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Impact of California’s ‘Fair Pay to Play Act’ On High School Athletes

By Lee Green, J.D. on November 13, 2019 hst Print

The California Law

On October 1, 2019, at an event hosted by LeBron James’ Uninterrupted Platform, on a special episode of Uninterrupted’s The Shop, California Governor Gavin Newsom signed into law Senate Bill 206, informally titled the Fair Pay to Play Act, a bill passed unanimously in early September by the California Assembly (73-0) and the California Senate (39- 0), a historic piece of state legislation that will allow college athletes in the state to monetize their name, image and likeness (NIL) by signing endorsement deals despite NCAA amateurism rules forbidding student-athletes from entering into and profiting from such contracts.

The new law will go into effect on January 1, 2023, the lengthy run-up to implementation intended to provide ample time for supplemental federal or state legislation to be enacted and for amendments to be made to NCAA bylaws governing NIL. In just the first week after the signing of SB 206 by Newsom, similar state legislation was introduced in New York, South Carolina, Illinois, Pennsylvania and Florida, and Congressman Anthony Gonzalez (R-Ohio), a former Ohio State wide receiver and first round draft pick by the Indianapolis Colts, announced his sponsorship of a similar bill in the U.S. Congress. Dozens of additional states are expected to enact statutes similar to California’s.

The primary argument in favor of the legislation is one of economic fairness – every college student other than athletes may monetize their NIL using any entrepreneurial strategy they can devise, including selling access to their social media followers, marketing goods and services online, and entering into endorsement deals. For example, popular college-age musicians – even those on scholarship from the university marching band, orchestra or theatre department – can use their NIL to sell music via iTunes, Google Play or Spotify; market merchandise related to their music careers; or promote their solo or band performances. Only student-athletes, because of the allegedly cartel-like behavior of the NCAA, are restricted from profiting from their NIL.

The Fair Pay to Play Act comes in the wake of the cost-of-attendance stipend enacted in 2015 after the ruling in O’Bannon v. NCAA that association rules violate federal antitrust law and after a failed attempt to unionize student-athletes at private universities. In addition to the economic fairness rationale, those supporting the new law argue that 1) it won’t impose any costs on university athletic programs because the sponsors who sign NIL contracts with student-athletes will be the ones paying those players for their NIL rights; 2) although high-profile athletes will likely earn the greatest NIL profits from lucrative deals with shoe/apparel companies, beverage companies, automakers, video game publishers and other large firms, even lower-profile players – the hometown heroes – will be able to earn NIL profits from local restaurants, retailers, autograph shows, sports camps, exhibition games and similar sponsorships; and 3) the statute is consistent with both the law and spirit of Title IX because female athletes will have an equal opportunity to earn profits commensurate with the value of their NIL rights, especially because of the extensive advertising and endorsement needs of so many companies marketing products and services to women and girls.

The NCAA and others, including the NFHS, opposed to the new law argue that 1) it violates the principles of amateurism that have historically been the foundation of college sports; 2) university athletic programs and student-athletes need governance via a uniform, nationwide set of regulations, not a patchwork of inconsistent state laws; 3) colleges in states granting NIL rights to players will be deemed in violation of NCAA rules and thus ineligible to compete in showcase events such as the College Football Playoff, the NCAA basketball tournament and the College World Series; and 4) the new law is an unconstitutional violation of the Commerce Clause in the U.S. Constitution because it will place an excessive burden on interstate commerce if universities in states with NIL rights gain a recruiting advantage over colleges in states without such rights or are declared ineligible for NCAA playoffs and the accompanying revenue sharing.

Key Provisions of the “Fair Pay to Play Act”

The full-text of the new California legislation is available here and the following are its most significant components:

  • The statute forbids four-year California universities from upholding any bylaw, rule or regulation enacted by the NCAA or other athletic association (e.g., NAIA or National Christian College Athletic Association), conference (e.g., Pac-12 or WAC) or other group, that would prevent college student-athletes from earning NIL compensation.
  • The law prohibits the NCAA, any athletic association, conference or other group from preventing the participation of any four-year college in intercollegiate events (e.g., NCAA national playoffs) because student-athletes are profiting from NIL rights.
  • The bill restricts four-year college student-athletes from entering into NIL deals that would conflict with sponsorship contracts that the university athletic department already has in place, but only with regard to official team activities (e.g., the player cannot enter into an NIL contract with Nike and wear Nike shoes or apparel in games if the university already has a deal with Under Armour for athletes to wear its gear in contests, although the player could sign a NIL deal with Nike for non-team activities).
  • The statute requires that college athletes must disclose all NIL deals to the university so that it will have an opportunity to inform the players regarding conflicts with official team activities.
  • The law does not apply to student-athletes at California Community Colleges and requires the CC Board of Regents to form a working group to study NIL issues for CC student- athletes and to submit a report to the state legislature containing policy recommendations by July 1, 2021.
  • The bill does not apply to high school student-athletes and does not empower them to earn NIL profits in violation of California Interscholastic Federation amateurism rules.
  • The statute allows college student-athletes to hire professional representation for NIL matters, but requires that those individuals be licensed attorneys or athlete-agents who are in compliance with all federal and state certification requirements for sports agents.

Unintended Consequences for High School Student-Athletes

Although the new California law and its progeny introduced or announced in other states do not provide NIL rights for high school student-athletes, the legislation presents a variety of challenges that legislatures, state associations, school districts and scholastic athletic personnel will need to address in order to prevent the exploitation of high schoolers. These issues fit primarily into three categories:1) access by sponsors to the high school athletes who upon matriculation to college will have NIL rights; 2) timing questions as to when NIL rights will attach for those athletes as they transition from high school to college; and 3) the compensation rubric that will be implemented for the flow of NIL monies to college athletes and the related NIL publicity and recruiting promises that will be communicated by universities to high school prospects.

1. Access Issues: Although, hopefully, most of the companies seeking high-profile student-athletes for NIL sponsorship offers will behave in an ethical manner, the intense competition between many firms in product and service sectors likely to be major players for college-athlete NIL rights will undoubtedly lead some to prematurely begin recruiting endorsers while they are still in high school or even younger.

As illustrated by the recent bribery and corruption prosecutions of marketing representatives for athletic shoe and apparel companies, it is likely that some firms will begin pursuing athletes for their NIL rights early in high school or even while they are still in middle school, either by directly reaching out to the athletes and family members, or through the indirect route of communicating offers through the wide variety of “handlers” who for decades have created havoc in the sports world by often acting in their own self-interest as opposed to the best interests of young student-athletes. These “handlers” would include so-called street agents, AAU basketball coaches, non-school-affiliated 7-on-7 football coaches, elite traveling team coaches in other sports, athletic personnel at high-profile sports academies, pseudo-guardians for young athletes, and other individuals who might financially benefit from steering school-age student-athletes toward certain NIL sponsors with whom deals might be signed immediately upon player matriculation to college.

High school athletic directors and coaches, who presumably will act in a manner consistent with the mission of education-based athletics and in the best interests of young student-athletes, will be able to serve as a partial barrier against such exploitation of high school athletes; however, as has repeatedly been demonstrated over the years, scholastic athletic personnel are limited in their ability to hold back the tsunami of economic forces at work in the marketplace and will need extensive assistance from legislatures and state associations to enact safeguards to protect high school and middle school student-athletes.

2. Timing Issues: Unclear in the language of the California law and similar statutes proposed in other states is a precise definition of the moment when the player will be considered to become a collegian and NIL rights will attach. Are mid-year football recruits who graduate from high school in December and matriculate to college early in order to participate in spring football practice authorized to immediately enter into NIL deals? Will basketball players who matriculate at the beginning of college summer school sessions be able to immediately tap into NIL monies? Would signing up for online college courses immediately upon the conclusion of high school eligibility in any sport qualify high school athletes as collegians for purposes of NIL rights? Will the availability of NIL revenue incentivize some high school student-athletes, especially those from backgrounds whose family financial needs so dictate, to skip altogether the senior season of high school sports, and using either a diploma earned early or a GED, to matriculate to college for the equivalent of an entry-level redshirt season during which they might be able to earn NIL income?

These scenarios and many others may seem outlandish, but recent history has demonstrated that with the big-dollar economic forces at play in the marketplace, every combination and permutation of strategies to “game the system” are likely to occur and that affirmative measures will need to be employed to safeguard high schoolers against exploitation.

3. Compensation Rubrics: The California law and its progeny introduced or announced in other states do not prohibit universities from directly paying NIL monies to college student-athletes. Will universities with long-term, high-revenue sponsorships deals (e.g., Nike with Duke for 14 years and $135 million; Adidas with Kansas for 14 years and $196 million; Under Armour with UCLA for 15 years and $195 million) begin to incorporate into those contracts an annual allocation of monies from those deals to be paid directly to the student-athletes at the college for NIL rights? Such arrangements might be structured in the form of sizable NIL payments to a limited number of a university’s highest-profile football and basketball players, or in the alternative, for example at a Division I college whose athletic program has 400 student-athletes, an annual pool of $4 million from the sponsorship contract to be divided equally with $10,000 NIL payments flowing to every student-athlete, with either of the two strategies being heavily publicized to all high school prospects in order to gain a recruiting advantage.

The California law and others introduced to-date also contain no limitations on NIL-related activities or payments by boosters. In another variation of strategies to game the system, would boosters form a business entity designed to funnel NIL payments to a few of a university’s high-profile student-athletes or to all of a college’s athletes, again with either of the two approaches being heavily publicized to high school recruits? Might such a strategy allow a few small colleges with even just one exceptionally wealthy alumnus, schools not historically major players in the college sports landscape, to rise to a position of overall athletic or sport-specific dominance because of NIL payments from that alumnus that are extensively publicized to high school prospects?

Protecting High School Student-Athletes

Although these unintended consequences and issues impacting high school student-athletes do not by themselves serve as a sufficient rationale to refute the overall goals of laws such as the California Fair Pay to Play Act with regard to providing equitable treatment to the college athletes who deliver millions of dollars to the bottom lines of their schools, and to the bottom lines of university athletic administrators and coaches, it is incumbent upon legislatures, state associations and school districts to take all available steps in their roles as rule-makers and athletics advisors to protect high school student-athletes against exploitation.