A sea of change is rapidly approaching for collegiate student athletes, and Alabama is at the change’s forefront.  On April 20, 2021, after the Alabama Senate had unanimously passed House Bill 404, Alabama Governor Kay Ivey signed the Bill into law (the “Act”).  The Act allows collegiate student athletes to receive compensation for their names, images, and likenesses (“NIL”) while participating in intercollegiate sports.

1. NIL COMPENSATION AND THE NCAA.

The National Collegiate Athletic Association (“NCAA”) – the nonprofit organization that regulates the relationships between collegiate student athletes and their scholastic institutions -- has historically prohibited NIL compensation and advanced four primary but debatable arguments in support of its prohibition.[1]  First, prohibiting NIL compensation preserves the amateurism of college sports, which drives consumer demand.  Second, prohibiting NIL compensation promotes competitive balance among schools participating in college sports.  Third, prohibiting NIL compensation helps integrate academic and athletic goals and, therefore, promotes education.  Fourth, prohibiting NIL compensation keeps smaller schools from leaving Division 1 athletics and taking away athletic opportunities from their students.

California was the first state to challenge the NCAA with NIL legislation upon its enactment of its Fair Pay to Play Act.  A handful of other states have followed California’s lead, including Alabama’s neighbor Florida, which recently enacted its Intercollegiate Athlete Compensation and Rights Bill.  Those NIL compensation acts had in part prompted the NCAA’s Board of Governors in April 2020 to support unprecedented rule changes for student athletes to begin receiving NIL compensation for third-party endorsements both related to, and separate from, athletics.  The NCAA subsequently tabled proposed legislation pending “several external factors, including recent correspondence with the U.S. Department of Justice. “[2]  Accordingly, the existing state NIL compensation laws, including the Act, conflict with NCAA rules.  The NCAA is undoubtedly looking to the United States Congress to pass a federal law that would supersede state laws, create uniform NIL compensation rules, and protect the NCAA from legal actions.

Rather than being left behind while waiting on the NCAA to address the issue,[3] Alabama quickly joined California, Florida, and a handful of other states by passing the Act and legislatively allowing NIL compensation.  To be clear, the Act does not allow colleges and universities to pay college athletes for their athletic labor (that is, “pay for play”); instead, it attempts to strike a delicate balance between “amateurism” and “professionalism” while allowing student athletes to simultaneously participate in intercollegiate sports and profit from business opportunities, including apparel endorsements, autograph and memorabilia sales, personal appearances, social media exploitation, and other business ventures.  In an unsurprising but candid statement in this football frenzied state that does not focus on student athlete well-being per se, Alabama Representative Kyle South (R-Fayette), who sponsored House Bill 404, has said the Act’s main purpose is to ensure that Alabama universities are not at recruiting disadvantages compared to universities in states with similar laws, and both Auburn University President Jay Gogue and University of Alabama Athletics Director Greg Byrne wrote letters to the Senate Judiciary Committee endorsing the Act.[4]

2. THE ACT PERMITS NIL COMPENSATION FOR STUDENT ATHLETES.

The Act’s first main sentence strikes the sea change: “A student athlete participating in intercollegiate sports at a postsecondary educational institution may earn compensation for the use of the student athlete’s name, image, or likeness pursuant to this act.”[5]

That one sentence containing just thirty words seems simple enough on its face, but one must factor in the definitions of the five terms of art it uses: “student athletes;” “intercollegiate sports;” “postsecondary educational institution;” “compensation;” and “NIL.”  These definitions add layers of prerequisite digestion before one can put the Act’s other provisions in proper focus.

A. Who are Student Athletes?

The Act incorporates the definition of “student athlete” from Alabama’s Revised Uniform Athlete Agents Act (2016),[6] which defines the term as “an individual who is eligible to attend an educational institution and engages in, is eligible to engage in, or may be eligible in the future to engage in, any interscholastic or intercollegiate sport,” but excludes “an individual permanently ineligible to participate in a particular interscholastic or intercollegiate sport for that sport.”[7]

B. What are Intercollegiate Sports?

The Act defines “intercollegiate sport” as “an athletic program at a postsecondary educational institution.”  The term’s broad definition apparently includes all revenue and non-revenue generating sports.

C. What are Postsecondary Educational Institutions?

The Act defines “postsecondary educational institutions” as (i) public universities or colleges in Alabama, (ii) Alabama Community College System institutions, or (iii) institutions for higher education as defined in Alabama’s Private Colleges and Universities Facilities Authority Act.[8]

The term, therefore, includes (i) the three primary public sports universities in Alabama – Auburn University, the University of Alabama, and UAB, (ii) smaller public schools including Alabama A&M University, Jacksonville State University, and Troy University, (iii) community colleges including Jefferson State Community College, Southern Union State Community College, and Lawson State Community College, and (iv) private colleges and universities including Samford University, Tuskegee University, and Birmingham Southern College.

D. What is NIL?

The Act defines “name, image, or likeness” as “[a]ny or all of those elements that, together, are known as the right of publicity.”[9]  Although the Act does not specifically define “right of publicity,” the generally accepted definitions include individuals’ exclusive rights to license the use of their identities (i.e., name, image, and likeness) for commercial purposes and to prevent others from using their identities without authorization.

E. What is Compensation?

The Act broadly defines “compensation” as “[a]nything of value, monetary or otherwise, granted to a party by a second party in exchange for performance of a contract.”  Accordingly, compensation under the Act includes cash and non-cash things of value and conceivably includes items ranging from automobiles, merchandise, tickets to pay events, prizes, trips and travel expenses, meals, lodging, to equity ownership in businesses.

Notably, the Act’s definition of “compensation” excludes a “scholarship awarded to a student athlete by a postsecondary educational institution or a stipend given to a student athlete by a postsecondary educational institution which is calculated based on the cost of living and cost of attendance at the institution.”[10]

 3. THE ACT’S NINE LIMITATIONS ON NIL COMPENSATION.

 The Act places nine limitations on the “who, what, where, when, and why” of NIL compensation:

• The Act generally limits the amount of NIL compensation payable to student athletes by imposing a standard that NIL compensation must be “commensurate with the market value” of the student athlete’s NIL.[11]
• A payor of NIL compensation cannot condition its payment of NIL compensation upon the student athlete’s athletic performance or attendance at a particular postsecondary educational institution.[12]
• Only third parties not owned or operating under the authority of the student athlete’s postsecondary educational institution can pay NIL compensation to the student athlete.[13]
• Neither (i) a postsecondary educational institution, (ii) an entity with the purpose of supporting or benefitting the postsecondary educational institution or its intercollegiate sports, nor (iii) an officer, director, or employee of the postsecondary educational institution or entity may compensate or cause compensation to be directed to a student athlete or the family of a student athlete for use of the student athlete’s NIL.[14]
• Except with the written consent of the postsecondary educational institution, a student athlete may not enter into a contract for NIL compensation if the postsecondary educational institution determines that a contract term conflicts with a contract term binding upon the postsecondary educational institution.[15]
• Before a student athlete executes a contract for NIL compensation, the student athlete must disclose the contract to the student athlete’s postsecondary educational institution in a manner the postsecondary educational institution prescribes.[16]
• A contract for a student athlete’s NIL that is formed while the student athlete is participating in an intercollegiate sport at a postsecondary educational institution may not extend beyond the student athlete’s participation in the sport at the postsecondary educational institution.[17]
• A student athlete may not receive or enter into a contract for NIL compensation in a way that also uses any registered or licensed marks, logos, verbiage, or designs of a postsecondary educational institution, unless the postsecondary educational institution has provided the student athlete with written permission to do so prior to the contract’s execution.[18] If the postsecondary educational institution grants permission, the postsecondary educational institution, “by agreement of all parties, may be compensated for the use in a manner consistent with market rates or prior practice.”[19]
• A student athlete may not receive NIL compensation as an inducement to attend or enroll in or continue attending a specific postsecondary educational institution.[20]

4. THE ACT PROHIBITS POSTSECONDARY EDUCATIONAL INSTITUTIONS FROM TAKING THREE ACTIONS.

The Act places three prohibitions upon postsecondary educational institutions:

• Postsecondary educational institutions cannot adopt or maintain “a contract, rule, regulation, standard, or other requirement that unreasonably restricts [emphasis added]” a student athlete from receiving NIL compensation.[21]
• Postsecondary educational institutions cannot revoke or reduce a scholarship award to a student athlete due to the student athlete obtaining professional representation or receiving NIL compensation.[22]
• Postsecondary educational institutions cannot prevent or unduly restrict [emphasis added] student athletes from obtaining professional representation for the purpose of exploring or securing NIL compensation.[23] The Act requires an individual representing a student athlete to either be (i) registered as an athlete agent with Alabama pursuant to Alabama’s Revised Uniform Athlete Agents Act (2016) or (ii) a licensed attorney and a member in good standing of the Alabama State Bar.[24]

For purposes of the first and third prohibitions, the Act does not explain what might constitute a postsecondary educational institution’s “unreasonable restriction” or “undue restriction” on a student athlete’s ability to receive NIL compensation or obtain professional representation or what the potential difference between the terms has in practical effect.

5. THE ACT ALLOWS POSTSECONDARY INSTITUTIONS TO PROHIBIT CERTAIN CONTRACTS AND COMPENSATION SOURCES.

The Act expressly allows postsecondary educational institutions to prohibit student athletes from (i) entering into endorsement contracts with, or receiving compensation from, certain brands or companies and (ii) wearing certain clothing or gear in certain circumstances.

Specifically, the Act allows postsecondary educational institutions to prohibit student athletes from entering into endorsement contracts with, or receiving compensation from, five categories of brands or companies:

• Tobacco companies or brands (including tobacco products, alternative nicotine products, electronic nicotine delivery systems, and electronic nicotine delivery system retailers), specialty retailers of electronic nicotine delivery systems, or tobacco specialty stores.[25]
• Alcoholic beverage companies or brands.
• Sellers or dispensaries of controlled substances, including marijuana.
• Adult entertainment businesses.[26]
• Casinos or entities that sponsor or promote gambling activities.[27]

Similarly, the Act allows postsecondary educational institutions to prohibit student athletes from wearing any clothing item or gear with an entity’s insignia while the student athlete is (i) wearing athletic gear or uniforms licensed by the postsecondary educational institutions or (ii) competing in any athletic competition or institutionally-sponsored event.[28]

6. THE ACT REQUIRES POSTSECONDARY EDUCATIONAL INSTITUTIONS TO PROVIDE FINANCIAL LITERACY AND LIFE SKILLS WORKSHOPS.

The Act requires postsecondary educational institutions to conduct financial literacy and life skills workshops for a minimum of five hours for its student athletes at the beginning of a student athlete’s first and third academic years.[29]  At a minimum, the workshops must include the following three subjects:

• Information concerning financial aid and debt management.
• Recommended model budgets for student athletes based upon that academic year’s estimated cost of attendance and the various scholarship statuses of student athletes at the postsecondary educational institution.
• Information on time management skills necessary for success as a student athlete and available academic resources.[30] The workshop may not include any marketing, advertising, referral, or solicitation by providers of financial products or services.[31]

7. ESTABLISHMENT OF THE ALABAMA COLLEGIATE ATHLETICS COMMISSION.

The Act establishes the Alabama Collegiate Athletics Commission.  The Commission’s purpose will be to develop rules and recommendations to maintain the fairness and integrity of amateur intercollegiate athletics and the principle of amateurism in intercollegiate athletics.[32]

The Commission’s powers will allow it to make rules or recommendations (i) related to the implementation of NIL standards and requirements consistent with the Act, (ii) about a process to manage registered athlete agents in the context of NIL, and (iii) for the establishment of an independent dispute resolution process for any dispute arising between a student athlete and a postsecondary educational institution relating to NIL usage.

The Commission will consist of seven members, including Alabama’s Governor, who will serve as the Commission’s chair, Alabama’s Lieutenant Governor, the President Pro Tempore of the Alabama Senate, the Speaker of the Alabama House of Representatives, the minority leaders of Alabama House of Representatives and Senate, and the chair of the Alabama Athlete Agents Commission.[33]

The Commission will be empowered to consult with individuals or groups with information or knowledge about issues related to NIL, including current or former student athletes, coaches, conference or school administrators, professionals with expertise in sports marketing, contracting and public relations, and athletic agents.[34]

8. CIVIL AND CRIMINAL PENALTIES FOR VIOLATING THE ACT.

 The Act imposes three civil and criminal enforcement penalties for violations of its provisions:

• An individual who violates an Alabama Collegiate Athletics Commission rule will be punishable by a civil penalty of up to $1,000.00.[35]
• Individuals other than student athletes who violate Section 2(c) of the Act,[36] Section 2(d) of the Act,[37] or Section 2(e) of the Act[38] or who grant compensation to a student athlete in a manner that causes the student athlete to violate Section 8 of the Act[39] will be guilty of a Class C felony.[40] Class C felonies in Alabama carry a jail sentence ranging from 366 days to 10 years and a fine up to $15,000.00.[41]
• A student athlete who receives compensation as a result of a violation of Section 2(c), Section 2(d), or Section 2(e) of the Act or Section 8 of the Act will be guilty of a Class A misdemeanor. Class A misdemeanors are the most serious misdemeanors and carry a jail sentence of up to one year and a fine up to $6,000.00.[42]

9. MISCELLANEOUS.

The Act does not create a cause of action for any actions a postsecondary educational institution takes prior to the effective date of the Act becoming law, including a claim or theory relating to restriction on trade or tortious interference of fair competition.[43]

Nothing in the Act or any Commission rule will affect the employment status of a student athlete with a postsecondary educational institution.  The Act does not make a student athlete a postsecondary educational institution employee based upon participation in an intercollegiate sport.[44]

The Act will become effective on July 1, 2021, but, for practical reasons, the NIL compensation rules will not apply until the NCAA adopts rules governing NIL compensation.[45]

10. CONCLUSIONS.

 Although the Act is a potential watershed moment for student athletes attending Alabama’s postsecondary educational institutions, the Act’s brevity, lack of specificity, internal discrepancies, and potential unintended consequences leave lingering questions of interpretation, regulation, and enforceability.  For example, how do university boosters fit into the Act’s framework, how will the Act work with legislation the NCAA ultimately approves, what if Congress enacts a federal law that preempts the Act, how quickly will the Alabama Collegiate Athletics Commission adopt regulations interpreting the Act, etc.?  In important respects, however, the answers to these questions are immaterial, because the unwritten force behind the Act is the pressure it and similar laws in other states inflict upon Congress to adopt a federal law governing NIL compensation.  Until the federal government acts, the Alabama postsecondary institutions will find themselves in an unusual predicament once players begin receiving NIL compensation – they will be simultaneously violating NCAA rules and complying with state law – a quandary that the Act either overlooked or intentionally ignored.

William (Bill) M. Lawrence is a lawyer in Burr & Forman’s Birmingham office, where he is a member of the corporate and tax practice group.  In addition to his business transactional and wireless communications related corporate work, Bill has represented numerous professional athletes and media personalities during his career.

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[1] The NCAA is currently embroiled in the case of NCAA v. Alston, which is pending before the United States Supreme Court.  In Alston, the Court will decide the issue of whether the U.S. Court of Appeals for the 9th Circuit erroneously held that the NCAA’s eligibility rules regarding student athlete compensation violate federal antitrust law – an issue that could dramatically affect the NCAA’s potential ability to stop laws like the Act from ultimately taking effect.  The Court’s decision is expected later this summer.

[2] https://www.ncaa.org/about/resources/media-center/news/division-i-council-tables-proposals-name-image-likeness-and-transfers

[3] The NCAA is not likely to further address NIL compensation until the Alston case is decided.

[4] https://www.al.com/news/2021/04/alabama-senate-passes-bill-on-name-image-likeness-compensation-for-college-athletes.html

[5] HB 404 § 2(a).

[6] Code of Alabama § 8-26B-1 et seq.

[7] Code of Alabama § 8-26B-2(17).  Note the potential issue created by the Revised Uniform Athlete Agents Act’s use of the term “interscholastic sport” within its definition of “student athlete” – a term that does not otherwise appear in the Act.  Under the RUAA, the term “interscholastic sport” means “a sport played between educational institutions that are not community colleges, colleges, or universities.”  Code of Alabama § 8-26B-2(8).  The Act’s incorporation of the term “interscholastic sport” appears to have been unintended, but its potential consequences are unclear.

[8] The Private Colleges and Universities Facilities Authority Act, codified at Code of Alabama § 16-18A-2, defines “institution for higher education” as “[a] not-for-profit educational institution which is not owned or controlled by the state or any political subdivision, agency, instrumentality, district or municipality thereof, which is authorized by law to provide a program of education beyond the high school level and which: (a) admits as regular students only individuals having a certificate of graduation from a high school, or the recognized equivalent of such a certificate; and (b) provides an educational program for which it awards a bachelor's degree, or provides an educational program, admission into which is conditioned upon the prior attainment of a bachelor's degree or its equivalent, for which it awards a post-graduate degree, or provides not less than a two-year program which is acceptable for full credit toward such a degree; and (c) is accredited by a nationally recognized accrediting agency or association or, if not so accredited, is an institution whose credits are accepted, on transfer, by the University System of Alabama and its educational units for credit on the same basis as if transferred from an institution so accredited.

[9] HB 404 § 1(3).

[10] HB 404 § 1(1).

[11] HB 404 § 2(a).  The Act’s standard is inherently vague on its face.  The use of “commensurate” and “market value” as limiting factors is problematic because the Act does not define the terms.  Commensurate, which generally means fair, appropriate, and in proportion, is a highly subjective standard.  Market value, which generally means the amount for which something can be sold on a given market, is frequently but incorrectly used interchangeably with the terms fair value, open market value, or fair market value, despite these terms having distinct definitions that differ circumstantially.  Moreover, some athletes, whether due to ego or outside influences, could easily overinflate their perceived market value.  Accordingly, one can easily foretell interpretive disputes arising over whether the amount of NIL compensation proposed to be paid to a particular student athlete is commensurate with that student athlete’s market value.  Under the Act, these disputes will apparently be governed by, and resolved according to, a dispute resolution process to be established by the newly created Alabama Collegiate Athletics Commission.  See the discussion of the Alabama Collegiate Athletics Commission in Section 7 of this article.

[12] HB 404 § 2(c).

[13] HB 404 § 2(d).

[14] HB 404 § 2(e).

[15] HB 404 § 2(f).

[16] HB 404 § 2(g).

[17] HB 404 § (h).

[18] HB 404 § 7.

[19] HB 404 § 7.

[20] HB 404 § 8.

[21] HB 404 § 2(1).

[22] HB 404 §§ 3 and 4.

[23] HB 404 § 4.

[24] HB 404 § 3(b).

[25] The Act incorporates the definition of “tobacco specialty store” from Code of Alabama § 28-11-2, which defines the term as “a business that derives at least 75 percent of its revenue from tobacco or tobacco products.”

[26] The Act does not define what an “adult entertainment business” is, but, under other Alabama law, the term includes adult bookstores and video stores, adult movie houses, and other commercial establishments or private clubs where entertainers, employees, dancers, or waiters appear nude or semi-nude.

[27] HB 404 § 2(b)(1)(a)-(e).

[28] HB 404 § 2(b)(2).

[29] HB 404 § 5(a).

[30] HB 404 § 5(a).

[31] HB 404 § 5(b).

[32] HB 404 § 6(a).

[33] HB 404 § 6(b).

[34] HB 404 § 6(c).

[35] HB 404 § 6(d).

[36] Section 2(c) of the Act provides: “Compensation for a student athlete’s name, image, or likeness may not be conditioned on athletic performance or attendance at a particular postsecondary educational institution.”

[37] Section 2(d) of the Act provides: “Compensation for the use of a student athlete’s name, image, or likeness may be provided only by a third party not owned or operating under the authority of the student athlete’s postsecondary educational institution.”

[38] Section 2(e) of the Act provides: “A postsecondary educational institution, an entity with the purpose of supporting or benefitting the institution or its intercollegiate sports, or any officer, director, or employee of the institution or entity may not compensate or cause compensation to be directed to a student athlete or the family of a student athlete for use of their name, image, or likeness.”

[39] Section 8 of the Act provides: “A student athlete may not receive compensation for use of their name, image, or likeness as an inducement to attend or enroll in or continue attending a specific postsecondary educational institution.”

[40] HB 404 § 11.

[41] Code of Alabama §§ 13A-5-6(a)(3) and 13A-5-11(a)(3).

[42] Code of Alabama §§ 13A-5-7(a)(1) and 13A-5-12(a)(1).

[43] HB 404 § 9.

[44] HB 404 § 10.

[45] HB 404 § 13.