Revenue sharing or restrictive employment? The hidden legal risks in college athletes’ NIL contracts

The House v. NCAA settlement—finalized in June 2025—was celebrated as a watershed moment for college athletes. For the first time, Division I schools could share revenue directly with their players, with an initial cap of approximately $20.5 million per school per year. For athletes who had long been generating enormous commercial value for their institutions without direct compensation, the settlement represented long-overdue recognition of their economic contributions.

But as the first full season under the new framework has played out, a more complicated picture has emerged. The real story is not just what athletes gained, but what they are being asked to give up in return—and whether the agreements schools are presenting them with contain provisions that could not survive legal scrutiny if challenged in court.

The Big Ten template: A “licensing agreement” in name only

In January 2025, Sportico obtained and reported on a revenue-sharing memorandum of understanding (MOU) used by a Big Ten institution, with multiple attorneys familiar with such agreements confirming the language was consistent across the conference. The Big Ten had developed a template that its member schools were deploying to onboard athletes into the new revenue-sharing system.

The document is formally framed as an intellectual property transaction: at its core, the MOU is a licensing agreement in which the school purchases a license to use the athlete’s NIL and the associated right to sublicense the athlete’s NIL to third parties. The breadth of what is licensed is sweeping. The main NIL concession covers an athlete’s “name, nickname, pseudonym, voice, signature, caricature, likeness, image, picture, portrait, quotes, statements, writings, identifiable biographical information, other identifiable features, and any other indicia of personal identity”—including jersey number and social media handles. Those rights can be sublicensed to the Big Ten, NCAA, or any other third party, including agents and multi-media rights holders, and continue after an athlete is no longer at the school.

Framing this as a licensing arrangement has a certain institutional logic. Schools are walking a tightrope: they need enforceable IP rights and performance obligations, while simultaneously trying to avoid any characterization of the deal as an employment relationship. The MOU aggressively attempts to extinguish the prospect of an athlete arguing the deal reflects an employment agreement, with one clause bluntly coined “No Employment,” stating the MOU “does not create a fiduciary relationship” and that the athlete “waives,” “forever discharges,” and agrees “not to sue” the school, NCAA, or conference on the basis of employee status.

Sports attorney Darren Heitner, the country’s leading NIL practitioner, identified the central contradiction in this approach. As Heitner observed publicly, Wisconsin was simultaneously treating its NIL agreement as an employment contract in practice while concurrently seeking to establish that the agreement did not create a fiduciary relationship between the parties. ESPN’s reporting on similar agreements across multiple conferences found the same tension. Multiple contracts from Big 12 schools prohibit the athlete from taking a redshirt year “without the consent of the coaching staff” or from sitting out any game “including postseason competition” when cleared to participate by medical and coaching staff—making it clear, as Heitner told ESPN, that athletes are being paid to play or could suffer financial consequences for failure to play.

The sublicensing problem: Conflicts with independent NIL deals

One of the most consequential—and underappreciated—issues embedded in the Big Ten template is the sublicensing provision. Under the MOU, the school holds the right to sublicense the athlete’s NIL to “any and all third parties.” Athletes are expressly permitted to continue entering their own independent NIL deals, but those arrangements must comply with the revenue-sharing MOU.

This creates a direct tension with an athlete’s independent commercial activity. An endorsement deal with an athletic apparel brand could collide head-on with a school’s sublicense to a competing conference apparel sponsor—without the athlete having any meaningful say in how that conflict is resolved and without receiving additional compensation when their NIL is being commercially exploited through the institutional sublicense.

The athlete accepts they do not gain a right to royalties or additional payments in the event of a sublicense. This is an extraordinary commercial concession. Irrevocable, sublicensable licenses in intellectual property law carry well-understood implications: when an athlete signs away sublicensable rights on an irrevocable basis, they effectively cede meaningful control over the most personal form of intellectual property—their own identity—to an institutional licensee who can then put those rights into play across a web of third-party commercial relationships the athlete never directly approved.

What a licensing agreement should not look like: The restrictive covenant problem

The deeper legal problem with these agreements is that they are not really licensing deals in any functional sense. They are employment-style contracts wearing licensing agreement’s clothes—and the clothing does not quite fit.

The tell is in the “representations, warranties, and covenants” section. The Big Ten MOU establishes a set of representations, warranties, and covenants that includes the seemingly contradictory promise that the athlete “will not make any similar commitment to enroll at and/or compete in athletics for another college or university.” Read plainly, that is a non-compete clause. It restricts the athlete’s ability to use their labor—and implicitly their NIL—at a competing institution.

The financial consequences of violating these provisions further reveal their true nature. The MOU includes language saying schools will be reimbursed for some revenue already paid should an athlete transfer to a different school—or even enter the transfer portal.

Real-world litigation has now put these provisions to the test. The University of Georgia, through its athletic association, sued former football player Damon Wilson II, seeking $390,000 in liquidated damages after he transferred to Missouri following the 2024 season. Duke University sought to enforce its reported $7.5 million, two-year agreement with quarterback Darian Mensah to prevent him from playing for any other school in 2026, with the matter ultimately resolved through settlement after a court declined to issue a temporary restraining order.

The Georgia case squarely presents the question of whether the $390,000 figure represents a legitimate, good-faith estimate of the collective’s anticipated losses—or whether it crosses the line into an unenforceable penalty.

Liquidated damages vs. penalty clauses: Why the distinction matters

Under well-established contract law principles, liquidated damages clauses are enforceable only when two conditions are met: (1) actual damages from a breach were difficult to ascertain at the time of contracting, and (2) the stipulated amount represents a reasonable pre-estimate of likely harm. When a liquidated damages clause fails either prong—particularly when the stated amount is disproportionate to any plausible actual loss—courts will strike it as an unenforceable penalty clause.

A judicial decision upholding a school’s position could rapidly accelerate the adoption of buyout provisions across NIL contracts and fundamentally reshape the architecture of athlete compensation and mobility. At the same time, if a court concludes that the amount is disproportionate, punitive, or untethered to any measurable loss, the clause could be struck down as an impermissible penalty—a ruling that could have an immediate effect on NIL and revenue share agreements across the country.

The argument that these clauses are punitive is not frivolous. Consider what happens when a quarterback announces a transfer days after signing a multi-million-dollar deal. The “damage” the school suffered is difficult to quantify. Its commercial sublicense arrangements almost certainly remain intact. Any argument that it suffered the full liquidated sum in actual, measurable harm over a matter of days is difficult to sustain. What the school is really trying to protect is roster stability—a legitimate interest, to be sure, but one that sounds in employment law and labor economics, not IP licensing.

Applying the restrictive covenant framework

Our firm has deep experience advising clients in restrictive covenant matters across a range of industries—including non-compete agreements, non-solicitation provisions, and related covenants. The analytical framework courts apply to those agreements maps directly onto the NIL revenue-sharing context, and the implications for schools relying on conference-wide templates are significant.

Courts evaluating restrictive covenants ask three fundamental questions:

First, is there a legitimate business interest justifying the restriction?

Institutions will argue that their investment in recruiting, facilities, coaching, and the development of an athlete’s commercial NIL profile constitutes a protectable interest. That argument has surface appeal, but courts will scrutinize whether what is really being protected is closer to a raw interest in controlling labor—which has historically not been sufficient to support a restrictive covenant.

Second, is the restriction reasonable in scope?

Restrictive covenants must be narrowly tailored across three dimensions: the type of restricted activity, geographic scope, and duration. The Big Ten template’s prohibition on committing to compete “for another college or university” is extraordinarily broad. It does not restrict specific commercial activity—it restricts an athlete’s choice of educational institution and athletic participation. There is no meaningful geographic limitation (it covers the entire national college athletics marketplace), and duration spans the length of a multi-year agreement. These are not the hallmarks of a carefully tailored restrictive covenant.

Third, is enforcement reasonable relative to the burden on the restricted party?

Courts balance the burden imposed on the restricted party against the benefit to the party seeking enforcement. The burden on college athletes is substantial: these are young people, often 18 to 22 years old, facing potentially six-figure liquidated damages obligations, loss of competitive opportunities, and constraints on educational choices. The power imbalance between an institution with full-time legal counsel drafting the template and a recruit being handed the agreement during the recruiting process is significant—and courts in many jurisdictions consider whether a covenant was presented as a take-it-or-leave-it proposition. Additionally, many state legislatures have moved in recent years to limit the enforceability of non-compete agreements, and an agreement drafted to a conference-wide template standard is unlikely to reflect the specific statutory requirements of every state in which a school’s athletes may reside.

The employment question lurking beneath the surface

All of these issues connect back to a threshold question the NIL revenue-sharing structure has deliberately tried to avoid: are college athletes employees?

That question remains actively litigated in Johnson v. NCAA, pending in the Eastern District of Pennsylvania. The provisions examined here—with performance requirements, participation mandates, and coaching-staff-consent clauses—provide substantial fodder for the argument that athletes are functionally employees. If a court eventually reaches that conclusion, the “No Employment” waiver clauses will almost certainly be unenforceable as attempts to contract around a legal status determined by objective facts, not the parties’ recitals. As Heitner told ESPN, judges would be unlikely to uphold “scare tactics” that compel athletes to sign away their right to be recognized as employees.

The contracts themselves attempt to hedge this risk by including provisions stipulating that if an employment relationship is ever found, the revenue-sharing payments would count as satisfaction of any employment obligations. As one commentator observed, that approach amounts to “talking out of both sides of your mouth.”

What athletes and their representatives should be doing

The practical takeaway is that athletes signing revenue-sharing agreements—particularly under conference-wide templates—need experienced legal counsel before putting pen to paper. Several areas warrant close attention in any review:

• The scope of the NIL license deserves careful scrutiny, including its irrevocability and the breadth of sublicensing rights. Athletes with existing or anticipated endorsement relationships should identify potential conflicts before signing.
• Transfer and portal restrictions should be assessed against NCAA bylaws, applicable state law, and general enforceability principles. Heitner has argued that allowing schools to use NIL contracts to circumvent NCAA bylaws could undermine the entire transfer portal system—a position that courts may ultimately credit.
• Liquidated damages clauses should be measured against the reasonable pre-estimate standard. Where the amounts are disproportionate to any plausible actual harm, athletes have colorable arguments that those provisions are unenforceable penalties.
• “No Employment” waivers should be reviewed in light of ongoing employment status litigation. Waivers obtained through standard form agreements, without individualized negotiation, may receive heightened scrutiny if employment status is ever litigated directly.

Conclusion

The House settlement opened a new chapter in college sports. But the fine print of that chapter may prove as consequential as its headline. Framing an agreement as a “licensing” arrangement does not transform its operative provisions. When those provisions restrict an athlete’s mobility, impose disproportionate financial penalties for departure, grant sweeping irrevocable rights over a young person’s personal identity, and simultaneously claim not to create an employment relationship, the label and the substance diverge sharply.

Courts applying well-established principles of contract law, restrictive covenant analysis, and employment law will ultimately work through that divergence. The Georgia and Mensah cases are only the beginning. Athletes and their representatives who understand what these agreements actually say—and have qualified legal counsel at the table—will be far better positioned when that reckoning arrives.

McDonald Hopkins represents clients across the full spectrum of employment and restrictive covenant law, as well as in sports-related transactions and disputes. For questions about NIL agreements, restrictive covenant enforceability, or related matters, please contact attorney Mitchell Capp . As always, McDonald Hopkins continues to monitor these developments closely.