Last week, the College Sports Commission issued revised guidance regarding its analysis of third-party NIL deals. In this week’s Film Room, we break down that update and note considerations that can support deal clearance.
Revised “Valid Business Purpose” College Sports Commission Guidance
On July 31, the College Sports Commission (CSC) published new guidance regarding its analysis of the “valid business purpose” requirement of third-party NIL deals among student-athletes and Associated Entities/Individuals.
To have a “valid business purpose,” the NIL payment or license must relate to “the promotion or endorsement of goods or services to the general public and those goods or services must be sold ‘for profit.’”
To determine whether a given deal is “for profit,” the CSC will look to “whether the sale of goods or services is for profit and not whether the entity itself is operating at a profit or a loss at any given time.” Additionally, the CSC may seek documentation and information regarding “the entity’s efforts to profit from the deal.”
Critically, this guidance makes it possible for deals between a student-athlete and a collective to have a valid business purpose. Earlier guidance suggested that it might not be possible for a collective to pass this portion of the analysis. That earlier guidance drew rebukes from House class counsel and collectives. Both class counsel and collectives welcomed last week’s updated guidance.
The guidance also offers a reminder that for a deal to be cleared, it must both (i) have a valid business purpose and (ii) sit within an acceptable range of compensation, now codified in Bylaw 22.1.3 to mean “at rates and terms commensurate with compensation paid to similarly situated individuals with comparable name, image and likeness value who are not prospective student-athletes or student-athletes of the institution.”
Including Data to Support Range of Compensation Review
How can collectives and other Associated Entities/Individuals set themselves up for success? By providing information up front that will aid the CSC’s analysis.
The CSC’s range of compensation analysis is “anchored in valuation principles to determine if a student-athlete’s third-party NIL compensation is commensurate with compensation paid to similarly situated individuals with comparable NIL value.” (See CSC – RoC.) Collectives and other Associated Entities/Individuals can assist the CSC’s review by including data and other support for deals. This likely means including more detail regarding the nature of the consideration in a given contract than third parties to NIL deals are accustomed to providing. Taking that additional step is a relatively low burden and time well spent if it aids parties in avoiding a later dispute.
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