JONES DAY TALKS®: Game Changer? California’s Fair Pay to Play Act and the Future of College Sports

Signed into law by California Gov. Gavin Newsom, the Fair Pay to Play Act will allow college athletes in that state to accept payment for the use of their name, image, and likeness. In response, the NCAA has threatened to bar colleges from postseason tournaments if they allow players to profit under the new law’s provisions, and several athletic conferences have also voiced opposition. Still, a number of states are already considering legislation similar to that enacted in California.

Jones Day’s Marc Weinroth, Ilene Tannen, and Brett Shumate discuss the probable implications of the Fair Pay to Play Act.

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Read the full transcript below:

Dave Dalton:

Sports hold a special place in many cultures in almost every part of the world. In the United States, college athletics in particular, are a source of entertainment, nostalgia and even pride. But has the growing pay for play movement put more than 100 years of college sports tradition at risk? The reaction to the State of California's Fair Pay to Play Act might provide some insights. We have a Jones Day panel here to talk about it. I'm Dave Dalton, you're listening to Jones Day Talks.

Dave Dalton:

Marc Weinroth, based in Jones Day's Miami office, litigates commercial disputes and defends clients in class actions in multiple district litigation. Prior to joining Jones Day, he served as assistant general counsel for three years at the University of Miami.

Dave Dalton:

Ilene Tannen has more than 25 years of experience as a key advisor counseling domestic and multinational companies regarding global trademark issues. She works primarily out of New York and this is Ilene's first Jones Day Talks podcast. You're going to like her.

Dave Dalton:

And finally, Brett Shumate, based in Washington, works with clients in high stakes regulatory litigation involving the government and he develops creative strategies to challenge state and federal laws and policies on Constitutional and statutory grounds. You're sure to hear more from Brett in future podcasts.

Dave Dalton:

Ilene, Marc, Brett, thanks for being here today.

Ilene Tannen:

Thanks, Dave.

Brett Shumate:

Thanks, Dave.

Marc Weinroth:

Thanks, great to be here.

Dave Dalton:

Okay, recently California Governor Gavin Newsom signed into law Senate Bill 206, better known as the Fair Pay to Play Act. Sounds reasonable enough but Brett, what exactly is the Fair Pay to Play Act?

Brett Shumate:

Well, the act is actually a sea change in college sports because it allows student athletes to start earning money in exchange for the use of their name, image or likeness. Practically what this means is that college athletes can get endorsement deals. What you could see as a result of this bill is that student athletes, let's say the college quarterback or the star basketball player, could cut sponsorship deals with third parties. Imagine the basketball star having a contract with an apparel company to market sneakers or imagine the football star showing up at car dealerships to sign autographs or appear in commercials for local businesses. It is a big deal in college sports.

Dave Dalton:

All right, let's stay with you Brett, for a second. I guess the obvious question might be, what's preventing a student athlete from earning compensation from his name, image or likeness now?

Brett Shumate:

Well, it's a big deal because the bill conflicts with NCAA rules. NCAA rules currently and have always prevented student athletes from accepting money in exchange for their rights to their name, image and likeness. And if they accept that compensation, they're deemed ineligible to play college sports.

Dave Dalton:

Okay, so this is an NCAA thing, not a current law or regulation or statute on the books anywhere. It's an NCAA rule if you're playing at an NCAA accredited school or however you designate that, you can't sell your name, image or likeness. I see. All right, that's what this is all about. Let's get into some specifics. Marc, what actually would the California law do?

Marc Weinroth:

Well, there's a number of things. The first is it prevents the NCAA conferences and schools from deeming a student athlete ineligible for receiving compensation for their name, image and likeness rights. It also prevents the NCAA and conferences from declaring a school ineligible to play if it has student athletes on its rosters that receive compensation. It prevents schools from revoking scholarships that they offer to student athletes for violating this NCAA rule. And finally, it authorizes student athletes to hire agents and hire attorneys to help negotiate their endorsement deals, which in and of itself is another violation of a different NCAA rule that prohibits student athletes from signing contracts with agents.

Marc Weinroth:

Really, the only limitation here, Dave, is that student athletes can't enter into contracts that conflict with their school's endorsement agreements. For instance, if a basketball team is sponsored by Nike at a school, that student athlete can't enter into a separate agreement with Adidas to wear Adidas sneakers during a basketball game. But when the athlete's not engaged in "official team activities," doing things in his own spare time or her own spare time, they can agree to an endorsement deal with something that would conflict with the school.

Dave Dalton:

Okay, I think Brett was right. This does sound like a sea of change and very big deal. But in researching this and in talking to some people that I know, and they're more the casual sports fans, there does seem to be some confusion out there in the public concerning how the law would work. This doesn't require schools to pay student athletes does it, Marc?

Marc Weinroth:

That's right. The California law does not force schools to pay student athletes. I think a lot of the confusion here stems from the fact that the law was titled, The Fair Pay to Play Act. As the legislation proceeded, that name was actually changed to Collegiate Athletics Student Athlete Compensation and Representation. Because when you think about pay to play, the first thing you think of is the college is actually paying the student athletes and that's not the relationship here that the bill targets. Rather, as Brett mentioned, the most likely source of revenues will be these third party endorsement deals.

Dave Dalton:

Sure, okay. People always wonder when will this happen, when does this go into effect? But Ilene, we're not going to see student athletes on billboards tomorrow, correct? When will the law go into effect, or when does it go into effect?

Ilene Tannen:

That's right, Dave. The new law goes into effect on January 1, 2023. In the meantime, to go from theory to practice, the California legislature recognized that there will need to be a transition period to implement the changes. They passed a game changing new law, but now they have to figure out how to make it workable. They need to put in some guardrails to make sure the law works to the benefit of the student athlete as it's supposed to. Taking into consideration what the California schools are going to do to adhere to the new rule, as well as how the NCAA will ultimately react.

Ilene Tannen:

The legislation left open the possibility that California could even rework its approach when the NCAA plans are made public. In fact, the California law and other state bills, create working groups commencing in 2020 for further study and recommendations at the state level before the laws take effect in 2023. The NCAA was already exploring potential changes to its rules regarding name, image and likeness rights. The working group, co-chaired by Ohio State athletic director, Gene Smith, is expected to present a report to the NCAA's board of governors at the end of October with recommendations for rule changes.

Ilene Tannen:

I think everybody needs to understand that the NCAA is not totally opposed to change. They acknowledge that changes are needed to continue to support the student athletes in this day and age, but it's their position that the name, image and likeness changes need to be made at the national level through their internal rules making process and not through what they're calling a patchwork of state specific legislation. However, any changes made by the NCAA are likely to be tied to education and have some mechanism to prevent illicit payments to student athletes that are not related to their name, image and likeness. We anticipate that the working group's recommendations are unlikely to go as far as the California legislation, particularly with respect to provisions enabling student athletes to sign agreements with agents to represent them in contract negotiations with sponsors.

Dave Dalton:

Yeah, that might be really the biggest change of all, I think, looking over this. Okay, once every eight or nine podcasts, I actually know the answer to a question before I ask it. That's rolled around here again. This is going to go to Marc. Now, Ilene mentioned the NCAA working group, but overall what's been their reaction or response so far to Senate Bill 206? I bet they were thrilled, right, the NCAA? Oh, thanks guys. Wish we'd thought of this.

Marc Weinroth:

Yeah, not shockingly, the NCAA has come out against the legislation as Ilene mentioned. They believe that changes need to occur at the national level through their own rule making process and that it's not the role of state governments to be intervening with their internal name, image and likeness right rules and regulations. They have gone so far as to threaten litigation, they called the bill unconstitutional in a letter that was written to Governor Newsom. They have threatened potential post season bans for the 58 schools in the state of California if those schools are in fact compelled to allow their student athletes to make money off their name, image and likeness rights. They've declared that the receipt of those funds by student athletes would eventually render those schools unable to compete in NCAA competitions and in post season play, which is precisely what the legislation is intended to prevent against. Where you have a provision that says that the NCAA and conferences may not declare a school ineligible for playing student athletes that receive funds.

Dave Dalton:

Think about these schools. You know this, Marc. You have California, you've got USC, UCLA, Stanford. I mean, those are household name types of universities, big time Division I schools and are important to the integrity of college sports, right?

Marc Weinroth:

They are and they've set up essentially a game of chicken with those schools and with conferences where those schools are members. Saying, "Either comply with NCAA bylaws and you can continue to participate in competition, or disavow the NCAA bylaws and follow the California legislation, in which case you won't be able to participate." That's a really difficult position that these schools are now placed in.

Brett Shumate:

I think it's also interesting to see that the conferences have also come out against the bill. Just imagine conferences like the Pack 12 that have member schools that are in California, but also in other states out West. They have to run championships, but really this bill skews the competitive playing field out West for conferences like the Pack 12. They've come out with a statement that says they're concerned that this bill is going to lead to the professionalization of college sports. They're also pointing to concerns about how the bill blurs the lines for how California universities can recruit student athletes and compete nationally. They're also concerned that the bill is going to reduce resources and opportunities for student athletes that are in sports that aren't nationally televised like football and basketball, but Olympic sports. It's going to have negative, disparate impacts on female student athletes, as well. That's what they're watching.

Dave Dalton:

Okay. There are arguments of course, on any side of a controversial, potentially game changing issue like that. Marc, talk about those that are supporting the bill. What do they say?

Marc Weinroth:

Well, prominent athletes that are supporting the bill, LeBron James at the forefront, called the law a game changer. LeBron, as everyone knows, didn't play college sports. Drafted straight out of high school and went to the NBA. In what some have called a brilliant PR move by Newsom, he actually signed the bill on LeBron's HBO Interrupted show, The Shop. Draymond Green has publicly come out in support of this. Really dozens of professional athletes. Richard Sherman most recently gave an interview saying he hopes that this ends up destroying the NCAA. Aside from athletes you have politicians getting involved. Bernie Sanders retweeted something that LeBron James published on Twitter and said, "College athletes are workers, pay them."

Marc Weinroth:

I think there's a little bit of a misconception here that everyone within universities and within university athletic departments opposes this legislation and opposes student athletes receiving funds for commercializing their name, image and likeness rights. I don't think that's the case. I think there's a large population of coaches and administrators that are in support of the basic premise here, that student athletes maybe should be able to share in some of these revenues. Or should be able to receive additional benefits from marketing their own name, image and likeness rights. But I think the problem is, in practice how do you implement that? Nobody to this date has come up with a really great solution.

Dave Dalton:

And there are legitimate arguments, of course, on either side of this and maybe this is where it all starts. But Marc, this is really polarizing isn't it? I mean, people get emotional and they dig in on an issue like this, correct?

Marc Weinroth:

Well, we're seeing it play out on Twitter in 140 character sound bites for extreme views. Unfortunately, sometimes those extreme views end up controlling the narrative. But look, it's not the end of the world, it's not the death of the NCAA. The NCAA and its member schools will find a way to adapt, the same way they did 50 years ago when Title IX was passed and they said, "This will end college sports." The same way a couple of years ago when cost of attendance stipends were proposed and they were initially opposed and then passed. But it's not the greatest thing ever to happen to student athletes ever.

Marc Weinroth:

This likely will result in significant financial benefits to only a handful of student athletes at each school. The best football and men's basketball student athletes that will really command potentially multi-million dollar endorsement contracts, or at least in tens of thousands of dollars or potentially hundreds of thousands of dollars. What it won't do is have the third string tight end on a team making a lot of money. That's not to say that there's no real benefit to this law outside of the handful of few student athletes that are really marketable. You will see, I think, student athletes across all sports at schools trying to take advantage of this even if it's something small like appearing at a local restaurant or putting on a sports camp in the summer and being able to profit off their name, image and likeness rights. It just will not be to the level of financial value that some of the student athletes at a school may be able to extract.

Dave Dalton:

Well, sure. Let's stay with that point for a second. As you were talking I was thinking about there's this trend especially with college basketball, but you see it happening in college football too. Student athletes will leave school early if there's a big NFL or NBA contract dangling out there. I'm wondering if this could mitigate some of that. Now, I know the car dealership or the restaurant isn't going to throw that kind of money at some of these young men and women, but I wonder if that might be a factor for some? I mean, I'm going to stay in school because I'm going to have some walking around money. I'll stay another year or finish my degree, or whatever. Is that a legitimate development maybe?

Marc Weinroth:

I think it is and you're actually seeing that narrative from Mark Emmert using this on the other side. Saying, really if student athletes want to attend college, they have that decision to make after they graduate from high school. And that college sports shouldn't be a minor league, they shouldn't be an opportunity to keep the student athletes in school if they actually have professional prospects. Rather, those student athletes should elect after they graduate high school to pursue a professional career.

Dave Dalton:

Let's go back to Ilene for a second. Let's present the competing view for the people listening. What kind of arguments are being made by those who support the California legislation?

Ilene Tannen:

It's only fair. Everyone else is making money, why not the student athletes? A student athlete should have the same right available to any other student to exploit their NIL rights for profit. The NCAA earns more than $1 billion dollars in annual revenue from broadcasting and championships. College sports programs pay out multi-million dollar salaries to coaches. They fill 100,000 seat stadiums on Saturdays and bring in millions in sponsorship, media and other revenue. And in return, the student athletes receive little or no compensation other than their scholarships. Even that isn't enough. According to a study by Drexel and the National College Player's Association, scholarships aren't enough for many students. The students that were surveyed, they had to pay college scholarship shortfalls that was as much as $17,000.

Dave Dalton:

Yeah, I've heard this. That's true.

Ilene Tannen:

Right. So why shouldn't student athletes be able to exploit their own name, image and likeness and share in some of the enormous revenues made by the university? It's clear that there's a market to do so. Governor Newsom said the other day when he was signing the bill, "Other college students with a talent, whether it be literature, music, or technological innovation, can monetize their skill and hard work." Every student in the university can market their name, image and likeness and they can go and get a YouTube channel and they can monetize it.

Dave Dalton:

Right, right. Let's extend this a little bit. Play some more point, counterpoint. Marc, what are the best arguments against this?

Marc Weinroth:

Well, to play devil's advocate to Ilene's point about the value of an education, I think lots of folks, especially the four year student athletes that end up ultimately graduating from a university, receive an enormous value with respect to their scholarship. Particularly if they're on 100% full tuition. You have some schools now and private universities where the annual tuition, room and board could be $70,000, $80,000 a year. You're looking at $300,000 to $400,000 in financial benefits to allow a student athlete to come to a university and get a degree. Most of those student athletes are unlikely to play professional. That's the benefit of the bargain, at least in the university model here.

Marc Weinroth:

I think the main argument against why you don't want to put on "professionalized" college sports by allowing student athletes to sign endorsements deals, is that there's a desire to preserve amateurism in the collegiate model. People can pooh-pooh that and you can disagree with it, you can agree with it, but courts have at least consistently recognized that there is some value in the stream of commerce to having a separate college sports product and that people like watching and attending college games and they view that to be different than attending professional games. That's the counterpoint.

Dave Dalton:

Yeah, that's true. I'm a traditionalist, I see all that too. Okay, California can't be the only state considering something like this. Go back to Ilene for a second. What are other states doing or considering?

Ilene Tannen:

Well, there's a number of people in various states' legislatures that are jumping on the bandwagon. My state, New York, they've already introduced a bill with some additional provisions that would require schools to pay student athletes 15% of ticket revenues earned from games, which is curious. Then there's an additional provision that requires colleges to establish an injured athlete fund to provide compensation to athletes for career ending or longterm injuries.

Ilene Tannen:

Florida, and they've already introduced a bill with a second bill from State Representative Chip LaMarca, with provisions that would take effect as early as 2020. That should be really interesting.

Ilene Tannen:

In Illinois, the bill was introduced on September 30th, which if passed, would take effect in 2023.

Ilene Tannen:

Then there's a bill in Washington state, which was introduced in January of this year, but still stuck in committee. But an interesting aspect with that bill is the law requires compensation be tied to the market value of the service that the student athlete provides. The bill does not; however, suggest how this would be monitored, determined or policed. Nonetheless, we want to give that Washington state rep, Drew Stokesbury, an A for effort on this one because at least he's being cognizant of the potential for abuse.

Ilene Tannen:

Now, there's states where legislatures have indicated they're willing to introduce a bill. We've got South Carolina planning to introduce a bill in January of 2020, similar to the California bill. This bill would allow colleges to pay $5,000 a year stipends to the student athletes in profitable sports like football and basketball. However, with this there's a potential Title IX gender equity implication where this provision could be challenged based on gender discrimination if it fails to give the same benefit to females. So that's a curious one.

Ilene Tannen:

Pennsylvania and Minnesota plan to introduce a bill in 2020. Colorado also plans to introduce a bill in 2020. And Kentucky, the senator there has drafted a bill, but he's holding off on introduction amidst the uncertainty around the NCAA response. And Nevada, lastly, is in their early stages of exploring legislation similar to California.

Ilene Tannen:

So this is just what we've heard to date. I wouldn't be surprised if there's more in the next few months to come.

Dave Dalton:

Yeah, there's clearly activity percolating and you're probably right. There will be more we're maybe just not even aware of yet.

Marc Weinroth:

It seems like the inquiry right now, Dave, is why isn't every state passing a law? There's a swell of public opinion right now and I think these lawmakers are taking advantage of it. I was just reading the results of a Seton Hall Business School poll and 60% of respondents are endorsing the idea that student athletes should be benefiting and have the ability to make profit from the use of their name, image or likeness. Only 32% of respondents were opposing it. I think it makes sense that this is an interesting political issue for people where there is a clear majority in favor of this type of legislation. I will note though, that one of the interesting aspects of that poll was that 59% of respondents said this is something the NCAA should oversee and not something that state government should be intervening in.

Dave Dalton:

Well, since you raised that in terms of state governments, this has been the model for amateur athletics in college and university settings forever really, at least in the United States. How did we get here? How did states get involved in the business of legislating student athlete name, image and likeness rights? I mean, where'd this bubble up from?

Marc Weinroth:

Well, devoted listeners of our last podcast will recall that there's been a lot of anti-trust litigation over the couple of years. Really the last decade, against the NCAA involving compensation to student athletes and whether or not the value of scholarships is sufficient for purposes of compensating student athletes. The main case that ends up really invoking name, image and likeness rights was filed by Ed O'Bannon, a former UCLA basketball player back in 2009. You may recall that case was brought against the NCAA, Electronic Arts and the Collegiate Licensing Company involving video games. We no longer have those video games right now as a result of the O'Bannon suit, but college basketball and college football games. The gist of the lawsuit was that the NCAA and its licensing partners were prohibiting student athletes from receiving compensation for their name, image and likeness rights and artificially depressing the value of the market for those students athletes essentially to zero.

Marc Weinroth:

Fast forward five years later in that litigation, CLC and EA got out as part of $60 million dollar settlement, but the NCAA continued fighting it. Judge Wilken ultimately, at the district court level, ruled against the NCAA. Said this violated federal anti-trust law and implemented an injunction saying schools would be allowed to provide up to $5,000 a year in stipends to student athletes. Everybody thought, "Great, this is going to be a change in the way that business is done for student athletes and throughout the NCAA." A year later, that decision's reversed by the Ninth Circuit and they said that no, these name, image and likeness payments are not tethered to education and even small payments are going to destroy the NCAA's amateurism principles.

Marc Weinroth:

Here we are now five years later, where we've had anti-trust litigation that's failed and yet at the same time this swell of public opinion that student athletes should be entitled to receive name, image and likeness right compensation.

Dave Dalton:

Okay, however we got here, the signing of the bill in California received a lot of attention. But it's probably a little bit early for a victory party, isn't it, Brett? I mean, I've got to believe there are potential legal challenges to this coming and any of the other bills that might have been proposed. Where are we in terms of where this might go next?

Brett Shumate:

I think you're right, Dave, to foresee that as a possibility. If you remember from earlier in the podcast, we mentioned that the NCAA issued a statement in response to the California bill saying the bill is unconstitutional. Well, what do they mean by that? Well, I think what the NCAA is referring to, is the commerce clause of the US Constitution, which reserves to the United States Congress the power to regulate commerce between states, interstate commerce. A negative implication of that, the courts have said, is that the states cannot regulate interstate commerce.

Brett Shumate:

I think what people are thinking is that the California bill may be unconstitutional under the commerce clause because it directly regulates a product in interstate commerce. It's inter-collegiate athletics, right? If a school in California is playing a school in Indiana, that is an interstate athletic competition and the NCAA regulates that competition. Here what the California bill does, is it directly regulates the NCAA by saying schools can't enforce NCAA rules and the NCAA can't enforce its own rules by declaring students ineligible for athletic competitions if they're earning compensation for their name, image and likeness.

Brett Shumate:

I think the commerce clause is a real impediment here to the California bill that hasn't been litigated yet. It's something that we'll need to see how the courts resolve those challenges, but I think that's likely what California's referring to, is the commerce clause.

Dave Dalton:

Commerce clause, okay.

Brett Shumate:

Another interesting, I think, wrinkle here is the contract clause of the United States Constitution, which also says in very strong language that states basically cannot abrogate existing contracts. Courts have taken a more flexible view of that provision over the years, but it still stands as a strong prohibition on states passing laws that basically declare invalid existing contracts. Especially contracts in interstate commerce. Here, you can just imagine all the contractual implications from the California bill.

Brett Shumate:

For example, schools are in a contractual relationship with the NCAA. The NCAA says to schools, "Hey, you can be a member of the NCAA so long as you agree to follow our rules." And schools have entered into that contractual relationship with the NCAA. Now if the California bill goes into effect, it would put California schools in breach of NCAA rules because the NCAA rules say, as we heard earlier, they prevent schools from allowing their student athletes to be paid endorsement deals. Well, the California bill says that the schools have to allow their student athletes to get paid for endorsement deals. So there's a conflict here and the NCAA has already threatened to say to the schools that if this bill goes into effect, those schools won't be eligible for post season competitions provided by the NCAA.

Brett Shumate:

I think the contractual implications here are quite significant not only in the relationship between the NCAA and the schools, but also just imagine all of the contracts that the schools have with their sponsors. With the game contracts, with their coaches and things like that. Contractual implications here are quite significant and I think that may also be driving some of the concern by the NCAA and conferences.

Dave Dalton:

Absolutely. There's a lot to untangle here.

Marc Weinroth:

And Dave, just a follow up on Brett's point on the game contracts piece. Gene Smith, the Ohio State athletic director, recently suggested Ohio State's not going to schedule games against California universities while this uncertainty's in the air. Because you're not sure are those schools going to be able to participate. And if not, when those games do occur, it impacts the ability to count those towards a total for your bowl eligibility that year or potentially it leaves you with an open date on your schedule.

Dave Dalton:

Okay. I get it, I get it. Some of the notes you put together for me when we were preparing for this podcast, I was given a line. It says here, California law might be the best venue for a legal challenge by the NCAA. I guess there's an important precedent in the Ninth Circuit; NCAA v. Miller. What was that case about and why is it relevant under these conditions? Let's go back to Brett.

Brett Shumate:

Yeah, that's right, Dave. NCAA versus Miller was a 1993 court decision by the Ninth Circuit Court of Appeals. And the Ninth Circuit in that case, struck down a Nevada law that would have required the NCAA to use Nevada's statute that provided additional due process procedural protections in NCAA enforcement proceedings. Just imagine, for example, the NCAA wanted to investigate or enforce a rule against UNLV basketball program. The Nevada law would have said NCAA has to use Nevada's due process requirements, rather than the NCAA's own rules. The Ninth Circuit struck that statute down, said it was an unconstitutional law, it violates the commerce clause because here Nevada was directly regulating beyond Nevada's borders to regulate a product in interstate commerce, which is the NCAA. Interstate collegiate athletics.

Brett Shumate:

It really put the NCAA in an impossible position because their goal is to have uniformity among all the schools on a national level. We have a uniform set of rules that everybody can abide by and the Nevada law really threw that into doubt. There's no way that the NCAA could have a uniform process for procedural requirements in their enforcement proceedings if one state, or Nevada passes a law and then Florida passes a law. So to maintain uniformity, what the NCAA would have had to do is follow the Nevada law nationwide. So the court said that is a problem. That is a state regulating beyond its borders and it put the NCAA at risk of inconsistent legislation and the commerce clause does not allow that.

Brett Shumate:

I think from that precedent you could also see arguments why the California bill also causes similar problems under the commerce clause. Well, if you have California saying that California student athletes can get paid in contravention of NCAA rules, that again puts the NCAA in an impossible position. You can't maintain uniformity among all universities in the country if you have each state coming up with their own rules about compensation for student athletes. You can't have a uniform, level playing field and it would force the NCAA to adopt California's rules nationwide to have a uniform standard. I think that California bill really does implicate the precedent from the Ninth Circuit in the Miller case and I think we'll probably be hearing a lot more about that in the future.

Dave Dalton:

We will. We will, I'm certain.

Marc Weinroth:

Just to piggyback on Brett's point, obviously, the NCAA can't be happy that there are a dozen states that are now either in the process of passing legislation or have introduced bills. But that actually might benefit the NCAA from the prospective of its legal argument that the California bill imposes this burden on interstate commerce where you have so many conflicting state regimes that totally vitiate any notion of uniformity.

Dave Dalton:

Right, right. And how do you possibly deal with all that? Political scientists and economists and social commentators like to talk about unintended consequences. Oop, we didn't see this coming. Well, let's try and predict. What do you think might be some of the unintended consequences of this legislation? Let's start with Marc.

Marc Weinroth:

Well, I think the biggest concern that people have is, is this going to now turn into the wild, wild West, with "sponsorship" agreements? How do you differentiate between something that's a legitimate endorsement deal for a student athlete's name, image and likeness rights where you're paying the true market value for that student's services from an illicit payment that a booster's making to try to bribe a kid to attend a school? Could this lead to a scenario where you're going to have boosters at different schools offering $1 million dollar sponsorship deals to the best high school quarterback to sign autographs at local car dealerships?

Marc Weinroth:

How do we protect against that? And it seems like to date, nobody's really come up with a solution. Could there be a clearing house, the same way academic records are reviewed in order to ensure that student athletes are eligible? Would there be independent third parties responsible for coming up with an appraised value for what the fair market value of a particular student athlete's name, image and likeness is worth? Are there caps on the amounts a student athlete can receive? Would the NCAA be able to say, "Sure, go ahead and market your name, image and likeness rights, but you can't make more than $10,000 on a particular deal." You could imagine that any sort of cap would be challenged by a new group of plaintiffs in a new anti-trust lawsuit.

Dave Dalton:

Right, right.

Marc Weinroth:

I think people are concerned that this will turn into the professionalism of college sports. We need look no further than the transfer portal and how we have major student athletes in the main revenue sports who are transferring now on a yearly basis. Does this now become another recruiting tool where somebody has a great year as a freshman and then says, "Okay, show me the money," to use a line from Jerry McGuire. Does this now become an even bigger recruiting advantage for schools that have donors and the resources to be able to offer name, image and likeness deals to those elite transfer students?

Brett Shumate:

Yeah, Marc. I think you're smart to pick up on the recruiting aspect of this because there really is, I think, a debate about how this California bill impacts recruiting for star high school athletes. The California schools, they recruit all across the country. They're engaged in interstate commerce when they are recruiting students from New Jersey or from Florida to come play at the California schools. But you have to think how is this going to affect the recruiting calculus and the decision making process for the star quarterback in New Jersey? Do I decide to go to the California schools because I can maximize my value as a college sports athlete by playing in California because I can make endorsement deals? Or do I not want to go to California because the California schools won't be able to participate in NCAA tournaments?

Brett Shumate:

If I'm a star basketball player, maybe I don't want to go to a California university because I won't be able to play in March Madness and that's going limit my exposure. It's a huge impact that we don't really know which way it skews at this point, but it's going to skew the really competitive playing field for recruiting star athletes in ways that we don't even know yet. Because student athletes are going to look to the California schools as a place where they can either earn money, or maybe there's a disadvantage to going to a California school because you can't play in post season athletics.

Dave Dalton:

Interesting options to weigh out there potentially for some athletes. Ilene, what would you add to this? Unintended consequences, what might you see coming?

Ilene Tannen:

Another main concern in giving the student athletes these new rights, is the practicality of it all. How is it going to work from a practical standpoint? The new law authorizes the student athletes to sign with agents. Well, how's that going to work? How will the students know if the agent they're signing with is the real deal and they're looking out for their best interest? Who is and how is this going to be regulated to protect the student athletes? Who's going to review the representation contract to ensure that the students won't be taken advantage of? There's a lot of bad actors out there. Most students can't afford a lawyer to assist them and they can't afford to make a mistake because they can't change their mind once they sign a contract.

Ilene Tannen:

I mean, for instance, look at the situation with Zion Williamson. He's trying to negate the first contract he entered into with an agent. Look how that's going for him. Is it the school's role to get involved in managing the process? For instance, will the school's compliance officers review the contracts before they're signed? Should the schools educate the student athletes regarding the new law before they seek representation? How about the NCAA, will they hire people to vet the agreements to make sure there's fair value?

Ilene Tannen:

I draft and negotiate license agreements and they're very sophisticated legal documents with obligations and consequences for both parties. Students need to understand what they're getting into before they sign a contract. If the student athlete, for instance, is suspended at school for doing something, will that affect the contract? There are consequences if the student athletes don't hold up his or her end of the bargain. So are these kids going to be able to get the best possible advice? To me, this area's just the wild, wild West and I don't know what's going to happen, but it's all good in fact and theory, but my concern is practice.

Dave Dalton:

Yeah, and you talk about a watch dog. I've got some knowledge here. My oldest son just finished a four year college hockey career. I've got a strong acquaintance who's a compliance officer at my alma mater. I will tell you, college athletic departments' compliance people have their hands full as it is. They don't need another thing to keep an eye on or to watch. Marc, anything you'd add here?

Marc Weinroth:

Yeah. Look, I mean, that's a great point and people aren't thinking about the actual ramifications of this legislation on an athletic department. Not just to a compliance office, but to athletic department finances. You have a scenario where major apparel companies like a Nike, like an Adidas, like an Under Armor might not be inclined to give the same level financial commitment to a university to sponsor their teams or athletic programs if they could allocate some of that money and end up paying the star quarterback or the star basketball player instead. There is a possibility and it's been raised as a concern by athletic directors, that this will end up taking some of the money that originally would have been earmarked for a university and instead, paying it directly to a student athlete.

Marc Weinroth:

The New York law for instance, proposing to take away 15% of ticket revenues and allocating those to student athletes, that's a significant hit on the bottom line for an athletic department. Will donors start providing endorsement deals directly to students instead of making donations to the school to build facilities? These are all questions and scenarios that people have raised, but nobody seems to have a great answer to.

Dave Dalton:

Yeah, even educated guesses on things like this can be way off. All right, let's wrap it up with this. We like to end these Jones Day Talks podcasts by looking in the crystal ball. What's going to happen next? Where do we go from here? We'll go around the horn, a little sports lingo there. Start with Ilene. What should we look for coming ahead?

Ilene Tannen:

Well, we're awaiting the NCAA's working group report which is supposed to be presented at the end of October. Although, I'm not optimistic based on the statements made by Mark Emmert yesterday. We'll see how the other states respond in passing legislation going forward.

Brett Shumate:

Yeah, it's a good point. I think from my perspective, I think we're watching to see if and when the NCAA initiates litigation to challenge the California bill. Based on some of their statements, I think it sounds like they are likely to do so. It's unclear when that might happen. It's pretty clear what the arguments might be if they do file a lawsuit. Then we'll have to see where things go once the lawsuits are filed. Will other states pass similar laws or will other states hold off and watch and see what happens in California?

Dave Dalton:

Great points. Marc, wrap us up.

Marc Weinroth:

Well, using your around the horn analogy, does this mean I get face time? Did I win?

Dave Dalton:

Yes, you did.

Marc Weinroth:

Awesome. I think the biggest development here is going to be potential federal legislation. We've already seen US Representative Anthony Gonzalez from Ohio, you'll remember the name because he was a football student athlete at Ohio State-

Dave Dalton:

Gonzo, we called him here. Gonzo.

Marc Weinroth:

Yes.

Dave Dalton:

He's a legend.

Marc Weinroth:

He's planning to propose a new national law at the congressional level that will give college athletes an opportunity to make endorsement money. One of the benefits to Anthony Gonzalez' involvement is that his athletic director was none other than Gene Smith who's overseeing the NCAA recommendation process. Anthony's already said that he's looking forward to working alongside the NCAA and thinks they need to be part of the solution. I think one of the things that's a positive factor with Representative Gonzalez, is he understands firsthand the potential for negative influence here and for bad actors on college campuses.

Marc Weinroth:

I was listening to an interview he gave the other day. He said, "If you have an unbridled free market with anything goes with pay for play, you're going to have more bad actors on college campuses than you've ever seen before." I don't think that's in anyone's interest and if the NCAA truly wants a national solution to those type of problems, federal legislation really seems like the most likely route.

Dave Dalton:

Okay, we'll leave it right there. Ilene, Marc, Brett, this was phenomenal. A really, really interesting topic. Great, great subject matter. Your insights, as always, were spot on. Let's stay on top of this, let's track this as things develop. Whatever happens next, we should all get together again and talk maybe later on in the year or whenever there are tangible developments we ought to report on. If we could, let's circle the wagons up again and we'll do this again soon.

Brett Shumate:

Thanks, Dave.

Marc Weinroth:

Sounds great.

Ilene Tannen:

Thank you, Dave.

Dave Dalton:

All right, thanks you all for being here. Take care.

Dave Dalton:

You can find complete bios on Marc, Ilene and Brett at jonesday.com. While you're there, go to our Insights page. You'll find publications, podcasts, videos and other really compelling content. Subscribe to Jones Day Talks on Apple Podcasts and wherever else podcasts are found. As always, we thank you for listening. I'm Dave Dalton, we'll talk to you next time.

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