Paying College Athletes

In July 2021, the Supreme Court voted unanimously in a landmark ruling that the NCAA could not bar education-related payments to student athletes. For advocates of student athletes, the decision was hailed as crucial step towards players from all college sports becoming eligible for a slice of the billions of dollars their labor and likeness bring to American colleges. On a recent episode of “The Big Stage” podcast, we spoke with Jeffrey L. Kessler, Co-Executive Chairman of Winston & Strawn and one of the leading experts in antitrust and sports law, who litigated the case before the Supreme Court. You can listen here or read the transcript below, which has been edited for clarity.

Adam Sansiveri: Hi, everyone, and welcome to The Big Stage podcast, where we talk to athletes, artists, and entertainers about their legacy and impact. I’m your host, Adam Sansiveri, Managing Director and co-Lead of Sports & Entertainment at Bernstein. Joining me today is my colleague and friend, Stacie Jacobsen, Senior Vice President and co-Lead of our Sports & Entertainment group, as well as a Director in our Wealth Strategies Group.

Jeffrey, first, congratulations on this landmark ruling that we’re all hearing and reading about. What an achievement. And this comes to our listeners after decades of legal and public pressure on the NCAA to allow athletes a bigger slice of the billions of dollars generated by college sports each year. Thank you so much for joining us today.

Jeffrey Kessler: It’s my pleasure.

Adam Sansiveri: What does this ruling actually mean for college athletes?

Jeffrey Kessler: So, the significance of this ruling goes far beyond what was actually decided. What was decided was that the NCAA could no longer restrict education-related benefits, things like graduate school tuition, study abroad, internships, computer equipment, tutoring, things to enhance the ability of the athletes to succeed in their education, and even to give some cash prizes for educational achievement like they do for athletic achievement.

Those are all very important things. It will be life-changing for those athletes and that’s great. But that is not the only significance of this decision. The Supreme Court used the case to declare that all NCAA restrictions are subject to the same antitrust rules that other businesses would face when they’re dealing with workers. Because in this context, the athletes are like workers to labor markets. And that there’s nothing special about the NCAA system that entitles it to different rules. The reason that’s so important, and we’re seeing it already, is on things like rules regulating third-party endorsements, where the athletes could do sponsorships, or social media influencing, or group licensing. Those rules are now coming tumbling down and have come down to a very significant extent. And why is that? It’s because the NCAA looked at this 9-0 decision and said, ‘Gee, we’re going to be committing more antitrust violations and our damages bill is just going to keep going up. We have to do something to try to not have that happen.

So, they have cut back many of their restrictions on that type of third-party endorsement activity and compensation activity for names, images, and likenesses (“NIL”). We’ve already seen impacts there and I just think this is just going to keep going to where the NCAA finally realizes that it shouldn’t be regulating economic issues for athletes at all. It should leave that to the individual conferences. That’s where I think this is going and that’s where I hope it will go.

Adam Sansiveri: That’s very helpful. I’m really interested in hearing the other side’s argument. Why didn’t they want this to pass?

Jeffrey Kessler: I’ll try to do justice to their argument. I obviously don’t agree with it, but I think I can articulate it. Their argument is fans of college sports are different from fans of professional sports. And that there are unique aspects of college sports which define the college sport product. And if they don’t have rules limiting that product in a certain way, then it will just ruin demand for college sports because people then will rather watch NBA basketball instead of college basketball if they look exactly the same. Therefore, we should not be subject to normal antitrust review because we need this special ability to define our product in this way. What that means is the athletes could get no money or compensation or additional benefits. That’s what they said was the distinction. They would articulate it maybe in other words but that is I think at the essence of their argument.

Adam Sansiveri: So, for those NCAA athletes, you think it’s going to evolve quite a bit further. 10 years down the road, what do you envision NCAA sports looking like because of this ruling?

Jeffrey Kessler: Well, I think one, there will be no limits on names, images and likenesses, going forward. So, what you’re already seeing this month, which is that athletes from all sports getting opportunities. And, you know, it’s not just football and basketball. It’s rowers, tennis players, swimmers, and gymnasts. This is going to be great for women athletes because many of them don’t even have professional sports alternatives to go to after school, and now they’re going to be able to realize a lot of these opportunities. They are some of the most powerful social influencers in the country. And they’re now going to get those benefits.

I also think you’re going to see eventually that each conference is going to be given autonomy which is not all that different than some things we have now. For example, the Ivy League has its own rules. It doesn’t give out sports scholarships. It doesn’t really have big revenue-driven sports. It does its own thing. I think you’ll see that the rules in the SCC are not going to look the same as the rules in the Ivy League and that’s appropriate. Because they are, frankly, not engaged in exactly the same set of commercial activities. I think that’s one of the things that’s going to emerge from this. And I think you're going to see even greater interest in college sports because all these deals and social media and sponsorships are going to create even more interest in the sports and the athletes.

What I think is the problem with their justification, and the reason why I think ultimately the courts didn’t accept it, is because what’s really unique about college sports is not that the athletes don’t get paid, it’s that they are students. Nobody is challenging the right of the NCAA or the schools to say you still have to be students. I mean, that’s really what makes college sports different. I don’t think anyone will like it less if the athletes get this compensation and other benefits. But yes, if they were not affiliated with the school, if they were just people hired, then (college sports) would maybe be indistinguishable from just having a minor league or professional sports league. The reason people like the Olympics is because you compete for your country, just like a student athlete competes for their school. But no one really cares that the athletes can get endorsements.

Stacie Jacobsen: I’d like to go back to the name, image, and likeness or NIL, as NCAA athletes can now take advantage of this. You had mentioned that not all the restrictions were lifted. What are some of the limitations that remain?

Jeffrey Kessler: There are two big categories or restrictions that are still there. I’m involved now in a class action lawsuit called the House Litigation, which is seeking both past damages and injunctive relief against NIL restraints. And two of the categories that continue are as follows.

One, they don’t allow sponsorships to make any of the payments contingent on the athlete being on the team or how the athlete performs. So why is that important? Well, you could think of the fact, for example, that a sponsor might want to say, if your team wins a national championship, I want to give you a bonus for that, right? Why shouldn’t they be able to do that? If you win the national trophy, why shouldn’t you be able to get sponsorships and opportunities for that? I think that’s an important restriction that’s going to be the subject of continued legal scrutiny.

The second thing is they said schools cannot be involved in NIL compensation. Now, why is that important? Well, for example, let’s say you’re a school that wants to take your school rights and match it with the group license rights of the athletes and your team and sell it in a package to a jersey company or a video game. Why shouldn’t the schools be able to do that?

Why can’t the schools be in that business? And in fact, you already see them creeping into that business. I saw that North Carolina just announced they have a program to help their athletes understand group licensing. They won’t combine it with their rights. They won’t pay for it, but they help them market it to third parties.

Why couldn’t they also just say, ‘Hey, we’ll take your group license rights with these things and we’ll package them with ours and sell them and then we’ll compensate you.’ Right? So that’s another restriction that I still think needs to go. And it’s one that would be directly a product of the competitive marketplace. Because again, if North Carolina is going to do that, you can be sure that Duke’s going to do that. You want to see those competitive market outcomes.

Stacie Jacobsen: So, the individual athletes now can earn money by signing endorsements and they can appear in advertisements, and they can host their own camps and clinics and a lot more. The impact of social media cannot be underplayed here in brand partnerships. This could really be a huge deal. We’ve talked about compensation but how high can it go? Is there a cap for compensation?

Jeffrey Kessler: Well, there is no cap. It will go as high as the market will take it. Nick Saban (Head Coach, University of Alabama), I think in the last two days, made an announcement that the starting quarterback for Alabama already has almost $1 million in endorsement deals before he has played his first game as quarterback for Alabama.

And Saban uses this to show what great opportunities and values there are for the athletes as their brand. That's exactly what we thought would happen. But frankly, I’m more excited about the gymnast who is going to get $50,000 for social media more than I am about the starting quarterback from Alabama who might have a career in the NFL as well. I’m even excited for the local rower who will now be able to offer rowing training to high school kids and make an extra couple thousand dollars. These are opportunities that everyone else has. Why shouldn’t these athletes have those opportunities? It’s not just about those who are going to make a million. It’s about those will make a few thousand.

Adam Sansiveri: Jeffrey, do you think it changes the sport or the athlete that they may be significantly wealthy before they become a professional?

Jeffrey Kessler: I think it helps at every level. If they have more compensation, then they are better able to have the tools and facilities to manage the complex schedule of doing both athletics and school, which actually requires lots of work and resources. And being able to have family members come visit them and attend their games and travel with them and help them out. I think it’s all positive. And if they get more promotion, that’s going to be more promotion for the school, too. A lot of the schools recognize this. When their athletes go out there and are selling their association with their school, it’s going to help the school’s image, the value of their marketing, and help their recruiting. So, I can’t think of a way that it will be negative. Can an athlete sign a bad deal? That could happen. Hopefully they’re going to get good advice.

One of the things the NCAA now allows is agents or lawyers or others to advise (students) without losing their eligibility on their marketing deals. That’s really important to get those financial advisors to help them with this money. There’s still potential for bad things to happen. There’s always potential for bad things to happen in life. But there's going to be a lot more good coming out of this than many negatives.

Adam Sansiveri: Well, that’s a great piece of advice you just said right there. I hope our listeners take that, too, and get your advisors lined up earlier with things like this. Jeffrey, a lot of advocates have painted this decision as a victory for both racial and gender equality. Can you elaborate on why that might be?

Jeffrey Kessler: Yes, for a couple of reasons. One is, at least in the big revenue sports of FBS football and Division 1 basketball both men and women, the majority of athletes are people of color and therefore the deprivation of the economic benefits disproportionately fall on those communities. And a lot of those communities could really use the additional economic support that these types of efforts would have. In that sense, it’s going to have positive social effects. In terms of gender equality, so many of the most valuable candidates for sponsorships or brand connection or social media are in fact women athletes, even though their sports don’t themselves necessarily generate great revenues in broadcasting or in ticket sales. In fact, many of them are immensely popular and that popularity can be marketed. And further promotion of those sports will help gender equality as well. And then finally, any type of financial independence is liberating for these athletes. The more they have means, the more they can support themselves and assert themselves and stand up for themselves, and that I think also has important social justice effects.

Adam Sansiveri: Absolutely. Do you think some schools will benefit more than others?

Jeffrey Kessler: Some schools will get better at helping their athletes with this first. North Carolina is like a market leader in saying, ‘We’re gonna help you do group licensing.’ Right? So, I think that’s going to be an advantage for North Carolina with their athletes. I think the other schools will emulate that. So, while there may be some market movers, in the end, all the schools that have the resources to do this and now are competing with each other will come up with new kinds of ‘best practices.’ And that will become the market standard. I don’t know that anyone will get a real advantage over the others. But there’s always first-mover advantage. The ones who are more creative and are more devoted to their athletes I think will do better.

Stacie Jacobsen: Jeffrey, with financial independence comes financial responsibility as well. And I’m curious to know if and how financial literacy was factored into any of the discussions leading up to the potential changes.

Jeffrey Kessler: This is something I think the schools should focus on. And I think some of them are. I think they’re talking about providing financial education to their athletes. I know that the professional unions are urging their contract advisors and agents that if they're going to represent the athletes in marketing, they should provide them with education just as they would provide it to professional athletes. I think you’re going to see groups form to really try to do this and educate them. There are lots of interesting efforts going forward of organizations who want to be involved in helping the athletes have platforms to reach sponsors who want to help the athletes with their group licensing. And I think the schools themselves are going to do this. All the athletes who do generate some material money (should) learn how to take care of it wisely.

Stacie Jacobsen: Jeffrey, do you envision a day when a student athlete could ever be paid by the institution to play?

Jeffrey Kessler: It’s possible. I think it's going to go to individual conference rules. Might some conferences decide that they would allow that under different rules or structures? Maybe they’d have a rule (that) you can pay your athletes but the whole team has to be paid the same or something like that. I could see things evolving where more and more competition comes in because that’s generally a good thing. I don't know exactly what the end point is. But I know it involves more competition being introduced.

Adam Sansiveri: Today, we see a lot of athletes across a couple of the sports playing in college for a year and then going pro. Do you think these rulings will cause student athletes to stay in college longer?

Jeffrey Kessler: I think that there are some athletes who need money. They come from families that have very limited resources and they want to go out and help support those families. If you cannot earn anything in college, then obviously there’s a greater incentive to turn professional earlier. So yeah, I think this can make a difference. Take that quarterback in Alabama. If he’s now going to make a million dollars or more a year from his sponsorships, then he may not feel any pressure to go through his whole career in Alabama and get his degree before considering turning pro.

If he has a pro-opportunity after three years of eligibility, he might say I have to take the money. I think you’ll see some of that. Now, of course, in some sports there aren’t a lot of revenue opportunities after college. Say, for those athletes, there’s another reason they may stay in school because they’re developing their brand and opportunities. It may be some of that will last even after they’re done with school just based on their notoriety and brand connection.

Stacie Jacobsen: It seems that there will be a big learning curve as all interested parties navigate their way through the new landscape. What kind of enforcement will be in place? Will there be any penalties? What would that look like for any violations intentional or not?

Jeffrey Kessler: The NCAA is only enforcing for names, images, and likenesses. I’m sure the entire NCAA enforcement mechanism will enforce those rules and there will be penalties just as there are for their other rules. But all other aspects of NIL are not regulated by the NCAA right now. They’ve suspended it, they said. They didn’t say they won’t ever do it. But they said on an interim basis, they’ve suspended it. Schools may have their own rules and policies. So athletes have to be aware of that. I know some schools, for example, (have said) we don’t want you to take sponsorships from gambling or for drugs that are illegal or pornography. Schools may have certain rules and restrictions that the athletes have to abide by and if they don’t, I assume they could lose their place on the team or even possibly the scholarships depending on what the rules and policies are. But that will be at the school level of enforcement. I don’t know if any conferences will have rules about this. It’s possible they might, with them being enforced by the conference.

Adam Sansiveri: Great advice. You’re a master. Jeffrey thank you so much for taking the time today and for all of your amazing insights. Congrats again.

Jeffrey Kessler: Thank you.

Authors
Adam Sansiveri
Managing Director —Head of the Nashville Private Client Group and Co-Lead Sports and Entertainment Group
Stacie Jacobsen
Senior Vice President and Director—Wealth Strategies Group and Co-Lead Sports and Entertainment Group

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