Should College Athletics Allow Cryptocurrency for NIL Deals?
Despite the downswing in the crypto markets where once very popular companies are going bankrupt,[1] and the dwindling of retail investor accounts, both professional and collegiate athletes are accepting cryptocurrency as payment.[2] With the gaining popularity of cryptocurrency, it was only a matter of time before athletes started to accept it as compensation for their brand and endorsement deals. At this moment in time, should the National College Athletics Association (“NCAA”) allow college athletes to accept cryptocurrency?
College Athletes and Name, Image, & Likeness
Until recently, college athletes were not able to reap the rewards of their name, image, and likeness (“NIL”). That all changed on July 1, 2021 when the NCAA gave college athletes the ability to benefit from their NIL.[3] NIL was not born out of good-will, but only after numerous lawsuits, most notably a class-action from former NCAA athlete Ed O’Bannon that found the NCAA had violated various antitrust laws by preventing athletes from earning a share of the revenue generated from the use of their images in broadcasts and video games.[4] For the first time, college athletes were given the chance to monetize their status as Big Men and Women on Campus, and they took advantage of it.
The new rules allow for college athletes to be compensated for third-party endorsements related to athletics and for other student-athlete opportunities, such as social media, new businesses, or personal appearances.[5] Importantly, athletes will be allowed to engage agents (aka “professional service providers”) to help them navigate the new NIL world.[6] Accordingly, athletes made deals with beverage companies, apparel brands, mobile providers, and supplement companies, just to name a few.[7]
Colleges and College Athletes Being Paid in Crypto for NIL Deals
Along with traditional companies, a number of cryptocurrency companies also entered the space, and it only makes sense that colleges and their athletes will start seeing payments in the form of various crypto coins. Crypto Exchange FTX has been a big player in the field, making deals with various teams and paying those deals in cryptocurrency.[8]
Crypto-related deals have trickled down to the individual players as well. University of Michigan (Go Blue) quarterback Cade McNamara started the course when he became the first student-athlete to get paid in cryptocurrency in a trailblazing deal with More Management.[9] More Management was originally founded in New York City in 2014 and manages a crypto token called MORE that trades on the Bittrex Exchange. https://www.morebrand.co/faqs. The More Coin is a “utility token” based on Ethereum technology that is used at More locations around the world to give MORE members access to preferred lifestyle events.[10] In addition, Alabama quarterback Bryce Young secured a reported $1 million in endorsements, including support from the bitcoin and payment platform Cash App.[11]
Opinion
College athletes who suddenly have access to large endorsement deals might be susceptible to making poor financial decisions because of insufficient knowledge. Combine this with the uncertainty and the complexity surrounding the legality of cryptocurrency, and this can be a potential powder keg.
It is a fair opinion to say that college athletes should not be allowed to enter NIL deals involving cryptocurrency. Cryptocurrency regulation is complicated to say the least. Even the most sophisticated and best advised celebrities, like Kim Kardashian, may unintentionally run astray of relevant rules and regulations.[12] Additionally, we don’t yet know what certain cryptocurrencies are classified as yet![13] Are they commodities, cryptocurrencies, or investment contracts and, accordingly, securities?
However, I don’t think this means that the NCAA should ban cryptocurrency in NIL deals. The NCAA needs to put some guardrails around the process. Here are three broad guidelines that student-athletes and the NCAA should consider when approached with payment in the form of cryptocurrency:
1. There is only one bitcoin. There are hundreds of cryptocurrencies in society, but there is only one bitcoin. Bitcoin turned 13 years old in 2022.[14]While bitcoin might be criticized for its price volatility, bitcoin’s volatility pales in comparison to whatever the hot new cryptocurrency of the week is, like the infamous Bored Ape.[15] If student-athletes are approached with payment in a cryptocurrency that is not bitcoin, then they must conduct thorough due diligence and tread carefully.
2. A system of checks and balances. The NCAA should not prohibit the use of cryptocurrencies as payment for NIL deals. However, they can set up a centralized approval process for such deals. The NCAA should create a “Crypto Committee” for NIL deals, or mandate that a school create such a committee if any of their student-athletes want to accept cryptocurrency. A committee will help prevent student-athletes from accepting far too speculative cryptocurrency as compensation but will allow students who can prove the validity of the deal to accept cryptocurrency. In addition, the committee can contain (or have access to) legal services that will help ensure that student-athletes do not run into legal trouble (like Kim K discussed above).[16]
3. Required education. The NCAA should require continued education for student-athletes and institutions that want to accept cryptocurrency in connection with an NIL deal. As discussed above, cryptocurrency is a vastly complex topic that even the most sophisticated investors have trouble understanding. Like the traditional compliance training required for countless employees in the United States, the NCAA should require annual training for relevant stakeholders.
While this by no means is a comprehensive guide to how the NCAA can help protect student-athletes and minimize risk, it certainly (in my opinion) is a step in the right direction.
Footnotes
