Film Room: House case filing impacting third-party NIL

Key aspects of the motion 

On April 20, plaintiffs in the House case made a motion for an order declaring: 

• “Multimedia Rights companies are not ‘Associated Entities or Individuals,’ as that term is defined in the Injunctive Relief Settlement and therefore, NIL agreements involving Multimedia Rights companies are not subject to review by the College Sports Commission ("CSC") (or any Defendant enforcement body) unless the party ultimately receiving and paying for the use of a Class Member’s NIL is an Associated Entity or Individual.
• Third-party brand sponsors are not ‘Associated Entities or Individuals,’ merely because a school was involved in arranging or procuring an NIL agreement between such sponsor and a Class Member.” [page i]

In short, plaintiffs are objecting to the alleged application of the Associated Entity standard of review to third-party NIL deals involving MMR companies and brand sponsors, like apparel companies. 

The motion attached as exhibits an exchange of March letters from class counsel and the CSC, which illuminate the perspectives of the parties. Of particular note, the CSC’s letter indicates its position that the entry of an MMR company as a payor/facilitator in NIL Go triggers the Associated Entity standard of review, even if the ultimate source of the funding is a third party that would not otherwise be considered an Associated Entity. [page 5] 

Applicable third-party NIL regulatory framework and why this motion matters

Third-party NIL deals between student-athletes and Associated Entities are subject to a standard of review that considers whether a deal is for a valid business purpose (VBP) and within a reasonable range of compensation (RoC). Third-party deals between student-athletes and businesses that are not Associated Entities are not subject to VBP/RoC review. If MMR partners are deemed Associated Entities, the many transactions in which they’re involved, including as a payor/facilitator, would be subject to this heightened scrutiny. 

What to do now? 

The court’s decision on this motion will be impactful. A ruling in favor of plaintiffs would likely drive more activity through MMR companies. A ruling that does not grant the relief requested would likely drive activity away from MMR companies. 

Pending a decision on the motion, schools, MMR companies, student-athletes and ultimate third-party sponsors can structure deals to avoid stumbling into heightened VBP/RoC scrutiny where possible. Given CSC guidance that MMR company activity in payment facilitation can trigger Associated Entity status for a given deal, parties can take care to structure transactions in a manner to avoid that result where the facts allow. For example, if the business that’s ultimately compensating a student-athlete for his or her NIL is not an Associated Entity, a deal in which that third-party business makes direct payment to the student-athlete—as opposed to payment made/facilitated by the MMR company—should enjoy a streamlined review that does not involve VBP/RoC analysis. Matching deal structure to the existing interpretation of regulations in other scenarios can similarly contribute to a smoother regulatory process for student-athletes. 

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If you have any questions about this Legal Briefing, please feel free to contact any of the attorneys listed or the Eversheds Sutherland attorney with whom you regularly work.