“NIL” has become a popular acronym used to describe a system for compensating college athletes. Over the last five years, Internet search trends reveal a 900 percent increase in queries with “NIL.” During that same time span, NCAA college athletes have gone from earning $0 in NIL compensation to well over $1 billion per year. At the foundation of this new NIL industry is a legal doctrine establishing ownership rights in one’s own name, image and likeness. Decades of precedent establish that NIL rights are connected to the related doctrines of intellectual property and publicity rights.
Recent developments in college sports, however, foreshadow a drift away from treating NIL as a set of legal rights freely owned by each student-athlete in favor of a regulated system that may ultimately shortchange NIL value, leaving many current and future college athletes questioning the fate of their financial futures.
The Market for NIL Rights
For decades, college athletes were prohibited from receiving compensation beyond scholarships under the NCAA’s strictly enforced amateurism rules. That changed in 2021 when the NCAA began permitting student-athletes to profit from their name, image and likeness, marking a radical change in college sports.
In the short years since then, college athletes have earned an estimated $1 billion annually through NIL contracts. These financial arrangements have been mainly administrated by or through university-adjacent organizations known as “collectives.” Collectives handle NIL contracts to maintain compliance with NCAA rules and avoid direct pay-for-play violations for the universities.
The House v. NCAA Settlement Shakeup
A recent antitrust lawsuit covering this issue, House v. NCAA, proposes a settlement that would introduce another significant shift: a revenue-sharing model permitting universities to pay athletes directly using school money for the first time in NCAA history.
In the minds of many, this revenue-sharing model will inch college sports closer to professional sports, where salary caps, general managers and a roster limit rather than scholarship limits are expected to be the new normal.
However, besides opening the market for direct pay-to-play by the universities, the House v. NCAA proposed settlement simultaneously clamps down on the collectives by adding new rules applicable only to certain third-party NIL agreements.
One notable example is the NCAA’s proposed approach for policing student-athletes’ NIL rights using a “fair market value” test. This approach will empower the NCAA, specific member conferences and university administrators and Deloitte Inc. to prescribe the worth of each athlete’s inherent, intangible name, image and likeness.
As part of this proposed regulation, all Division I student-athletes must report certain third-party NIL deals worth $600 or more. All such agreements will be subject to a fair market value assessment.
Using this assessment, the NCAA will:
prohibit NIL payments by Associated Entities or Individuals (individually or collectively) of a Member Institution from entering into NIL licenses with or for the benefit of current or prospective student-athletes at a given Member Institution unless the license/payment is for a valid business purpose related to the promotion or endorsement of goods or services provided to the general public for profit, with compensation 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.
The Big Four accounting firm Deloitte has been selected to run the NIL fair market value platform, although details of what this platform will look like have not been disclosed. It is expected that the Power Four NCAA conferences (ACC, Big Ten, Big 12 and SEC) will oversee the regulatory system’s administration and application.
In other words, a student-athlete who wishes to license their name, image and likeness to certain third parties in addition to, or rather than, the university will be subject to heightened oversight and scrutiny by the NCAA. Unless the student-athlete carefully ensures their contract represents the fair market value for using their NIL, they may face consequences such as ineligibility. The NCAA is back in the driver’s seat regulating athlete compensation.
Industry stakeholders and fans have questioned the wisdom of this approach. Lawyers have questioned its legality. If NIL is viewed as it should be — a set of legal rights much the same as intellectual property — there is little precedent for the fair market value oversight envisioned by the NCAA’s latest proposal.
NIL: Similar to Intellectual Property
The concept of NIL is deeply rooted in the right of publicity and intellectual property law. The right of publicity, which protects an individual’s ability to control the commercial use of their identity, emerged in U.S. legal doctrines as an extension of privacy rights and prevents unauthorized use of a person’s identity. Early cases involved celebrities suing companies for using their likeness without permission.
The first significant case establishing this right was Haelan Laboratories v. Topps Chewing Gum, where Haelan sued Topps for using baseball players’ images on trading cards without consent.
While NIL is not always classified as intellectual property in the strict legal sense, it shares many similarities with IP, particularly in its transferability, licensing potential and ability to generate commercial value. Both NIL and IP rights allow the owner to control usage and earn revenue.
NIL deals function like IP licensing agreements by allowing others to make use of a person’s rights in exchange for payment. In practice, NIL functions like a form of IP, as it vests in the individual owner’s exclusive control over the commercial use of that property (that is, their name, image and likeness).
Scrutinizing NIL Deals for Fair Market Value: Illogical and Restrictive
Under a typical licensing arrangement, the owner of the rights — the athlete in these cases — agrees to license some or all those rights to universities and university-affiliated third parties under specific terms and conditions.
If the student-athlete and counterparty strike a deal, the terms would cover a transfer of rights in exchange for financial consideration. Assuming the deal was bilateral, willing and otherwise not illegal, this deal is definitionally market value.
An arm’s length bargain between two parties about the amount of a NIL deal is precisely a real-world exercise in determining fair market value. It is illogical — and redundant — for an NCAA oversight committee to scrutinize this same deal ex post facto to decide whether it is fair market value.
When NIL is understood like intellectual property, this makes sense. Intellectual property owners control who they license to, if at all, and on what terms. Indeed, no other type of intellectual property license is subject to similar scrutiny of whether those terms are fair market.
For example, inventors are not required to submit their patent licenses to the Patent Office for approval. Painters’ artistic works — and the value a willing buyer places on owning or displaying that work — are not subject to financial oversight by the National Endowment for the Arts. Authors may price their books however they choose. And rightly so; who better than the owner of a right and a potential buyer to determine the fair market value?
No one would seriously argue that a third-party organization has the right to interpose an accounting board to veto these deals after signing them. NIL rights of student-athletes should be treated in like manner: The value of NIL deals, like other intellectual property licenses, should be governed by private contract law and the market demand.
NIL Regulation Ignores the State of College Sports
The proposed fair market value scrutiny is also out of step with the realities of modern college sports. Prior justifications for exacting regulations of this type relied upon preserving the amateur status of student-athletes. But that justification has dissipated.
The introduction of NIL in 2021 blurred the lines between professional and college sports. The new proposed House settlement rules — including direct university pay-to-play — all but erase that line. The regulations imposed on college athletes should fairly reflect this change. One should look at how professional athletes’ NIL contracts work as a starting point.
Traditionally, professionals in U.S. sports leagues do not have to comply with strict fair market value rules for marketing and endorsement deals. Instead, their ability to negotiate deals is governed by market dynamics — not a regulatory fair market thumb like that proposed in the House settlement. There is no longer a compelling justification for treating NCAA athletes differently.
If the proposed fair market value scrutiny goes into effect, consider how the scrutiny will likely only flag deals that are allegedly too large — i.e., NIL contracts deemed “not commensurate with compensation paid to similarly situated individuals with comparable NIL value.” Put another way, all successful fair market value enforcements by the NCAA will likely result in athletes being paid on less favorable terms than what they could otherwise earn in the market.
Over time, these decisions will function as a salary cap for NIL deals. However, unlike traditional salary caps that are published, fixed amounts of money known to all parties bound by that cap, the fair market value cap is a moving target unknown to anyone until after each NIL deal is executed.
That means when a student-athlete signs a NIL contract with a collective, they will not know if the NCAA will later deem it “over” market value. This could have a chilling effect on the size and value of deals because both the athletes and the collectives will be incentivized to agree upon smaller amounts to avoid subsequent NCAA nullification based on fair market value concerns.
This uniquely harms the owner of the right — the athlete — by suppressing their NIL value to less than what it would otherwise be. This is another example of the drift away from treating NIL rights as the student-athlete’s legal rights akin to intellectual property.
Fair Market Assessments Can Help Approximate Value, Not Regulate the NIL Market
To be sure, fair market value can help value NIL when there are elements of exploitation, infringement or unauthorized use of the property. Where one party makes unauthorized use of one’s name, image or likeness, for example, courts might evaluate damages and other remedies by ascertaining the fair market value of that NIL.The same goes for other forms of intellectual property.
For example, when an inventor’s patent is used without authorization, courts award damages and may consider as one data point what the market otherwise pays for similar use of the technology.
However, in these examples, the fair market value tool is only a proxy for what two willing parties would have otherwise negotiated had they done so. In other words, courts consult fair market value to approximate what a deal would have looked like had one existed.
The distinction with scrutinizing actual NIL agreements in this way is that one need not approximate anything: The value has been determined by the deal itself. The parties — a student-athlete as the licensor on one hand and a third-party collective as the licensee on the other — have negotiated and agreed to the terms. The deal is the market price.
Fair market value scrutiny envisioned by the House settlement may offer certain short-term benefits for the NCAA and its member conferences. Still, it is unclear what benefit, if any, this proposed rule would offer student-athletes.
Based on the information available today, the scrutiny proposed in the House settlement will essentially allow the judgment of a new NCAA apparatus to displace the natural ebb and flow of an otherwise functioning free market. If NIL is viewed as it should be, as a set of legal rights much the same as intellectual property, this fair market value regulatory scheme should be rejected.
Warren McCarty is a principal at Dallas’ Caldwell Cassady & Curry who focuses on high-stakes intellectual property disputes for clients in Texas and across the U.S. In the past decade, he has helped those clients secure billions of dollars in jury verdicts and settlements covering cutting-edge technologies and intellectual property.
