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  • August 2022
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Underwriting Considerations for NCAA's NIL Policy: A New Class of Professional Athlete?

Five Questions with Dr. Dave Rengachary

  • Dr. Dave Rengachary
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In Brief
As another college football season kicks off, RGA's Dr. Dave Rengachary considers the insurance implications of the NCAA's NIL (Name, Image, and Likeness) policy.

A 19-year-old college football wide receiver is applying for $25 million in term insurance. While he has not declared for the draft, he will be eligible in 2024 and is widely expected to be drafted early in the first round. He has already landed four widely publicized NIL deals from a variety of well-funded third parties, though terms of the deals are not publicly available or provided yet with the application.

Five Questions Around NIL 

1. What is NIL?

In June of 2021, the Supreme Court issued a unanimous decision (NCAA vs. Alston) affirming a lower court’s ruling that the NCAA had violated antitrust law in its prevention of education-related athlete compensation. Soon after, the NCAA instituted a temporary NIL (Name, Image, and Likeness) policy effective July 1, 2021. While the policy maintains restrictions on pay-for-play, direct compensation from academic institutions, and recruitment inducements, it allowed student-athletes to maintain NCAA eligibility while receiving compensation for NIL rights from third-party “professional service providers” (including marketing consultants, agents, and brand management companies). There remains, however, significant confusion despite subsequent NCAA policy amendments around several aspects of NIL policy, including booster involvement through “NIL collectives” and “whole team” deals. The NCAA rules do not obviate any specific state laws on the issue.

2. Does NIL policy challenge the traditional definition of a professional athlete?

Yes. Although there is no widely accepted definition of professional athlete, historically, it has most commonly been defined by payment and terms of employment directly in exchange for athletic performance. Some definitions, including U.S. Code of Laws, have added dollar thresholds to the definition while others have specified involvement with specific leagues. As above, the NIL policy challenges the definition that pay-for-play is specifically forbidden for amateur eligibility to be maintained, but potentially large sums of money are available through professional service providers. In that sense, insurers may find value in reviewing professional athlete guidelines with the lens that NIL contracts will increasingly be encountered in the application process.

3. What are important elements of a typical NIL contract?

  • Size – While the larger contracts have garnered headlines, the vast majority of contracts to date have been for much smaller amounts (<$1,000).
  • Consideration – According to NIL policy, there must be an appropriate deliverable in exchange for compensation. However, to date, few efforts have been established in the valuation of this consideration. More common forms of consideration include serving as a brand ambassador, social media promotion, and direct payment for commercials or ads. Given that contracts are forbidden by the NCAA to be performance-based, most can be reasonably construed as guaranteed, though non-athletic incentives are also a possibility.
  • Exclusivity: To what extent does this contract preclude additional deals?
  • Length: Does the contact limit future professional earning capabilities in any way?
  • Morals Clauses: Many contracts are voidable due to unethical or illegal behavior.

4. Does this present a new source of concentration risk?

As mentioned, the average size of contracts to date is modest; however, this may be changing rapidly. Recently, a NIL contract was reported with a potential value of over $8 million for a rising high school recruit (note also that high school NIL laws vary by state). Booster organization and other contributions organized through NIL collectives are rapidly inflating the collective team NIL net worth. While it is not feasible to monitor each college and high school team and sport, insurers may find value in monitoring the most prominent of these institutions. Several publicly available websites report track these deals, provide player rankings, and even offer valuations (https://www.on3.com/nil/).

5. What considerations may assist in risk classification?

  • Age and years until graduation, as well as likelihood of declaration. Though the latter can be difficult to predict, it is presumed that the smaller the gap between application and best anticipated professional employment status the better.
  • Injury/medical history?
  • Is the coverage personal?
  • Estimate and comparison of guaranteed versus potential earnings?
  • Valuation of current NIL contracts?
  • Legal history or evidence of risky behaviors?
  • How is premium being funded (premium financing discouraged)?

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Dr. Dave Rengachary
Dr. Dave Rengachary
Senior Vice President, Head of Underwriting, U.S. Individual Life