Already On An Untenable Financial Path, NCAA Schools Are Inviting More Legal Trouble If They Oversee NIL

As NCAA Chief Financial Officer Kathleen McNeely began to speak to a packed house at the NACDA Convention in Las Vegas this week, she shared how the organization has been hammered with inflation, losses on investments, and other financial stressors. It was a real world look into what members face in the near future.

She explained to the athletic business officers in attendance some of the financial challenges the NCAA has had to deal with in the 2021-22 year:

• The championship travel expenses from last year went over budget;
• Gender equity expenses;
• Inflation and gas prices;
• Financial investments sustained losses across a wide range of categories;
• Event cancellation: In 2020, the NCAA had the second largest event cancellation claim in the world. (remember no March Madness?) Changes in premiums made renewing event cancellation insurance nearly impossible (reason: too many exclusions). Instead, the NCAA has been forced to establish captive insurance (self-insure) model using the organization’s reserves. The new bill? That will be $75-$80m out of this year’s budget, please.

Looking ahead to 2022-23, the NCAA is already projecting a $30 million increase in travel alone.

And yes, there’s more. The organization continues to accumulate large legal bills, as McNeely explained, ranging from athletes “suing for things happening in practice, transfers, injuries impacting quality of life” to class action lawsuits. She is keeping an eye on the progress of several court cases, including Johnson v. NCAA which addresses an athlete’s ability to be compensated similarly to campus student workers; and another case involving “the share of both television-rights money and the social media earnings athletes would have received if the NCAA’s current limits on NIL compensation had not existed”.

To put these cases in context, according to the most recent 2019 990 reporting form, the NCAA spent $68 million on legal fees just in that year. In the Alston case, the NCAA spent over $36 million in the losing effort, of which 90% was ultimately billed to the conferences. It’s been reported the NCAA has spent millions on lobbying Congress for favorable antitrust laws and a national standard for NIL.

USA Today’s Steve Berkowitz reported in May 2022 the NCAA has spent well over $300 million on legal fees since 2014 (they recouped almost $70 million over the same time period).

The legal minefield of bringing NIL in house

The system of revenue sharing is under significant stress. Some have said the quiet part out loud-that the association has become a cash cow target for law firms. Knowing that, why do Division I athletic directors and coaches keep inviting more legal trouble?

Take the battle over NIL. LEAD1 CEO Tom McMillen advocates bringing all NIL business ‘in house’. In Sportico, McMillen wrote “another benefit of having institutions more directly involved in NIL is that athletics departments are required to comply with Title IX, which will provide equitable resources for both men and women student-athletes. This will ensure that all college athletes have the opportunities and resources to maximize their publicity rights.” While this sounds sensible on the surface, in reality, the vast majority of athletics departments are a long way from treating men and women equitably in any area, let alone NIL.

It’s certainly understandable that athletic departments want significant and substantial control over the wild marketplace that currently exists-the word ‘inducement’ is being used more and more, as schools feel helpless trying to react to the whims of boosters and collectives.

Ohio State’s Vice President and Director of Athletics, Gene Smith mused to CBS Sports about the need for NIL oversight, asking whether “one of those [solutions] might be institutions having more involvement. That’s being discussed, and it needs to be continued to be discussed.”

So, what would that look like?

Title IX and NIL

I asked Cary Joshi, a partner at Bailey & Glasser, about how Title IX would be interpreted if NIL oversight is brought ‘in-house’. She brought up a number of points, a few of which could be applicable right now to a whole host of current situations:

• An institutional representative arranges or offers deals for men but not for women;
• An institutional representative is hired to train men in NIL legal issues but not women;
• If a coach reveals who his/her coveted recruits are to the local sports media and a collective is made aware, this could be viewed as the institution directing the collective to the desirable recruits;
• One gender can use licensed university logos and the other cannot;
• In some states, NIL laws are requiring the schools to be involved; therefore, there is no separating it from Title IX standards;
• Must always keep in mind that “The University” is the athlete’s platform-it is impossible to separate them.

Joshi emphasized that unless something changes with the Department of Education regulations, “it will remain up to athletes to report differential treatment. NCAA is not doing anything when it comes to ensuring equity or compliance in this area”.

NIL oversight and education falls under the‘treatments and benefits’ prong of Title IX. “On the 50^th anniversary of Title IX, not enough is being done today with regards to treatment and benefits as it is”, Joshi noted. “What makes you think schools will suddenly be in compliance if they get involved with NIL?”

The Bottom Line

Considering the NCAA’s tenuous financial predicament for the next couple of years, the question of whether institutions should assume more financial risk in this uncertain legal environment is an important one. Title IX’s requirement of equitable “treatments and benefits” when it comes to NIL will be a target, as the gray areas of preferential treatment for ‘revenue producing sports’ will be examined closely. Joshi’s firm (and others) are actively seeking plaintiffs for class action lawsuits against athletic departments; some could argue college athletes today are more oriented towards social justice issues and aren’t afraid to speak up when they feel shortchanged.

Annual distributions aren’t likely to increase, inflation is a pressure for everyone, and full and part-time staff are looking for higher wages. Clearly, NIL has created enormous challenges for every athletic department. Unfortunately, it seems very shortsighted to invite even more legal challenges vis a vis gender equity by bringing NIL inside the university.