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Home Guest Expert ContributionFrieser Legal A Comprehensive Legal Guide for NIL Industry Start-ups

A Comprehensive Legal Guide for NIL Industry Start-ups

by michelle

By Joshua Frieser, Frieser Legal

At slightly more than one year old, the name, image, and likeness (NIL) industry is booming. And it’s not just for high school and collegiate athletes. The billion-dollar industry has created countless jobs and business opportunities. In addition to the corporate sponsors that have looked to capitalize on ultra-high-engagement athlete marketing, hundreds of businesses have either formed or expanded their service offerings to tap in to the NIL industry. As of this writing, NIL Network’s industry directory includes 425 athlete service providers, 62 businesses that provide NIL services for institutions, and 280 collectives and university-specific platforms. Furthermore, the NIL industry contains several sub-industries, which can be classified to include marketing agencies, attorneys, financial service providers, branding and public relations companies, athlete education providers, marketplaces, collectives, NFT companies, and others that operate within the NIL industry.

Although some companies are established businesses that have expanded their service offerings to include the NIL industry, most are start-ups. And while there is certainly some disparity in resources available to various NIL industry start-ups (some are sole member LLCs with a part-time founder and others are backed by venture capital dollars and have full-time employees), all businesses operating within the NIL industry need to be aware of the legal challenges and constraints that may affect them. This guide will outline some of the primary legal considerations that NIL industry businesses should consider, including the regulatory landscape of NIL, intellectual property, business organization and registration, liability planning, and contracts with athletes, brands, or institutions. Here is a guide to help sponsors looking to utilize NIL to partner with college athletes.

 Regulatory Landscape of NIL

            Since the outset, the NIL industry has had a dynamic regulatory landscape. The myriad of state laws and differing institutional policies can contain nuanced differences that require careful navigation. Furthermore, any organizations looking to work with athletes must be aware of any other relevant laws, including athlete-agent laws and Federal Trade Commission regulations.

Current Legislation

            Currently, NIL is primarily regulated by state law. A majority of states have NIL laws that govern in their particular jurisdictions. A minority of states have no NIL law at all, which leaves NIL policy to each institution in those states. Recently, there has been federal legislation introduced that would create a uniform, national framework for NIL, although nothing has gained substantial traction yet. This post contains a more detailed legislative update. As this point, navigating the legislative framework of NIL requires looking to individual state laws to determine the confines you will have to work within. NIL industry businesses should consider state laws in all states where they are (or may be) working with high school and college athletes, not just the ones where they primarily operate.

Other Relevant Laws

            In addition to NIL specific laws, NIL industry businesses should consider how other relevant laws may affect them. For example, marketing agencies working with college athletes should thoroughly examine state and federal athlete-agent laws to determine what disclosures and notices they will be required to provide to college athletes and their universities upon signing a representation agreement. NIL businesses, especially marketing agencies, collectives, and those helping college athletes with branding and PR, should also be aware of the Federal Trade Commission guides, which regulate the disclosures that endorsers of commercial products need to include in any sponsored social media posts, which makes up the majority of NIL activity. Depending on your NIL sub-industry, other laws may be at play too, like securities regulations (for NFT companies) and tax laws (for some professional service providers).

Intellectual Property

The first rule of property law (including IP law) is first in time, first in right. Generally, the first person or company to utilize a trademark or business name is the rightful owner. In most industries, that does not create any substantial problems. However, most industries grow and develop over time, as demand for their products and services grow and develop over time. Conversely, the NIL industry has a hard start date—July 1, 2021. Given that the industry was created in the blink of an eye (but not a “twinkling of the eye”—those who have studied antitrust law will get the joke), and was a billion-dollar market in its infancy, some of the hundreds of NIL industry businesses have similar names and trademarks, many of which contain the letters “NIL.”

A basic Google search for “NIL” returns results for NIL Network, Team NIL, NIL Summit, NIL Management, The Players NIL, and others. Additionally, many NIL industry businesses have similar start dates—sometime within the last two years. Whether your company name or logo includes the letters “NIL” or not, intellectual property should be a concern. In addition to the appropriate due diligence of an internet search, NIL industry companies should conduct a search on the U.S. Patent and Trademark Office’s Trademark Electronic Search System (TESS). Ensuring that you are not infringing on another company’s intellectual property is a necessity. Failing to do so can potentially result in a trademark infringement lawsuit, as well as a required rebrand. In addition to the financial costs, this can negatively impact your business with a loss of your brand awareness and established goodwill.

Beyond ensuring that you are not infringing on any intellectual property yourself, it is also important to take appropriate steps to protect your brand and trademarks. There are a variety of important protections offered to owners of trademarks registered with the USPTO. Moreover, in addition to securing trademark registrations, it is important to enforce your trademark rights when there is infringing activity. Failing to send infringers a cease-and-desist letter and filing infringement lawsuits when appropriate can result in losing the rights to your trademarks. While intellectual property can easily fall down on the list of priorities for founders, it can prove extremely costly. Being proactive in managing your intellectual property is always a positive.

Business Organization and Registration

            NIL industry businesses should have the same business association concerns as non-NIL industry businesses do. An appropriate corporate structure depends on many factors, including number of partners, types of financing and equity, states of operation, and tax objectives. Regardless of the preferred entity structure, ensure that you have all of the appropriate documentation to register with your state (and potentially any other states where you will have substantial operations). Moreover, it is important to have appropriate governing documents, such as partnership agreements and operating agreements. Governing documents are particularly important for companies with multiple partners or any investors.

            Certain NIL industry businesses will have an additional hurdle for business registration. Companies representing athletes as an agency will need to have the appropriate state athlete-agent registrations completed. Most states have a slightly different process for registering, while some states do not require registration at all.

Liability Planning

            Given the novel and unique nature of the NIL industry, businesses must exercise caution and take appropriate steps in liability planning. Professional liability insurance is recommended for all NIL industry businesses, whether you are working with athletes directly or not. Additionally, NIL industry businesses must ensure that they are not engaging in any activity that may jeopardize the eligibility of the athletes that they are working with. This process is on-going and constant. Putting checks in place to review all transactions for state law, institutional policy, and NCAA rules compliance is critical.

            Should a college athlete become ineligible to compete because of an NIL service provider, it could be catastrophic to the athlete, their university, and the business. Beyond the bad PR, NIL industry businesses should be considerate of how athlete eligibility problems could expose them to lawsuits in the future. Liability planning starts with appropriate business planning (see the section above) and continues with good business practices, including having effective contracts (see the section below) and effective means of ensuring legal and rules compliance.

Contracts with Athletes, Brands, or Institutions

            Regardless of the products or services that your business is offering, you will need to have contracts that clearly outline your business relationships and transactions. For agencies working with athletes and brands, a well-drafted representation agreement is a must-have. Representation agreements should contain provisions detailing the services you will be providing, the term of the contract, payment provisions, delegated authority, rights of termination and renewal, and any required athlete-agent law disclosures, as applicable. For other NIL industry businesses that are not directly representing athletes or brands, contracts should still detail all of the specifics of any transactions or services.

Check Out More Articles By Josh Frieser Here

Meet the Expert Contributor

Joshua M. Frieser, Esq. is a sports and business lawyer and Principal Attorney at Frieser Legal. His practice is focused on the representation of athletes, agents, entrepreneurs, start-ups, and small businesses. While working to solve the unique legal needs that they have, Josh represents athletes in internal disciplinary proceedings and NIL licensing agreements, as well as in related intellectual property and business planning matters. In addition to serving as counsel to college and professional athletes, Josh represents sports industry start-ups and small businesses as outside general counsel.

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