The Name, Image, Likeness (NIL) revolution for amateur athletes is here, with endless underwriting and claim scenarios emerging. Currently, there is no regulatory framework governing how NIL collectives manage relationships with student athletes or donor investors. No standard of care has been established for the handling of NIL collective funds, disbursements to student athletes, or services required by student athletes.
Even so, NIL collectives often are structured as 501(c)(3) nonprofits that are affiliated with—but operate independently from—a particular school and its athletic department. As with any nonprofit, there must be executive officers hired and a board of directors appointed. Unique to the NIL collective nonprofit is its charitable purpose to pool funds from donors, fans, businesses, and other sources to compensate student athletes in exchange for the student athlete competition of services.
Thus, management liability coverage to protect the collective and its governing body is appropriate. But can an NIL collective be underwritten like a traditional nonprofit? Understanding the current litigation landscape created by former athletes against the NCAA and the explosion of NIL collectives provide insight into why insurance product creativity in this space is tantamount.
Amateur NIL collectives were created in the wake of the unanimous U.S. Supreme Court decision, National Collegiate Athletic Association v. Alston et al, No. 20–512 (2020). The court determined that the NCAA could no longer restrict member institutions from offering education-related compensation and benefits to student athletes. Such compensation and benefits include cash awards for academic achievement, graduate degree and vocational school scholarships, and computers.
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In addition, multiple state legislative initiatives emerged permitting student-athletes to benefit off their NIL. In conjunction, the NCAA adopted an interim policy regarding student athletes’ ability to benefit off their NIL in a manner consistent with the laws of the state where their school is located. Student athletes are also allowed to use a professional service provider (agent/attorney) for NIL activities, and student athletes are required to report NIL activities to their school.
While Alston, state legislation, and the NCAA (in the interim) allow students to profit off of their NIL, there is no task force to police how NIL collectives are operating as non-profit collegiate sport powerhouses.
Despite its efforts, the NCAA is facing an uphill battle as it tries to gain control over the explosion of NIL collectives. [See Grant House, et al., Plaintiffs, v. Nationa Collegiate Athletic Association, et al., Defendants Case Nos. 4:20-cv-03919 CW, 4:20-cv-04527 CW (June 2021); Hubbard v. National Collegiate Athletic Association, 4:23-cv-01593, (N.D. Cal.); Carter v. Nat’l Collegiate Athletic Ass’n, 23-cv-06325-RS, (N.D. Cal. Apr. 29, 2024)].
On Oct. 7, 2024, the NCAA’s settlement proposal in In re College Athlete NIL Litigation was approved by the presiding judge in the Northern District of California. The NCAA agreed to $2.8 billion of backpay damages offered to athletes who could not benefit from NIL before 2021. The settlement also states that the NCAA must continue to allow third-party NIL benefits over and above existing scholarships and other benefits permitted by the NCAA. The court’s preliminary approval came after previous attempts at settlement with more NCAA oversight of NIL disbursements had been rejected.
Even with the preliminary settlement in In re College Athlete NIL Litigation, which formally allows for NIL collectives to keep operating and paying amateur athletes, pending lawsuits against the NCAA for antitrust violations remain. On Sept. 10, 2024, four former University of Michigan football players sued the NCAA and the Big Ten Network for unreasonable restraint of trade under the Sherman Act. The former athletes seek monetary damages against the NCAA and the Big Ten Network for their loss of market value and suppressed earnings due to the former athletes’ inability to utilize NIL while they played for Michigan.
Legislation and Regulations
After the Alston decision, and in anticipation of the settlement approval in In re College Athlete NIL Litigation settlement, the number of NIL collectives participating in amateur sports programs continues to rise. Thirty-two states have articulated their own NIL regulations and 18 have no legislative guidance. Those without codified NIL statutes defer to the NCAA interim rules, which are likely to change considering the proposedIn re College Athlete NIL Litigation resolution.
California’s Fair Pay to Play Act was the first state NIL law enacted, and most following states have mirrored its language. Under California’s Fair Pay to Play Act, student athletes at colleges, universities, and high schools can earn compensation for the commercial use of their valuable Name, Image, Likeness assets. The act restricts students from endorsing or sponsoring products that conflict with existing team contracts (like Nike/Adidas), athletes being recruited must disclose NIL endorsement deals, and athlete compensation cannot be conditioned on athletic performance.
Regulatory exposure to a management liability from violation of California’s or 30-plus other states’ NIL legislation seems to be far greater for the student athletes and their representation.
Because NIL collectives cannot base compensation to an athlete on their performance, stating as much in a contractual provision would eliminate any confusion that the collective was running afoul of such a regulation. In addition, the Fair Trade Commission (FTC) has recently issued rules and regulations for advertising products and services, which require that student athletes promoting products on social media make it obvious when they have a material connection with a brand when making certain kinds of posts. Similarly, a contract provision warning that student athletes are solely responsible for compliance with FTC regulations may shift liability from a NIL collective.
In addition, because most NIL collectives organize as 501(c)(3)s, the barrier to entry to become a collective is to be “organized and operated” exclusively for “exempt purposes,” such as religious, charitable, scientific, literary, or educational purposes. The failure of an executive to manage the NIL collective funds and athletes in such a way to maintain a nonprofit status may create a liability from or to the IRS and donors that rely on a tax write-off for contributions to the collective.
However, because a NIL collective is a nonprofit, not an LLC or investment firm, the owed fiduciary duty is solely to collect and distribute funds to athletes acting for a charitable purpose. As stated above, in most states there can be no condition of performance by an athlete or team as part of a deal and the NIL collective is not meant to turn a profit for its investors. A NIL collective board should have finance and governance committees with oversight of the collective’s stated charitable mission being carried out. If an audit of a NIL collective finds differently, the NIL collective’s management liability coverage may be implicated.
In addition, a cause of action against a NIL collective by one of its donors or contributing organizations would need to look and sound like fraud against a charitable organization. While a demand for books and records can be made or a lawsuit brought, overcoming a hurdle to prove that NIL collective expenses and distributions were not in furtherance of support of student athletes may be challenging without the cooperation of a student athlete or agents that felt the NIL collective was in the wrong.
An example that may show how this exposure plays out is with how the Matthew Sluka-UNLV drama resolves. According to Sluka, a UNLV assistant coach verbally promised Sluka a $100,000 Name, Image, and Likeness payment for transferring from Holy Cross. UNLV and the third party allegedly responsible for paying Sluka deny that any money—beyond $3,000 for an appearance this summer—was ever promised to Sluka. UNLV’s NIL collective denied having a deal in place with Sluka that required them to pay the starting quarterback, and, on Sept. 26, 2024, Sluka left the team—which was 3-0 at the time—and refused to accept a Las Vegas Sportsbook offer to cover the $100,000 alleged offer.
Because the Friends of UNLV collective is denying any such promises were made, and the agreement was allegedly verbal by a UNLV employee, a breach of contract case against the NIL would be tough to pursue. However, there is always potential that vicarious liability could arise if there is proof of communication between the collective and UNLV about requirement. When and if Sluka pursues an action against UNLV or the collective, the complaint may allege unfulfilled promises, thwarting other business opportunities, or improper inducement.
With the dynamic landscape of what, if any, rules govern NIL collectives, whether a collective is a good risk remains under review.
Sarah Abrams is head of claims at Baleen Specialty, a division of Bowhead Specialty. sarah.abrams@baleenspecialty.com