Is a Patchwork of State NIL Laws Unconstitutional?

BY: MICHAEL FASCIALE

Can the NCAA successfully argue that the fractured state-by-state approach to name, image, and likeness (NIL) compensation is, under the Dormant Commerce Clause (DCC), unconstitutional?[1]

The U.S. Constitution permits the federal government to regulate commerce among the states.[2] The DCC, by contrast, is an implied restriction in the U.S. Constitution that effectively prevents states from passing laws that burden or discriminate against interstate economy.[3] Relying on favorable case precedent and the DCC, the NCAA could argue that the sheer number of intercollegiate schools subjected to inconsistent state laws interferes with a national uniform governance structure and thus unduly impacts or discriminates against interstate commerce (i.e., violates the DCC).

The Supreme Court has adopted a two-tier approach in analyzing a DCC challenge.[4] First, if the statute “directly regulates or discriminates against interstate commerce, or when its effect is to favor in-state economic interests over out-of-state interests,” federal courts will strike down the law without further inquiry.[5] Second, where the statute “regulates even-handedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits.”[6]

As to the first prong, the NCAA could argue that this fractured state-by-state approach to NIL compensation puts certain states’ economic interests (those which have NIL legislation) above out-of-states’ economic interests (those which do not have NIL legislation), thus creating a competitive and commercial advantage for certain student-athletes (i.e., is discriminatory in purpose or effect). In response, one could argue that each state NIL law does not discriminate against interstate commerce because each state NIL law does not inject its regulatory scheme into the jurisdiction of other states. For example, as written, California’s NIL statute—like many other state NIL laws—is directed only towards conduct within California and applies to in-state and out-of-state entities alike.

In arguing that a patchwork of state NIL laws directly regulates or discriminates against interstate commerce, the NCAA could potentially rely on favorable case precedent like NCAA v. Miller. There, the Nevada state legislature enacted a statute that required the NCAA to provide student-athletes “accused of a rules infraction with certain procedural due process protections during an enforcement proceeding.”[7] The Ninth Circuit held that Nevada statute violated the DCC because it impermissibly regulated interstate commerce.[8]

However, the NCAA might have a tough time relying on Miller. The “critical inquiry,” the Ninth Circuit explained, is whether “the practical effect of the regulation is to control conduct beyond the boundaries of the State.”[9] That is precisely what the Nevada law did in Miller—Nevada was telling the NCAA how to conduct a hearing and, in doing so, intruded on an interstate organization. But here, the states with NIL laws are telling the universities within their states how to treat their student-athletes. Hence, they do not require the NCAA to do anything, and each state law is directed towards conduct within each individual state (and treats in-state and out-of-state entities alike).

As to the second prong, the NCAA could argue that student-athletes will be incentivized to attend schools in states with NIL laws, effectively steering the greatest future talent toward a handful schools. This competitive advantage, the argument goes, harms the overall intercollegiate athletic landscape because the NCAA’s NIL business model requires uniformity. In response, one could argue that the burdens associated with the patchwork of state NIL laws (i.e., potential recruiting advantages) are small in connection with the purported benefits (i.e., the protection of student-athletes). Importantly, the majority of student-athletes who attend schools in states with NIL statutes will not profit extensively by marketing their NIL; rather, the minority of student-athletes will negotiate meaningful and money-making endorsement deals. Thus, the burdens associated with the patchwork of state NIL laws would not be “clearly excessive” in relation to the state’s legitimate interest in protecting student-athletes.

In sum, the NCAA will face an uphill battle in court if it pursues the “state NIL laws violate the DCC” argument. Note that the DCC only applies where Congress has not explicitly authorized the states to pass laws of this type—in other words, Congress can override the DCC’s limits. Until Congress acts, however, it remains to be seen whether the conflicting state laws violate the DCC.

Michael Fasciale is a third-year law student at Seton Hall University School of Law in Newark, New Jersey. He is the President of Seton Hall’s Entertainment & Sports Law Society. He can be reached on LinkedIn @Michael-Fasciale.

[1] The NCAA has publicly stated that it believes that the state-by-state approach to NIL compensation is unconstitutional. See NCAA Responds to California Senate Bill 206, Nat’l Collegiate Athletic Ass’n (Sep. 11, 2019), https://www.ncaa.org/about/resources/media-center/news/ncaa-responds-california-senate-bill-206. [2] U.S. Const., Art. 1, s. 8, cl. 3. [3] See Dep’t of Revenue of Ky. v. Davis, 553 U.S. 328, 337–38 (2008) (stating that the “the [D]ormant Commerce Clause is driven by concern about ‘economic protectionism’—that is, regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors”). [4] See Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S. 573, 579 (1986); see also Bowers v. NCAA, 151 F. Supp. 2d 526, 537 (D.N.J. 2001). [5] Id. (emphasis added). This, of course, is subject to the Virtual Per Se Rule of Invalidity, which leaves open the possibility that some such laws might still pass constitutional muster. See, e.g., Maine v. Taylor, 477 U.S. 131, 148–52 (1986) (validating a law that banned the importation of out of state fish because the state had a legitimate purpose of protecting its waters from invasive/non-native species of fish and the court found no other non-discriminatory means for achieving that interest). [6] See Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970). [7] NCAA v. Miller, 10 F.3d 633, 637 (9th. Cir. 1993). [8] Miller, 10 F.3d at 640. [9] Id. at 639 (citing Healy v. Beer Inst., 491 U.S. 324, 336 (1989)).