Playfly Arbitration Tests Scope of ‘Associated Entity’ NIL Rules

The recent arbitration decision in the Playfly-University of Nebraska matter marks a pivotal first application of the House v. NCAA settlement’s (the Settlement) name, image, and likeness (NIL) enforcement regime, reaffirming the College Sports Commission’s (CSC’s) authority to scrutinize NIL deals involving “Associated Entities or Individuals.” At the same time, ongoing litigation over the scope of this definition—especially as it applies to multimedia rights companies (MMRs) and brand sponsors—raises critical questions for universities, athletes, and third-party sponsors operating in the evolving NIL marketplace.

KEY TAKEAWAYS

• The first arbitration decision under the Settlement recently upheld the CSC’s authority to deny NIL deals that involved an MMR and violated rules for such Associated Entities, which require that NIL deals have a valid business purpose and do not provide for prohibited “warehousing.”
• The definition of Associated Entity or Individual, as memorialized in the Settlement, remains a central point of dispute. The House plaintiffs class counsel seeks to categorically exclude MMRs and brand sponsors from this definition—which may preclude the CSC’s authority to regulate deals with MMRs and third-party sponsors—while the National Collegiate Athletic Association (NCAA) and its Power 5 Conferences (i.e., the House defendants) argue for a case-by-case determination.
• The arbitration decision highlights the need for careful structuring and documentation of NIL agreements, especially those involving entities with ties to universities or their athletics programs.
• A pending court ruling may further clarify whether categorical exemptions for MMRs and brand sponsors are permitted, potentially further reshaping an already uncertain NIL regulatory landscape.

OVERVIEW

The Settlement resolved antitrust claims relating to NCAA restrictions on student-athlete compensation, establishing a new regime permitting student-athletes to receive NIL compensation from third parties, but with critical limitations designed to preserve competitive balance within Division I athletics. A key feature of the Settlement is the establishment of the CSC, a clearinghouse responsible for reviewing and approving third-party NIL agreements exceeding $600 in value. Deals not cleared by the CSC may be submitted to neutral arbitration.

Central to the Settlement and the NIL review and approval process is the definition of Associated Entities or Individuals, which generally captures entities or persons with close ties to a particular school’s athletics department, such as boosters, or any entity that “has assisted in the recruitment or retention of prospective or current student-athletes.” The Settlement provides a framework for determining Associated Entity status, which heightens the scrutiny of those third-party NIL deals that could circumvent the negotiated revenue-sharing limits or facilitate disguised pay-for-play compensation. This was intended to be a limited world of entities that was narrower than those included in the common NCAA parlance “Boosters” who (1) are “known (or should have been known) to [a university and its staff] to exist, in significant part, for the purpose of (i) promoting or supporting [the university’s athletic program or student-athletes]; and/or (ii) creating or identifying NIL opportunities solely for a particular [university’s] student-athletes” or (2) who have “been directed or requested by [a university and its staff] to assist in the recruitment or retention of prospective or current student-athletes” or “assisted in the recruitment or retention of prospective or current student-athletes.”

Under the Settlement, the CSC has limited authority to regulate third-party NIL deals involving Associated Entities or Individuals to prohibit payments facially characterized as NIL payments that in reality are pay-for-play compensation. Specifically, the CSC reviews deals with Associated Entities or Individuals to ensure that they are both (1) for a “valid business purpose” (i.e., the promotion or endorsement of goods or services provided to the general public for profit) and (2) that the compensation being paid to the student-athlete is within a “range of compensation” or at a market rate (i.e., comparable to what would be paid to similarly situated individuals). The CSC also checks for violation of the NCAA’s Warehousing Rule, which prohibits deals that do not involve direct activation or reasonable specificity regarding the use of a student-athlete’s NIL rights.

ARBITRATION DECISION: THE PLAYFLY-UNIVERSITY OF NEBRASKA MATTER

In the first arbitration under the new Settlement, the CSC denied 18 NIL deals between University of Nebraska football student-athletes and Playfly, a multimedia rights holder. Prior to these third-party NIL deals, Playfly entered into a more than $300 million media rights contract with the University of Nebraska for promoting its athletic department, with a portion of funds due to the university directed to Playfly’s NIL investment in University student-athletes. The arbitrator was tasked with determining whether Playfly was an Associated Entity under NCAA Rule 22.02.1, and if so, whether the deals satisfied the “Valid Business Purpose” and “Warehousing” rules.

The arbitrator found that Playfly was indeed an Associated Entity, noting that the University of Nebraska itself had previously identified Playfly as such and that Playfly’s operations involved significant collaboration with the athletics department—including embedding employees and facilitating NIL payments using redirected university media rights fees. The arbitrator also pointed to evidence that Playfly had been directed by the university to assist in recruiting and retention, which is a core criterion for Associated Entity status.

On the merits of the NIL deals, the arbitrator also concluded that Playfly’s business model failed the Valid Business Purpose test, since Playfly was not offering goods or services to the public for profit in these deals, but instead acquiring student-athlete NIL rights as inventory for future, unspecified use by unidentified sponsors. This structure also violated the Warehousing Rule, which requires that NIL payments be tied to specific, immediate promotional activities rather than bulk acquisition of rights for later use.

The arbitrator further evaluated the CSC’s methodology for determining fair market compensation. The arbitrator recognized that excluding Associated deals from the comparator database may disadvantage student-athletes like the claimants due to the value of associated deals likely exceeding the value of non-associated deals. However, the student-athletes involved did not present persuasive evidence that their deals reflected fair market value or were negotiated at arm’s length. Ultimately, the arbitrator upheld the CSC’s denial, confirming that both procedural and substantive requirements under the Settlement and NCAA rules were not met.

DISPUTE OVER ‘ASSOCIATED ENTITIES AND INDIVIDUALS’ DEFINITION: PENDING LITIGATION AND COMPETING INTERPRETATIONS

Before the arbitration decision, House plaintiffs class counsel in In re College Athlete NIL Litigation filed a motion before the Special Master, Magistrate Judge Nathanael Cousins of the US District Court for the Northern District of California, to enforce the Settlement, seeking a categorical exclusion of MMRs and third-party brand sponsors from the term Associated Entities or Individuals as defined in the Settlement.

Class counsel argued that the Settlement entitles prospective and current student-athletes to freely enter NIL agreements without any oversight from the CSC, with one limited exception: it allows the CSC to regulate third-party NIL agreements between class members and Associated Entities or Individuals. Other third-party NIL agreements are not subject to such CSC scrutiny. Moreover, with regard to NIL deals with Associated Entities or Individuals, class counsel asserted that the CSC’s regulatory authority is limited to requiring that payments to student-athletes are for a valid business purpose and at rates and terms commensurate with compensation paid to similarly situated individuals with comparable NIL value.

Class counsel contended that MMRs—which facilitate NIL deals for hundreds of colleges and universities for the purpose of making a profit rather than for a particular school’s athletic program—are not Associated Entities or Individuals under the Settlement. Similarly, class counsel argued that brand sponsors, such as banks, apparel companies, airlines, and car dealerships, have sponsored university athletic programs since long before MMRs existed, engaging in such activities due to the obvious economic opportunities they present with various schools and not because they are affiliated with or seeking to promote any specific school. Thus, class counsel asserted that the CSC should have no jurisdiction to regulate NIL deals between MMRs or third-party brand sponsors under the Settlement.

Class counsel further stated that the CSC has imposed “an overly broad and demonstrably incorrect interpretation of the term ‘Associated Entity and Individual’ to substantially expand its limited oversight rights and improperly claim authority to regulate thousands of NIL agreements [between MMRs and third-party sponsors] that the Settlement took out of [the CSC’s] purview.” Class counsel cited the Settlement’s language and the district court’s orders as support, emphasizing that the intent of the Settlement was to narrowly target entities directly supporting a particular school’s athletics program (such as boosters or booster-led collectives).

In response, the defendants (i.e., the NCAA and the Power 5 conferences) opposed a categorical exemption of MMRs and third-party brand sponsors within the definition of Associated Entities or Individuals, arguing that the Settlement was carefully negotiated to allow for a fact-based assessment of whether certain specific entities, based on their particular conduct and relationship to the subject school’s athletics department, fit within the definition of this term. The defendants maintained that whether an MMR or brand sponsor qualified as an Associated Entity must depend on “the facts and circumstances of the entity’s activities” and that the “Settlement’s plain language does not contain an across-the-board carve-out for brand sponsors or MMRs.” Defendants also clarified that it was not their position that all MMRs were always Associated Entities or could never be Associated Entities, but that the “resolution of this issue [should be] committed to a record-based fact-finding arbitral process under the Settlement Agreement.”

In addition, the defendants underscored that disputes of this nature were expressly committed to expedited arbitration under the Settlement and that judicial intervention, by either the court or the Special Master, is not permitted, and any judicial intervention risks undermining the agreed dispute resolution framework. The defendants further contended that Class Counsel’s motion was an effort to circumvent the arbitrator’s authority under the Settlement.

The motion is currently pending before the Special Master, who will consider whether the court or an arbitrator should resolve such disputes and whether MMRs and brand sponsors should be categorically excluded from the definition of Associated Entities and Individuals going forward. Regardless of how Judge Cousins rules, the decision could face further review on appeal.

SUGGESTED GAME PLAN FOR SCHOOLS, ATHLETES, AND OTHER INDUSTRY PARTICIPANTS

The Playfly-University of Nebraska arbitration decision, coupled with the pending motion in In re College Athlete NIL Litigation, has significant implications for universities, student-athletes, and third-party market participants:

• Entities with substantial ties to universities and their athletic departments—including MMRs, boosters, and affiliated organizations—should closely assess their risk of being deemed Associated Entities under NCAA rules, as this triggers heightened scrutiny for NIL deals.
• All parties should ensure that NIL agreements with potential Associated Entities are structured to (1) promote the sale of goods and services to the public for profit, and (2) pay in line with market rates for athletes with comparable NIL value.
• Warehousing arrangements with Associated Entities, where rights are acquired in bulk for future, unspecified use, are likely to be disallowed under current NCAA rules.
• The outcome of the pending motion could significantly reshape the NIL regulatory environment. A ruling in class counsel’s favor may exempt MMRs and brand sponsors from CSC review, potentially reducing compliance burdens but also raising new questions about competitive balance and anti-circumvention. Meanwhile, a ruling that MMRs and brand sponsors may be Associated Entities is likely to embolden further CSC efforts to police third-party NIL deals with such parties.
• Until there is further clarity surrounding the definition of “Associated Entity or Individual” and the proper forum for dispute resolution, uncertainty will persist. Institutions and third parties should monitor developments closely and review their policies in light of the evolving legal landscape.

HOW WE CAN HELP

Our college sports team advises universities, collectives, sponsors, and other industry participants on NIL matters, NCAA compliance issues, athlete compensation frameworks, sponsorship arrangements, and related regulatory and litigation developments. We continue to monitor developments involving the Settlement, the CSC, and the evolving NIL landscape and are available to assist organizations in assessing and responding to these changes.