My kid wants to start an NIL business – What should we do?

Published: Seacoast Online
March 30, 2023

Let’s cover a bit of general background first.  In June 2021, the U.S. Supreme Court handed down a landmark decision in NCAA v. Alston, ruling that restrictions imposed upon NCAA member schools limiting the educational benefits provided to student-athletes violated anti-trust law.  The most notable result from Alston is that student-athletes may profit from their name, image, and likeness, or “NIL.”

The right to receive NIL compensation is not free of restrictions, and the NIL landscape is nothing if not a patchwork of rules and regulations.  In the immediate wake of Alston, the NCAA’s Board of Directors approved an interim NIL policy (which has been subsequently amended) and states began passing legislation to address NIL-related issues.  Some NCAA member schools institutions have since adopted NIL policies of their own.  While most NIL action occurs at the collegiate level, certain athletic associations throughout the country have adopted NIL rules that apply to high school athletes.  The convoluted and sometimes outright confusing world of NIL has caused some politicians, student-athletes and their families, and others to call for a national NIL standard.

Players, families, educational institutions, coaches, boosters, and businesses presently navigate the NIL landscape because it offers a variety of interesting opportunities.  NIL activities range from traditional brand sponsorships to booster-funded insurance coverages and involve a variety of participants to make NIL deals happen.  For example, some institutions engage third-party consultants to help evaluate potential NIL transactions involving their student-athletes or to educate those student-athletes and their families on what NIL is.

So, with the next generation of entrepreneurs interested in “starting an NIL business,” it is important to understand that statement may mean a number of different things.  Perhaps the business purpose will be to source NIL opportunities on behalf of student-athletes by leveraging existing, or creating new, opportunities with brands.  Alternatively, the idea may be to act as a consultant to small businesses seeking to understand the NIL space and evaluate potential candidates for NIL deals.

Given the regulatory patchwork, we typically suggest identifying where the new business intends to conduct NIL-related activities.  Many, but not all, states have adopted NIL legislation.  As of this writing, neither New Hampshire nor Massachusetts has an active statewide NIL law.  In the absence of state regulation, the NCAA’s default rules should serve as a business’s primary guidepost with respect to NIL activities involving collegiate student-athletes.

Additionally, although many states’ NIL laws cover similar ground, they are not necessarily identical.  A business should understand which restrictions that apply, or potentially apply, to its NIL activities.  For example, a state-level NIL law will usually prohibit the use of an educational institution’s intellectual property as part of an NIL deal.  Similarly, most (if not all) states with NIL laws prohibit so-called “pay to play” and similar NIL transactions, i.e., conditioning NIL compensation on attendance at a particular institution or on-field performance.  A number of states prohibit earning NIL compensation with respect to certain vice-categorized goods and services (e.g., alcohol, tobacco, and gambling).  An NIL business that sources potential transactions for student-athletes or businesses should know which opportunities would violate such restrictions and that restrictions may vary by jurisdiction.

Some states regulate who may represent a student-athlete in connection with NIL deals.  For example, New York’s NIL law requires that legal representation of student-athletes in NIL transactions be provided by New York-admitted attorneys and limits professional representation of student-athletes to “athlete agents” who have registered under a separate New York law.  These rules, and others like them, should be of particular interest to a business that will broker NIL deals on behalf of student-athletes.

Finally, if a business intends to conduct NIL activities with respect to high school student-athletes, it should review any applicable rules and regulations of high school athletic associations.  Many state NIL laws do not address pre-collegiate NIL matters, and such associations have filled the gap with rules that apply to student-athletes of their member schools.  The Massachusetts Interscholastic Athletic Association, for example, adopted a change to its handbook near the end of last summer to allow its competitors to earn NIL compensation, subject to certain limitations.

The post-Alston world of NIL offers student-athletes, businesses, and other parties, including young entrepreneurs, a variety of exciting and interesting opportunities.  However, the type of NIL-related activities that a new business will engage in, and where such activities will occur, potentially implicates various restrictions from a variety of sources (e.g., state law, NCAA rules, institutional policies, etc.).  The principals should seek advice on which laws, rules, and regulations apply, or might apply, to an NIL business based on its contemplated activities and model.