Legal Roadmap of NIL in College Sports: From Start to Finish

College athletes can now make money from the commercial use of their name, image, and likeness (NIL) as a result of student-athletes challenging the NCAA and proving the NCAA violated monopoly laws. It took student-athletes decades of fighting against the NCAA, but they finally got a piece of the very large revenue pie.

The NCAA, the conferences, the schools, the coaches, and the broadcast companies all get paid, and paid handsomely, because of the college players' performance and popularity. The only part of the product not getting paid was the player - the one who the product was centered around.

Prior to 2021, the NCAA ruthlessly fought to prevent student-athletes from having property rights to, and getting paid from their name, image, and likeness. Their efforts to block any financial gain for athletes were effective, successful, and long-lasting.

How it all Started

Back in the 1970’s, Alvis Waldrep, Jr., a heavily recruited high school football player, settled on TCU for his academic and athletic future. TCU awarded him a full scholarship. During a game against Alabama, Waldrep sustained an injury that left him paralyzed.

Waldrep sought medical assistance and was treated for his on-field injury. Eventually, Waldrep amassed a large number of medical bills, which he asked the university to cover. He argued that the injury occurred as a result of him playing a sport on behalf of the school. They said, no. He sued. 

It took a while; the injury happened in the 1970’s but it wasn’t until 2000 that the Texas Courts finally decided his case. The Texas Courts determined that a student-athlete is not an employee of the school so Waldrep wasn’t entitled to reimbursement for his medical expenses. Waldrep v. Texas Employers Insurance Association, 21 S.W.3d 692 (Tex. App. 2000).

In Waldrep’s case, the judges relied on the NCAA rules that prioritized the principle of amateurism. The NCAA had strict rules against student-athletes taking pay for participation in sports. The NCAA decided that providing student-athletes with scholarships doesn’t violate those rules, but paying for medical bills as a result of playing a sport does.  

The NCAA rules used to specifically bar athletes from making money off of their names, images, or likenesses. Those same rules didn't apply to the athletes' schools, teams, or conferences. Those institutions weren’t restricted by that amateurism principle. They all capitalized not only on the popularity of a particular team but also on individual athletes and made billions of dollars in the process.

Some people say this arrangement upheld the sanctity of college athletics. But what does that mean? Sanctity means holiness or sacredness. Was it because kids played for the team they always dreamed of playing for and, because of unfair transfer rules, were stuck with the team for four years? Did that make college football sacred? Because it was still a billion-dollar industry then like it is now. 

Maybe the transfer portal reduced the piousness of the sport. Is college football less sacred because athletes are now able to seek a better opportunity elsewhere? Or, should a school have all future property rights in an athlete once they commit to a school?

There was a time where a college athlete would lose a year of eligibility if they transferred schools. That rule was nonsensical. There was no basis for the rule other than to force a student to stay with the team they first picked. 

All the power was with the NCAA and schools: they sold tickets, broadcasted the games, sold television rights, and made billions. They didn’t choose to put the local game on the public broadcast station (PBS). They sold the most popular athletes’ jerseys and collected on those sales. They licensed the players’ image and likeness to video game makers and made even more money. It was a constant cash grab for the NCAA, universities, coaches, video game makers; everyone except the players. 

They treated the athletes like professionals but insisted they were amateurs. And it could’ve all been avoided if it weren’t for the NCAA’s greed. 

Ed O’Bannon Lawsuit

O'Bannon played basketball for UCLA (1991-95)

In the case of Ed O’Bannon et al., the student-athletes asked for a small share of the money if the NCAA and EA Sports were going to use their likeness in video games. The NCAA, of course, fought against that request. 

Had the NCAA allowed EA Sports to pay the athletes a nominal amount, then we probably wouldn’t have what we have now: a complete disaster of pay-for-play NIL deals in college sports. 

Let’s take it back to 1984. At that time, the United States Supreme Court decided a case brought by the University of Oklahoma and the University of Georgia against the NCAA. The NCAA mandated all schools to only contract with ABC and CBS to broadcast their games. They did this because the NCAA worked with ABC and CBS to limit the amount of games that could be broadcast so that ticket sales wouldn’t take a hit to local games. The NCAA essentially rigged it so that more people would be forced to buy tickets to games if they wanted to watch their local team play.

The Universities of Oklahoma and Georgia entered into a separate deal with NBC that would allow for more televised games and greater revenues for the schools. The NCAA then announced it would take disciplinary action against any school that entered into the deal Oklahoma and Georgia made with NBC as opposed to the deal the NCAA made with ABC and CBS. Oklahoma and Georgia sued the NCAA arguing the NCAA created a monopoly by restricting how the universities could earn money. 

The case made its way to the US Supreme Court and the Court decided against the NCAA. The Supreme Court found that the NCAA violated the Sherman Act, the law that prevents monopolies in business, by the NCAA being in complete control of the broadcast rights of the college football games. The Court found that the NCAA was attempting to artificially increase the value of live tickets by restricting the universities from entering into their own deals with other television stations. 

But even in that ruling, a couple of the Supreme Court justices said the NCAA shouldn’t necessarily be treated like a purely commercial and profit-oriented organization. Courts historically give the NCAA leeway when it comes to antitrust regulations (monopoly laws) because the NCAA is uniquely linked to both amateur athletics and higher education. In other words, the NCAA can get away with stuff that would normally be condemned as monopolistic practices in a purely business environment. 

The Court highlighted that the NCAA’s position “reflects the NCAA’s fundamental policy of preserving amateurism and integrating athletics and education.” That finding seems to ignore how the NCAA was intentionally limiting broadcasting in order to drive up ticket sales. That practice is a strategic business decision to optimize revenue and has nothing to do with “preserving amateurism.”  

That case happened in 1984. Then we get to the Ed O’Bannon case in 2012. O’Bannon and other athletes wanted to be paid for EA Sports, a NCAA-licensed product, using their image and likeness in a video game. The NCAA fought against that request too.

Had the NCAA taken the position that if a company is going to make a stand-alone product, such as a video game, they have to pay the player a regulated, nominal amount of money, then players would’ve only been able to be paid for video games and similar products, and paid at that certain amount. 

Had the NCAA created such rules for stand-alone products, the idea of amateurism would’ve prevailed in later lawsuits. Courts would have drawn a distinction between a stand-alone product like video games, compared to what the unregulated NIL market is now where the actual use of the player’s NIL is afterthought. 

The dollar amount being paid to the athlete - not the product or service using their NIL - is used to lure an athlete to a particular school. The student gets to the school and forgets they have to do the commercial they were “paid” to do; the athlete is only concerned about the NIL money, not the “job” they are responsible for performing that will use his or her NIL. And remember, the “job” isn’t playing the sport, it’s doing a commercial for a product.

By the NCAA fighting against Ed O’Bannon, the Court’s were forced to analyze whether the NCAA was violating the monopoly laws again. The court found the NCAA was engaging in more monopolistic behavior by restricting the players’ ability to be paid by a third-party for the players’ NIL. 

The court decided that the NCAA’s amateurism rules are not necessarily valid. The court came to that decision because of the way the NCAA operates: more as a commercial enterprise rather than one regulating amateur student-athletes. Therefore, the court decided that the NCAA regulations can now be held to the typical standard under monopoly laws. The court also found that the players established that they suffered an injury. The injury was that if it weren’t for the NCAA rules that prevented athletes from being paid, EA Sports would likely pay the athletes for the right to use their names, images, and likenesses in college sports video games.

The O’Bannon case decided the major issue that the NCAA’s actions - how they conduct business - is commercial activity, not rules just governing amateur athletics and higher education. With the Supreme Court’s determination that the NCAA is engaging in commercial activity, they are now subject to additional scrutiny under monopoly laws.

Following the O’Bannon decision, the door opened for more lawsuits and several players filed various lawsuits against the NCAA. One of those suits was NCAA vs. Alston. 

NCAA v. Alston

In the Alston case, the student-athletes argued, among other things, that the NCAA rules didn’t allow them to receive “non-cash education-related benefits.” Those benefits were things like “computers, science equipment, musical instruments and other tangible items not included in the cost of attendance calculation but nonetheless related to the pursuit of academic studies.”

The Alston case labeled those benefits “academic benefits.” The Supreme Court decided the NCAA’s rules restricting those education-related benefits for student-athletes also violate monopoly laws. It was a unanimous decision - even Justices Thomas and Alito sided with the athletes.

Here’s the mystifying part: The NCAA actually won the argument related to non-education payments to students. Those are the payments currently happening when a student receives money under an NIL deal, such as Bryce Underwood getting paid over $10 million to play for the University of Michigan. That’s a non-education payment because it has nothing to do with the student-athlete’s education, like a computer or science equipment. The Alston case was about payments and benefits related to academic issues, or education-related benefits.

Even though the NCAA won the non-education payments argument, here’s how and why the NCAA agreed to change the rules that allow those payments.

A little court procedure is required to understand what happened: A case has to go through two other courts before the Supreme Court hears it. The first court is called the district court. After the district court decides the case, the case gets appealed to what is called the court of appeals. In this case, the case was appealed to the Ninth Circuit Court of Appeals. 

In the Alston case, the Ninth Circuit determined that the NCAA has a legitimate interest in “preserving amateurism” when it comes to paying players (this is the non-education payments). So the NCAA defeated the student-athletes’ request to get paid under NIL deals (non-educated related payments). The students didn’t appeal that issue to the Supreme Court - they were content on not pursuing non-education related payments. They only appealed the decision denying them educated-related benefits, such as computers.

 And because the student-athletes who brought the lawsuit didn’t appeal the Ninth Circuit’s ruling upholding the NCAA’s rules relating to students receiving money that is “untethered to education,” the Supreme Court didn’t actually rule on that aspect of the case. But that’s the aspect of the case that is currently allowing student athletes to get paid for things unrelated to education, like commercials, being gifted cars, and other NIL deals.

Here’s how it happened. 

In issuing the ruling, Justice Kavanaugh first acknowledged that the student-athletes didn’t appeal the issue of non-education payments (things unrelated to academics). He understood that the Supreme Court was only deciding whether student athletes could receive benefits related to academics - those things like computers or musical instruments. 

He then sent a shot heard ‘round the college sports world. He said, “there are serious questions whether the NCAA’s remaining compensation rules can pass muster under ordinary rule of reason scrutiny.” 

By writing that one sentence, Kavanaugh tipped the Supreme Court’s hand and let the NCAA know that if student-athletes were to bring a case back to the Supreme Court relating to them being paid for non-academic activities, the athletes would win. The Supreme Court would strike down any NCAA rules restricting athlete compensation as a violation of monopoly laws. 

Technically, what Justice Kavanaugh wrote was not binding because the players didn’t appeal that issue (non-academic benefits). But he let the NCAA know that their rules against player compensation are also violating monopoly laws.

Justice Kavanaugh made that statement in the Alston case on June 21, 2021. The NCAA changed the compensation rules ten days later. 

The Alston case essentially means that the NCAA, by being in full control of the NIL and not paying any athlete for any use of their name, image, or likeness (and not permitting any other company to pay a student-athlete for their NIL), is, again, breaking monopoly laws, and has been for decades. 

So up until the O’Bannon case, the NCAA had long argued - and argued successfully - that monopoly laws actually permits them to restrict athlete compensation or not allow the athletes to get paid. The reasoning behind that argument was the NCAA was promoting competitive equity among teams and distinguishing college athletics from professional sports. That is, the NCAA was promoting amateurism. The O’Bannon court determined that to be a lie.

The Alston Court then decided that the NCAA would be subject to regular monopoly laws because it’s operating as a commercial enterprise. The Alston case expressly said that student-athletes can get education-related benefits (computers, etc.), and Justice Kavanaugh said, off the record, that the athletes can be paid for non-education benefits, like car commercials. That’s how we got to this version of NIL. 

Beginning in 2021, with the new NIL rules, the NIL landscape has resembled the Wild West. Essentially, there are no real rules. It’s the Napster or LimeWire era of college sports. The consensus among all involved in college sports, however, is that rules are desperately needed in the NIL arena. 

Those rules are set to be implemented in the 2025-2026 academic year. There are three class-action lawsuits against the NCAA. The NCAA and athletes have entered into a preliminary settlement called the House Settlement. House is the name of one of the athletes suing the NCAA. 

The House Settlement allows the NCAA to restrict NIL deals. There are specific rules businesses must follow in order to pay an athlete for use of their NIL. Most significantly, however, is that universities will now be able to pay their student-athletes directly for their participation in a sport. 

The House Settlement allocates $23.1 million to each Division I school for the school to pay student-athletes. The settlement doesn’t have any set rules on how the school has to distribute the $23.1 million to the athletes. An equal split of the money is not required and schools are free to apportion the money as they see fit among their athletic programs. 

The settlement is meant to place parameters on current NIL deals, which are essentially pay-for-play deals. The money being paid to players is negotiated before the athlete arrives at the school and has little to do with the athlete’s NIL being used to promote or sell a product. The money is used to lure the athlete to the school. With the settlement in place (it will be finalized in April, 2025), those NIL deals will now have oversight and be evaluated for NCAA violations. But with the universities directly paying athletes, the NIL deals won’t be needed for athletes to receive compensation. The entire process will be more authentic; at least, that’s the goal. Perhaps we’ll just go back to the good ol’ days of boosters leaving envelopes of cash in lockers.

NEXT READ: How should the $23.1 million be paid out among the various sports and athletes at universities?