Universities have faced a series of unique challenges in the past several years, with the pandemic being the most recent. These institutions have also dealt with increasing scandals, such as the Varsity Blues and NCAA basketball corruption investigation, which suggest more attention is needed on compliance matters.
As universities continue to assess the likelihood of empty campuses this fall due to the pandemic, athletic departments must also determine how to proceed with lucrative sports programs. Adding to this uncertainty is the NCAA’s recent decision to support proposed regulations allowing college athletes to sign endorsement contracts and to receive certain kinds of payments for additional work — NIL — an additional area where compliance will be essential.
Consequently, compliance personnel should dedicate significant time training student-athletes to identify and report illicit offers that could result in a loss of eligibility. Failure by any of the compliance stakeholders could result in significant harm to a university’s brand and sports programs, as witnessed in previous collegiate investigations.
The NCAA has faced continued criticism over its refusal to allow student-athletes payments beyond the cost of attending school, despite major programs reporting millions of dollars of revenue and signing coaches to million-dollar contracts. The NCAA’s decision to support NIL arrives as several states have passed legislation preventing players from being punished for profiting from their image.
The NCAA Board’s approval, however, is caveated with the need to incorporate “guardrails” aimed at eliminating payments outside the authorized scope of approved transactions.
Universities would be well served to identify that this shift will require athletic departments to expand their compliance function to ensure that violations are prevented or mitigated. Compliance personnel will subsequently be faced with issues that could have significant repercussions for a university, including:
The role of boosters. Despite the NCAA’s guardrail preventing sponsorship deals from being used as recruiting tools, boosters could use sponsorship deals through their ownership of local businesses to lure student-athletes with money;
Third parties. Third parties, notably agents or “handlers,” that manage sponsorship deals for student-athletes have been present in past corruption scandals;
Major sponsorship transactions. Some of the most lucrative endorsements will come from major sports and apparel companies. However, in past corruption investigations, shoe companies were implicated in providing money to student-athletes’ handlers in exchange for a commitment to attend a particular university;
Self-reporting requirements. It remains unclear what type of endorsements, if any, are prohibited and whether “fair market value” principles will be applied to student-athlete payments. The ambiguity between authorized transactions and NCAA violations could harm self-reporting by universities, despite the requirement to do so, given the likely confusion over perceived and actual violations.
With the progressive shift towards a payment structure for student-athletes, compliance will play a key role in designing and implementing policies to govern and identify authorized avenues of revenue for student-athletes, including business transactions and sports camps. Eligibility and scholarship (Pell Grants) implications will need to be explained to student-athletes by compliance personnel.
Additionally, compliance officers will need to explain to athletic department personnel how to handle matters related to new streams of booster and sponsor funding. As demonstrated by the corporate world, universities must conduct a risk-based approach to identifying potential compliance issues and invest accordingly.
Given the upcoming area of significant risk, universities should bolster their compliance personnel and train them to prevent, monitor, identify, mitigate, and report compliance issues arising from NIL rules. An adequately calibrated compliance program remains critical to avoid violations, despite the current fiscal challenges posed by the Covid-19 pandemic.