What's Next After California Signs Game Changer Fair Pay to Play Act Into Law?

California becomes first state to create legal right for college athletes to be compensated for commercial use of identities.

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With LeBron James and Ed O’Bannon seated alongside, California Governor Gavin Newsom has officially signed the Fair Pay to Play Act into law. California on Monday becomes the first state in the country to create a legal right for college athletes to be compensated for the commercial use of their identities. The signing occurred in a Los Angeles barbershop associated with James’s HBO show The Shop: Uninterrupted.

The Act is a game changer in college sports. It makes it illegal for California colleges to deny their student athletes opportunities to gain compensation for the use of their names, images and likenesses. Stated more concisely, the Act guarantees college athletes a right to profit from their identities. The Act also authorizes college athletes to hire agents and other representatives to assist them in negotiating and securing commercial opportunities.

Pursuant to the Act, college athletes at California schools can negotiate with video game publishers for their avatars to appear in college sports video games. They can also be paid to sponsor summer camps for young athletes and sign endorsement deals with apparel companies, sports beverages, car dealerships and numerous other businesses that would pay for an athlete’s public stamp of approval.

To be clear, the Act does not create a right for college athletes to be paid by their schools. The Act instead addresses how various businesses use their identities. This is true of college athletes who will go on to earn incomes in pro leagues, and also true of college athletes who play sports without pro opportunities and whose marketability is at its highest point while in school.

The Act, as detailed below, doesn’t go into effect until January 1, 2023. It also contains limitations that attempt to minimize how it might disrupt college sports. A key limitation is that a college athlete can’t sign a contract with a company for the use of their name, image, or likeness if it would conflict with a school sponsorship (quick example: an athlete couldn’t sign a contract to wear and promote Adidas sneakers if his or her school already has an agreement with Nike).

The Act transforms Ed O’Bannon’s legal victory into legal rights

Authored by California Senators Nancy Skinner and Steven Bradford, the Act is inspired by O’Bannon’s historic case against the NCAA. A few years ago, the former UCLA basketball star proved that it is a violation of federal antitrust law for the NCAA to deny DI men’s basketball and football players compensation the commercial value of their names, images and likenesses. This is true when video game publishers design avatars based on players’ unique traits, when replica jerseys and other “officially licensed” sports apparel are embroidered with players names, and when television rebroadcasts of classic games vividly display players’ images.

O’Bannon convinced both U.S. District Judge Claudia Wilken and a majority of a three-judge panel on the U.S. Court of Appeals for the Ninth Circuit that the NCAA and its member conferences and schools had illegally joined hands to set the value of players’ identity rights to $0. As both federal courts stressed, the NCAA’s system of amateurism, which refers to numerous rules that supposedly distinguish college athletes from professional athletes, must comply with federal antitrust law.

The Ninth Circuit’s remedy in the O’Bannon case nonetheless proved tolerable for the NCAA. The court ordered that the NCAA must allow colleges to offer the full cost of attendance, an annual stipend worth several thousand dollars. The amount varies by schools based on such factors as cost of living and travel expenses for students. The amount is also in addition to a full athletic scholarship. Under pressure from the trajectory of the O’Bannon case, the NCAA had already permitted schools to offer the full cost of attendance by the time of the Ninth Circuit’s ruling.

The Act is a different story. It takes the O’Bannon ruling and uses it to create a new statutory right under California law for college athletes. The fact that NCAA rules prohibit what the Act compels of California colleges doesn’t empower those colleges to disregard the Act. The Act is the law, and the law trumps the internal rules of an organization—even one as powerful as the NCAA.

The Act has inspired other states to pursue similar “Ed O’Bannon laws”

Before being signed by Governor Newsom, the Act had received overwhelming and bipartisan support in both the California Senate (31-5) and California Assembly (73-0). The popularity of the Act in the California legislative process, coupled with the enthusiastic advocacy it has received from James and other sports celebrities, has led other states to consider similar legislation grounded in O’Bannon’s victory.

In New York, State Senator Kevin Parker has proposed Senate Bill S6722A. It would provide the same basic rights as California’s Act, plus compel colleges to establish a fund for injured athletes that would pay out to athletes who suffer career-ending or long-term injuries. In South Carolina, State Senator Marlon Kimpson and Representative Justin Bamberg intend to propose a similar bill to California’s.

Expect to see similar initiatives surface in other states. It’s possible that states’ approach to college athletes’ identity rights will resemble how states have legalized sports betting. Thirteen states have legalized sports betting, and more will do so in the approaching years. All 50 states now enjoy the choice to legalize sports betting in light of the U.S. Supreme Court’s 2018 ruling in Murphy v. NCAA, which declared unconstitutional the federal ban on sports betting in 46 states.

A state-by-state approach to college players’ identity rights would increase pressure on the NCAA to change its rules. Yet as explained below, it would also increase the likelihood of legal challenges in those states.

Possible changes between now and implementation of the Act

While the Act is a gamechanger in California and has spurred trailblazing legislators in other states to pursue similar initiatives, California college athletes won’t experience alterations to their collegiate experience anytime soon. In fact, current seniors, juniors and sophomores won’t benefit in any way, while current freshmen will only feel the Act’s impact over the spring semester of their senior year. This is because the Act doesn’t go into effect until January 1, 2023. The athletes who stand to gain the most financially from the Act are currently in middle school or junior high school. They’ll start college after this Act has been implemented in 2023.

The Act might not be as transformative in 2023 as it seems in 2019. Potential voluntary moves by the NCAA to relax amateurism rules and potential federal legislation that would take away states’ discretion on this topic could render the Act less consequential or even unlawful.

In May, NCAA president Mark Emmert and the NCAA’s Board of Governors appointed a 19-person working group to study “issues highlighted in recently proposed federal and state legislation related to student-athlete name, image and likeness.” The group is led by Big East commissioner Val Ackerman and Ohio State athletic director Gene Smith; other members include Georgetown University president Jack DeGioia, Big 12 commissioner Bob Bowlsby, one DI male student-athlete, one D1 female student-athlete and one DIII student-athlete.

In recent weeks the group has solicited ideas and suggestions from various stakeholders in college sports. The group is assessing different concepts. One concept that has likely been discussed is making college athletes eligible for compensation for the use of their names, images and likenesses but withholding that compensation in a trust. Once a player’s college career ends, he or she could access the trust and its accrued funds. The group is expected to submit a final report to the Board of Governors in October. If group members propose changes that are adopted by the NCAA and that transform college athletes’ rights into a system similar to the one required by the Act, the Act’s impact would likely prove modest rather than transformative.

That said, there are reasons to be skeptical that the group will propose changes that resemble those ordered by the Act. For starters, the group mainly consists of established and conventional figures in college sports. There are no outspoken critics of the NCAA or its system of amateurism. While the group could propose sweeping changes, they seem more inclined to propose more incremental modifications.

The group is surely aware of concerns raised by influential figures about the Act. Last week, Ohio State president Michael Drake—the boss of working group co-chair Gene Smith—expressed in a radio interview that he worried the Act would unwisely morph college sports into professional sports. Smith himself has voiced unfavorable views about the Act. He recently told USA Today that if the Act goes into effect in 2023, neither Ohio State nor other colleges would schedule games against California colleges. Those colleges, in Smith’s view, would cease to be NCAA members since they would be unable to satisfy core elements of amateurism. If Smith feels that way, it seems unlikely that he would, as co-chair of the working group, advocate for a proposal that resembles the Act.

Congress and the President could also take action before 2023 that renders the Act and laws like it unnecessary or preempted. Several members of Congress, including both Republicans and Democrats, have either proposed legislation or advocated for federal action with regard to college athletes’ identity rights. U.S. Senator Chris Murphy (D-CT), Congressman Mark Walker (R-NC) and Congressman Cedric Richmond (D-LA) are leading the way on Capitol Hill in questioning why college sports so often mimic professional sports—including through lucrative salaries paid to coaches, negotiations of billion dollar TV contracts and use of pro-quality stadiums and athletic facilities—except with respect to the athletes themselves.

Although Republicans and Democrats seem as divided as ever these days, it’s clear that some Congressional members in both parties hold similar views about the state of athletes’ rights and college sports. Some of those members might be motivated by concerns over racial inequality. African Americans comprise a disproportionately high percentage of athletes in the two sports, football and basketball, that generate the vast majority of college sports revenue. Other members of Congress might find amateurism—and how it permits competing colleges and conferences to join hands in ways that stymie competition—to run afoul of basic conceptions of economic freedom. Whatever the rationales, if Congress passes a law that ensures college athletes can negotiate and receive compensation for their identity rights, California’s law would need to comport with federal requirements.

The legal fight ahead

The most significant obstacle to the Act is whether it can withstand inevitable legal challenges.

California colleges, the Pac-12 Conference, the Mountain West Conference and the NCAA all have standing to challenge the legality of the Act. California colleges realize they have no choice but to follow state law. They also know that by following state law, they will breach their membership requirements with the NCAA and conferences.

The consequences of such breaches are already clear. Once the Act goes into effect, California colleges will no longer be permitted to participate in national championships organized or sponsored by the NCAA. They might be also kicked out of the NCAA altogether. As Smith mentioned, a California college can’t function as an NCAA member school if state law prevents it from meeting NCAA membership obligations.

The Pac-12, meanwhile, is poised to lose four of its members—UCLA, USC, Cal and Stanford—in the event those schools can’t continue as NCAA members. The Pac-12 might need to be reconstituted as the Pac-8. The potential loss of revenue to the conference is considerable. The Pac-12 is in the middle of a $3 billion, 12-year TV rights deal where both ESPN and Fox pay for the right to broadcast Pac-12 games. The deal will expire in 2024—one year after the Act is scheduled to go into effect. Future conference business deals without the California schools, along with their fan bases and purchasing power, would be more difficult to negotiate. It’s thus not surprising that the Pac-12 swiftly issued a statement on Monday denouncing the Act. These same basic points also apply to the Mountain West Conference, which includes as members San Diego State, Fresno State and San Jose State.

The NCAA could also claim that it is unlawfully harmed by the Act. The NCAA faces a choice it doesn’t seek: (1) change amateurism rules for all schools so that California schools remain in good standing and so that schools don’t play by a different set of amateurism rules based on which the state their school resides; (2) allow California schools to remain as NCAA members despite the Act giving them a sizable advantage in recruiting, since high school athletes would likely gravitate toward schools where they could be paid for their names, images and likenesses; or (3) expel California schools from the NCAA, a move that would (unwittingly, it seems) remove from the list of NCAA members schools from the state with the largest population and largest economy.

None of those choices appeals to the NCAA. It doesn’t want to change its longstanding rules. It doesn’t want schools in different states to play by different rules. And it doesn’t want to become a 49-state entity, particularly with the most valuable of the 50 states removed from the equation. To that point, the loss of California would adversely impact future licensing deals and rights fees contracts for the NCAA. Businesses would expect to generate less revenue from an affiliation with the NCAA in the absence of California members.

The good news for the NCAA, Pac-12, the Mountain West and California schools is that there is a lot of time—39 months—between now and January 2023. They could use this time to pursue litigation to block the adoption of the Act and any similar laws passed in other states.

The most likely line of legal attack would be to depict the Act as unduly interfering with interstate commerce. Article, I, Section 8 of the U.S. Constitution empowers Congress with the exclusive power to regulate interstate commerce. This is often referred to as the “Commerce Clause.” A corollary of this authority is the “Dormant Commerce Clause,” a concept which instructs that states can’t regulate the economy in ways that significantly impact the economies of other states.

Many “things” can count as commerce, too. Banking transactions. Insurance. Telecommunications. State laws that arguably impact commerce in other states are targets for Commerce Clause challenges. For instance, state laws that prohibit the sale of milk imported from other states and that bar the importation of garbage from other states have been deemed unconstitutional under the Commerce Clause. The NCAA would argue that the broadcasting of games across state lines, the shipping of collegiate apparel and merchandise across lines and the interstate travel of players and coaches to play games all constitute interstate commerce.

The NCAA is very familiar with Commerce Clause challenges. It likely feels optimistic that one would work against the Act. In 1993, the NCAA secured a legal victory against a state statute on Commerce Clause grounds. In NCAA v. Miller, the U.S. Court of Appeals for the Ninth Circuit held that the Commerce Clause barred the State of Nevada from requiring the NCAA to provide “a Nevada institution, employee, student-athlete, or booster who is accused of a rules infraction with certain procedural due process protections during an enforcement proceeding in which sanctions may be imposed.” The statute was passed in the wake of the UNLV men’s basketball recruiting controversy.

The core problem with the state statute, noted Judge Ferdinand Fernandez, is that it in order to apply equal rules across the 50 states, the NCAA would be required to adopt the rules of Nevada for every state. “The practical requirement that the NCAA would have to use the Statute in enforcement proceedings in every state in the union,” Judge Fernandez reasoned, “runs afoul of the Commerce Clause.” Indeed, Nevada’s statute would “directly control commerce occurring wholly outside the boundaries of the state.”

Judge Fernandez also expressed concern that other states could adopt requirements that diverge from those in Nevada. The NCAA would then be forced to deal with “conflicting requirements” by state.

The NCAA will argue that the Ninth Circuit’s ruling in NCAA v. Miller, which governs federal courts in California, is directly on-point and renders the Act unconstitutional. If the Fair Pay to Play Act goes into effect, it would (as detailed above) force the NCAA to change its national rules so that they match those in California (or other states), allow California schools to play by different rules or expel California schools. As NCAA attorneys will stress, even if the NCAA comports with California’s new law, other states could adopt measures that conflict with those in California. To that point, the NCAA will be sure to highlight legislative efforts in New York and South Carolina and differences between those legislative proposals and California’s Act.

In response, expect California to insist that its law is distinguishable from the Nevada statute. The Act doesn’t concern the NCAA’s ability to punish coaches or players for misconduct. It only pertains to the relationship between college athletes and third parties, be they video game publishers or apparel companies.

Will California schools and conferences abandon the NCAA?

The discussion above is largely viewed from the standpoint of how the NCAA will respond to a threat to its membership and its longstanding system of rules. Now consider the possibility that California schools, and the conferences that oversee them, decide they no longer need the NCAA and its controversial set of amateurism rules.

If any state is capable of forming its own college sports league it would be California. California has the world’s fifth-largest economy, trailing only the United States, China, Japan and Germany. With 40 million people, California has a larger population than such countries as Canada, Poland, Saudi Arabia and Venezuela. The state also has a deep tradition in college sports.

Although currently opposed to the Act, the Pac-12 could also eye a world without the NCAA. This is a conference capable of negotiating multi-billion-dollar TV deals. It seems capable of operating on its own. If it could draw in fans from its other states (Arizona, Oregon, Washington, Utah and Colorado), it would function as a league covering much of the country.

Left to their own rulemaking, California colleges and the Pac-12 could create amateurism rules that are very different from those adopted by the NCAA. This is true with respect to players’ names, images and likenesses. It could also prove true in terms of how the NCAA limits competition through athletic scholarship caps. Health care and safety policies could also be reworked to better fit the wishes of these western schools and conference members.

Of course, forming a new league would be a substantial endeavor. There would be opposition on many fronts, including with respect to various business partners that entered into contracts under the belief that these schools were NCAA members. Also, while these schools would remain national figures in terms of academics and research, their athletic programs would become more regionalized. The logistics of starting a new league would also be considerable.

In short, if you’re a college sports fan, buckle up. The times may be changing.

Michael McCann is SI’s Legal Analyst. He is also an attorney and Director of the Sports and Entertainment Law Institute at the University of New Hampshire Franklin Pierce School of Law.