NIL and NFTs Collide: LSU’s Expeditious Embrace

by Marina M. Speligene

Introduction

Name, image, and likeness (NIL) rights and non-fungible tokens (NFTs) are two separate but related topics that have attracted a great deal of attention in the last year, especially in the world of collegiate and professional athletics. Collegiate sports first witnessed the collision of these ostensibly distinct concepts following a June 30, 2021, National Collegiate Athletic Association (NCAA) decision that opened the door for student-athletes to take advantage of name, image, and likeness opportunities—business ventures that would have previously stripped them of their NCAA eligibility.[1] The NCAA’s new policy instructs that all NIL activity be consistent with the law of the state where the college is located or, in the absence or interim of operative state law, the school’s NIL policy.[2] As of today, more than half of states have enacted NIL laws, Louisiana included.[3]

A basic understanding of what constitutes an NFT is most easily achieved through examining the words forming the acronym in isolation: a “token” that is “non-fungible.” Something non-fungible is not interchangeable or replaceable because it is entirely unique or of one kind.[4] For example, while a $1 dollar bill is fungible and can be traded for another $1 dollar bill, a Jackie Robinson baseball trading card is non-fungible—trading it for another card necessarily results in acquiring something markedly different.[5]

“Tokens” reside on “blockchains,” which are publicly accessible, transparent databases that permanently record and timestamp transactions.[6] Although blockchain technology is similarly employed to power cryptocurrencies such as Bitcoin, NFTs are not a currency—they are each one-of-a-kind, limited in supply.[7] The value of an NFT is derived from the scarcity resulting from the generation of a “digitally unique record authenticating ownership of a particular version of a digital work.”[8] To summarize, NFTs are digital assets—backed by blockchain technology to warrant their authenticity—that are sold, purchased (using a recognized cryptocurrency such as Ethereum[9]), and traded on digital platforms.[10]

As to its functionality in the sports realm, NFTs are analogous to modern-day collectibles.[11] NFTs tokenize digital assets, which, for NIL purposes, can include sports collectibles like trading cards and other pieces of licensed merchandise.[12] The move to digitalization by virtue of blockchain technology allows for these digital assets to be easily verified, owned, and traded.[13] In terms of college athletics and NIL, NFT platform RECUR announced the launch of NFTU.com in September, describing it as “a digital marketplace for collegiate sports collectibles.”[14] Athletes are expected to use this virtual arena to auction off digital assets such as highlight videos, jerseys, signed cards, and other related digital tokens.[15] Until recently, the NCAA’s amateurism rules guaranteed the NCAA and its member institutions exclusive receipt of royalties derived from the sale and licensing of products including video games, photographs, replica jerseys, and rebroadcasts of games using the NIL of current and former student-athletes.[16] Today, NFTs represent an innovative marketing opportunity for these athletes to capitalize on their NIL rights.[17]

I. Tigers’ Rip-Roaring Response

On June 30, 2021, one day before the first wave of state NIL laws—including Louisiana’s—were set to take effect, LSU hinted at the forthcoming NIL era on a Times Square billboard, which broadcasted highlights of LSU student-athletes before revealing the teaser: “NILSU: What’s the Deal?”[18] The following day, the same Times Square billboard streamed a lengthier, narrated video instead—one that highlighted the program’s accomplishments across all sports.[19] The rollout of NILSU on one of world’s busiest intersections conveyed a message that spoke volumes.[20] LSU’s enthusiastic embrace of the changes accompanying the NIL era of collegiate sports set the tone for the new frontier.[21]

In September, LSU joined RECUR’s NFTU program, becoming one of the “first . . . colleges [to] enter[] into the NFT arena meaningfully.”[22] This partnership will allow LSU athletes to sell digital assets (i.e., NFTs) to fans and maintain a virtual locker-room of their collectibles.[23] Director of LSU Trademark Licensing, Brian Hommel, elaborated:

As the NFT and NIL spaces have continued to evolve, we have been doing our due diligence to identify best in class partners and solutions to maximize these opportunities and experiences for Tiger Nation. We believe RECUR is well positioned to mint compelling NFTs that LSU fans will enjoy collecting.[24]

LSU once again revealed its forward-thinking approach when the school engaged the most recent tool empowering students to maximize their NIL: group licensing.[25] In November, the Tigers partnered with The Brandr Group (TBG), the leading agency in college group licensing, opening a world of opportunities for players to utilize LSU Athletics’ marks in the NIL space.[26] The partnership grants licensees and sponsors dual access to player attributes—their NIL, signatures, numbers, stats, and other identifiable features—and LSU’s intellectual property—including official branding, trademarks, and logos.[27] Athletes who opt into the group licensing agreement thwart the restrictions imposed by Louisiana’s NIL law regarding the use of LSU’s logos, marks, colors, and other indicia in connection with the use of the athlete’s NIL in individual deals.[28] LSU and TBG’s agreement allows athletes to retain the right to enter into individual deals on their own, while still providing them with the passive income streams related to group deals.[29]

The Brandr Group and RECUR have also partnered with each other, expanding the opportunities for LSU student-athletes even further.[30] LSU athletes now have the ability to profit off of their NIL in conjunction with college branding for NFTs launched through NFTU.com.[31]

Power forward Shareef O’Neal became the first LSU player to utilize NFTs in commercializing his NIL rights. In December, he signed a long-term NIL deal with NFT Genius to release a series of NFTs chronicling his junior season at LSU and his personal life as part of NFT Genius’ BALLERZ collection.[32] The first NFTs of O’Neal’s collection dropped on December 13, 2021, and sold out within hours of the collection’s launch.[33]

II. Will NFTs’ Downsides Lead to Their Downfall?

Although the NFT industry continues to generate enthusiasm, there are significant legal issues and other concerns that remain unsettled. From a technological standpoint, for instance, there is concern that if the server hosting the digital asset represented by the NFT fails or is otherwise disconnected, or if the digital asset itself is erased, the data link indicating where the NFT is stored will break.[34] In these situations, the NFT would no longer be associated with the digital asset, rendering the remaining NFT worthless.[35] Although not likely to be as common in the NIL sports realm, a similar result may occur when an underlying physical asset represented by an NFT is either lost, stolen, or destroyed.[36] If these concerns are valid, a purchaser of an NFT may be without recourse due to the token’s uniqueness and irreplaceability.[37]

From a legal standpoint, one of the most crucial issues involves the nuance of NFT ownership.[38] While the purchaser of an NFT buys, and subsequently owns, the token, owning an NFT is separate and distinct from ownership of the underlying asset itself.[39] Thus, a buyer of an NFT does not, as a matter of course, also purchase the copyright in that NFT.[40] Oftentimes the copyright will remain with the NFT creator.[41] In these instances, an NFT buyer is limited to the right to display the NFT and to sell it.[42] The use and value of any NFT, then, is entirely dependent on the intellectual-property rights granted to a buyer.[43]

Another issue associated with NFTs is the ever-present risk of fraud. Counterfeit NFTs have already emerged in the digital marketplace, where imposters are posing as celebrities, minting[44] NFTs that are not their own, and then selling them.[45] Certainly, this risk is not unique to A-list celebrities and has the potential to considerably affect athletes who are attempting to capitalize on their NIL. Although blockchain technology is to credit for an NFTs value, it is the anonymity of blockchain that puts the NFT industry at perpetual risk of fraud.[46]

Conclusion

The emergence of the NFT industry offers a revenue stream for individuals, particularly high-profile persons, that had previously not existed.[47] Paired with the latest NCAA policy, NFTs are expanding the opportunities that collegiate athletes have to capitalize on their NIL rights through the auctioning of digital collectibles. LSU’s forward-thinking approach to the developing NIL and NFT industries is helping to maximize NIL opportunities for LSU student-athletes. While NFTs continue to be celebrated as a new source of profit and entertainment, the legal issues they pose are significant and should not be overlooked.

[1] Dan Murphy, NCAA Name, Image and Likeness FAQ: What the Rule Changes Mean for the Athletes, Schools and More, ESPN (June 30, 2021), https://www.espn.com/college-sports/story/_/id/31740112/rule-changes-mean-athletes-schools-more [https://perma.cc/AE62-BTME].

[2] Michelle Brutlag Hosick, NCAA Adopts Interim Name, Image and Likeness Policy, ESPN (June 30, 2021), https://www.ncaa.org/about/resources/media-center/news/ncaa-adopts-interim-name-image-and-likeness-policy [https://perma.cc/4U2C-3L7V].

[3] See Liz Clarke, State-by-state Rating System Gives College Recruits Road Map to Evaluate NIL Laws, Wash. Post (Oct. 21, 2021, 12:34 PM), https://www.washingtonpost.com/sports/2021/10/21/name-image-likeness-laws-state-rankings/ [https://perma.cc/YE3J-RX84]; see also La. Rev. Stat. §§ 17:3701–3703 (2021).

[4] Julian Pipolo, NFTs and the Law: What Do I Actually Own?, Law Tech. Today (June 21, 2021), https://www.lawtechnologytoday.org/2021/06/nfts-and-the-law-what-do-i-actually-own/ [https://perma.cc/9Z73-N5Y7].

[5] Gary P. Kohn, NFTS and the Law, L.A. Law., Nov. 2021, at 18, 20, https://lalawyer.advanced-pub.com/?issueID=30&pageID=21 [https://perma.cc/7GMV-TM9R].

[6] Id.

[7] Id.

[8] What Are the Legal Issues Concerning Non-Fungible Tokens (NFTs)?, Boodle Hatfield: Art Law & More (July 8, 2021), https://artlawandmore.com/2021/07/08/what-are-the-legal-issues-concerning-non-fungible-tokens-nfts/ [https://perma.cc/TZ79-SR7J].

[9] Kohn, supra note 5, at 20 (“NFT purchases are paid for in ‘crypto-currency’. . . While the most popular crypto-currency today is Bitcoin, NFT transactions primarily involve the transfer of Ether crypto-currency. Following the closing of an NFT transaction, the seller may choose to convert the transferred Ether to ‘fiat’ currency, which would be the applicable legal tender issued and backed by a government (e.g., US dollars).”).

[10] Jeremy M. Evans, A Primer on Digitalizing Sports Collectibles, L.A. Law., Nov. 2021, at 10, 10 https://lalawyer.advanced-pub.com/?issueID=30&pageID=12 [https://perma.cc/7GMV-TM9R].

[11] NFT’s in College Sports (And the Impact They’re Having on NIL), College Athlete Insight, https://collegeathleteinsight.com/nfts-in-college-sports/ [https://perma.cc/YGH8-7B4F] (last visited Jan. 30, 2022).

[12] Evans, supra note 10, at 11.

[13] Id.

[14] NFT’s in College Sports, supra note 11. NFTU is expected to launch in March 2022.

[15] Id.

[16] Ben Natter, Marketing NIL Rights in an NFT World, Who’s Who Legal (July 30, 2021), https://whoswholegal.com/features/marketing-nil-rights-in-an-nft-world [https://perma.cc/65DR-HZWQ].

[17] Id.

[18] Shea Dixon, LSU Takes Vver Times Square on NIL Day, 247 Sports (July 1, 2021), https://247sports.com/college/lsu/Article/LSU-Tigers-football-billboard-Times-Square-NIL-Name-Image-Likeness-July-2021-167274740/ [https://perma.cc/Q9HP-MST8].

[19] Id.

[20] Id.

[21] Id.

[22] RECUR Announces Partnerships with Louisiana State University, Syracuse University and BrandR Group for new Collegiate NFT Marketplace, NFTU, Bus. Wire (Sept. 23, 2021, 10:00 AM), https://www.businesswire.com/news/home/20210923005318/en/RECUR-Announces-Partnerships-with-Louisiana-State-University-Syracuse-University-and-BrandR-Group-for-new-Collegiate-NFT-Marketplace-NFTU [https://perma.cc/65LK-LWAD] [hereinafter RECUR Announces].

[23] NFT’s in College Sports, supra note 11.

[24] RECUR Announces, supra note 22.

[25] Cody Worsham, NILSU 2.0: Real Deals, LSU (Nov. 17, 2021, 7:00 AM), https://lsusports.net/news/2021/11/17/nilsu-real-deals-nil-education-lsu-brand/ [https://perma.cc/5TJH-PNG2].

[26] RECUR Announces, supra note 22.

[27] Worsham, supra note 25.

[28] La. Rev. Stat. § 17:3703(E)(3) (2021) provides, in part: “An intercollegiate athlete shall not use a postsecondary education institution’s facilities, uniforms, registered trademarks, products protected by copyright, or official logos, marks, colors, or other indicia in connection with the use of the athlete’s name, image, or likeness without the express permission of the postsecondary education institution.”

[29] Worsham, supra note 25.

[30] RECUR Announces, supra note 22.

[31] Id.

[32] Kristi Dosh, Shareef O’Neal Signs Long-Term NIL Deal With NFT Genius, Forbes (Dec. 6, 2021, 9:00 AM), https://www.forbes.com/sites/kristidosh/2021/12/06/shareef-oneal-signs-long-term-nil-deal-with-nft-genius/?sh=17f0391c3535 [https://perma.cc/K5GW-LBN9].

[33] See NFT Genius (@GeniusNFT), Twitter (Dec. 13, 2021, 1:48 PM), https://twitter.com/GeniusNFT/status/1470480658216767497 [https://perma.cc/ZV48-78FM]; NFT Genius (@GeniusNFT), Twitter (Dec. 13, 2021, 6:28 PM), https://twitter.com/GeniusNFT/status/1470551195924287491 [https://perma.cc/3MDB-D66X].

[34] Kohn, supra note 5, at 21.

[35] Id.

[36] Katherine Roe, Chris Whittaker, Dan Jewell & Scott Thiel, Non-fungible Tokens: What Are the Legal Risks?, DLA Piper (Oct. 18, 2021), https://www.dlapiper.com/en/us/insights/publications/2021/09/non-fungible-tokens-what-are-the-legal-risks/ [https://perma.cc/798S-7V8D].

[37] Kohn, supra note 5, at 21.

[38] Id.

[39] Roe, Whittaker, Jewell & Thiel, supra note 36.

[40] Kohn, supra note 5, at 21.

[41] Roe, Whittaker, Jewell & Thiel, supra note 36.

[42] Kohn, supra note 5, at 21.

[43] NFTs: Key U.S. Legal Considerations for an Emerging Asset Class, Jones Day (Apr. 2021), https://www.jonesday.com/en/insights/2021/04/nfts-key-us-legal-considerations-for-an-emerging-asset-class [https://perma.cc/6T7R-NMYP].

[44] When you “mint” an NFT, the digital asset becomes part of the blockchain.

[45] Kohn, supra note 5, at 21.

[46] Roe, Whittaker, Jewell & Thiel, supra note 36.

[47] Kohn, supra note 5, at 21.