Analyzing the State of Tennessee and the Commonwealth of Virginia’s NIL Recruiting Lawsuit Against the NCAA and What it Means for College Sports

John DeWispelaere headshot
John DeWispelaere
Associate, Corporate Department & Vice-Chair of the Sports Practice Group
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Christopher J. Walsh
Associate, Litigation Department
Published: McLane.com
February 12, 2024

It has been a whirlwind the last several weeks in the student-athlete Name, Image and Likeness (“NIL”) world. On January 11, 2024, the NCAA imposed sanctions for NIL recruiting violations against Florida State University, these being the first sanctions imposed by the NCAA for NIL recruiting violations since the NIL era of collegiate athletics began on July 1, 2021. Later that month, the NCAA announced it is investigating the University of Florida for potential NIL recruiting violations resulting from the recruitment of one-time Florida Gator football commit, Jaden Rashada, after the alleged $13 million NIL deal Rashada stuck with an NIL collective fell through and Rashada requested to be released from his letter of intent with the school. Then on January 30, 2024, it became known the NCAA is investigating the University of Tennessee for major NIL recruiting violations across multiple sports, but largely centered around Nico lamaleava’s NIL agreement with the University of Tennessee’s primary NIL collective.

Those following the NIL landscape in collegiate athletics knew NCAA enforcement for violations of the NCAA’s interim NIL policy, which it adopted in June of 2021, was inevitable. Others were wondering what took the NCAA so long, as the NIL era of college sports since that policy went into effect could easily be described as the wild west.

It now appears the NIL era of collegiate athletics is coming to a head. Under the NCAA’s interim NIL policy and bylaws, student-athletes and prospective student-athletes are prevented from having any discussions with any booster or NIL collective regarding what NIL opportunities are available to them before they enroll in the school or sign their letter of intent – this restriction is commonly referred to as the “NIL-recruiting ban.” Recently, the NCAA clarified this rule on when “NIL entities” can begin discussions with student-athletes and prospective student-athletes, with this clarification going into effect this coming summer.

On January 31, 2024, however, the state attorneys general for the State of Tennessee and the Commonwealth of Virginia (the “States”) filed a lawsuit against the NCAA in the United States District Court for the Eastern District of Tennessee (the “Court”), arguing that the NIL-recruiting ban is an unreasonable restriction of trade in violation of Section 1 of the Sherman Antitrust Act of 1890 (the “Sherman Act”).  The Sherman Act proscribes any contract or agreement that unreasonably restricts trade or commerce. The States assert that the NCAA’s NIL-recruiting ban constitutes a horizontal restraint on trade in violation of the Sherman Act.

The States’ argument is based on the principle that the NCAA’s current NIL-recruiting ban illegally restricts competition because it prevents a true open-market for student-athletes and prospective student-athletes’ NIL opportunities, given that student-athletes and prospective student-athletes can only begin to have discussions with boosters and NIL collectives about NIL opportunities after they sign a letter of intent or are enrolled in the college or university. According to the States, the NIL-recruiting ban prevents student-athletes and prospective student-athletes from maximizing their NIL opportunities by negotiating these opportunities, and using opportunities against each other in a negotiation, prior to enrolling in school or signing a letter of intent – just as NCAA coaches are able to do – thus, limiting competition in the NIL marketplace and in turn decreasing a student-athlete or a prospective student-athlete’s NIL compensation.

The timing of this lawsuit was no coincidence – it was filed a week before the NCAA’s football national signing period opened on February 7, 2024. With that date rapidly approaching, the States requested emergency relief in the form of a temporary restraining order (“TRO”) and a preliminary injunction (“PI”) to prevent the NCAA from enforcing the NIL-recruiting ban. Under Tennessee law, if a TRO is granted, the NCAA’s NIL-recruiting ban would be lifted for a period of 15 days and the States would need to seek an additional TRO within that 15 days to extend the TRO. If the court issues a PI, the NCAA’s NIL-recruiting ban could be suspended indefinitely.

Originally, the Court set a February 13, 2024 hearing on the States’ request for emergency relief. However, rather than waiting for the upcoming hearing, the court determined that the parties’ briefing was sufficient to rule on the States’ request for a TRO.  Specifically, on February 6, 2024, the Court denied the States’ motion for TRO, holding that the States had failed to demonstrate the requisite irreparable harm necessary for the issuance of a TRO at this juncture.  In evaluating a plaintiff’s request for a TRO or other injunctive relief, a court will consider (1) whether the plaintiff has shown a strong likelihood of success on the merits, (2) whether the plaintiff will suffer irreparable harm if the relief is not issued, (3) whether the issuance of such relief would cause substantial harm to others, and (4) whether the public interest would be served by the issuance of such relief.  As a general matter, the overarching purpose of a TRO is to maintain the status quo, and thus the second factor of irreparable harm is of particular emphasis.

The Court started by evaluating the parties’ arguments regarding the likelihood of success on the merits.  The States argued that the NCAA’s NIL-recruiting ban constitutes a horizontal restraint on trade in violation of the Sherman Act.  Under the Sherman Act, courts have developed a “Rule of Reason” analysis that is a fact-specific assessment of market power and market structure, aimed at assessing the challenged restraint’s actual effect on competition.  This involves a three-step, burden-shifting framework whereby (1) the plaintiff must first show that the challenged restraint has a substantial anticompetitive effect that harms consumers in the relevant market, (2) the burden is then on the defendant to show a procompetitive rationale for the restraint, and (3) then the burden shifts back to the plaintiff to demonstrate that the procompetitive efficiencies could be reasonably achieved through less anticompetitive means.  As to the first step, the Court agreed with the States that the NCAA’s NIL-recruiting ban has a substantial anticompetitive effect because it is analogous to an absolute ban on competitive bidding.  Put another way, the NIL-recruiting ban is effectively “an agreement among competitors to refuse to discuss prices with recruits until after negotiations have resulted in the initial selection of an institution.”  On the second step of the burden-shifting analysis, the Court then agreed with the NCAA that the NIL-recruiting ban has certain procompetitive benefits—i.e., promoting the balance of academics and athletics, and promoting amateurism (the distinction between collegiate and professional athletics).  Having said that, the Court specifically rejected the NCAA’s other proffered procompetitive justifications—i.e., fostering competitive balance and distributing talent across member institutions, and protecting exploitation of student-athletes.  The burden thus shifted back to the States to demonstrate that the procompetitive efficiencies could be reasonably achieved through less anticompetitive means.  On this, the Court again agreed with the States, explaining that less restrictive rules already in the NCAA bylaws—such as NIL rules prohibiting agreements without quid pro quo, athletic performance as consideration, and compensation directly from member institutions—are equally as effective in preserving amateurism as the NIL-recruiting ban.  Accordingly, the Court held that the States are likely to succeed on the merits of their Sherman Act claim.

While the Court sided with the States on the first element of the TRO analysis, the Court ultimately ruled in favor on the NCAA because of the second element—irreparable harm.  A plaintiff’s asserted harm is not irreparable if it is fully compensable by monetary damages, and the Court found this to be the core of the States’ claimed harm.  While the States argued that student-athletes will never be able to recover lost NIL opportunities once they commit to a school during the upcoming signing period, and that prospective student-athletes will be inhibited from realizing the true value of their NIL opportunities, the Court rejected these arguments for purposes of the TRO because the difference is purely monetary and the States offered no support for the conclusory assertion that any loss in monetary compensation could not be recovered or would be too speculative. One of the NCAA’s key arguments is that the NCAA is currently defending a class action lawsuit against previous student athletes who were unable to partake in NIL opportunities while enrolled in a college or university, where the sole remedy sought from the class is monetary damages. The Court likewise rejected the States’ argument in connection with recent NCAA enforcement actions surrounding NIL activities.  Because the States failed to demonstrate irreparable harm at this early stage of the litigation, the Court denied their request for a TRO.

Given that the Court denied the States’ request for a TRO, the Court may also be inclined to deny the States’ request for a PI because both forms of relief are generally evaluated under the same legal standard, although there could be further insight gleaned from the upcoming February 13, 2024 hearing still scheduled on the States’ request for a PI.  Nonetheless, the Court’s analysis concluding that the States are likely to succeed on the merits of their claim is of paramount importance.  It was not strictly necessary for the Court to make that determination, as the Court could have simply denied the TRO for want of irreparable harm.  But with the Court explaining why the States are likely to prevail on their Sherman Act claim, it appears this could be yet another case to add to the growing list of matters in recent years where courts have struck down NCAA rules that are theoretically designed to promote amateurism but do not comport with the reality of modern college athletics.