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NIL and Bankruptcy

posted by Adam Levitin

Bankruptcy lawyers are familiar enough with issues presented but NOLs. And NILs (name, image, likeness rights) have existed for as long as the modern Bankruptcy Code. But those rights have usually come up in the context of debtors with established, valuable brands (e.g., Mike Tyson). Now college atheletes can enter into NIL deals, and for many of them the value isn't yet established and there might not even be licensing deals yet. That situation poses the question of to what extent unlicensed NIL rights are property of the bankruptcy estate, and not of the debtor?

Section 541 of the Bankruptcy Code provides that all of the debtor's legal and equitable rights in property as of the commencement of the case are property of the estate, although certain (relatively limited) property is then exempt under section 522. Property of the estate status is important because that is the pot of assets that is available in a Chapter 7 bankruptcy to pay creditors. If there aren't enough assets to pay all the creditors in full, then the debtor doesn't get to keep any of the assets. So how does NIL fit in with this?

If the debtor has an NIL licensing deal in place at the time of the bankruptcy filing, that licensing deal is clearly property of the estate under section 541. That's easy. 

But what about the underlying NIL rights themselves if there is no license in place covering them? Or about the rights after the expiry of any license (the reversionary interest)? Are those "property" for purposes of section 541?

If the NIL rights are property of the estate, then the bankruptcy estate would own the right to license the debtor's name, image, and likeness, or at least, the debtor's name, image, and likeness as it stood at the petition date. Thus, an image of the debtor catching a touchdown the day before the petition might be property of the estate, but an image of the debtor catching a touchdown the day after the petition might remain property of the debtor.

I'm fairly confident that at least some NIL rights are "property" for purposes of section 541, even if they haven't been monetized via a licensing deal. Certainly an image or likeness would be:  imagine that Marilyn Monroe owned the rights to a famous photograph of herself when she filed for bankruptcy. The rights to that photo--including reproducing it--would undoubtedly be property of the estate. And that would apply also to less famous photos to which she owned the rights, including from her childhood. In most cases the rights would be abandoned by the estate under section 554 as of inconsequential value, but the default would be that they are all property of the estate. 

The same goes with the name. Names can be trademarked, meaning it can be property, and hence property of the estate. When a debtor is using a name for business purposes, then that would seem to be property of the estate, and it would be abandoned if it isn't valuable (sorry to all the John Does). But what makes me hesitate here is how to differentiate between the name at the time of the bankruptcy filing and the name postpetition. Shilo Sander's name at the time of bankruptcy would be property of the estate. But the estate surely cannot prevent him from using the name himself. The question is whether the estate could have a claim on revenue from the name that arises postpetition on the grounds that it is proceeds of the prepetition name. Certainly if Sanders signed a NIL deal the day after the bankruptcy, the value in the name should all go to the estate. But if he signs one five years hence? Does it depend on how much of his name's value arose prepetition? I really don't know how to resolve this question.

In any event, to the extent that NIL rights are property of the estate, if they were to be distributed to creditors, they would either have to be liquidated or valued...or they could be addressed with the favorite bankruptcy put—a trust:  stick the NIL rights into a trust and give creditors beneficial interests in the trust, with a reversionary interest to the debtor once the creditors have been paid in full (with post-petition interest).  That might mean that the debtor can never make money monetizing his NIL in the future...or if the name is really valuable, then creditors will be paid off and the funds will go back to the debtor.

Professional athletes seem to have a greater propensity for bankruptcy filing than other folks, so I suspect that we'll start to see more caselaw on this going forward. 

Comments

Melissa Jacoby and Diane Zimmerman have an article about publicity rights, foreclosure, and bankruptcy in the NYU L. Rev. here: https://www.nyulawreview.org/issues/volume-77-number-5/foreclosing-on-fame-exploring-the-uncharted-boundaries-of-the-right-of-publicity/

Not exactly the same as NIL but close.

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