State, federal laws protect NIL deals amid calls for transparency

On3 imageby:Andy Wittry07/19/22


It was the week before Christmas last year when the NCAA went on a fact-finding mission regarding Division Street, the high-profile and self-described “sport venture” company Oregon alumni created to support the university’s athletes in their NIL pursuits. NIL collectives — an umbrella term for entities that are independent of the universities whose athletes the groups support by pooling funds for NIL opportunities — were still in their relative infancy last winter.

Online search interest for the term over the last 12 months, as measured by Google Trends, has dramatically increased in the last five months, peaking in the first week of May. Through last December, the search interest was measured at a value of zero, meaning there wasn’t enough search data.

Collectives and other school-specific marketing companies were new to the NCAA’s enforcement staff, just as they were to other stakeholders in college athletics. The NCAA reportedly contacted several schools last year regarding new NIL initiatives, not just Oregon.

Chalk it up to the start of a new era and the implementation of the NCAA’s 11th-hour, relatively barebones interim NIL policy.

The NCAA asked for contracts facilitated by Division Street

On Dec. 16, 2021, NCAA Assistant Director of Enforcement Anthony Del Giudice and Oregon Senior Associate Director of Athletics and Chief Compliance Officer Jody Sykes had a phone call regarding Division Street.

Del Giudice then followed up with an email to seek information about, and an analysis of, Division Street.

“To ensure the enforcement staff has a complete and accurate understand of Division Street,” Del Giudice wrote, “the enforcement staff requests that Oregon provide the institution’s position on and analysis of its permissibility pursuant to the NCAA’s interim policy on student-athletes’ use of their NIL.”

In a two-page, confidential letter, obtained through a public records request, Del Giudice listed six requests, including for Sykes to “provide a detailed description of any contractual agreements facilitated by Division Street between the institution’s student-athletes and business organizations.”

In Oregon’s response to the NCAA, Sykes described Division Street as a for-profit marketing service that “can be likened to many other for-profit entities which currently sell brand enhancement services to institutions and athletes.”

Ultimately, Oregon protected its athletes’ contracts from disclosure to the NCAA, in part by citing federal law and confidentiality clauses that exist in contracts between athletes and third parties.

State law, school policy doesn’t require athletes to share info

Del Giudice asked Sykes for the names of the Oregon athletes and the partner organizations involved in contracts facilitated by Division Street, as well as the parties’ specific responsibilities.

He asked for the duration of any agreements, the total compensation for each athlete and the dates of payment.

He asked for copies of the contacts.

In Sykes’ response in late January 2022, she noted that state law and university policy doesn’t require athletes to share with the university their agreements regarding branding, marketing or the facilitation of NIL activities.

But beyond that, Sykes wrote, “to the extent that the University does have copies of agreements between student-athletes and sponsors, the university does not believe it is able to provide identifiable student data due to the restrictions of the Family Educational Rights and Privacy Act of 1974 (FERPA) … Further, these contracts are between individual student-athletes and third parties, and oftentimes include confidentiality clauses.”

An NCAA spokesperson said in an email that due to confidentiality rules put in place by NCAA member schools, the NCAA doesn’t comment on current, pending or potential investigations. The NIL guidance the DI Board of Directors issued in May noted, “the emphasis of this NIL guidance is on boosters in the recruiting process and is not intended to question the eligibility of prospective and enrolled student-athletes involved in NIL deals.”

Oregon’s athletic department didn’t provide comment in response to multiple emails and a phone call.

“We are aware of the inquiry, and we welcome a look into Division Street and all institutions operating in the NIL space,” Division Street said in a statement. “We are extremely confident that our work to create and monetize elevated marketing programs for Oregon student-athletes falls within the existing guidelines and we will continue to do everything necessary to stay in compliance.”

Oregon certainly isn’t alone in its use of FERPA.

Roughly 40% of public NCAA Division I institutions cite FERPA while withholding records related to NIL disclosures, based on an analysis of public records by On3.

How FERPA is used — sometimes incorrectly

FERPA simultaneously can be applied too frequently and incorrectly, and yet it can also be easily and unintentionally broken.

“Technically speaking, like if you call the University of South Carolina and said, ‘Can you confirm whether [quarterback Spencer] Rattler‘s a student at the University of South Carolina?’ — no one’s ever done that, I don’t think — but the answer’s supposed to be, ‘No, I can’t confirm that,'” said Derek Black, a professor of law and the Ernest F. Hollings Chair in Constitutional Law at the University of South Carolina School of Law.

“Which seems silly, because everyone knows Rattler’s playing football for the Gamecocks. And, you know, I guess coaches comment about academic eligibility at times, which theoretically could be violations.”

FERPA defines education records as those that are directly related to a student and maintained by an educational agency or institution or by a party acting for the agency or institution.

Early in a conversation with Black, he openly wondered why many universities even have information about athletes’ NIL activities. It’s understandable for someone whose background is rooted in law and higher education rather than college athletics to wonder why the details regarding an athlete’s commercial endorsement opportunities are often funneled through the athlete’s university.

The NCAA’s interim NIL policy says athletes should report NIL activities to their school consistent with state law or school and conference requirements.

Some athletes want NIL deals to be kept private

In the wake of the DI Board of Directors’ additional NIL guidance and Miami booster John Ruiz meeting with members of the NCAA’s enforcement staff in early June, Oregon’s response shows the potential value in legally mandated secrecy, even regarding NIL activities in which there’s no wrongdoing in the eyes of the NCAA or under state law.

Some athletes simply want to keep their deals private.

“Others don’t want any of their deals out there,” UNLV Deputy Athletics Director and Chief Operating Officer Eric Nepomuceno said last month during a meeting of a Nevada state-appointed committee that was tasked with studying NIL.

“Some for negotiation reasons, leverage reasons and some just for privacy reasons. Although I appreciate that something should be done for disclosure. My humble opinion is we want to do less with disclosure and not more with disclosure in terms of creating parameters that could prevent NIL deals.”

The potential conundrum, however, is that many stakeholders have asked for more transparency. However, that doesn’t mean the details of an individual athlete’s activities need to be made public.

Coaches ask for transparency, whether media did research

At the SEC’s spring meetings, Alabama football coach Nick Saban said NIL deals need to operate in a “uniform, transparent way.” His offseason verbal sparring partner, Texas A&M coach Jimbo Fisher, asked a reporter in May, “Did you do your research?” regarding Saban’s thoroughly covered comments about the Aggies.

However, a media member, or anyone else in the college athletics ecosystem for that matter, has few ways to do his or her own “research.”

In the months prior to the NCAA’s interim NIL policy, the association considered the use of a third-party administrator to act as a centralized clearinghouse for all NIL activities. However, there were concerns about potential conflicts of interest and the idea never materialized.

A central repository of anonymized NIL data — a project one Duke athlete plans on starting this summer at the grassroots level through a collaborative Instagram account — could be valuable, particularly for athletes who are in the process of determining their market value.

The NIL activities that are disclosed are currently segmented among numerous third-party providers, as well as an even larger number of schools. Maybe only a small fraction of NIL activities are actually disclosed.

Laws in Kentucky, Louisiana protect NIL deals

Some state lawmakers have intentionally written, or later amended, state laws to keep the details of reported NIL activities out of the public eye, even beyond the protections offered by FERPA.

Following the lead of other states that are also home to members of the Southeastern Conference, state lawmakers in Louisiana amended state law to allow universities and boosters (read: collectives) to take a more active role in facilitating NIL deals.

There was another notable amendment in Louisiana’s Senate Bill 250, however. The amendment stated, “Any document disclosed by the intercollegiate athlete to the postsecondary institution that references the terms and conditions of the athlete’s contract for compensation shall be confidential and not subject to inspection, examination, copying or reproduction pursuant to the Public Records Law.”

In Kentucky, Senate Bill 6 was enacted in early March. It states, in part, “For the purposes of the Kentucky Open Records Act … a NIL agreement submitted … to a public postsecondary institution and the information obtained from the agreement shall be considered as containing information of a personal nature where the public disclosure thereof would constitute a clearly unwarranted invasion of personal privacy.”

These state laws can have a similar effect as FERPA but they remove the gray area that can be a university’s general counsel’s interpretation of the federal law.

Ironically, however, when a coach comments publicly on a player’s NIL earnings — presumably to help in recruiting — that could potentially be a FERPA violation, depending on how the coach learned the information.

“My instinct says it’s not a good idea to be sharing that type of information because it sounds like it could be a FERPA violation,” Black said. “But then my rational, other side of my brain goes, ‘Yeah, but I mean, if the kid told him and it’s not in his records, and the kid just told him, then what’s the violation there?’ It doesn’t necessarily meet the technical terms of FERPA.”

30% of public schools share limited NIL data

On3 filed public records requests to more than 100 Division I institutions for redacted copies of the disclosure data for NIL activities that were reported in May, such that any personally identifiable information was redacted. Of the 105 institutions that have provided a final response at the time of publishing, just 31% provided records that containing limited, anonymized details of NIL activities.

The most common response from universities was that these records are protected and exempt from disclosure. Forty-three schools fell in this category. Almost all of the responses cited FERPA — the law Oregon cited in its response to the NCAA.

Twenty-six schools said they didn’t have any responsive documents. That either means that none of the school’s athletes disclosed NIL activities in May or that a third party possesses the records rather than the school.

A member of UNLV’s Office of Public Affairs pointed to the university’s third-party provider, NOCAP, as the entity that maintains its athletes’ NIL-related records.

“And that’s intentional,” UNLV’s Nepomuceno said during the Nevada NIL committee’s final meeting. “We don’t want to be the custodian of the contracts.”

Black said an individual can file an administrative complaint regarding a FERPA violation with the United States Department of Education. The department will investigate, which could lead to formal or informal action against a university. He called the loss of federal funds the “ultimate sanction.” However, he said a warning or a negotiated agreement between the parties involved would be more likely.

“I don’t immediately recollect any actual sanctions by the Department of Education for FERPA violations,” Black said.

What do public records say about NIL deals?

For 10 of the 33 schools that provided redacted copies of anonymized NIL disclosure data from May, just one NIL agreement was disclosed at each school. For 21 of the schools, the number was less than five.

In the admittedly limited data that’s available through public records, there’s little evidence of paper trails for rumored six and seven-figured deals that are often tied to collectives. These often rumored and less frequently verified agreements can serve as message-board fodder that feels like a cross between a supposed Bigfoot sighting and a fishing story where the figures are inflated by 10% every time it’s told.

Among the anonymous disclosure data, there was only one NIL activity out of 320 that offered six-figure compensation and it was more than 10 times larger than the value of the second-largest deal.

Despite relatively few universities nationally that provide documents related to NIL activity due to their general counsel’s interpretation of federal law, some state lawmakers have ensured that these documents remain private, limiting the transparency which some desire.

Anonymized, industry-wide data could have numerous benefits but public records aren’t, and probably shouldn’t be, the solution.

There’s not much the NCAA, fans of a rival school or members of the media can learn about NIL activities through public records, at least regarding specific contractual terms or reported high-profile agreements.

That’s a good thing for the athletes and third-party entities involved.

The implementation of state laws with public records exemptions for NIL activities and school-friendly interpretations of FERPA can ensure it stays that way.