Oklahoma Football: Thoughts on the NIL era

January 7, 2022
Syndication: The Indianapolis Star
Charlie Nye/Indianapolis Star via Imagn Content Services, LLC

On the differences between inducements and economic NIL deals for college football players.

The big story of the early signing period for college football recruits this year wasn’t who signed where. Thanks to so-called NIL deals, it was for how much.

NIL refers to “name, image and likeness” rights. We just went through the first batch of recruits signing with teams since the NCAA allowed athletes to trade on those rights. Meanwhile, NIL is also playing a role in the movement of players via the transfer portal, with coveted prospects like (former?) Oklahoma Sooners quarterback Caleb Williams incorporating their marketing value into the calculus of where they will play next.

The NCAA rules on NIL are non-specific, and disparities between state laws render discussions about the overall mechanics of the deals pointless as of now. Although the rules will likely evolve and converge over time, the economic picture of the NIL marketplace won’t change much. So let’s delve into the long-term implications of the NIL world order.

Broadly speaking, we can sort NIL deals into two categories.

Type 1: Economic

The first bucket contains what we’ll call “economic” NIL deals. In economic NIL deals, the sponsors have reasonable expectations – or perhaps hopes – of receiving returns on the transactions. These expenditures have legitimate business purposes, in other words.

For example:

  • A car dealership might lease a vehicle to a player at a reduced rate in exchange for the player appearing in a promotion for the dealership;
  • A restaurant could pay an athlete to participate in an event for exposure;
  • A memorabilia broker could pay a player for a collectibles deal.

In each case, the business is entering into the arrangement with the athlete is hoping for a financial return.

Type 2: Inducements

The second group includes what we’ll refer to as “inducement” NIL deals. In these transactions, the sponsors have no reasonable expectation of a financial return. Instead, inducement deals aim to attract players to join a program by funneling money to them directly. The sponsoring entities essentially serve as vehicles to pay the athletes to join a program.

In practice, booster-owned small businesses striking NIL deals with players in blatant excess of their true marketing value would qualify as an inducement. Similarly, the Horns with Heart charity’s Pancake Factory program constitutes a clear example of an inducement NIL deal. The organization is handing out the annual $50,000 awards blindly to every offensive lineman at the University of Texas “to participate in charitable endeavors.” Aside from the absurdity of a college lineman’s NIL rights being worth $50,000 in the first place, it’s notable that the deals don’t distinguish between the values of players with different levels of skill and notoriety.

In effect, these inducement deals are replacing some of the under-the-table payments that have flowed throughout the black market of college football recruiting for decades. We should say “some” because surely a percentage of players would prefer to continue receiving cash and in-kind payments that don’t involve: a.) compliance paperwork; and b.) reporting to the IRS.

Hold on, aren’t inducement deals cheating?

Call the NCAA. More importantly, who cares?

If boosters want to pay players to come to their favorite schools, it’s their money. Guess what – rules against paying players never stopped jock-sniffers in the past.

Many economic NIL deals will turn out to be very stupid.

A deal made with the legitimate intention of generating a financial return does not guarantee a financial return. Businesses are about to find out that few college football players have true NIL value, and the risks are especially high with young, unproven prospects.

Alabama’s starting quarterback? Worth it.

That five-star freshman? Buyer beware.

Frankly, though, economic NIL deals are straightforward and boring. The inducements could get fun.

Inducement deals will likely cause headaches for athletic departments.

On the surface, the idea of well-heeled boosters marshaling resources to help their favorite teams recruit sounds like a godsend for programs. The reality will probably look much different from the perspective of the schools and their athletic departments.

First, anything that shifts more power to people outside the formal structure of the football program invites problems. Boosters already exert significant influence over many college athletic departments. Opening the door to inducement deals gives them even more power and, in some ways, an even more personal stake in the program. That can be a recipe for chaos.

Second, think about what it means if recruiting turns into a competition of which teams can offer the best inducement packages. Boosters will essentially face a decision between using money to fund NIL deals and donating that money directly to athletic departments. In other words, that means more money for players and less money for all the other things athletic departments fund – including the salaries of coaches and administrators.

Taking money out of the pockets of the people who write the rules? Guess how that ends.