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08.30.21

The future of collegiate sports and NIL regulation

By Thaddeus J. Stauber

With the NCAA stepping out of the picture and states rapidly passing name, image, and likeness (NIL) legislation, what does the future hold for collegiate sports? Genaro Trejo joins me on the podcast to help us understand this changing landscape.

Genaro is on the frontlines of the NIL issue. He is the CEO of The NIL Xchange, a pioneer in the information exchange between universities and students seeking NIL compensation. He’s worked with the California Community Colleges NIL work group and helped the State of California pass new NIL legislation.

Our conversation explores new opportunities for student-athletes to capitalize on NIL, discusses some of the potential tax law implications, and looks at the impact on college and university communities.

This transcript has been edited for length and clarity. Listen to our entire conversation below, and subscribe to “To Live and Law in LA” on Spotify and Apple Podcasts.

Genaro Trejo (GT): Thank you so much for having me.

Thaddeus Stauber (TS): I am going to throw one at you because this is an issue that is personal to me. I am one of those student-athletes who was good enough to become a lawyer.

GT: Wonderful.

TS: I had the good fortune of playing baseball in college — Division I level with the University of Dayton in Ohio. Aside from maybe getting a rosy-red scholarship from the Cincinnati Reds and a couple of free fish fries on a Friday night, I can’t imagine this being an opportunity I could have taken advantage of, even at the age of 19 or 20. Could you give a little overview of the landscape as you see it?

GS: It’s multi-layered, but at the end of the day, what schools are trying to do, or what legislation is trying to do, is make the benefit available to students that if they do have this opportunity, to make the most of their name, image, and likeness and get compensated for it.

At the Division I level, certain sports are highly compensated. The magnitude of their impact through a thread or some Instagram post is significant. But there are other students or universities. Dayton happens to be a Division I school, not necessarily a Power Five school, but Division 1 rules permeate through Division II, III, and community colleges as well, as long as you have knowledge and you maintain your eligibility. And that’s always really been the priority, right?

TS: Eligibility.

GT: Eligibility has been the priority because, really, you could lose your scholarship. That was the crux of what most of the legislation is focused toward — making sure that after you have been compensated for your schooling, which has been traditionally how kids are compensated, that you are no longer in violation if, for some reason, you take on a deal, which in this case is more what we refer to as micro-deals. They are deals that are in the $500 to $600 range, so the avenues for students at every level are different than they were when we were coming through. It’s not just the football player, it’s not just the basketball player that’s making money. Other sports are just as popular. We can go through the line of the athletes that are the most marketable in this space, and they’re in softball and there is women’s basketball and swimming. It’s interesting.

TS: So it’s very personality-driven vs. sports-driven in some sense.

GT: I would argue that it’s driven by a variety of factors.

The first is a platform that you start with if you are competing at a Power Five level. Irrespective of the sport, you immediately have a different platform, right? And the name recognition and the reputation of the school helps. But, yes, it is very much personality-based. It’s also situation-based.

Some of the students we spoke to in our work groups spoke of interesting circumstances during a game where suddenly their fortunes changed. Maybe they are a volleyball player who happened to cross a Division I school and they did really well — they may not have won the game, but now they have a following on Instagram that they didn’t have before. Avenues emerge in a lot of random places, but the mechanism usually has a function of where you go to school, the sport you are in, your personality certainly, and then that X-factor that makes influencers influencers.

TS: Is this is a bit of what we find in the law sometimes — the law chasing a trend, the reality of the economics or the business, or the sport getting ahead of the law? And now, the law trying to catch back up with the very state?

GS: I think this is very much the case. But I think that as you try to figure out a way of deciphering the behavior of this new world, you find that not only is the law behind it, but if you are not careful, you can really hurt kids in trying to encapsulate in some way. You have to be real mindful that the kids are aware of what they are getting themselves into.

TS: Is it fair to say that the regulation is almost to deregulate?

GT: If you read most legislative bills, the answer is yes. They may not speak to the NCAA specifically, but they will speak to intercollegiate athletic organizations with natural reach, or something along those lines.

TS: What motivated you when the governor called and said “Genaro, we’d like to get you engaged in this. We’d like to give you part of this work group.” I know you went to UCLA and I also understand that you got your master’s degree from the University of Chicago, which is known for economics and policy. You worked in the Democratic party for a little while and you also run a nonprofit, so you bring an interesting perspective to the issue. But why jump into this one?

GT: I went to UCLA in ’95. It’s when I graduated — when we won the National Championship. Ed O’Bannon happened to be on that team. When I saw some of these legislative pieces coming up, at least initially, that was interesting, to see that, just in a different context. At the time, I really didn’t know too much about it, but I’ve always felt that students should be paid for the work they do. Being at UCLA, I could see the football players putting in time and they would have tutors and a staff of people who would help them through their day. They were always tired and busy and studying. That was the first time I had a little bit of context — not to your degree, but I had a little context, so when I was approached (specifically, it was Speaker Anthony Rendon who approached me), I really saw this as a civil rights issue.

TS: A civil rights issue?

GT: I felt that the fact that students couldn’t make money — students who were going to be at their peak in Division II and Division III during their college years — to have them not make money on their image and likeness seemed absurd to me, especially when there was such a need for them. In some cases, they will get tuition paid for, but not always. Even if you start navigating to the community colleges, the disparities are massive and students are generally suffering from homelessness, hunger. Not allowing students to make the most out of their talents, abilities, and likeness seemed absurd.

TS: How and where does this become a potential Title IX issue or other civil rights regulatory issue?

GT: I’ll address the civil rights first. When I speak of civil rights regarding image and likeness, I refer to students who are predominantly African American and Latino that are struggling to get through the educational system.

TS: Students of color …

GS: Students of color in any shape or form. That is a primary concern because it is very well documented that homelessness occurs, that these issues — transferability issues, I mean; there are a lot of issues that are loaded where the ability to make money, even if it’s for a small period of time during their college years, would be beneficial to them.

Now, that said, as we were going through a survey that was going on nationally, the thing that became clear to me was not that there is a shift happening, but that the shift has already happened if the most-popular athletes in any social media platform are women. But in the future, I don’t think it is even going to be close, frankly. Currently, I believe there is a student over at UConn who is a point guard there who is highly popular, and every matrix says she is out of the ballpark in regard to her opportunity.

TS: How or where does any of this legislation understand or look at the impacts that Title IX has on it?

GT: You are going to have to step in and help universities figure it out, but it is not going to be for the traditional reasons that you have been fighting. I think in this case, there is going to be a demand for female athletes in all these platforms.

TS: California has been out in the forefront of the issue, which is not unique for California, but this is an issue that we’ve seen legislation in — what? — almost a dozen different states now. Are they all pretty consistent? What is the impact of the NCAA coming out and saying “You do what you want to do”? Where are we right now? What is the landscape right now?

GT: What ultimately really complicated this issue was that everyone was waiting on the NCAA — ultimately, an organization that had no power once the state started moving. At that point, it was really a moot point.

TS: It seems that we are heading in a way where we might not get federal legislation. Do you think that we are going to get federal legislation on the issue?

GS: I’ve spent a little bit of time looking at the legislative bills, and they’re massive. There’s a lot in there. Again, speaking to my earlier point of it’s simple legislation with a lot of interpretability that gets passed — when you start talking about worker’s rights and those things, I think it’s heady. And I think that to get agreement at a national level is difficult. I think it may get there; it’s just in the meantime, three to fours years could pass before you get to that point.

TS: Let’s switch the conversation a little bit. One concern for the student-athlete was maintaining their eligibility while giving them the ability to earn income, which is in addition to or separate from the scholarship they may or may not be getting.

GS: You just got to the root of the NIL problem. As you are talking about all these activities occurring on a campus, whether it is Division I or Division II or community college, traditionally, a school in those conferences could turn away and say “This is not something we are going to enforce. We are not enforcing NIL as long so long as you tell us or disclose it in some way.” But what happens now is there is genuine liability because kids are making money. Students are now in a situation where their relationship with the school changes in some ways. Now you are almost business partners — joint venture partners in some way — and you are being required to disclose what you are doing.

That’s onerous on a student and it speaks to what you were speaking to earlier, which is, if you are a Division I school, it’s full-time, it is a lot of work, and to add to that, being a student is hard. Now, universities are going to be liable for a lot of different things that they weren’t before; namely, making sure that their own contracts are in place, making sure that their federal funding and discretionary money is not messed with in any way. And in a lot of ways, you are allowing students that are 18 and 19, and impetuous perhaps, a lot of leeway — on the campus that they are on, on the teams that they are on — to do a lot of interesting and cool things. At the same time, there are guidelines …

TS: Interesting and cool things can also be things that can get you in trouble.

GS: Especially if you don’t know any better. And sometimes, you have to walk students through this. And for us, that became the solution and the premise of our company — to make sure we are taking on some of these basic guidelines. Some of these are mandated guidelines that you have to abide by. The rest you can leave to your interpretation. The student and the university can come to some agreement, but at its core right now, there is nothing to highlight what you can or cannot do …

TS: So, you are telling me that there are a lot of unattended consequences to opening the gates up and saying, “Go out, make money, it’s your body, it’s your image, it’s your talent. Take the opportunities in this newfound media world and go ahead and exploit it if you like,” but without understanding what the consequences may or may not be to the university or to the college.

You used the word “liability” — that’s a trigger word for lawyers. That’s a trigger word for compliance people. What do you mean when you use the word liability?

GT: I use it in a lot of different ways and interchangeably.

If you are a student and you are going to make whatever amount of money — let’s say $500 from the local pizza spot for food or maybe it’s a check, you have to tell the school and the government. The real liability there is taxes, and those liabilities are bigger than any academic eligibility. Academic eligibility is important, but some of these other problems can live forever with you and they can turn into liens and can turn into all these problems, so, when I talk about liability, definition one would be, liability is students who are starting to make money now. If they are like anything like I was when I was 19 years old, I don’t know anything about my tax bracket, what I am supposed to report, or anything about a 1099 or W-2. That’s what I consider liability.

Universities can take care of themselves ultimately, but the premise of why I started our company and these different components that I have been involved with is that students are ultimately going to be forced now to be adults and to deal with these contracts directly with these universities, and they should be aware of what they can and can’t do.

TS: Do you think that the universities or the colleges have a fiduciary duty to these students — a contractual duty to these students? What is the definition in your mind of that relationship?

GT: I would say it is a fiduciary duty because of what is at stake. It is not only the athletic director; it’s the university president. If we are talking about, if we infer that the liability is with discretionary funds coming from Pell Grant money, you should be aware of this as a president.

Now, the role of your athletic director is not just one of making sure that your kids are going to class; they are handling sensitive material, they have sensitive contracts or photos of receipts or whatever it is. You are putting that on athletic directors that have their hands full, and probably not necessarily equipped with the expertise that is required for something like this. It could be dangerous. Because remember the university also has to disclose.

TS: Disclose through this exchange that you are creating? How does it work?

GS: Currently, there is no plan. It becomes an acrimonious relationship between student and the university. There is no solution right now. And we are even talking at the Power Five level — there is no solution. The solutions that you are seeing currently in the market are focused solely on marketing opportunities — making sure you are aware of how to maximize your social media standing. I think some people even come in and start talking about the ability to decide whether these contracts are for you or not. These kinds of differences — they are focused on just the outward, volume marketing, revenue-generating piece. But if you ever managed a P&L, you know that with every revenue component, there is a liability, and that is currently being ignored in the market.

TS: Let’s presume I’m a university in the northeast. I don’t compete at the major Division I level, but I have a full lineup of sports, ranging from women’s volleyball to field hockey to soccer to basketball and swimming. I have an athletic department that — I don’t have four or five assistants; I got coaches who are double-timing between being a coach and also teaching a class. How the heck is he supposed to keep track of all this? What role can NIL Exchange play for a university like that and student-athletes like that?

GT: The verbiage is a little bit different depending on the state, but for the most part, every state has a need for self-disclosure to occur from the student to the university. The NIL Exchange comes in and does a fundamental thing: First, it educates the athletic director on what we are going to be doing and what the liability truly is, so there is an educational level that occurs with the athletic director. And then there’s one that occurs with the students. There are several touches along the course of the year because the report we put together is updated monthly. If there is an issue, the university speaks to us and we contact the student and they can do it directly also. At that point, what you have is clarity in the documentation that’s being discussed and the issue that’s being presented.

TS: So by use of the word “exchange,” to me, that implies transparency. And is that a key driver here that you’re getting at? Is it that we just want to make sure that everybody is transparent and on the same page as to what is happening?

GS: I would use another word. Transparency is a good word, but I would use accountability. And I think there’s accountability on behalf of the university and there’s accountability on behalf of the student. Some of the grievances that I’ve seen are a basic need for follow-through with some of these students — making sure that their forms are filled in and that they’re aware of some of these things. Financial literacy has been an issue at the collegiate level for 25 years — getting kids to understand and care.

TS: I’m concerned about the follow-through. How do you keep a 19- or 20-year-old accountable? How do you get them to say, “Yeah, you know I really should pick up my phone and punch that in.”

GS: Playing time is a really good motivator.

TS: Playing time — now that’s interesting. Now, I’m struck by that. I thought we said that it was because of eligibility that these rules, that these regulations of NIL, were being passed. The NCAA couldn’t come in and say, “Wait a minute, you can’t play today”? Help me out there.

GS: I’m using playing time because, as an athletic director, you have to enforce these state-mandated guidelines. The only real enforcement you can do is whether or not you can play, or whether you can use the facilities or hold your event or your clinic at the gym.

At the federal level, whether you can rent a spot and gym rental is something that we’ve recommended. If you want to rent a gym for a clinic, you can, as long as you follow the guidelines that any other university student would. If you’re not abiding by those general laws, even in a general catalog, you can’t participate. Playing time is just one generalization, but you can’t participate as someone who’s going to be earning NIL because you don’t have access to the resources. The university still controls those things.

TS: This legislation didn’t take away from the university or college’s control of what happens on its fields, what happens on its teams, who gets to play, who doesn’t get to play, so you could have a university that says, “You need to report to us on a weekly, annually, biweekly, what have you; real-time basis; any and all income you’ve earned in connection with your name, image, or likeness because we need to make sure we’re in compliance with the contractual relationships and sponsorships that we have. We have a fiduciary duty to make sure that you pay your taxes from revenue you’ve earned or we’re going to put ourselves in that spot because we know the implications of you not doing it. We want to know if you are using our basketball court to film an instructional video that you’re putting on your TikTok and generating revenue from. And if you don’t, the first violation will be one week of not being able to practice; the second violation will be you’re not going to be able to play in a non-conference game. The third violation …” Something like that?

GT: Yes. But you better know what you’re doing, university.

TS: You don’t see the tension between the school and the student. What you are trying to do is align them — bring them together, sharing information, exchanging information, so they can both meet their obligations and allow that student to thrive.

GS: It’s all done in the spirit of cooperation. And in the case of the student, they’re going through our questionnaire; at least you understand some of these key components, so when you’re asked about your tax liabilities, you know what that is and you know whether or not you have these receipts that you’re being asked for.

There’s supporting staff at these universities I’m also activating, because now they know to ask: “Why don’t you go talk to your financial officer, there’s resources at the schools that are often sitting idle or there’s no reason to move them.” We come in as intermediary and get information from different sources, and then provide it to the exchange.

TS: The conversation now seems to be: You get a football coach on a podium and you ask him if he or she supports their student-athlete doing a TikTok or having a million followers and of course, the coach says: “Yes! I want to see them exploit their image and do well for themselves because I realize that the number of my players that actually make to the NFL is very small, and why shouldn’t they enjoy some of it.”

GS: Of course.

TS: And what you’re saying is let’s talk about the implications of that and understand what your support means. It’s not just a holistic standpoint.

GT: It’s not just about your sport, it’s not just about your school. We’re talking about responsibilities of a taxpayer that you’re putting on a kid now. But it’s an 18-year-old kid in some cases. When you’re talking about some of these E-sports folks, they’re younger and you have more jurisdiction as a guardian. But it’s very important.

TS: What you’re talking about with this exchange is a centralized database that can be used to inform both sides.

GT: The answer is simple, but you need a subject-matter expert to do it for you. And it’s multi-faceted.

TS: But it’s got to be simplified and normalized.

Most folks right now in California, they’re starting to get it because September 1 is right around the corner. All this is in play then. I think it’s going to be exciting. It’s going to be cool, and there will be opportunities for students to make money in many unique ways.

TS: Genaro, it’s been a joy and a pleasure to hang out with you today.

GT: Thank you.

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Thaddeus J. Stauber

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