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The new world of NIL in Minnesota

2022-12-NIL-800

How student-athletes can navigate the system of name, image, and likeness rights in high school and beyond

By Michael T. Burke and Amber D. Crow

 

The NCAA shocked the nation in July 2021 when it shifted away from its traditional amateurism model and began allowing nearly half a million student-athletes across the country to profit from their name, image, and likeness (NIL).1 Twenty-nine states have already passed legislation that regulates or addresses how student-athletes can profit from NIL, and 10 states currently have pending legislation.2 Because there is no uniform legislation for amateur athletes across the country, states and various organizational bodies are left to prescribe rules for student-athletes’ NIL deals, which creates nuances and challenges depending on the state, especially as NIL continues to evolve.

College sports generate significant revenue and are often the pride and joy of many states. The NCAA, for example, generated $1.16 billion in 2021 alone.3 NIL has caused many state legislatures to consider the importance of staying competitive with other states given that some student-athletes may not want to limit their earning potential, and as a result, may decide which school to attend based on the permissive or restrictive scope of a given state’s NIL law.4 The NCAA has requested that Congress address the current fragmented NIL system by way of national legislation, though Congress has yet to express real interest in the issue.5

Thus, student-athletes across the country must pay close attention to state laws and regulations in place when engaging in NIL deals and determining where they will continue their athletic careers. In some states, including Minnesota, the ability to profit from one’s NIL can begin in high school. While this is an exciting change for young athletes, there may be several pitfalls along the way. Student-athletes should pay close attention and consult professionals to ensure their contracts contain fair terms and comply with state and federal laws, as well as their school’s regulations, policies, and contractual obligations. 

Recent Minnesota developments regarding high school NIL rules

In June 2022, the Minnesota State High School League (MSHSL) premiered a newly approved NIL policy—MSHSL Bylaw 201—for high school students participating in MSHSL sports and activities while also protecting their status as amateurs.6 Alaska, California, Colorado, Kansas, Louisiana, Maine, Nebraska, New Jersey, New York, and Utah have implemented similar policies that allow high school student-athletes to engage in NIL opportunities and partnerships.7 However, other states such as Texas, Florida, and Georgia have specifically prohibited high school student-athletes from engaging in NIL opportunities and partnerships.8 

MSHSL Bylaw 201 outlines specific regulations that student-athletes must abide by to avoid falling out of good standing or eligibility within their athletic programs. As a result of MSHSL Bylaw 201, Minnesota high school student-athletes may now earn compensation from the use of their NIL consistent with the following policy regulations:

  • The compensation is not contingent on specific athletic performance or achievement.
  • The compensation is not provided as an inducement to attend a particular school for recruiting efforts or to remain enrolled at a particular school.
  • The compensation is commensurate with market value.
  • The compensation is not provided by the school or an agent of the school.
  • NIL activities must not interfere with the student-athlete’s academic obligations.
  • A student cannot miss an athletic practice, competition, travel, or other team obligations to participate in an NIL opportunity.9 

High school student-athletes face several limitations under the MSHSL policy. For example, student-athletes are prohibited from selling items from the school while eligible; referencing school involvement during non-school advertisements; endorsing equipment companies or manufacturers to publicize the school’s use of that equipment; promoting gaming, gambling, alcohol, tobacco, cannabis, or related products; or promoting illegal substances, adult entertainment products and services, contraceptive and sexual enhancement products, or weapons.10

Minnesota’s first high school athlete NIL partnership 

High school senior Bayliss Flynn, a goalkeeper for Edina High School’s soccer team, is the first known Minnesota high school student-athlete to have taken advantage of MSHSL Bylaw 201 by signing an NIL deal.11 Flynn struck an endorsement deal with TruStone Financial, though the specifics of the deal are unknown. Flynn will be endorsing the company’s Aurora-branded debit card while promoting financial literacy education. While this is Flynn’s first known endorsement deal, additional deals may arise in her future, as she verbally committed to continue her soccer career at the University of Montana. 

Minnesota is no stranger to producing high-profile student-athletes. For example, Minnesota native and artistic gymnast Sunisa “Suni” Lee won six world championships in addition to her multiple Olympic medals during the 2020 Olympic Games and was leading the Auburn University gymnastics team as a college freshman.12 Had NIL been in existence while Lee was still in high school, it seems likely that she could have profited from significant NIL-related opportunities. 

Historically, many young gymnasts and athletes have struggled with the decision to attend college or continue to ride off their Olympic success with endorsement deals. With NIL, these athletes now have the option to have their proverbial cake and eat it, too. For example, Lee can now maximize her Olympic success into financial security without forgoing her college experience, education, and collegiate athletic career.13 She has already capitalized on these opportunities by appearing on popular shows like Dancing with the Stars and also started a leotard line with GK Elite and a clothing line with Pretty Little Thing, among other NIL partnerships.14 

Another Minnesota native, UConn women’s basketball star Paige Bueckers, performed extraordinarily well as a guard at Hopkins High School and collected several awards along the way, including being named Gatorade Player of the Year.15 Perhaps not coincidentally, Bueckers became the first NCAA athlete to strike an NIL deal with Gatorade (in addition to other deals that highlight social issues). Bueckers was of one of the most sought-after prep stars in history, leading many to speculate she would have benefited significantly from NIL deals while still in high school.

The onus is on high school student-athletes and families

To be sure, the NIL landscape presents an exciting opportunity for Minnesota high school student-athletes, especially in terms of influence and finance. With that being said, the burden to understand and follow various policies within organizations like the MSHSL, NCAA, as well as state (and potentially future federal) law is placed squarely on student-athletes and, oftentimes, their families. This can pose real challenges. For example, certain partnerships may have lasting impacts on participation eligibility, and other tax or financial repercussions may arise.

Moreover, while such deals can be very lucrative, that often imposes sudden and significant financial responsibilities on young athletes. For example, Nijel Pack, a college basketball player who transferred from Kansas State to Miami, received an NIL package from billionaire booster John Ruiz that included earning $800,000 over the course of two years as well as a car.16 While Pack credits his parents with teaching him financial responsibility and the power of saving and investment, not every student-athlete will have that understanding, discipline, and skillset.17 The aid of financial advisors may be beneficial for many student-athletes presented with NIL deals.

Student-athletes may also struggle to determine what their fair market value is when negotiating deals with brands and companies. Several factors may come into play when determining a student-athlete’s market value such as the conference they play in, the revenue of the team, and the student-athlete’s social media presence and audience reach.18 Because student-athletes may be unable to see their peers’ valuations, they are reliant upon themselves, certain administrators, compliance officers, and professionals in determining their fair market value.19

Given the fragmented, state-by-state patchwork of NIL laws and policies, compliance can be difficult to navigate. While the NCAA and other athletic organizations have implemented policies, state laws ultimately supersede those policies. Moreover, sometimes conflicting state laws have an impact on student-athletes who move out of state for school and their athletic careers. 

For example, Alaskan native Lydia Jacoby—a Team USA swimmer in the 2020 Olympic Games—committed to the University of Texas and had significant endorsement deals at her doorstep. Because the state of Texas prohibited high school students from engaging in NIL deals, Jacoby felt it was necessary to hire an agent, who worked closely with the University of Texas’s compliance director to ensure that all of Jacoby’s deals were lawful.20 Jacoby was left navigating compliance with two states’ laws, the NCAA policies, and the University of Texas’s existing contracts with various brands. This required Jacoby’s close attention to detail and professional assistance when entering new contracts to avoid contractual breaches and compliance issues.

Negotiating and signing contracts can be exciting but can also expose many young student-athletes to liability. At times, certain provisions within a contract may be blatantly unfair. But there may also be less obvious aspects of a contract that student-athletes should be aware of when partnering with brands and companies. For example, student-athletes should ensure their contracts comply with the Federal Trade Commission’s (FTC) various rules, including the guidelines regulating endorsements and testimonials found in 15 U.S.C. §45.21 Student-athletes who are posting paid advertisements on their various social media platforms should, for example: (1) ensure they are using the product or service they are promoting; (2) make statements about the product or service that are true and that reflect their actual opinions; and (3) disclose any relationship between the student-athlete and advertiser.22 

Furthermore, advertising is often susceptible to litigation when false statements are made, trademarks are infringed upon, or FTC guidelines are not followed. Student-athletes should be cautious of indemnification clauses that some brands or companies may include in their contracts, which shift the burden of risks and expenses in the event of a breach, default, or alleged misconduct by a party. Because brands and companies are often more financially secure than a student-athlete, it may be in a student-athlete’s best interest to negotiate an indemnity clause that requires the company to indemnify them if a claim is made. 

In every case, student-athletes should read their contracts closely and seek help from an attorney when entering NIL partnerships to protect their interests. Student-athletes should also be sure to understand the tax consequences of their NIL deals and, because there is no uniform guidance across the country, pay close attention to the ever-changing state laws governing these deals. Student-athletes should further consider connecting with their respective academic institutions before agreeing to an NIL deal to ensure compliance with the rules and regulations of their institutions, and potentially, the existing contracts of those institutions. This is an exciting time for many student-athletes, but diligence at the deal’s inception is crucial to protect their interests for both the near and the long term. 


MICHAEL T. BURKE is a business litigator with Fox Rothschild LLP. He can be reached at (612) 607-7124.

AMBER D. CROW is a law student at the University of Iowa College of Law and will be graduating in May 2023.


Notes

1 Michael Burke, Name, Image, and Likeness Legislation Changes College Sports, Above the Fold: Fox Rothschild (7/12/2021), https://advertisinglaw.foxrothschild.com/2021/07/name-image-and-likeness-legislation-changes-college-sports/

2 Jarrett Varsik, Madison Hiegel, and Jeffrey Parry, Tracker: Name, Image and Likeness Legislation by State, Business of College Sports (6/17/2022), https://businessofcollegesports.com/tracker-name-image-and-likeness-legislation-by-state/

3 Rory Jones, NCAA generates record US$1.16bn revenue for 2021, Sports Pro Media (2/3/2022), https://www.sportspromedia.com/news/ncaa-finances-2021-revenue-march-madness-college-sports/

4 Richard Johnson, Year 1 of NIL Brought Curveballs, Collectives and Chaos. Now What?, Sports Illustrated (7/12/2022), https://www.si.com/college/2022/07/12/nil-name-image-likeness-collectives-one-year

5 Id.

6 Minnesota State High School League Approves NIL Policy, Coach & A.D. (6/9/2022), https://coachad.com/news/minnesota-state-high-school-league-approves-nil-policy/

7 Id.

8 Jeremy Crabtree, Minnesota joins growing list of states allowing NIL for high school athletes, On3NIL (6/8/ 2022), https://www.on3.com/nil/news/minnesota-joins-growing-list-of-states-allowing-nil-for-high-school-athletes/

9 Supra note 6.

10 Id.

11 Rachel Blount, Edina soccer goalkeeper Bayliss Flynn lands endorsement deal under new Minnesota rules, Star Tribune (6/16/ 2022), https://www.startribune.com/bayliss-flynn-nil-deal-edina-high-school-minnesotaa-aurora-montana-soccer-goalkeeper/600182421/

12 Supra note 8.

13Minnesota’s Suni Lee banks off of new NCAA NIL rules, KARE (4/5/2022), https://www.kare11.com/article/sports/olympic-gold-medalist-sunisa-suni-lee-banking-more-ncaa-success/89-3f016198-9f13-4ab4-99a5-fa826ff9eaa2

14 Id.

15 Supra note 8.

16 Perspectives from around college sports on NIL’s one-year anniversary, ESPN (6/29/2022), https://www.espn.com/mens-college-basketball/story/_/id/34158535/perspectives-college-sports-nil-one-year-anniversary

17 Id.

18 Karen Weaver, Determining an Athlete’s Fair Market Value Is The Next Hurdle For NIL Rights. These Two Companies Could Solve That, Forbes (5/25/2021). https://www.forbes.com/sites/karenweaver/2021/05/25/determining-an-athletes-fair-market-value-is-the-next-hurdle-for-nil-these-two-companies-could-solve-that/?sh=332c8fc219e2

19 Id. 

20 Id.

21 Heather Angelina Dunn and Carissa L. Bouwer, Brands and influencers in the spotlight as FTC focuses on civil penalties for deceptive advertising, DLA Piper (11/4/2021). https://www.dlapiper.com/en/us/insights/publications/2021/11/brands-and-influencers-in-the-spotlight-as-ftc-focuses-on-civil-penalties-for-deceptive-advertising/

22 Id.

 

 



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