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    October 01, 2024 Sports Law

    Money and litigation tangle with recent rules for college athletes' NIL deals

    By David Weisenfeld
    Student-athletes, colleges and private collectives are racing to sign up star players with promises of lucrative NIL agreements.

    Student-athletes, colleges and private collectives are racing to sign up star players with promises of lucrative NIL agreements.

    Stock photo.

    Quarterback Jaden Rashada was one of the nation’s most-sought-after recruits in 2022 when he appeared headed to the University of Miami on a $9.5 million name, image and likeness deal. He later switched his commitment to the University of Florida for a reported $13.85 million agreement with the Gator Collective, a group set up to compensate student-athletes for their NIL rights. But there was a problem: According to Rashada’s attorneys, the promises were never real.

    The star quarterback is now suing University of Florida booster Hugh Hathcock; its head football coach, Billy Napier; and its director of player engagement and NIL, Marcus Castro-Walker, in the U.S. District Court for the Northern District of Florida for fraudulent misrepresentation and inducement, aiding and abetting fraud and negligent misrepresentation.

    The case highlights the complexities and potential conflicts facing student-athletes, colleges and private collectives in the race to sign up star players with promises of lucrative NIL agreements.

    Velocity Automotive Solutions, previously owned by Hathcock, also is named as a defendant. All four defendants filed motions to dismiss in July that were denied in August in light of an amended complaint Rashada filed.

    Steve McClain, a Florida athletic department spokesperson, said the university does not comment on ongoing litigation and noted that the university athletic association and the university are not named in the complaint.

    Bedell, Dittmar, Devault, Pillans & Coxe, which represents Napier, told the ABA Journal it does not comment on pending litigation. Velocity Automotive Solutions’ counsel at Greenberg Traurig did not respond to ABA Journal interview requests.

    Rashada claims the defendants made promises knowing they lacked the funds to fulfill them, and he relied on those promises to his detriment when he decommitted from Miami and lost out on his deal there. Rashada ultimately landed at Arizona State University, —which reportedly promised him no compensation—before transferring to Florida’s rival, the University of Georgia, this spring.

    According to the complaint, Rashada did not ask for an NIL commitment from ASU.

    Also per the complaint, Napier relayed that Rashada would receive $1 million from Gator Collective as a partial payment toward the promised $13.85 million if he signed his national letter of intent with Florida on national signing day­—which he did. The lawsuit claims Rashada was pressured to sign and did so quickly and that the promises were verbal, but they never came through.

    The complaint says Hathcock had suggested his funds for Rashada pass through Gator Collective. Collectives, usually formed by boosters, raise money to fund payout deals for student-athletes while operating independently from schools and their athletic departments.

    They came about after the U.S. Supreme Court’s landmark 2021 ruling in NCAA v. Alston, which allowed college athletes to earn money for the first time from licensing their rights of publicity. Current and former student-athletes had brought the antitrust lawsuit to challenge the NCAA’s restrictions on compensation.

    Robert Boland, a Seton Hall University School of Law sports law professor who also practices in this area with Shumaker in Toledo, Ohio, called Rashada’s lawsuit “a cautionary tale.” There are limits to what can be offered to players, he adds.

    “For people who support collectives, you can’t just throw out numbers. There are real-world consequences,” Boland says. “You have to be realistic in what you’re able to offer.”

    The Wild West

    What followed NCAA v. Alston is something akin to the Oklahoma land rush, Boland says.

    “There are 250 or so [collectives] out there, and none are the same,” he says. “Some take in money from boosters, often off crowdfunding donations. On the other side, the NIL era has ushered in a lot of NIL agents who aren’t wildly experienced, just bidding things up trying to hit the jackpot.”

    The deals between collectives and athletes often include provisions where the athlete receives a set amount of money from a business in exchange for making a certain number of appearances.

    Gregory Marino, special counsel at Foley & Lardner in New York City, has represented third-party collectives as well as universities and athletes. He says the entities are all basically startups.

    “These collectives came out of nowhere and have become revenue engines in a very uncertain regulatory environment,” Marino says. “Schools want to know where the line is, and now everything is in flux.”

    He calls Rashada’s lawsuit “a foreseeable occurrence” and adds, “in an ideal world, that situation shouldn’t happen at all. It seems like they pulled the rug out from under him.”

    But while the case may be novel, Marino notes that colleges making promises to talented recruits is nothing new. “Illicit recruiting has been going on since there’s been college sports,” Marino says. “The only difference now is student-athletes are getting in on the action.”

    There are two big issues surrounding NIL collectives, says Mit Winter, a Kansas City, Missouri, sports law attorney who has advised athletes, universities and other clients with NIL opportunities and businesses.

    “The first involves coaches who don’t know how much money a collective has throwing out numbers and then telling the collective to go figure it out and find the money,” he explains. “The second is the collective doesn’t have the money and makes promises, figuring they will raise it at some point from donors.”

    New wrinkles

    In a landmark development, the NCAA and its power conferences agreed in May to allow universities to pay college athletes directly. The prospective settlement, which must still be approved by a federal judge, stems from House v. NCAA.

    This antitrust class action sought back-pay damages for Division I college athletes whom the NCAA banned from earning NIL compensation before changing its policy in 2021.

    The agreement includes $2.75 billion in back-pay damages to former Division I athletes and allows for a future revenue-sharing plan between power-conference universities and student-athletes.

    The plan creates an annual spending cap of roughly $22 million that each university can distribute directly to its athletes.

    The settlement will not stop individual deals between boosters and athletes from going forward.

    But it creates myriad intriguing new legal developments, according to professor Matt Mitten, executive director of the National Sports Law Institute at Marquette University Law School.”The interesting thing is the tax implications with what’s raised from boosters and donors. The IRS has said that’s not tax deductible,” he says. “I could see universities saying, ‘Make your donations directly to us to get a tax deduction for that.’” He predicts the universities will want more control over the deals.

    Boland, who served as athletics integrity officer at Penn State, agrees.

    “If I were still an athletics integrity officer, I’d want to know what offers were being made to athletes on behalf of the university,” Boland says.

    But the collectives come more directly under the umbrella of universities rather than being an arms-length relationship that inevitably could raise issues with Title IX, which bans sex-based discrimination in education programs and activities.

    For instance, does the total amount universities spend under the cap on student-athletes—including NIL deals—need to be equal?

    “How Title IX applies to this [settlement], no one really knows,” Winter says. “You could ask five different attorneys and get five different answers.”

    According to Boland, it’s not absolute that the collectives’ activities are subject to Title IX. “But my experience tells me if the activity is guided by the institution, it brings in Title IX,” he adds.

    Another issue the House settlement raises, if approved, involves the employment status of student-athletes.

    “If schools directly pay student-athletes, the athletes can make a strong claim that they are employees,” Marino says. “We don’t know yet.”

    Mitten says when athletes are getting compensation based on their value, that’s clearly pay for play. And that, he says, cuts into the issue of whether college athletes can unionize.

    The NCAA consistently has maintained its players are student-athletes who attend school primarily to study. The position, however, becomes less clear with the settlement and collectives.

    In March, the National Labor Relations Board certified the Service Employees International Union Local 560 to represent Dartmouth basketball players. It is reported to be the first labor union for college athletes.

    But while that may occur with Ivy League student-athletes and others at smaller schools, Mitten said it is “much less likely” that athletes competing in the Football Bowl Subdivision, the highest level of college sports, will want to unionize because they will have greater access to NIL revenue.

    In addition, the powerhouse Southeastern Conference consists of schools located in states generally more hostile to unionization efforts.

    What’s more, a bill pending in Congress, the Protecting Student Athletes’ Economic Freedom Act, would prevent college athletes from being considered employees of a university, conference or a college-governing organization such as the NCAA.

    What’s next?

    According to Winter, the NCAA would love for the collectives to go away and create a setup where all third-party deals have to be reported.

    “They’re not going away any time soon. Some may take a different form, such as more of a marketing agency, but they will be here. These collectives are not that easy to run,” he says.

    Winter predicts there will be a potential for litigation between collectives and the NCAA.

    As for Rashada’s case and others that could follow, Boland suggests the struggle ultimately will be how to assess damages.

    “The decision will be difficult because few collectives are funded in advance,” he says. “They’re all trying to raise money on the fly.”