The Thing We've Gotten Wrong About NIL
Name, Image, and Likeness (“NIL”) is complicated and becoming more so by the day. Changing state laws, evolving policies at the institution level, competing booster collectives, and lack of education for student-athletes are adding to what already feels like chaos. Do I have a plan that would fix it? Yes, I do (but you’d need to enroll as an undergrad at the University of Vermont and take my “NIL in College Sports” class to learn how.) I’m kidding of course - nobody can wave a magic wand and clean up the mess, but I do have some ideas about what needs to be fixed first.
Our First Mistake
What was the original idea of NIL - aka, what problem did we think we were solving? We wanted to give student-athletes the same rights as other students to earn income. Sure, there was lots of discussion about “fairness,” but the foundational element to NIL was about rights - the right for a student-athlete to use their name, image, and likeness to earn income.
The solution wasn’t to create a profit-sharing model with the NCAA, NAIA, and NJCAA (that was a mistake / more on that another time), but to allow for the development of a marketplace for student-athletes to earn income. The marketplace was to have two sides we thought - a “supply/sell” side in the form of student-athletes and a “demand/buy” side in the form of for-profit companies or non-profits organizations.
But we made a mistake that any decent entrepreneur would not have fallen victim to. We never tested the marketplace. We never talked to the future/potential customers to determine if they had a sufficient interest in buying what student-athletes were selling. And we never tested how much buyers were willing to spend on student-athletes’ activities. (By “we” I’m trying to be nice, I did a whole study on this last summer.)
So we never tested the market - we just went straight to a new product launch. Now the market is giving us feedback. And what it’s saying is that we didn’t build what we had planned. We haven’t created one marketplace - we have built three.
Marketplace #1 - Big Brands
The marketplace that was forecasted included student-athletes providing promotional services to well-known for-profit brands to buy. Many platforms rushed in and predicted what student-athletes would earn. The assumption was that the buyers would include the who’s who of the sports industry - brands that already spend on everything from grassroots programs to pro teams and leagues, as well as invest heavily in athlete marketing. And that those brands would see the value in partnering with student-athletes to target a specific geographic market or the college demographic.
So what have we learned about Marketplace #1? Well, it’s working - sort of. There are deals being done by high profile student-athletes with high profile brands. UConn’s Paige Buecker’s Gatorade deal is noteworthy. But the prediction that there would be a large volume of deals between big name athletes and big brands has not come to fruition. In pro sports, around 10-12% of the athletes make substantial endorsement income (relative to their contracts or winnings.) The percent of collegiate athletes doing deals with well-known brands is a tiny fraction of that.
What We Should Do About It: National brands were not in need of more supply (no Fortune 500 brand manager was clamoring for more athletes to choose from!) They were doing just fine with the pro sports marketplace of 10,000 athletes to choose from. And brands with a history in sports are sophisticated, metrics-driven organizations. When they partner with athletes, they have calculated their return on investment and left very little to chance. So when it comes to Marketplace #1, there is not very much we can do except 1) wait for interest from brands with unique goals that collegiate athletes can fill and 2) wait for the results of the existing NIL to become known (assuming that data demonstrates that partnering with collegiate athletes have marketing impact.)
Marketplace #2 - Local Brands
It only took a few months of NIL before athlete marketing companies like MarketPryce and INFLCR recognized that Marketplace #1 was not going to generate the amount of revenue predicted. So they created local exchanges to connect student-athletes with local businesses. UCLA’s just launched Westwood Exchange is a good example of this model. Their focus on appearances, lessons/camps, and social media promotion shows an understanding of what LA businesses actually want.
The good news is that local brands appear to have a greater appetite for NIL deals than national brands do. The bad news is that, unsurprisingly, local business have less marketing dollars to spend. The relatively low comp paid by local businesses has resulted in calls from the bleacher seats that student-athletes are being “underpaid” and “taken advantage of.” (Not true, keep reading.)
What We Should Do About It: If NIL is to thrive in the future, it will need Marketplace #2, so we need to double down on the local markets. That means helping local businesses with athlete “activation.” While local businesses - often mom and pop shops - are usually very knowledgable about about their financials and their customers, they don’t have experience leveraging a relationship with an athlete. We should be providing local businesses with free access to athlete activation templates and consulting on how to feature their athlete partnership online, on social media, at a live event, or in their retail space. This support of local businesses would result in a greater likelihood that they make back 3-5x what they paid the student-athlete. Which in turn means more NIL deals for everyone. And we will need to accept that student-athletes will be paid what that Marketplace #2 establishes as the value of student-athletes to their marketing efforts. Those market rates may be less than what we imagined when we were dreaming up Marketplace #1, but those are just the real-world breaks. To over-pay student-athlete beyond the value that they bring to a particular marketing activity is a form of market “manipulation” and worsens the many NIL’s challenges. Which brings me to Marketplace #3.
Marketplace #3 - Collectives
Collectives are easy to criticize, but I’m not going to go there. I’d rather focus on the realities and drive on. (If you’re not familiar with Collectives, check out this article in Sports Business Journal.) Why am I including Collectives here? Because in part*, they are a “marketplace” that has been developed in response to the failings of Marketplaces #1 and #2. Boosters don’t like the few number of NIL deals happening in Marketplace #1, nor do they approve of the relatively small dollar deals in Marketplace #2. So they have created a new “marketplace.”
But Collectives are not a real marketplace. A real marketplace has sellers and buyers who negotiate on price, directly or indirectly. Sellers and buyers create fair market value or rates. Collectives are not a real marketplace because they are a buyer in name only. They have not negotiated (in good faith) their price, but rather artificially inflated it to meet their objectives of paying (their) student-athletes more. When a Collective decides to pay all the offensive lineman $50,000 for charity work TBD, it’s not based on how much relatively unknown athletes or local celebrities get paid to make similar appearances; it’s based solely on how much the Collective would like to pay the student-athlete for the purpose of supporting them (and competing with the Collectives at their rival schools.)
What We Should Do About It: Whether through state law, institutional policy, the NCAA, or (eventually) federal law, Collectives should be required to have a Board of 3-5 sports industry professionals, sports management professors, or others with relevant experience and insight. That Board should approve or reject any NIL deal proposed by the Collective to a student-athlete that does not meet the standard of “fair market value.” Collectives could then continue to operate and support their student-athletes, but they’d be doing so in an ethical manner.
*I know that this is not the only reason that boosters have been motivated to create Collectives, but if money from other sources was flowing to the student-athletes at the alma mater, they’d be less likely to be parting with their own.