NIL Rights and the New FronTier
This past weekend marked the one-year anniversary of the NCAA allowing student-athletes to profit from their Name, Image, and Likeness (NIL). In the past year, 29 states have passed NIL laws and more have proposed bills in the works. Since its conception, the NCAA restricted compensating student-athletes and only allowed schools to pay their players in the form of educational benefits such as scholarships. The NCAA’s change of heart came upon the NCAA v. Alston1 ruling in June of 2021. In a 9-0 decision, the Supreme Court held that the NCAA’s limitations on education-related benefits for college athletes violated the Sherman Act. The Sherman Act states that “every contract, combination in the form of trust or otherwise, in restraint of trade or commerce among the several States, is hereby declared to be illegal.” Although the decision only discusses education-related benefits and not pay-for-play, this ruling was seen as a win for student-athletes country-wide. States quickly began enacting their own NIL laws; California being the first, quickly joined by Colorado, Nebraska, and Florida.
Since July 1, 2021, more than 125,000 student-athletes have signed some type of NIL deal, about 35% of all college athletes. Currently, the largest NIL deal belongs to a five-star recruit for the Class of 2023. The as-of-now unnamed athlete signed a deal with the school’s NIL collective that could pay him more than $8 million by the end of his junior year for making public appearances and taking part in social media promotions. However, on top of athletes signing deals with school collectives, corporations, and local businesses to profit from their NIL, some players have decided to take matters into their own hands. That’s exactly what McKenzie Milton, a Quarterback from Florida State did. The day the NCAA NIL law went into effect, Milton entered the NFT (non-fungible token) market with digital trading cards depicting his likeness.
NFTs the New FronTier
NFTs have taken the world by storm over the past few years, and sports were not safe from their reach. Professional athletes like Lebron James, Zion Williamson, and Patrick Mahomes quickly started creating and selling their own NFTs. Tom Brady, the “GOAT”, also got in on the NFT action by creating his own marketplace, autograph.io, in collaboration with other “GOATs,” Tiger Woods, Derek Jeter, Wayne Gretzky, Tony Hawk, and Simone Biles. Athletes across the world quickly realized that NFTs were a quick and easy way to market themselves and make money in a new and almost unregulated market.
So, What is an NFT?
NFTs, or Non-Fungible Tokens, are exactly like the hundreds of baseball cards in my dad’s office, except you can’t hold them, they only exist in the blockchain, and anyone can screenshot your NFT. Kidding, of course. NFTs are so much more than collectibles. NFTs are non-replicable, unique pieces of artwork, tickets, tweets, music, video, or combinations of media. Each NFT comes with a token, or certificate of ownership, that gives the NFT its value and proves ownership over the NFT. NFTs cannot be replaced with anything, but they can be traded. If you trade an NFT with another NFT, you have something completely different.
NFTs exist as a part of the Ethereum blockchain. Ethereum is a form of cryptocurrency that is used to purchase NFTs from marketplaces such as OpenSea, Rarible, or as mentioned above, Tom Brady’s, Autograph. This blockchain also keeps track of who owns which NFTs and which NFTs are currently being traded. As of 2021, there were around 360,000 NFT owners, holding around $2.7 million in NFTs between them. NFTs provide a new frontier for artists and athletes to empower themselves by selling works directly to collectors and receiving money straight into their pockets.
How do NFTs in Sports Work?
An attractive attribute of NFTs is that they can be basically anything that an athlete wants them to be. NFTs get their value from buyers and sellers in the marketplace, which is why this is a great way for athletes to market their name, image, and likeness while also making a profit. It is easy for players like Patrick Mahomes to take a picture of themselves, add animation to the image, and immediately sell the NFT for upwards of $247,000 with little marketing. For Patrick, Lebron, and Brady, NFTs allow them to profit off of the brand they have already built. For other athletes, NFTs provide ways for them to thank and connect with their fans. Like Lamelo Ball, whose NFTs are used as raffle tickets for items such as game tickets, signed shoes, and more while also being interactive; with live updates of Ball’s stats as he plays games in real-time. Or like Luka Garza, the University of Iowa alum who used his NFT to give the highest bidder the opportunity to meet him, compete in a game of H.O.R.S.E, meditate, and catch dinner and a movie, while also donating the proceeds to charity.
NFTs are also a substantial way for college athletes to market themselves and promote their abilities before ever entering the professional leagues. By creating an NFT series that advertises their best plays while also helping them connect with and gain fans, this pseudo highlight reel gives college athletes even more ability to take advantage of their NIL rights while also gaining a strong fan base before even considering entering a professional league. It also gives college athletes who know they are not interested in joining a professional league the ability to profit from their NIL in an easy way that will set them up financially for the future.
Sports NFTs give fans a new way to connect with their favorite players and support them in a more personal way. However, individual athletes are not the only players in the current NFT market. The NBA has partnered with Dapper Labs to create Top Shot, an NFT boasting basketball’s greatest moments. Top Shot reached $1 billion in sales in May of 2022, however, less than 5% of that reaches the players. The NFL also created an NFT called “NFL All Day” and is currently partnered with Mythical Games to create an NFT-based video game. This could potentially pose a future problem for college athletes if schools decide to make their own NFTs and restrict the players’ NIL use for NFTs or limit the compensation given to the athletes from team NFT sales. However, for now, the possibilities are endless when it comes to NFTs and that is why so many athletes are finding unique ways to enter the market.
Regulations for College Athletes and NFTs
On top of all the different ways athletes can use NFTs to market themselves and earn money from their NIL, the current NFT market is largely unregulated. The NCAA NIL rules do not presently say anything that regulates student-athletes selling their own NFTs, and none of the current NIL state laws restrict the use of NFTs to promote NIL either. However, NFTs are subject to the same laws that any form of art is such as copyright and trademark laws, meaning athlete NFTs cannot use any school logos, names, or NCAA marks. Additionally, if the NFT includes a photograph, the athlete must own the rights to the photo. As long as the students comply with the NCAA, their state, and their school's NIL regulations; their NFT potential is limitless.
The world of NFTs is constantly changing and new NIL regulations are continually being discussed and updated. Both developments provide a new and exciting frontier for students to take advantage of during their time as amateur athletes. Although it has been argued that NIL contracts will keep athletes from deciding to go pro by providing them with more monetary benefits while they have amateur status, the ability to create an NFT to promote themselves and build a fan base that will carry with them in the professional league might be the resolution to these worries. Either way, the sports world will be forever changed by NFTs and NIL rights; this is only the beginning.
Holly Summers is a 2L at New York Law School. She graduated from Texas Tech University with her degree in Business Management. Holly aspires to be a sport law attorney working specifically with student-athlete NIL rights or professional athlete Intellectual Property rights. In her free time, Holly enjoys playing with her two dogs, Indiana and Willow, watching sports documentaries, and graphic design.
The information in this blog post ("Post") has been prepared by Holly Summers, a law school student, in conjunction with Cuttita LLP, for general informational purposes only. The Post does not constitute legal advice and may not reflect the current law in your jurisdiction. No information in this Post is intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction. Transmission or receipt of this information does not create attorney-client relationship with Cuttita LLP, or any of its attorneys.