The Financial, Executive & Professional Risks (FINEX) team of Willis, a WTW business, collaborates with professionals across the directors’ and officers’ (D&O) insurance space to better understand the many facets of our industry. In our “D&O Professionals Series,” we feature a range of voices — from D&O underwriters to securities litigators, coverage counsel and others — each offering their take on what’s shaping the landscape. We aim to shed light on how shifting business and economic trends are impacting D&O risk, securities litigation and the industry at large.
In this edition, we’re turning the spotlight on emerging risks that are particularly relevant to our education and sports & entertainment sectors.
Over the past five years, we’ve witnessed a surge of legal settlements and sweeping changes surrounding student athletes, the NCAA and the rise of name, image and likeness (NIL). What’s happening now is more than just regulatory development — it could be considered a cultural shift in collegiate athletics. As the student-athlete continues to gain celebrity status, surpassing the educational institution they represent in popularity and earnings, the long-term effect of higher education, insurance coverage and the student-athlete reputation are all uncertain.
O’Bannon v. NCAA (2009) was one of the first big legal wins for college athletes that helped pave the way for the legality of NIL payments. Ed O’Bannon argued that the NCAA limiting athletes from receiving payments for the use of their name, image and likeness violated antitrust laws. O’Bannon’s image was used in a video game without his prior permission and with no compensation. The court ended up ruling in O’Bannon’s favor, saying that the NCAA’s restriction of payments to athletes violated antitrust laws. This was a monumental case, leading to crucial changes for college athlete payments and shaping current NIL policies.
NCAA v. Alston (2021) was another monumental lawsuit that ultimately changed the landscape of college sports. A group of athletes under ‘Alston’ claimed that the NCAA’s restriction on education-related benefits (laptops, school supplies, internships) violated antitrust laws. The Supreme Court unanimously ruled in their favor, which led to the weakening of the NCAA’s control on payments to student athletes. Although this case didn’t directly allow schools to pay players, the continued pressure on schools that resulted from this case led to the NCAA announcing that it would suspend its NIL rules on July 1, 2021.
While some may argue this change is long overdue, the implementation is far from transparent. With the absence of a regulated federal plan, policy has been left to the discretion of individual states, with no consistency in policy. Higher education institutions are now not only navigating the environment of the student, coaching staff and donor-led collectives, but also more technical considerations like Title IX, financial aid distribution and the potential for student-athletes’ unionization. The wave impacts are beginning to touch the insurance industry — particularly in areas like D&O and employment practices liability (EPL).
So the question becomes: where do we begin in assessing and managing these emerging risks? Sarah Abrams, Head of Claims at Baleen Specialty (a division of Bowhead Specialty), was gracious enough to answer some of our questions to share her opinion on potential D&O and EPL litigation outcomes in the NIL space.
Willis: What types of claims do you anticipate could arise from a Director & Officer (D&O) or Employment Practices Liability (EPL) standpoint in relation to NIL deals? Additionally, do you foresee a scenario where student-athletes may eventually be classified as 'employees' of their respective universities?
Sarah Abrams: I would anticipate that D&O claims arising out of NIL deals would include the common management liability claims that stem from for-profit and nonprofit companies and organizations that accept investments and donations. It is important to note that there may be variance in the type of claim depending on the parties involved in the NIL deal.
Universities, NIL collectives, athletes and agents may all be involved in an NIL contract with an athlete. Depending on which state the university is located in or where the NIL collective is incorporated, variance surrounding recruitment, offers, agent representation and terms may impact the parties and claim exposures.
If a state prohibits academic institutions from direct recruitment, but coaches are working with a collective to reach out and make offers to athletes, vicarious liability may arise. Both universities and collectives should be aware of state requirements for registered agents before any written contract is present.
Both universities and collectives have D&O risks associated with entering into NIL collective agreements. Universities often have athletic associations that receive funds from the grant of media rights and ticket sales. Depending on how that capital is deployed and whether direct recruitment of athletes is permissible under state law, the potential for financial fraud and misrepresentation may trigger a university’s and/or collective’s coverage.
NIL collectives have a similar D&O exposure; with money flowing in from investors or donors, depending on the corporate structure of the collective. Individuals overseeing capital contributions may be held liable for misappropriation, mismanagement and failure to pay on deals. EPL exposure may also arise from collective agreements with athletes depending on the state where the university is located [and whether athletes are viewed as employees of the university].
Even though most NIL deals specifically state that an athlete is an "independent contractor," states that traditionally view direction over independent contractors to imply an employee-employer relationship may disregard the precursory attempt to categorize employment status. Regardless, EPL and third-party discrimination risks stemming from race and gender discrimination remain.
Willis: What are some long-term challenges that you anticipate for insurance providers in light of the growing NIL deals? How can universities prepare for these challenges?
SA: I think one of the long-term challenges will be understanding whether there are state regulations that affect whether universities can be directly involved with athlete NIL deals. While a number of states have moved towards less restriction around the "pay for play" model, public and private universities rely on funds and grants provided by the government, thus subjecting them to government regulation and oversight.
Universities at their core are meant for learning; they are not professional athletic associations. University athletic associations, while often the recipient of media rights funds and ticket sales revenue, are still tied to the university. Universities and their athletic associations are often structured as non-profit organizations. Distribution of those funds directly to pay for NIL deals may run afoul of the university's and athletic association's nonprofit mission, especially if money made from licensing, media rights deals, and ticket sales is being funneled directly from the university to satisfy athlete contracts.
This is likely the reason for the increase in NIL collectives being used as the vehicle to contract with and pay student-athletes.
Even if Title IX is signaled as a nonissue, liability that may arise from direct negotiations with athletes and/or representation adds another exposure to a challenging class of business. Common law rulings on discrimination must still be considered by universities or collectives entering into contracts with student-athletes.
The relationships between collectives and universities must also be considered. Whether a collective is freely able to give the student-athlete use of collegiate branding and IP matters, especially when there is an expectation that the athlete may be advertising for sponsors on social media or streaming sites. The FTC has already put out guidance for athletes, which may also apply to universities or collectives if the athlete is considered an employee.
There are also questions surrounding whether the university or its related collective has a responsibility to provide its athletes with education surrounding tax obligations and financial preparedness, given the large sums being offered and paid out. That additional education in itself creates potential exposure to be evaluated.
Willis: As the NIL settlement moves toward providing clearer guidelines for universities, what potential challenges do you foresee higher education institutions encountering in relation to insuring student-athletes?
SA: I think that the NIL settlement may not provide clear guidelines for universities, aside from the disbursement of settlement funds. It appears that the NCAA's attempts to have any control over future NIL deals have been rejected thus far; therefore, guidelines are being made state-by-state, many by executive order allowing for universities to "pay to play."
However, in my opinion, there are risks for universities attempting to recruit talent in states that have created guardrails. For example, in states that require the agent of a student-athlete to be registered or in good standing with the state. Is it the (potentially a minor) athlete's responsibility to check whether that is the case? Or the university or NIL collective entering the NIL deal with the athlete?
In addition, what if the athlete is considered a university employee if the state favors finding joint-employer status? This may be the case when the athlete is acting with directives from the university. If an athlete assaults another student, becomes injured, or misrepresents a product using their NIL, I could see potential for a variety of "claims" made under the university's educator's liability product.
It may also be the case that university athletic association funds become allocated to pay for NIL deals with student-athletes. What happens if the athletic association does not have enough to pay an agreed-upon contract? My question would be whether university endowments, grants or other funds could be redirected to satisfy contractual obligations. If that happens, should educators' liability insurance pay for a change in distribution?
Further, if athletes draw stronger ticket sales or larger media contracts that pay dividends to the university, can those funds be redirected from an athletic association to research, academic instruction, or other university initiatives? My recommendation would be for insurers and universities to address these "what if's" before the In Re NIL settlement is finalized.
Willis: When assessing a risk, what are some best practices you look for in terms of staying compliant with evolving NIL-related laws and regulations?
SA: My recommended strategy starts with following the In Re NIL settlement negotiations, including the 9th Circuit responses to the NCAA's attempts to reenter the conversation. After the Supreme Court's Alston decision, it was clear that many colleges and states were going to move quickly to shore up student-athlete talent while also trying to balance protecting student-athletes. The pendulum continues to swing.
With the NCAA in the penalty box, basically unable to give any contours or directives on how NIL deals with student-athletes can be made, there are now multiple rule makers.
Staying abreast of varying state governor executive orders informs how universities are approaching NIL deals that may increase money from university sports teams to institutions traditionally supported by state taxpayers and state and federal grants. Recently, there has been a flurry of executive orders allowing universities to be directly involved in recruiting athletes with NIL contracts. Some universities may take immediate action without reviewing financial resources or alignment with other stated priorities.
Those states that do not have executive orders often have legislative initiatives that cover everything from morality requirements for advertising to educational requirements on financial literacy and tax obligations. Understanding that legislation can be a moving target, it is important to also review whether the state governor has made overtures about an upcoming executive order that may impact university requirements.
Finally, federal and state laws governing employment and discrimination are important to consider, as is whether the state is a "right to work" or more union-friendly state. NLRB exposure may arise as deal flow increases and student-athletes look for more favorable states to do business and compete in.
Willis: What proactive steps can professionals or organizations take to minimize the risk of NIL-related claims going forward?
SA: I recommend universities, collectives and student-athletes engage professionals, including lawyers and/or sports agents, who are state-barred and familiar with the governing regulations and case law. It is helpful to understand the state-specific regulatory and legal landscape ahead of negotiations and before entering any contract.
In addition, I strongly recommend that contracts with student-athletes be in writing, drafted and reviewed by counsel for the university and/or collective. Agreements should have set terms that address injury and transfer to another institution. The agreement should also clearly address whether the student-athlete can use the university’s branding in any NIL-related activities or advertisements.
Ahead of any contract being signed, I would recommend putting in writing attempts to refer the student-athlete to legal counsel to review the agreement if they do not already have counsel engaged.
In addition, during the negotiation process with a student, disclaimer language should accompany offers for money, particularly indicating that nothing is final until a contract has been agreed to and signed. Furthermore, in my opinion, universities and/or collectives should provide opportunities for students to be educated on tax implications.
If coaches are involved in the deal-making process, university counsel should prepare them ahead of meetings with student-athletes, their families and/or agents. Coaches should be educated on what representations can be made financially, with an understanding of the ultimate commitment level.
I also believe that universities and athletic associations should have a set financial decision-making tree with ownership for payment on contracted deals. That structure should be reviewed by university counsel and agreed to by a board of trustees.
My view is that universities are [traditionally] for education, and therefore the likelihood of an NIL collective taking ownership of deal-making with and financial payment to student-athletes is increased. Therefore, understanding the relationship between a collective and the university becomes tantamount.
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