Payment for Student-Athletes’ NIL Rights Comes to Tennessee

June 4, 2021
Firm Publication

On May 11, Tennessee Governor Bill Lee signed into law House Bill 1351 (HB 1351), which requires public and private four-year colleges in Tennessee that are not under the authority of the Tennessee Board of Regents (institutions) to allow student-athletes to be paid for the use of their name, image and likeness (NIL). Patterned after laws passed in other states, including California’s Fair Pay to Play Act, the Tennessee law goes into effect on January 1, 2022.

HB 1351 enters the scene at a particularly turbulent time for college athletics and the ability of student-athletes to monetize their NIL rights. Many states have passed, or are considering, similar (but not identical) laws, the NCAA has stated its intention to update its NIL rules as soon as this month, and we are awaiting a ruling from the U.S. Supreme Court in a related (but not controlling) case against the NCAA.

Below is an overview of the new Tennessee law and highlights from some other related issues.

Tennessee’s NIL Law: HB 1351

HB 1351 requires public and private institutions to allow student-athletes to earn compensation from third parties for their NIL rights, subject to certain limitations. The most important provisions of the law include:

  • Institutions may not prevent or “unduly limit” student-athletes from obtaining compensation for their NIL rights. Such compensation “does not affect” student-athlete’s grant-in-aid or athletic eligibility but may be considered in granting need-based financial aid the same way any other income would be considered.
  • NIL compensation may not be provided in exchange for athletic performance or attendance at an institution.
  • NIL compensation may only be provided by a third party, not by an institution (a grant-in-aid scholarship does not constitute compensation for purposes of the law).
  • Entities who support or benefit the institution or its athletic program may not compensate or cause compensation to be provided to a student-athlete or recruit if the compensation is contingent on the student-athlete’s enrollment or continued participation at an institution.
  • An institution and its officers and employees may not be involved in the development, operation, or promotion of a current or prospective student-athlete’s NIL, including actions that compensate or cause compensation to be provided to student-athletes.
  • Student-athletes may not use their NIL to promote gambling, tobacco, alcohol, and adult entertainment.
  • Institutions may further prohibit student-athletes from using their NIL in ways that conflict with the values of their institution.
  • Institutions may prohibit student-athletes from using the institution’s trademarks, trade dress or copyright in the student-athletes’ personal NIL activities.
  • Student-athletes are prohibited from entering into NIL contracts that conflict or “unreasonably compete” with a contractual obligation of their institution—if the institution asserts such a conflict it must disclose the relevant terms of the conflicting agreement to the student-athlete or the student-athlete’s representative.
  • Student-athletes obtaining NIL compensation must disclose any agreement and its terms to their institution and must file annual reports with the institution in a time and manner designated by the institution.
  • Institutions must conduct a financial literacy workshop for intercollegiate athletes during the student-athlete’s first full-time term of enrollment, which must cover information related to the law, budgeting, and debt management.
  • Student-athletes may be represented by a third party, including an athletic agent, in seeking compensation for their NIL rights.

The Tennessee law goes into effect on January 1, 2022. This provides some (but not a lot) of time for institutions to get ready for the law. Counsel is well-advised to be working closely with colleagues in athletics on the implementation of this law to determine how their institutions will, among other things:

  • Train athletics personnel (especially compliance personnel) in the requirements of HB 1351.
  • Establish systems to track and screen proposed student-athlete NIL contracts to determine if they conflict with the institution’s contracts or “values.”
  • Determine how to provide student-athletes the required training which must be delivered in the semester beginning in January 2022.

What About the NCAA?

Under current NCAA rules, student-athletes who accept compensation for their NIL rights are ineligible to compete in NCAA competitions. In January 2021, the NCAA was poised to “modernize” its NIL rules to allow student-athletes to receive some compensation for their NIL rights. It put those efforts on pause, however, reportedly after receiving a letter from the U.S. Department of Justice raising antitrust concerns.

This spring, when the Florida legislature was considering changing the effective date of its law, the media reported that NCAA President Mark Emmert assured a member of the Florida legislature and the president of Florida State University that the NCAA would not “punish” student-athletes who took advantage of state laws providing that their colleges and universities must allow them to obtain compensation for their NIL rights. On May 20, the NCAA issued a press release stating that the NCAA Council “is expected” to act on proposals to modernize its NIL rules at its meeting on June 22-23 and would adopt a July 1, 2021, effective date for those rules.

One complicating factor with the modernized NIL rules being considered by the NCAA is that if they include any caps on the amount of compensation that student-athletes may receive (as prior drafts have contained), they will be inconsistent with laws that go into effect in at least five states (Alabama, Florida, Georgia, Mississippi, and New Mexico) on July 1. Any caps in compensation will also be subject to challenge under the federal antitrust laws.

When the first of these state laws were being considered by California, the NCAA stated that it might bring litigation to invalidate the law under the Commerce Clause. That strategy would be significantly more difficult to pursue now that there are several states with similar laws all poised to go into effect in less than a month.

What About the Supreme Court?

Sometime in the next month, the U.S. Supreme Court will issue its ruling in NCAA v. Alston. The Alston case has no direct bearing on these state NIL laws. In Alston, the Court is considering what rules the NCAA may adopt to facilitate an agreement between competitors that limits competition. These state laws prohibit such agreements and encourage competition in the market for NIL rights of student-athletes. Even if the NCAA were to obtain a full victory in Alston, it would do nothing to affect the validity of these many state laws.

Alston will have an indirect effect on the NCAA’s strategy concerning its modernized NIL rules, however. To the extent that the NCAA is considering placing caps on the compensation that student-athletes may earn from their NIL rights in their modernized NIL rules, those caps will be subject to the kind of antitrust review that the Supreme Court decides is appropriate in the Alston case.

College athletics looks like it will remain a volatile area for (at least) the coming months. Please do not hesitate to call the author if you have any questions about trying to stay ahead of how it will all play out on your campus.