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Good Thursday Morning. Here’s the rundown of this week’s Sports Business Playbook:

• 📰 This Week’s Topic: The NCAA suffered another courtroom defeat this past week, with a federal judge in Tennessee granting an injunction against the association’s NIL enforcement rules. This ruling essentially defangs the NCAA on NIL, and its yet another stunning pushback against the group and its idea of amateurism. To me, it signals that now is the time for the schools to begin to go down the long, painful road to figure out how to exist in a post-NCAA world.

• 🍸️ Impress Your Friends at Cocktail Party: Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? Hit the “Impress Your Friends at Cocktail Party” section at the bottom for a CliffsNotes of this week’s topic

• 🤯 “Whoa of the Week”: Year 1 earnings of the WWE-UFC Merger

• 💪 Weekly Reminders that Sports are Awesome: An excellent fantasy football punishment, and Emo Jimmy Butler returns!

Hey team,

I was at an event this past weekend where the speaker was referencing the story of Aron Ralston, the climber whose incredible story was memorialized in the 2010 James Franco movie 127 Hours.

Short synopsis for those who have not seen it: in 2003, Ralston was rock climbing narrow canyons in remote Utah when a massive boulder fell on his arm and trapped him.

After five days of excruciating pain and running out of food, water, and options, Ralston made the agonizing choice to amputate his own arm so that he could free himself and live.

Ralston’s story feels like an appropriate analogy for where college athletics is after the news coming out of Greenville, Tennessee this past Friday.

Judge Clifton Corker in the Eastern District of Tennessee granted a preliminary injunction to the plaintiffs — Tennessee and Virginia — in a case over the legality of the NCAA’s restrictions on name, image, and likeness (NIL) rules.

In plain English, the attorneys general in Tennessee and Virginia filed a lawsuit in federal court against the NCAA in January after it came out that the NCAA was investigating allegations that the University of Tennessee broke NIL rules in multiple sports, including football.

Corker ruled in favor of the states, which means the NCAA now cannot enforce its NIL rules until the case is settled or goes to trial — which should be months from now.

In action, this means that college recruits and transfers can now negotiate and sign NIL contracts before enrolling at a university with no fear of breaking NCAA rules for the foreseeable future.

This is a win for the schools and the players, and it serves as yet another L for the NCAA in court (with more coming — there are at least 5 pending cases against the NCAA making their way through the courts right now).

I get it. We all love to dunk on the NCAA, myself included. If anyone can think of a company/entity that is more hated than these guys, let me know.

But, I don’t see this ruling as an absolute win in the good vs. evil battle.

I’ve written about it before here, here, and here, but this case is yet another example where college athletics’ Frankenstein model of “amateurism with benefits” is creating a vacuum where there are no true guidelines and guard rails in place.

To me, it begs the question: have the major schools/conferences reached their breaking point with the NCAA, and are we approaching a 127 Hours moment where the hardest thing (upending college athletics as we know it) becomes the practical thing to survive?

In this edition, you’ll learn:

• What is NIL actually and the key players in NIL deals

• What this court case means in the short term

• Everyone loves to shout “down with the NCAA.” What could a post-NCAA world actually look like?

What is NIL?

At its core, NIL refers to the use of an athlete’s name, image, and likeness through marketing and promotional endeavors.

While it logically makes sense — a student who is also a world class pianist would be able to monetize their talents — this was not always allowed.

The NCAA has long touted the concept of “amateurism,” and for a long time it was expressly forbidden that student athletes could receive payment outside of non-monetary compensation to further their education (i.e., scholarships, room and board, etc.).

The NCAA was aggressive to protect this model, and it famously made examples out of programs (SMU) and stars (Reggie Bush) who allegedly violated this model.

This strict enforcement coincided with college sports’ evolution into a multibillion-dollar business over the last few decades.

With that rising revenue came a lot of questions about the rules and why college athletes were not receiving any form of monetary compensation.

The dam broke in 2021.

Facing pressures from losing court battles and several states passing their own NIL laws, the NCAA waived its ban on student athletes profiting off of their NIL rights and instituted an “interim policy”:

• State laws govern what NIL activities college athletes can engage in

• The schools are responsible for determining whether those activities are consistent with state law

• Student-athletes who attend a school in a state without a NIL law can engage in NIL deals as long as it doesn’t violate the NCAA’s rules

• College athletes can use a professional services provider (agent) for NIL activities.

• Student-athletes should report NIL activities consistent with state law or school and conference requirements to their school

This is a pretty hands off policy, and the NCAA had two very specific rules:

• No “pay for play”: the schools and its representatives (i.e., coaches, administrators) cannot pay the athletes directly for their athletic accomplishments.

• No “quid pro quo”: the schools cannot give money to a player contingent on their committing to play for the school. Meaning, there cannot be deals set up before a recruit/transfer sets foot on campus.

Since its implementation, NIL has turned into a $1 billion + market. NCAA D1 athletes earned an average of $3,711 in the first years of NIL, and a number of the top players in the country in their respective sports earn between six to seven figures annually while in school.

This system has created more opportunity for student athletes, but it has not been without its problems.

The lack of a unified framework across the country has meant uneven application of the rules. The NCAA has appealed to Congress for an overarching set of laws and bills have been proposed, but it is unlikely that a material number of representatives and senators will take up the cause. Because of this limbo, the system has continued on.

One major problem area where this has played out: NIL collectives have formed amongst schools’ alumni and donor bases and are playing in a gray area that toes the line of this rule.

Collectives operate independently of the school (but can be officially recognized by the school 😉). The collectives pool money to pay the school’s athletes in exchange for their NIL rights, which the collectives then use for merchandise, autograph signings, appearances, etc. In addition, many are helping facilitate NIL deals with prospective recruits.

If this sounds pretty murky given the NCAA’s “pay for play” and “quid pro quo” rules above, you’d be right.

The NCAA issued updated rules in 2022 that collectives are considered boosters and could not speak with recruits (high school or transfer portal), but it’s still happening everywhere via loopholes, workarounds, and frankly a lack of belief in the NCAA’s ability to do anything at this point.

To be clear, this is not how all NIL deals are signed. Independent companies can still work directly with players, and there are a number of above board NIL success stories.

But it’s a lot of it, and it’s changed the way business is done.

120 (92%) of all Power 5 schools have a collective, and there have been reports of top players receiving anywhere between $5-10 million through these collectives.

This has led to a whole new age of recruiting given high school students are expecting some form of compensation from the schools in order to commit, and then the schools are also having to compete to keep them on campus each year because players can now go anywhere via the transfer portal.

It’s as icky as it sounds, and there are numerous reports of the collectives setting up predatory contracts, poaching players, and in some instances, straight up lying about the funds they have — see: the Jalen Rashada debacle.

The NCAA has sat on the sidelines for most of this, and their only public stance has really only been about how Congress needs to step in and help.

But, there have been certain instances where they attempted to enforce the rules.

It was reported back in late January that the NCAA was looking into the University of Tennessee and University of Florida and its respective collectives for potential NIL violations.

This set the stage for a January 31st antitrust lawsuit filed in federal court by Tennessee Attorney General Jonathan Skrmetti. They’re not explicitly tied together, but Skrmetti made clear that he had been wanting to go after the NCAA for some time, and word of this NIL investigation gave him the green light

Virginia joined the suit, and the courtroom drama unfolded over the last month.

Ultimately, Judge Clifton Corker sided with the states, issuing a seismic rebuke of the NCAA’s amateurism and general operating model.

What Happened in Trial

Below is a short summary of Judge Corker’s reasoning for granting the injunction. For any legal wonks out there that want to dig deeper, Sportico does an excellent breakdown here.

Corker sided with the plaintiffs because he concluded that the NCAA’s NIL rules violate antitrust law, meaning that the NCAA is engaging in anticompetitive practices by unreasonably limiting economic opportunities for athletes.

His main focal point: athletes not being able to negotiate before getting on campus.

He wrote that not allowing players/recruits to set terms before committing is a form of price-fixing because collectives are not allowed to discuss “prices with [recruits] until after negotiations have resulted in the initial selection of [a school].”

Corker believes this is a fundamental flaw in the basic economics of the enforcement rules and creates irreparable harm for the student athletes.

“Without the give and take of a free market,” Corker wrote, college athletes “simply have no knowledge of their true NIL value.” And the “suppression of negotiating leverage and the consequential lack of knowledge” causes substantial harm to athletes.

Therefore, it was grounds for the injunction to be granted.

In the literal sense, this ruling means that Tennessee, Florida, and other schools under investigation for NIL violations are now off the hook, and the NCAA is powerless to enforce its rules for the time being.

Schools can keep negotiating through collectives, and it means that anything that happens now can’t be retroactively used against the schools or players.

The NCAA can attempt to appeal Corker’s decision, but it’s likely that the injunction will stick, and the rule will be there are no rules for the next several months until the case is heard.

What does the ruling mean in the short term?

Some didn’t see the ruling as being that impactful.

Eben Novy-Williams, an excellent sports business journalist, compared this ruling to legalizing jaywalking in New York City. In short, “congratulations on the win, but it’s already been happening.”

There is truth to this analogy. If you believe that collectives are not already engaging in questionable behavior, I have some beachfront property in Nevada to sell you.

But, in my opinion, Corker’s ruling has serious implications, both good and bad.

Good:

1. The players currently active or being recruited can make even more money for themselves with no fear of retribution now that the NCAA’s enforcement mechanisms have been removed.

2. It also gives further legal precedent (ammo) for plaintiffs to use against the NCAA in the much larger lawsuits that could lead to bigger outcomes for the student athletes. The anticompetitive practice angle narrative continues to be the major thorn in the NCAA’s side in court. Of note, Justice Brett Kavanaugh went after the NCAA on this point when the Supreme Court issued a ruling on the NCAA v. Alston case in 2021 that set the stage for NIL to come into effect: “the NCAA’s business model would be flatly illegal in almost any other industry in America.”

Bad:

1. By declawing the NCAA, the ruling effectively legalizes “pay-for-play” for the time being, which is a scenario that no one ever wanted.

2. It creates a lawless marketplace where institutions with a lot of boosters who will do whatever it takes, ethical or not, to see their school raise a championship banner are negotiating with 18-22 year old kids (yes, a number of them have “agents,” but a lack of cohesive rules around these contracts is going to lead to exploitation.

This last point about opening Pandora’s Box has people worried.

“The NCAA is no more,” a Power 4 head football coach told On3 after the ruling. “There are no rules. My buddies say I am coaching pro sports and I always say, ‘No, pro sports has rules and contracts. We have nothing guiding us.’”

This system will be live when the next transfer portal window (when players can legally transfer schools) opens between April 15-30, so we’re going to get a glimpse into if Corker’s ruling creates chaos or not.

But it also leads to the questions about what happens in the long term?

Where Do We Go from Here?

Here’s the hard part: there is not a silver bullet solution for this situation.

Any changes the NCAA attempts to make under this current environment will continue to be met with lawsuits that are most likely going to take the anticompetitive practices angle since the same “cartel” exists.

Getting a nationwide NIL framework in place and/or splitting out football, which drives so much of this activity, as its own entity make sense but would potentially require Congress to both pass this framework into law to supersede the state laws (and surrounding litigation) and modify Title IX laws for football to not be counted towards gender equity/funding. Given the current state of Congress, this doesn’t feel super realistic.

The most pragmatic solution at this point is making student athletes employees because it enables the potential for some form of collective bargaining (think like all of the major leagues), which diffuse the anticompetitive practice problem.

But, it comes with a ton of question marks and legal trap doors amid a set of growing set of macro challenges to the higher education system. Michael McCann from Sportico has an excellent breakdown of this.

That’s not to mention the vast disparity in size, sophistication, and revenue that exists between the Power 5 schools.

Applying the same rules for Ohio State and Texas to Northwestern and Vanderbilt is a losing proposition that makes both sides unhappy. The big players want more money and don’t feel it’s fair to share the revenues with those that don’t contribute as much, and the smaller schools feel that the deck is stacked against them from the start.

Both are true, which is a sign that it’s time for them to coexist as separate entities.

The ultimate solution most likely means the smaller players stay with the NCAA or some other entity, and the big dogs create their own “Super League” governing body that includes the following pillars:

• Collective bargaining with the players — which means recognizing them as employees

• Direct payment from school to athletes and revenue sharing on all revenue generated

• Some form of contractual obligation for a specific period of time (i.e., two years before the transfer portal opens)

So, basically a major professional league.

And here’s the thing: we should be okay with that.

Amateurism has been a farce for the past several decades as the schools and conferences have created billion dollar enterprises on the backs of these players.

But at the same time, the current barbed wire and duct tape system is not good for anyone, and there are major concerns what these collectives/schools/players do now that the gloves are truly off.

You can hate the NCAA and be in support of athletes being compensated fairly for their exceptional talent while also wanting some guardrails in place to create a fair level of competition and protect them from exploitative practices.

It’s why professional leagues got smart decades ago and realized they needed to grow up and collectively bargain with their players. You can continue to fight for your piece of the pie in a no-rules, zero sum game, or you can work together in some capacity to set up rules and practices that grow the pie and help everyone make more money.

And thus, we arrive at the 127 Hours moment.

The NCAA is a relic of a bygone era. It is not a government entity, and the schools don’t owe them anything in terms of loyalty. In fact, the NCAA is so radioactive at this point that attempting to make something new would be met with excitement and goodwill.

The schools will make a major sacrifice and endure significant pain as they encounter bumps getting the system set up and sorting out the revenue sharing economics with the impending players association.

But, it rids themselves of the problem area and secures college athletics’ future by ensuring that these athletes and schools will be able to compete under a more equitable, sustainable system in the long run.

🍸️ Impress Your Friends at a Cocktail Party

Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? This section is the CliffsNotes of this week’s topic

• Opener: The NCAA suffered a major blow in federal court, which essentially renders them unable to enforce any rules about name, image, and likeness (NIL) for the next several months (and potentially forever).

• Shot: NIL laws have been around since 2021 after the NCAA reluctantly rescinded its rules around it. NIL has a lot of positives, but the lack of a cohesive framework means that there is a lot of shady stuff going on. The main area in question is collectives, groups of school donors who pool money to pay players for their NIL rights. This practice seemingly violates the NCAA’s no “pay for play” and “quid pro quo” NIL rules, but they’ve been able to operate mostly untouched.

• Shot: The judge took aim at the NCAA’s NIL rules around not allowing players to negotiate NIL deals with collectives and other before coming to campus. He deemed this price fixing and an anticompetitive practice, which violates antitrust laws. Because of this, he sided with the plaintiffs.

• Shot: This ruling has a major impact, both good and bad. It enables the players to make more money and deals the NCAA another blow, but it also could open Pandora’s Box with these collectives and make “pay for play” even more rampant.

• Chaser: Ultimately, I believe the time has come for the schools to embrace their 127 Hours moment and break away from the NCAA. There will be some serious pain as they set up the new system and have to now share revenue with student athletes, but they will rid themselves of the problem area and secure college athletics’ future for the long term.

🤯 “Whoa” of the Week

Insane, mind-blowing things constantly happen in the sports business world. Here was my favorite of the past week.

1. The UFC-WWE merger had a good Year 1.

💪 Weekly Reminder that Sports are Awesome

This newsletter is, of course, mostly centered on the business side of sports and the things that happen off the field. That being said, it’s important to remember why we fell in love with sports in the first place, though.

This section is meant to highlight the amazing things that happened in sports this week that serve as that reminder.

1. Blue Jays reliever’s fantasy football punishment is to be bat boy for a day.

2. Who knew Fall Out Boy and Emo Jimmy Butler were a match made in heaven?

Thanks for reading! Let me know what feedback you have.

Also, if you enjoyed this breakdown, please consider sharing it with your friends and network by clicking the social media icons at the top of the newsletter.

Until next time, sports fans!

-Alex