’s three divisions. Divisions I, II and III were given marching orders to come up with their own legislation, so it could be quite different across the association.

WHAT’S NEXT? The NCAA intends to have legislation prepared for its convention in late January, when the schools will likely vote in favor of it. Implementation of new NCAA rules would begin in the fall semester of 2021. — Michael Smith

The need for that regulation is becoming a major point of discussion as NCAA legislation is written and rewritten before it’s voted on in January. How many rules are too much, based on the potential for abusing the system?

Some college leaders agree with Meyer and want to restrict the categories in which athletes can make money, but a growing number of athletic directors are voicing their opinion for fewer restrictions.

All of which sets up a healthy debate for the NCAA decision-makers trying to define NIL.

“I’d like to see the athletes have as much freedom as possible,” said Michael Alford, CEO of Seminole Boosters at Florida State and formerly a sales executive with the Dallas Cowboys. Alford co-chairs an NIL working group for Lead1, the organization that represents the 130 FBS athletic directors.

“Once everyone sees how this works and understands NIL,’’ he said, “the restrictions on how athletes can market themselves is going to come down.”

College athletics are about to enter a transformational new era that will allow players to make money from endorsing a product, giving instruction, signing autographs or appearing at events like a child’s birthday party. It will open doors for male and female athletes in every sport, providing the most marketable with life-changing income and others with some spending cash.

There will be some level of restrictions on these commercial activities, as Meyer pointed out, and the NCAA is going to great lengths to create a system that will not only register an athlete’s commercial activity and income, but also tell athletes ahead of time whether a paid appearance is permissible within the NCAA’s new NIL guidelines.

Fair market value, a term frequently used by professional athletes and entertainers to determine how much an endorsement or appearance should pay, will be a critical factor in how the college NIL world will function.

The NCAA is working with several agencies to create an infrastructure, including a mechanism to define fair market value, that will support this new marketplace in college athletics.

“It just breaks it down to a simple business transaction,” Alford said of fair market value. “It’s a different concept in the college space, a different way of conducting business or thinking about business.”

NCAA will use a third-party administrator

 

A critical part of the NCAA’s new NIL infrastructure will be hiring a third-party administrator, also known as a TPA. The NCAA began its search on Oct. 2.

This administrator will become the centerpiece for name, image and likeness activity, a clearinghouse of sorts where an athlete’s commercial events are registered and evaluated.

“One of the more fascinating parts of the TPA is how it will determine fair market value,” said Casey Schwab, CEO of Altius Sports Partners, an NIL consulting firm that works with Arizona State, LSU and Texas. “How do you accurately put a value on student athletes? You’ve got star power and you have all the external, like the size of the market. … And there’s no history to go on. That’s part of the challenge.”

The term third-party administrator originated in the health care and insurance industries. A TPA in that case typically refers to an outside organization that processes insurance claims, employee benefits or any other services for the company.

From top: Arkansas’ Hunter Woodhall, South Carolina’s Zia Cooke and Vanderbilt’s Kumar Rocker. New NIL regulations will benefit far more than college football stars.getty images / Illustration by Liz Spangler

In its request for proposals last month, the NCAA outlined three specific categories that it wanted a TPA to address.

Disclosure: The TPA will create the portal where athletes and their agents or marketing representatives would go to disclose their commercial activity with detailed information about the event, payment and any creative that might have been used. For example, if an athlete appeared in a commercial for a local business, the athlete would be expected to upload the spot into the TPA database.

Enforcement: By maintaining a registry of all NIL events, the TPA would be able to create a fair market value for the college space. For example, the fair market value for a Power Five quarterback to make an appearance in a major market like Los Angeles might be $2,000 per hour. Or the going rate for a point guard on the basketball team to autograph 250 items could be $750. If athletes are paid outside the range of what’s standard, the TPA would raise a red flag for that activity.

Many questions remain, though. What role will each school’s compliance office play in enforcing fair market value? Will athletic departments need to hire more personnel to monitor the space? And how will conference offices and NCAA enforcement be involved in tracking these deals to make sure boosters aren’t overpaying as a means of recruiting?

Education: This could include teaching college athletes lessons on money management, tax implications, brand building and other aspects of NIL.

The NCAA, which had 19 companies submit bids for the TPA, is now targeting Dec. 4 to select one or more companies.

“Understanding market value and market volume is what’s discussed most often, but there also has to be a way to determine malfeasance,” said Blake Lawrence, who founded Opendorse eight years ago and has worked with pro and college athletes to grow their brand through social media following and engagement.

“The industry wants to empower athletes to monetize their audience, while at the same time protecting the integrity of college sports,” he added.

What the NCAA’s RFP did not identify was an approval/disapproval function. Using fair market value as its guide, the TPA could have the power to approve deals or to disapprove them. That’s a component that hasn’t been clear until recently, but industry insiders say that the NCAA does want the TPA to have approval/disapproval power.

As one source at a Power Five school said, “This is getting really complicated.”

What is fair market value and how is it determined?

 

In the ranks of professional athletes, fair market value could be evaluated by companies like Joyce Julius or OpenSponsorship, agencies that specialize in determining value for athletes and brands based on market sizes, exposure and total eyeballs, which is what it really boils down to.

But athlete endorsements in the college space won’t be allowed until sometime in 2021, so marketers using college athletes are starting with a blank slate. That raises the question of how fair market value will be determined.

One school of thought sets market value at zero on the first day of a college athlete’s career. When the first deal comes through, the market value is set and it evolves from there as each new deal establishes the market.

Name, Image and Likeness: Timeline

 

May 2019

The NCAA formed a federal and state legislation working group, co-chaired by Big East Commissioner Val Ackerman and Ohio State AD Gene Smith, to study NIL issues.

September 2019

California Gov. Gavin Newsom signed SB 206 into law, with the Fair Pay to Play Act making the first state law to give college athletes NIL rights starting in 2023.

October 2019

The NCAA’s board of governors directs each NCAA division to immediately consider modernizing its policies pertaining to NIL.

January 2020

As more states followed California’s lead and proposed NIL legislation, the NCAA responded that a state-by-state “patchwork” approach would be impossible to implement. The working group reasserted its push to develop new NIL guidelines.

March 2020

The NCAA canceled the men’s and women’s basketball tournaments as COVID-19 pandemic worsened, but the working group said it would not slow its efforts to rewrite the NCAA’s NIL policies.

April 2020

The board of governors took historic steps toward allowing athlete compensation from endorsements and promotions. But in a continuing controversy, the board said the use of conference and school logos, trademarks or other involvement would not be allowed.

October 2020

The NCAA issued a request for proposals seeking a company or multiple companies to be a third-party administrator for NIL activity.

January 2021

The NCAA anticipates that new NIL legislation will be approved with implementation beginning with the 2021-22 academic year.

July 2021

Florida’s NIL law takes effect. It remains to be seen if the NCAA has done enough for Florida to back off or if the state will press forward, even though NCAA and other federal legislation would create a nationwide set of rules for college athletics to follow.— Michael Smith

The other approach is to have a fair market value already established based on similar commercial activity by professional athletes. Then the system will adjust up or down from there.

“Will the TPA be a single-source solution or will each school have its own way of tracking and reporting deals?” Lawrence said. “Whoever has to determine that will be in a challenging spot.”

Most of the marketers interviewed by Sports Business Journal prefer to use metrics established by pro athletes to have a fair market value in place the day NIL goes into effect.

But there are variables that distinguish college athletes from professionals.

To what degree does fair market value change for athletes at a Power Five school versus lower divisions? Or athletes that play a more visible sport like football or basketball? Do they make the same for an appearance as a soccer athlete?

Gauging an athlete’s social media following and level of engagement is one straightforward way of evaluating marketability. (See chart, Page 23).

But determining an athlete’s reach on social media requires more analysis than a simple count of followers, said Jim Cavale, CEO of INFLCR, a brand-building agency for pro and college athletes.

“I could give you a list of several five-star recruits who don’t have a single post on Instagram, but they have 500,000 followers,” Cavale said. “That’s cool, but everybody found them through recruiting engines. No brand will want to do anything with them because they don’t post.”

Using traditional metrics might not work for brands looking to market in college. The size of the market usually plays a significant factor in determining fair market value in pro sports, where the athlete in Chicago makes more than the athlete in Salt Lake City.

But that doesn’t really translate to college sports. What is the market for an Alabama athlete? Tuscaloosa? Birmingham? The state of Alabama?

Jonathan Jensen, an assistant professor in North Carolina’s sport administration program, managed several brand accounts during his time at Relay Worldwide and GMR, and in his current role has researched return on investment for athlete endorsements.

“In professional sports, everything is driven by market size,” Jensen wrote in an email. “The Dodgers and Yankees are always going to command the highest prices due to a combination of having the greatest reach and the most potential impressions, alongside strong, decades-old brands. In reality, sponsorship evaluation is still largely dependent upon some impression-based metric.

“College sport throws these assumptions on their head.”

There also is no correlation between market size and demand in college sports, Jensen said. Clemson is in the 38th largest television market, Alabama is in the 44th, and Notre Dame is in the 98th, Jensen said. The usual benchmarks don’t apply.

“The metrics used to determine market prices for the images of current student athletes will be less dependent on the market they reside in and more on brand-related metrics that are going to be more subjective and less established,” Jensen said. “There’s just no way of getting around that.”

College leaders are split on how much regulation should be required

 

The reason that fair market value is playing such an important role in the creation of an NIL marketplace is the need to maintain some semblance of a level playing field in the new era. One of the biggest concerns for athletic directors and conference commissioners is that NIL will be used as a way to recruit athletes, whether by overpaying for a commercial activity or promising a certain number of appearances.

As Meyer, a veteran of recruiting wars at the highest level at Florida and Ohio State, said, NIL will require a lot of regulation so that it’s not abused.

Most ADs have no illusion that a level playing field actually exists. No one truly believes that Washington State and Washington, two schools in the same state and the same conference, play under the same set of standards. Not when the Huskies finished 2018-19 with $133 million in revenue compared with the Cougars’ $71 million.

Still, Tom McMillen, president and CEO of Lead1, which represents the FBS ADs, said bluntly that recruiting and the potential for cheating is what gives those athletic directors the most sleepless nights when it comes to NIL.

“The biggest fear is that this becomes a way to circumvent the system and get recruiting benefits to the athletes,” McMillen said. “Fair market value is a very important part of determining that.”

College athletes like Maryland’s Taulia Tagovailoa and Nebraska’s Lexi Sun will have a chance to utilize NIL opportunities.getty images / Illustration by Liz Spangler

A growing segment of ADs, however, believe there’s already too much regulation and too many restrictions on athletes who will be looking to market themselves.

Some of the NCAA’s NIL proposals restrict athletes from endorsing brands that compete against their school’s sponsors. The shoe and apparel category has generated a lot of debate. Can athletes endorse Adidas if they play for a Nike school?

There’s also the question of whether athletes should be able to wear their jersey or school gear if they make an appearance or shoot a commercial for a brand that doesn’t have rights to the school’s marks.

Charlotte AD Mike Hill co-chairs Lead1’s NIL working group with Florida State’s Alford. They have authored several commentaries to the NCAA asserting that these restrictions need to be loosened.

“While we can be afraid of the impact NIL will have, and we can be afraid of the value of an endorsement deal, the reality is that this is an above-board way for student athletes to capitalize on their opportunities,” Hill said. “That’s why it’s the right thing to do, and frankly, one of my concerns is that the proposed legislation is too limiting. If the institution has the ability to prohibit multiple categories because it has official sponsors in those categories, that’s really unfair to the athletes. We have to change our thinking here.

“Will some people try to game the system? Certainly, that’s a reasonable concern, but people game the system now. That’s why the TPA and fair market value are going to be so important. It’s all going to be part of a new day and time in college athletics.”

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