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Traps in NIL Agreements: Watch Out for Perpetual Licenses and Exclusivity

Many states, including Texas, have provisions in name, image, and likeness (“NIL”) statutes that prohibit NIL agreements for athletes that extend beyond the duration the athletes’ participation in intercollegiate athletics. For example, a college freshman cannot sign a promotional agreement with a ten (10) year term, because the term of the agreement will extend beyond the conclusion of participation in intercollegiate athletic competition. This language was put in place to protect athletes. In theory, if an athlete becomes a professional, he or she will improve his or her market value and should not be bound to the market compensation they were paid as a college athlete.

One concerning provision that has crossed my desk on multiple occasions is the license in perpetuity also known as a perpetual license. The following is an example of a perpetual license provision:

Athlete hereby grants to Sponsor, its parent entities, subsidiaries, licensees, affiliates, and each of their respective officers, directors, agents, representatives and employees a transferable, irrevocable, universal, fully paid-up, royalty-free right and license to use (and further license the use of) Athlete’s name, likeness, image, voice, poses, acts, appearances, performances, biographical information, and endorsement (i) as embodied in any and all Results and Proceeds (as such term is defined herein) (including, without limitation, the Content) and/or (ii) for purposes of promoting, marketing, advertising and publicity of the Content and the Campaign, including, without limitation, in any and all collateral materials in connection therewith, as well as otherwise in connection with Sponsor’s products and services, in any and all media, whether now known or hereafter devised, throughout the universe in perpetuity, all without any further obligation to Athlete.

This language grants a sponsor the right to use advertisements and promotions featuring an athlete’s NIL forever. Putting aside the branding issues with granting a perpetual license, this language very likely violates state law or, at least, the spirit of the state law. This provision clearly extends the right to use athletes’ NIL beyond the duration of their tenure as college athletes. In granting such rights and extending beyond the permitted statutory period, this puts athletes in a precarious position where the agreement does not comply with state law and, thus, does not fit within the safe harbors of NCAA guidelines. If the agreement does not fit within the safe harbors of NCAA guidelines (i.e., state law), then athletes run the risk of being determined to be ineligible. It is imperative that these provisions are reviewed closely to make sure a perpetual license is not granted and, therefore, is limited to no more than the conclusion of the duration of athlete’s intercollegiate athletics participation.

Virtually every sponsorship agreement also has an exclusivity provision. The following is an example of an exclusivity provision:

During the Term and for a period of six months thereafter, Athlete shall not provide any of the same and/or similar services as provided hereunder to automobile companies , and shall not appear in, perform on-camera or voice-over services for, and/or otherwise participate in any advertising, promotional and/or marketing activities that involve the promotion, marketing, advertising and/or sale of motor vehicles (including, without limitation, cars, trucks, SUVs and cross-overs, but excluding motorcycle manufactured and branded by a company that does not manufacture  cars, trucks, SUVs or cross-overs), automotive parts and services, automotive crediting and financing organizations that compete directly with Company’s financing organization and/or any motor vehicle rental company or services.  

Sponsors are going to want to make sure athlete’s are not signing deals with their competitors; however, the definition of competitors and competing businesses is very, very important. For example, the BEVERAGE industry and the FITNESS industry are extremely broad and have numerous sub-categories. Examples of beverages subcategories include, but are not limited to, soft drinks, water, electrolyte drinks, electrolyte water, juice, energy drinks, beer, wine, spirits, etc. Examples of the fitness industry subcategories include, but are not limited to, gyms, training centers, training tools, fitness products, fitness apparel, etc. I have seen agreements where sponsors are attempting to buyout the entire BEVERAGE industry category and the entire FITNESS industry category for a few thousand bucks or product exchange (even receiving “free” product is taxable). These are huge categories that need to be dissected. Otherwise, unknowing athletes will be giving up huge categories and potential monetary gain.


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