United States: A Major Challenge To The NCAA's NIL Restrictions

Last Wednesday, February 7, marked National Signing Day, the first day of the year when high school seniors can officially commit to play a sport at a National Collegiate Athlete Association (NCAA) college or university. The financial upside of becoming an NCAA student-athlete has never been greater, given 2021 rule changes that now allow NCAA athletes to profit off of their "name, image and likeness" ("NIL") without violating NCAA rules. Thousands of NCAA athletes have earned income through NIL, with top players inking six- and even seven-figure deals.¹

Certain NCAA restrictions on NIL exploitation, however, remain in place. Most critically for those highly recruited high school athletes, the NCAA's Interim NIL Policy prohibits NIL being used as an "improper recruiting inducement," meaning any NIL deal that is contingent on enrollment at a particular NCAA school is prohibited. College collectives – booster groups that support a specific university's teams and athletes through NIL deals – are thus unable to offer a prospective student-athlete an NIL deal until the student has actually enrolled. This restriction is viewed by many as a recruiting ban.

On the heels of the NCAA opening up an investigation of the University of Tennessee's recruiting practices, the attorney general of Tennessee (joined by the attorney general of Virginia) filed suit in federal court on January 31, 2024, challenging the recruiting ban on antitrust grounds, noting that it "limits competition and artificially decreases NIL compensation that college athletes could otherwise obtain in a free market."² The complaint uses a sports related analogy to illustrate what they deem the fundamental unfairness of the ban: "It's like a coach looking for a new job, and freely talking to many different schools, but being unable to negotiate salary until after he's picked one (the depressive effect on coaches' wages in such a dysfunctional market is obvious)."³

Understanding that this case will take time to make its way through the court, the attorneys general asked for a temporary-restraining order ("TRO") barring the NCAA from enforcing the rule or "taking any other action to prevent prospective college athletes . . . from engaging in meaningful NIL discussions prior to enrollment."⁴

Last week, just one day before National Signing Day, the court denied the TRO request, focusing on the plaintiffs' failure to show "irreparable harm" that would be caused without a TRO. The plaintiffs asserted that "prospective student-athletes will miss out on opportunities during the upcoming signing period to maximize NIL opportunities."⁵ In his ruling, U.S. District Court Judge Corker noted that harm is not irreparable if it is "fully compensable by monetary damages" and that the attorneys general have "offer[ed] no support for the conclusory assertion that any loss in monetary compensation could not be recovered."⁶ Essentially, any unlawful damage caused to players by the rules could be rectified simply by paying them later.

More important than the denial of the TRO, however, is the fact that Judge Corker weighed in on the merits of antitrust claim. He analyzed the likelihood that the recruitment ban violates antitrust law, specifically that it constitutes a "restraint on trade in violation of Section 1 of the Sherman Act."⁷ In analyzing the merits under a Rule of Reason analysis, he states the anticompetitive effect of the NCAA rules (the first hurdle plaintiffs would need to clear in order to succeed on the merits) is likely unlawful. Judge Corker states because the NCAA enjoys complete control over college athletics, its rules for prospective college athletes can be likened to "an absolute ban on competitive bidding" which the Supreme Court long ago found unlawful.

The court recognized that the NCAA has certain "procompetitive reasons" for its rule, specifically promoting the balance of academics and athletics among student-athletes and promoting amateurism. However, the judge found that "plaintiffs are likely to succeed on the merits of their claim" because there are likely less anticompetitive measures that the NCAA could and already does use to promote both goals. For example, NCAA rules that are unchallenged in this case already prohibit agreements with student-athletes that would structure compensation on athletic performance or allow an NCAA school itself to compensate the athlete.

It certainly seems, at this early stage in the litigation, like college collectives have an inside track and that the plaintiffs and prospective NCAA student-athletes have good reason to be optimistic.

Footnotes

1. For example, USC Basketball player Bronny James has NIL deals with Nike, Beats by Dre, and PSD Underwear totaling approximately a $5.9 million dollar value, as discussed here: https://www.sportingnews.com/us/ncaa-basketball/news/bronny-james-nil-deals-usc-endorsements-college/441c56c48b713013a480792c

2. Tennessee v. Nat'l Collegiate Athletic Ass'n, No 3:24-cv-00033 Document 1 (January 31, 2024) https://www.tn.gov/content/dam/tn/attorneygeneral/documents/pr/2024/pr24-10-NCAA.Antitrust.pdf Page 3

3. Tennessee v. Nat'l Collegiate Athletic Ass'n, No 3:24-cv-00033 Document 1 (January 31, 2024) https://www.tn.gov/content/dam/tn/attorneygeneral/documents/pr/2024/pr24-10-NCAA.Antitrust.pdf Page 2

4. Tennessee v. Nat'l Collegiate Athletic Ass'n, No 3:24-cv-00033 Document 1 (January 31, 2024) https://www.tn.gov/content/dam/tn/attorneygeneral/documents/pr/2024/pr24-10-NCAA.Antitrust.pdf Page 18

5. Tennessee v. Nat'l Collegiate Athletic Ass'n, No. 324CV00033DCLCDCP, 2024 WL 464164 (E.D. Tenn. Feb. 6, 2024) Page 8

6. Ibid

7. Tennessee v. Nat'l Collegiate Athletic Ass'n, No. 324CV00033DCLCDCP, 2024 WL 464164 (E.D. Tenn. Feb. 6, 2024) Page 6

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