By: Bruce B. Siegal, Esq.
Last month, I wrote about the settlement in the House v. NCAA case
The new revenue-sharing model requires all outside NIL deals to go through a clearinghouse (“NIL-Go”), which will determine whether payments represent a “valid business purpose” and reflect a fair market value. A new enforcement arm — the College Sports Commission (“CSC” ), and not the NCAA, will oversee the process.
This blog follows up on matters related to the CSC and its review process as it relates to collectives in the new NIL world.
Summary Box: Key Takeaways
What Changed: The CSC has indicated that it will reverse its earlier stance that collectives cannot meet the “valid business purpose” standard for NIL deals.Why It Matters: This change will allow collectives to continue compensating athletes, provided the deals involve legitimate commercial activity.What’s Next: The CSC will likely focus more on evaluating the “range of compensation” in NIL deals. Some previously denied deals may now be reconsidered.
Background: The Role of the CSC and the House Settlement
The CSC is a newly formed independent body created to oversee the implementation of the House v. NCAA settlement. This landmark agreement aims to reshape college athletics by introducing revenue sharing and regulating Name, Image, and Likeness (NIL) compensation for student-athletes.
The CSC is tasked with:
Enforcing House settlement terms related to NIL, revenue sharing, and roster limits.
Reviewing NIL deals submitted by student-athletes.
Investigating potential violations and administering penalties.
A central goal of the House settlement is to shift athlete compensation from third-party collectives to direct payments by collegiate institutions.
Initial Guidance: Collectives Under Scrutiny
The College Sports Commission requires student-athletes to submit any third-party NIL deal worth $600 or more to NIL Go. Deals flagged by NIL Go are forwarded to the CSC for review.
The CSC initially denied hundreds of deals involving collectives, stating that these entities failed to meet the “valid business purpose” standard. According to the CSC, organizations whose sole function is to pay athletes could not qualify as legitimate businesses; consequently, NIL deals offered through collectives would be rejected. In essence, CSC would hold collectives to a higher standard when evaluating third-party NIL deals. This was a significant limitation on athlete compensation, likely resulting in antitrust claims.
The “valid business purpose” test is one of two criteria used by NIL Go to assess third-party NIL deals. The other is a “compensation range” standard, developed by the Deloitte accounting firm to assess the legitimacy of NIL transactions.
Policy Reversal: A More Inclusive Standard
The CSC has now indicated that it will retract its earlier guidance, treating collectives and school-affiliated entities the same as other businesses when evaluating NIL deals.
This change acknowledges that many collectives do, in fact, operate with a valid business purpose. Examples of qualifying activities include, without limitation:
Selling athlete-branded merchandise.
Hosting autograph signings.
Organizing athlete appearances at events such as golf tournaments.
Going forward, new guidance is expected to be handed down by the CSC that clarifies collectives can offer goods and services for profit in the form of NIL payments, and they can send those deals through the clearinghouse for approval. This policy shift should provide a clearer path for collectives to continue supporting athletes—so long as the deals involve legitimate commercial transactions that generate public-facing goods or services.
Looking Ahead: Focus on Compensation Range
With the “valid business purpose” hurdle amended, the collectives’ deals, as with all third-party businesses, will still be subject to a “range of compensation” limit that will be evaluated through Deloitte. This metric evaluates whether the payment to an athlete is reasonable based on market norms. In addition, the CSC will likely take into account the relationship between the payor and the athlete’s school, so where the collective is the payor, this will factor into the analysis.
Some NIL deals previously denied under the old guidance may now be reconsidered. However, the revised policy may not eliminate future legal challenges—particularly those related to:
The compensation range methodology.
The arbitration process for denied deals.
Not surprisingly, this situation is still evolving. The specifics of the new College Sports Commission guidance and its implementation are being worked out in detail and are subject to potential adjustments.
