One of the more controversial features of the approved House settlement is a clearinghouse review of NIL deals that exceed $600 to ensure they are legitimately about use of an athlete’s right of publicity and not veiled payments to convince an athlete to attend and remain at a school.
Some have speculated that the denial of proposed NIL deals will motivate athletes and the businesses with whom they seek to partner to sue the clearinghouse, and perhaps other defendants. Possible claims could include alleged violations of state NIL statutes, tortious interference with prospective NIL contracts and suppression of economic opportunities as protected by state and federal antitrust laws.
There’s an important factor being overlooked: The role of arbitration, which will make it far more difficult for an athlete or a company with which the athlete seeks to sign an NIL deal to wage a successful lawsuit.
The narrow means of challenging arbitration awards will likely deter attorneys who would otherwise jump at the chance to bring a lawsuit that would attract media attention. The prospect of overcoming judicial deference to an arbitration award is an important and often overlooked factor.
Deloitte, in partnership with the new College Sports Commission, will oversee NIL Go. The clearinghouse will use a fair market algorithm to assess if an NIL deal has a plausible relationship to the value of the athlete’s right of publicity in the context of a proposed deal. Hypothetically, an athlete being offered $1 million to sign with a local car dealership that typically pays endorsers less than $10,000 would need to explain the logic of the $1 million amount.
While NIL is a relatively new term, it reflects a longstanding legal principle–the right of publicity–that is protected by states’ laws. This right has played an instrumental role in protecting actors, musicians and pro athletes from misappropriation of their unique and marketable personal qualities. College athletes have always had the right of publicity, but until the NCAA’s hand was forced by Ed O’Bannon’s case over the unlicensed use of athletes’ likenesses in video games and states enacting NIL statutes, NCAA rules had conditioned eligibility on (among other things) athletes not profiting from their identity.
Since 2021, NIL has sometimes morphed into a vehicle to pay athletes to attend and remain at a school. Even if those arrangements are called “NIL deals,” they’re substantively not about NIL. They are pay-for-play arrangements, which remain prohibited by NCAA rules.
NIL Go will be charged with clearing or not clearing NIL deals. In instances where more review is needed, the College Sports Commission will conduct its own screening. Athletes whose deals are rejected will have the chance to revise those deals and submit revisions for review. They can also file an appeal to neutral arbitration.
Arbitration is a private dispute resolution forum that parties contractually assent to use in lieu of litigation. Although arbitration and litigation are sometimes discussed interchangeably, they are quite different. Arbitration is conducted behind closed doors, meaning that–unlike in litigation– writing filings, evidence, testimony and transcripts are shielded from public review. There is no judge or jury in an arbitration. Instead, the arbitrator is typically a subject matter expert, who is usually an attorney with relevant expertise and is sometimes a law professor or retired judge. The arbitrator issues a decision, known as an “award,” and it is an order that the parties have contractually agreed to follow.
As repeatedly seen in sports law in recent years, whether it’s when NFL coaches sue the NFL over employment disputes, when NFL agents sue one another over client recruitment or when NBA teamssuing each other over trade secrets, judges who are asked to vacate arbitration awards are very reluctant to do so.
The Federal Arbitration Act and the Labor Management Relations Act instruct that judges are generally expected to sustain arbitration awards when the loser challenges them in court. There are only exceptional circumstances, such as when the award was procured by fraud or when the arbitrator refused to consider relevant evidence or follow basic legal principles, that warrant vacating an award. Some estimates find that judges vacate awards only around 10% of the time. Even when a judge vacates an arbitration award, the “winner” of that court ruling doesn’t necessarily “win” the dispute. Instead, they ordinarily get another shot at arbitration—where they might lose again.
To be sure, there are variables with arbitration review of clearinghouse decisions regarding NIL deals. Arbitration ordinarily arises in circumstances where the parties are in an employment or consumer relationship. When an NFL coach signs an employment contract, the contract will contain an arbitration provision. When a consumer buys a new computer, the fine print usually details an arbitration provision.
Under current applications of law, a college athlete is not an employee. The athlete is also not acting as a consumer when signing an NIL deal. The athlete is instead a student who wishes to sign an NIL deal with a third party wherein they would be an independent contractor. That NIL deal is not what gives rise to arbitration—it is instead the approved House settlement’s procedure for injunctive relief. The settlement governs the athlete like other class members and, as a contract, the settlement has a nexus to the athlete. But it is a different relationship from employment or consumer contexts and different from, say, an NBA team owner contractually agreeing to the league commissioner having authority to review team-to-team disputes.
Whether distinctions in the college sports context prove to be distinctions without making a legal difference remains to be seen. But those predicting an avalanche of college athletes suing over denied NIL deals should be a factor in the role of arbitration as a major deterrent to litigation.
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