SB 206: Restrictions on the business of college athletics

On Sept. 30, 2019, Gov. Gavin Newsom signed Senate Bill 206, also known as the Fair Pay To Play Act. With the act, California became the first state to allow college athletes to hire sports agents and earn income from the use of their name, image or likeness. The law is set to go into effect on Jan. 1, 2023.

The act generally regulates three categories of participants in college athletics in California: (i) governing bodies (such as the NCAA or Pac-12 Conference); (ii) four-year colleges (including the University of California schools, California State University schools, and independent or private universities in California); and (iii) the student-athletes at those colleges. Two-year community colleges are generally exempt from the act's key provisions.

Under the act, the governing bodies with authority over college athletics cannot (i) prevent a student-athlete from receiving compensation for the use of their name, image or likeness (also known as "endorsement rights"); (ii) prevent a school from participating in intercollegiate athletics simply because the school allows its student-athletes to earn income from endorsements; (iii) prevent a student-athlete from hiring a sports agent or similar representation; or (iv) provide prospective student-athletes with compensation for their name, image or likeness.

Similarly, the act prohibits the regulated colleges from revoking a student-athlete's scholarship simply because they have received compensation from endorsements, or because they have hired a sports agent. The schools are also prohibited from establishing contracts that would prohibit their student athletes from receiving compensation for endorsements.

Finally, the act places some related limitations on the student-athletes themselves. Student-athletes are generally prohibited from entering into an endorsement contract that would conflict with their team contract. Student athletes must disclose to their school that they have entered into an endorsement contract. The school must then provide notice to the student-athlete if the school believes there is a conflict with the student athlete's team contract.

Before the bill was signed, the NCAA sent a letter to Newsom contending that the law was unconstitutional, signaling that it may be challenged on the basis that it impermissibly regulates interstate commerce. The letter also signaled that the NCAA was itself working on changing rules "for all student-athletes to appropriately use their name, image, and likeness," which could mean that the subject matter of the act will be covered by revised NCAA rules by the time it goes into effect.

Jonathan Faria is a litigation partner at Kirkland & Ellis, LLP. His practice includes sports-related antitrust litigation.