Name Image Likeness Freedom. Now What?

The NCAA gave up the “golden goose” that they held for decades in the name and likeness (NIL) marketing rights for college athletes in June of 2021. The conversation and process leading up to this momentous decision created a firestorm of predictions as to the overall impact of the newfound freedom of student-athletes to be able to capitalize on their personal and athletic notoriety. The question now lingers as to where this business shift has taken collegiate athletics and what lies ahead as the newfound freedoms continue to propagate through a system that was extremely resistant to substantive, and some would say overdue, change.

The overall impact of the change in NIL rules has not yet been fully realized. Many student-athletes in multiple sports around the nation have been able to secure deals that have compensated them in some fashion. Relatively recently a football player at a prominent university was touted by their head coach as achieving the status of earning over seven figures in committed endorsement dollars. Without intimate knowledge of the deals and structure involved in the contracts specific to this student-athlete, it is difficult to assess the validity of this claim. The early stages of this new business model have also not afforded much insight into the impact of marketing dollars flowing through student-athletes versus athletic departments and institutions. These statistics should become more transparent over time, depending on the degree to which the total dollars shift their allocation from one to the other.

Outside of the overall shift in financial allocation, the change in the NIL rules has definitively created opportunities for student-athletes and entities that would like to be affiliated directly with student-athletes. With this comes some early-stage lessons to help future deals take proper shape and assist those engaging in these opportunities to maximize their benefits.

When negotiating NIL agreements on the representation and opportunity side of the equation, knowledge for the student-athletes involved is power. Student-athletes entering NIL contracts with agencies or paying entities should realize that they hold all the cards and set the rules of engagement. There is no reason to surrender control, agree to lopsided terms, or relinquish rights that have nothing to do with the deal presented to them.

A marketing agency that wants to utilize the NIL of a student-athlete should be willing to acknowledge that the value in the relationship is mostly held by the student-athlete. If this was not the case, the marketing agency would not pursue a business-oriented relationship with the student-athlete because there is no profit to be made. For the student-athlete, the first negotiation should be extremely deliberate, with the understanding that fees are negotiable and there is no “industry standard” because the industry is completely new. Negotiating a flat fee per engagement, a small percentage, or restrictive terms related to how an agency is compensated for any deal is fair game. Additionally, no fee term should extend beyond the collegiate eligibility of the student-athlete.

Many agencies in the professional ranks charge upwards of 15-20% for marketing and endorsement deals they initiate or share, which has become an industry standard at that level. These fees are related to professional athletes that are unrestricted and separately paid by their professional contracts. These fees have been negotiated and have become acceptable over time, but this should not guarantee correlation to a collegiate athlete. Because college athletes have no other substantial form of compensation and limited marketing opportunities overall, to agree to pay the same as their professional brethren, should not be assumed. It is completely fair to demand far lower percentages or flat rate fees that put most of the profits into the pockets of the student-athletes. It could be argued that professional athletes are giving up too large a piece of the pie, but at least they have completely free access and will, along with their other income, which in essence entitles them to do whatever they want financially. Collegiate athletes should think about their agreements and assignment of rights with this in mind.

Another component of NIL contracts that student-athletes need to be aware of is the extent of the usage rights to their name and likeness. If a student-athlete is contracting with an entity for such usage, it needs to be defined clearly and with limits that prevent it from continuing beyond any agreed period or scope. The student-athlete should know exactly how their NIL is going to appear as it relates to any specific contract they agree to engage. Additionally, in agreeing to be marketed by an agency, no student-athlete, in this case defined as clients, should allow for the marketing agency to utilize the NIL of the student-athlete for themselves without compensation. The “parent” agreements between student-athletes and marketing agencies should only allow the marketing agency to procure marketing opportunities for the student-athletes. Many marketing agencies try to create a free association with a student-athlete, for their own benefit, in return for marketing said student-athlete. If a marketing agency believes that being associated with a student-athlete is worthwhile, the agency should pay for that association, or they should only market the student-athlete as they are contracted, they should not be allowed to benefit on both ends of the relationship. If the scope of the contract expands beyond this, the terms of that extended scope should be negotiated and should provide compensation in some form to the athlete.

As it pertains to limitations, no student-athlete should feel obligated to enter into agreements that overlap or supersede any other marketing agreement they have consummated. If an agency wants to bring an agreement to the table that the agency designated by the student-athlete has not initiated, there should be no requirement to surrender representation terms, like fee or usage, that are not in their parent agreement. The student-athlete has hired their primary agency to be their primary agency and that designated agency should protect the student-athlete from any terms that are not in their best interests. Fees can be reduced to fit within the scope of the parent contract, they can be shared, payment terms can be adjusted, along with reporting, all of which allow the student-athlete to maintain continuity in their marketing relationships. Student-athletes are busy, and they are often still maturing in their overall business acumen, so efficiency is important to maintain.

The legal responsibility associated with any agreement should also be considered and student-athletes should be protected by their parent agency or the contractual agreement for any given opportunity. This would include legal costs if the effects of a marketing deal were to take an unexpected turn beyond the control of a student-athlete. If an agreement is presented to a student-athlete, the ramifications of the agreement should be agreed to in advance to indemnify and hold harmless the student-athlete to anything that is outside their control. In these cases, it is acceptable to hold harmless the agency responsible for the deal as it relates to the behavior of the student-athlete. There should never be confusion that contracts have consequences and responsibility for all parties to the agreement, so everyone should be expected to behave as such.

There should never be additional terms like financial planning or tax preparation expectations associated with any marketing contract. Any student-athlete associating themselves with a marketing contract or agency should have independent and competent advisory assets in place for all aspects of their business to help them work through the ramifications of any contract they sign. It would be inappropriate to assume that the interests of the financial windfall of any contract would be best served to be managed or overseen by anyone directly involved with that specific deal. Student-athletes should engage with competent, experienced, and sophisticated advisors at all levels of their business enterprise. Student-athletes need to view themselves as entrepreneurs or business owners themselves, and they need to surround themselves with the best available advisors to help them with each aspect of their business portfolio.

The NIL marketplace will grow and evolve, and there will be definitive indications of the lasting impacts of this business model for student-athletes and institutions. The freedom that the NIL changes created carries responsibilities and options that many student-athletes have not had to consider up to this stage in their lives. As personal profits increase, incorporation, tax consequences and filings, tax-efficient and taxable investment vehicles, business management, retirement funding, and many other advanced concepts can become accessible and important. All of these require expertise, sophistication, and should also come with an educational focus to help student-athletes mature as entrepreneurs. Assembling a team of advisors that will always look out for the best interests of the student-athlete is a difficult, but essential, task. Student-athletes should be as decerning in selecting their advisors in all aspects of their business as they are when they select what marketing opportunities they will engage. At this early and exciting time in their lives, it is vital that student-athletes look and think long term, to make sure that their future is fully understood, properly structured, and always protected.

At Verdence Capital Advisors and Verdence/PRO, we view athletes as entrepreneurs and their own private business owners. We understand the value of independent, sophisticated, and expert advice for these highly accomplished types of people. We also know how essential it is to focus on the client and work as a part of a team to achieve goals and reach the level of success desired by our clients. If you need to find out more about properly structuring your financial and business relationships, please contact us.

Important Disclosures

The information contained herein is educational in nature and not designed to be taken as advice or a recommendation for any specific action, product, strategy, plan, or other purpose in any jurisdiction. You should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized advice from Verdence Capital Advisors and/or its affiliates. To the extent that a reader has any questions regarding the applicability to his/her individual situation of any specific issue discussed, he/she is encouraged to consult with the professional advisor of his/her choosing.  Verdence Capital Advisors is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the Verdence Capital Advisors current written disclosure statement discussing our advisory services and fees is available for review upon request.