NCAA's NIL Regulations Push States Into a Novel Prisoner's Dilemma

As the NCAA attempts to regulate NIL compensation, state-level defection creates a game theory dilemma that threatens the stability of college athletics

Noah Henderson | Mar 19, 2025

Mar 12, 2025; Kansas City, MO, USA; West Virginia Mountaineers coach Darian DeVries watches game play during the first half against the Colorado Buffaloes at T-Mobile Center. Mandatory Credit: William Purnell-Imagn Images / William Purnell-Imagn Images

In this story:

The year is 2004.

Most days, reruns of a short-lived series, Friend or Foe, are on the TV.

I was six years old, and my babysitter loved to watch Game Show Network — unabashedly, so did I.

While Friend or Foe was far less engaging than my favorite program on the channel, Whammy! The All New Press Your Luck, I still watched intently.

As a rising second grader, I didn’t realize it at the time, but it was my first exposure to concepts I would encounter later in life: game theory and, more specifically, the prisoner’s dilemma.

Friend or Foe gave teams of two the chance to answer questions; each correct answer deposited funds into a Trust Box. Upon the completion of the game, the partners were each forced to make an independent and rather challenging decision: to either be a “friend” and split the funds evenly or to secretly defect and be a “foe” keeping the funds entirely to themselves.

Here’s the catch: If both players select “foe,” both go home with nothing.

Broadly, the show serves as an introduction to game theory, the study of strategic interactions in which the outcome for each participant depends not only on their own decisions, but also on the decisions of others.

One of the most well-known models in game theory is the prisoner’s dilemma, which highlights a paradox in which decision makers often struggle to cooperate even when it is in their collective best interest.

In a classic prisoner’s dilemma, two individuals accused of a crime are interrogated separately. Each has the option to either betray the other or remain silent. If both remain silent, they receive a light sentence. If one defects while the other remains silent, the defector goes free while the other receives a harsh punishment.

However, if both defect, they receive moderate sentences — worse than if they had cooperated but better than the worst-case scenario for the silent party.

The dilemma arises because, from a purely rational perspective, each individual is incentivized to defect, even though cooperation would yield a better collective outcome.

The prisoner’s dilemma applies to many real-world scenarios, including economics, politics, and now, more than ever, college athletics.

The fundamental issue is that without a mechanism to enforce cooperation, rational actors will often make self-interested decisions that lead to a collectively worse outcome.

Through the highly publicized, preliminarily approved House v. NCAA settlement, the NCAA seeks to implement new rules and regulations for college sports, many of which mirror professional sporting concepts familiar to most fans: roster limits, direct NIL revenue sharing from schools to athletes, a $20,500,000 NIL salary cap and NIL salary cap manipulation rules.

American professional sports leagues are built on these concepts.

While teams compete vigorously on the field, large-scale cooperation off the field is essential to maintaining competitive balance and driving fan engagement. Drafts, salary caps, and league-wide revenue sharing allow small-market professional teams to remain competitive and financially stable.

This level of cooperation is made possible through professional leagues’ Collective Bargaining Agreements (CBAs). These legal documents bind every team to be a “friend” rather than a “foe” and exempt them from antitrust laws that would otherwise make these practices unique to professional sports illegal.

The NCAA’s proposed system mirrors the structure of American professional sports focusing on the collective best interests of a league — a structure that has been highly successful in captivating audiences and maintaining financial sustainability for all league members.

Here’s where the NCAA faces a problem: college athletes are not employees and do not have the right to unionize.

Unlike professional leagues, the NCAA cannot use a CBA to mandate cooperation between member schools.

The House settlement resembles a CBA in structure but lacks the foundational element of collective bargaining — there is no athlete representation, only Power 4 schools setting terms among themselves.

This makes enforcement challenging and invites further antitrust scrutiny to NCAA regulations.

State governments, often pushed by university-backed lobbyists, recognize the NCAA's weak position and enforcement ability and see an opportunity to defect from NCAA-imposed regulations through legislative intervention.

This is where we find the college athletics prisoner’s dilemma.

If all states comply, the model could establish a collegiate system resembling major leagues like the NFL and NBA, where spending rules create a level of competitive parity between teams with the financial resources to pay up to the salary cap.

However, the system collapses if even a few states choose to defect.

States like Oregon and West Virginia have already introduced bills that conflict with elements of the House settlement. These proposed laws would strip the NCAA of its enforcement power over NIL compensation and prevent it from regulating how NIL collectives spend money to acquire athletic talent, effectively nullifying the House salary cap and giving these schools a competitive advantage.

This advantage would yield significant recruitment benefits for schools like Oregon, Oregon State, and West Virginia.

For the Ducks, continuing to leverage the funds of alumni like Phil Knight without constraint could allow them to dwarf the spending on athletic talent of fellow Big Ten institutions that play within the confines of NCAA-imposed NIL spending limits.

If a team like the Los Angeles Lakers attempted to defect from the NBA’s salary cap or revenue-sharing rules to benefit their position as a big-market franchise, like schools in Oregon and West Virginia appear to be entertaining, the NBA could legally impose severe penalties — fines, loss of draft picks, or even expulsion.

NBA teams and players have negotiated these rules collectively, making them legally binding, immune from antitrust scrutiny and, at times, capable of superseding conflicting state law.

From a game theory perspective, states who challenge NCAA NIL payment regulations are making the rational choice to be a “foe.”

If a restrictive NCAA policy burdens teams with more financial constraints than their competitors, the logical decision is to defect. Without a mechanism like a CBA to ensure cooperation from every party, each state and its programs will act as rational actors, prioritizing their competitive advantage over the long-term stability of the system and league-wide competitive parity.

The NCAA may be attempting to impose a structure that mirrors professional sports, but the model is fragile without the binding force of collective bargaining.

The NCAA's framework is imposed unilaterally, and state governments appear to be able to intervene to shield schools from enforcement. This creates an environment where defection is not just possible but, in many cases, strategically advantageous.

In professional sports, the supremacy of a collectively bargained agreement ensures that teams must comply with league rules, preventing them from circumventing the system through local or state laws.

The NCAA lacks this legal shield.

When states pass laws contradicting NCAA regulations, they effectively preempt the NCAA’s authority within their jurisdiction. The NCAA has no preemption to override state law nor the ability to create a CBA. The NCAA’s rules become mere suggestions rather than enforceable mandates without a uniform federal standard or a legally binding CBA.

Is the ability to cap compensation a losing battle for the NCAA?

Not necessarily.

Sportico’s Michael McCann laid out a potential argument surrounding the commerce clause that could render any state’s efforts to override NCAA NIL regulations unconstitutional.

A ruling in a 1993 case, NCAA v. Miller, which took place in the wake of investigations regarding Jerry Tarkanian and several scandals involving the UNLV basketball team, seems to support this legal theory.

In an effort to reduce the NCAA's investigatory power, Nevada created a law that mandated NCAA investigations follow due process safeguards.

The Nevada law was found by the district court to violate the commerce clause and provides some persuasive precedent that forcing a national governing body like the NCAA to conform to state rules has an extraterritorial effect that either advantages a state in national competition or imposes a broad acceptance of those rules onto other states.

Even with this legal theory as a potential NCAA weapon, defection from states is not the only thing that challenges the NCAA’s proposed new structuring.

Student-athletes maintain the right to challenge the new regime under a private right of action.

It is indeterminate if the NCAA’s revenue-sharing salary caps, NIL deal disclosure mandates, and rules around NIL collective payments are legal. Without a CBA, these features are still subject to antitrust scrutiny.

The NCAA is playing a game where it can set the rules, but has an uphill battle in forcing anyone to play by them –– rational actors will always put themselves first.

Without a federal NIL law, athlete employment, or an interpretation from courts that deem NIL enforcement shields unconstitutional, most states will override any effort from the NCAA to implement a salary cap.

Stability in college sports may be further away than many anticipated.

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