Third-Party NIL Deals Post-Settlement: What's Allowed? (Issue #3)

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Welcome back to The Legal Edge: NIL!

In our previous editions, we laid the groundwork by examining the sweeping changes from the House settlement and then unpacked the critical new landscapes of revenue sharing, scholarships, and roster limits. As the NIL environment continues to evolve at a rapid pace, my mission remains steadfast: to equip you with the strategic insights needed to make "Smart NIL Choices, Informed by Law."

This week, we're diving into what many consider the next frontier: the guidelines and permissible activities for 3rd party NIL deals in this post-settlement era.

Remember, this is not legal, financial, or professional advice — it's about understanding the landscape so you can make informed decisions.

Let's explore this week's essential insights!

While the recent House settlement brings significant changes in how schools can compensate athletes (a topic we've previously explored) it also redefines the rules around third-party Name, Image, and Likeness (NIL) deals.

Understanding these evolving distinctions is crucial for athletes and their families seeking to understand new opportunities and for legal and NIL professionals navigating compliance.

The Injunctive Relief Settlement (IRS) has changed the NCAA's power to prohibit NIL payments. Historically, NCAA rules were broad. Now, the settlement permits the NCAA to maintain some prohibitions, but these are significantly narrower than before.

Specifically, under the IRS, the NCAA can only prohibit payments for NIL from a limited set of "Associated Entities or Individuals". This is a key distinction from previous broad restrictions.

Under the settlement, an "Associated Entity" is generally defined as one closely affiliated with an NCAA member school for the purpose of promoting that school’s athletics program OR its student-athletes.

An "Associated Individual" is an individual who is a member of an "Associated Entity," OR who has contributed more than $50,000 over their lifetime to a particular NCAA member school OR an "Associated Entity" to promote their athletics program OR student-athletes, OR who has assisted a school in the recruitment or retention of student-athletes.

The settlement does not permit the NCAA to prohibit NIL payments from other third parties that are not "Associated Entities or Individuals.” This means that companies like major sports apparel brands, national food companies, or non-school-affiliated businesses can generally continue to engage in NIL deals with athletes without NCAA prohibition, provided they are not defined as "Associated Entities".

For athletes and their families: This expanded scope means more potential avenues for NIL income from a wider range of businesses. The focus shifts to identifying genuine commercial opportunities. The Court found these provisions will not unduly restrict athletes' ability to enter into contracts for their NIL or to maximize payments.

For legal and NIL professionals: This clarifies that traditional, arms-length commercial deals between athletes and unassociated brands are largely outside the NCAA's prohibitory reach, simplifying compliance in those areas.

While payments from "Associated Entities or Individuals" are the only type the NCAA can prohibit, they are not automatically prohibited. Such payments can be prohibited only if they are not for a "valid business purpose" related to the promotion or endorsement of goods or services provided to the general public for profit.

Furthermore, the compensation must be "at rates and terms commensurate with compensation paid to similarly situated individuals with comparable NIL value who are not current or prospective student-athletes at the Member Institution". A "similarly situated individual" could potentially include a professional athlete, celebrity, or public figure.

The settlement also notes that "Associated Entities and Individuals" are permitted to make indirect NIL payments to athletes by contributing to schools, which can then make payments to athletes.

For athletes and their families: If an "Associated Entity" offers an NIL deal, it must involve a real business purpose and fair market value for the services provided. This means genuine work or promotion, not just a payment for playing for a school.

For legal and NIL professionals/law students: The "valid business purpose" and "fair market value" tests introduce a critical, fact-specific analysis: The Court noted that whether these provisions violate the Sherman Act has not been, and will not be, adjudicated by the Court due to the settlement.

This implies that disputes over "valid business purpose" and "fair market value" for deals with "Associated Entities" are likely areas for ongoing interpretation and potential challenge. The specific mention of "indirect payments" through schools introduces another layer of complexity for compliance frameworks.

Given this evolving environment, here are concrete steps that should be taken to ensure everyone is making "Smart NIL Choices":

For Athletes and Their Families:

For Legal Professionals & Law Students:

Much like pro leagues, LSU football team wants to sell jersey patch advertisements for its uniforms, according to Athlon Sports. They are still waiting on NCAA approval and if approved, they will be the first of many schools looking to capitalize on a new NIL avenue. Similar to the attempt by the Oklahoma State University's football team to use QR codes on the back of their helmets linked to a NIL fund.

Offensive Tackle Felix Ojo signed a historic, fully guaranteed three-year, $5.1 million revenue-sharing contract with Texas Tech. The $5.1 million is made up of incentives and guaranteed revenue-sharing.

Title IX class action lawsuit against Stephen F. Austin State University, was recently filed, challenging the university’s decision to eliminate its women’s beach volleyball, bowling, and golf teams. The lawsuit alleges that these cuts violate Title IX by depriving women of equal athletic opportunities, particularly as the university already falls short of proportionality requirements and in anticipation of new revenue-sharing payments

In Michigan, state universities would be allowed to organize into unions under bills recently sponsored in the House of Representatives. The bills would classify athletes as university employees instead of amateur competitors. If signed into law, the bills would set the stage for union bargaining over questions like revenue sharing, training and work conditions, and NIL agreements.

A highly recruited high school player, in the final stages of making a college decision, receives a lucrative NIL offer from a collective widely known to have deep ties and significant financial contributions to a specific university's athletic department. This collective has a history of actively supporting the recruitment and retention of athletes for that institution.

The offer, presented as an NIL deal for "brand ambassador services," is exceptionally generous, but the specific deliverables seem vaguely defined and heavily contingent on the recruit enrolling at that particular university. The timing of this attractive offer, coupled with pressure to commit quickly, further complicates the recruit's ability to discern if it's a legitimate NIL opportunity or an impermissible inducement.

While the recent settlement significantly expands freedom for most third-party NIL deals, it maintains narrower prohibitions on payments from "Associated Entities or Individuals." These are entities or individuals closely affiliated with a school's athletic program or who have made substantial contributions or assisted in recruitment.

For athletes and their families, it's crucial to understand that payments from such closely-tied entities are generally permitted only if they are for a "valid business purpose" (e.g., genuine marketing services) and offer "fair market value" for that service. Simply receiving payment to attend a school, without providing a legitimate service at market rates, could still be problematic. Always clarify the nature of the entity offering the deal and ensure the terms align with providing a real service at market value. Transparency and understanding the source of funds are critical.

For legal and NIL professionals and law students, this distinction presents ongoing compliance challenges. The interpretation and enforcement of "valid business purpose" and "fair market value" for deals involving "Associated Entities" will be critical. This area of the settlement reflects the continued effort to differentiate legitimate NIL from impermissible inducements, requiring careful analysis of collective activities and offer structures.

When considering a NIL deal, especially with a collective or booster, always ask about their official association with the university. Understanding this connection is key to determining if the deal falls under the "Associated Entity" rules. Knowing this is your first line of defense in successful NIL navigation.

Of the four options below, what do you think about third-party NIL deals post-settlement?

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Share your insights in the comments. Let's tackle this together!

Athletes considering third-party NIL deals should prioritize vetting the entity offering the opportunity. Consult with a trusted advisor who understands NIL regulations and can help identify whether an entity might fall under the 'Associated Entity or Individual' definition. This due diligence is key to ensuring compliance with the new rules.

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Next week, we'll dive into: The Financial Impact: Understanding Damages and Payouts

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Disclaimer: This newsletter provides educational insights and general information related to the legal side of Name, Image, and Likeness (NIL). It does not constitute legal, financial, or professional advice, and should not be relied upon as such. This content is for informational purposes only, and you should always consult with a qualified professionals for advice tailored to your specific situation.

NIL laws are constantly evolving, and the information provided might not be the most current at all times.