College Athlete NIL Deals: Legal Risks Of Contracts

When college athletes were finally able to earn money from their athletic talents, many student-athletes focused only on the potential benefits. However, there are also legal risks of signing sports contracts with college athletic departments. Signing a contract imposes a legal obligation on both parties, and any breach can expose one party to damages.

College athletes must understand the legal obligations of a name, image, and likeness contract with universities and college sports collectives. For more information on NIL rights for college athletes, talk to a local entertainment and sports lawyer.

Name, Image, and Likeness Contracts

Student athletes can receive compensation from companies that use their names or images for commercial purposes.

A Name, Image, and Likeness (NIL) contract is an agreement that allows high school and college athletes to receive compensation for endorsements and appearances. Top college athletes can negotiate NIL contracts to get money for social media, commercials, promotional events, sponsorship agreements, and event appearances.

College football and basketball players can negotiate an NIL agreement with a sporting goods company, fast-food restaurant, or video game company to use their name and image. An NIL agreement is a legal contract, and the rules governing its formation and termination are governed by contract law.

Generally, NIL contracts will negotiate a set duration, usage rights, exclusivity, type of NIL compensation, termination clauses, damages, and dispute resolution (including arbitration). College athletes can talk to a contract lawyer for legal advice before signing an NIL deal. An attorney can explain the terms of the contract and negotiate to get the student athlete the best deal available.

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Reporting NIL Deals

According to the NCAA, students must report NIL deals. This includes reporting for high school prospects, junior college athletes, and transfers to Division I schools.

Generally, third-party NIL deals of $600 or more must be reported to the College Sports Commission for compliance with the rules.

NIL Compensation Is Taxable Income

For most student-athletes, income from NIL activities is taxable. Students must keep accurate records of their earnings and expenses for tax filing.

For tax advice about NIL deals, talk to a tax professional or a tax attorney.

College Licensing Agreements

Top prospects can negotiate for fair compensation for their sporting talents. However, most college athletes lack the negotiating power to protect their own best interests.

Many colleges and universities have students enter a broad licensing agreement. These licensing agreements allow the college to sublicense the athlete’s NIL to third parties, including their name, voice, likeness, and identifiable biographical information.

These broad licensing agreements can continue beyond the student’s time at the institution, even after they graduate or transfer. At the same time, these licensing agreements make it clear that students are not in an employer-employee relationship with the school, there is no fiduciary duty, and that the students waive any right to sue the school or conference.

Some sublicensing contracts may conflict with a student’s ability to negotiate their own NIL deals. For example, a university may sublicense the student’s name and likeness with a sporting goods company while the student wants to negotiate a contract with a competing company. This limits student-athletes’ control over their own intellectual property rights.

Potential Risks for Student Athletes in NIL Agreements

When schools negotiate NIL policies for student athletes, they are investing in the prospect of making money off the students for the contract period. Students who want to leave school early to pursue an NFL or NBA career may be in violation of their NIL rules. Universities may include liquidated damages for students who violate the contracts simply by entering the draft or transfer portal.

Liquidated damages are intended to represent a good-faith estimate of anticipated damages rather than be punitive in nature. Even if a contract provides for liquidated damages, a court may fail to enforce the provision if it is determined to be punitive or disproportionate.

Many student-athlete contracts are essentially non-compete agreements that prevent them from transferring to another school. However, in some cases, violating the contract can be financially beneficial for the student. They may get more in athlete compensation by signing a new contract, even after liquidated damages.

For example, a student athlete can only negotiate a small compensation agreement as a high school athlete. After a year of proven success, they can negotiate a much higher contract with a different school. In that situation, it may be worth more to violate the old contract and sign a new one.

It’s Crucial To Review the Terms of Your NIL Contract

NIL deals generally do not guarantee compensation. The terms of the contract may condition payment based on playing time, medical eligibility, and conduct requirements.

If you are injured or benched, you could miss out on compensation. Make sure you review your contract’s terms and conditions to understand your legal obligations and protections. It’s best to have an experienced attorney review it.

Changing Laws: US Supreme Court’s NCAA vs. Alston and Other Legal Developments

College sports generate billions of dollars in revenue for school programs, primarily from football and basketball programs. The federal and state laws governing college athletics and compensation continue to evolve. It was not long ago that college athletes were not eligible to receive compensation while playing college football, basketball, or other sports.

In the Supreme Court’s NCAA v. Alston decision, the Court held that the NCAA’s rules violated federal antitrust laws. However, the NCAA and college athletic conferences still wield significant power over student compensation for their sports programs. In a concurrence for the case, Justice Kavanaugh wrote, “The NCAA’s business model would be flatly illegal in almost any other industry in America.”

Some universities have taken action against student-athletes for allegedly violating their NIL agreements. Most of these lawsuits settle before going to court. However, the legal landscape for college athlete compensation continues to evolve.

For example, House v. NCAA was a class-action lawsuit filed by student athletes against the National Collegiate Athletic Association (NCAA) and its athletic conferences (Big Ten, Pac-12, etc.). The Division I athletes sought NIL damages and lifting of the restrictions on revenue sharing. In 2024, the NCAA agreed to settle the lawsuit for back pay over 10 years. The NCAA also agreed to a revenue-sharing model for student athletes.

There is pending federal legislation to regulate college-athlete compensation. However, the future of student athlete compensation regulations has not been decided.

Legal Advice Before Signing a College Sports Contract

Before signing any contract that signs away your legal rights, make sure you get legal advice from an experienced sports and entertainment lawyer. An attorney can review the school’s boilerplate contract and explain the legal risks involved. Your attorney can negotiate with the school to ensure you protect your legal rights when choosing a school.

Even if you have a contract, an experienced attorney can help you get out of the unfair agreement. The contract may be unenforceable because of the restrictions on your rights, or the liquidated damages are unreasonable. For legal advice about college sports contracts, talk to an entertainment and sports lawyer.