FTC Crackdown on TikTok Influencers Adds to NIL Pitfalls as Feds Join Fray
At a time when there is much hand-wringing over the NCAA’s passive approach to NIL enforcement and related saber-rattling over state NIL statutes and federal antitrust law, a legal comet could be headed for college sports in the form of administrative law.
The Federal Trade Commission recently proposed revised advertising guidelines to combat misleading marketing—including social media influencing. But the FTC’s vow to aggressively tackle “influencers who hide that they were paid to post” arrives while a federal appeals court has deemed a different federal agency’s ability to enforce rules unconstitutional.
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As is often with college sports and the law, there’s much to unpack.
The FTC’s endorsement guides, which were enacted in 1980 and amended in 2009, are due for an update, the agency announced on May 19. Accompanying the announcement was a 77-page notice detailing numerous recommended changes and inviting public comment. The guides are important since they interpret laws administered by the FTC, which can initiate proceedings against persons and businesses responsible for deceptive marketing.
Among the most relevant changes for college sports are those that concern influencers. Nearly 70% of NIL activities, Opendorse data indicates, consist of “posting content”—athletes are paid or otherwise compensated (such as through complimentary merchandise) to post about certain products, therefore influencing consumer choices. One way of persuading a consumer is by enlisting a person whom they admire to recommend a particular product or service.
The FTC proposes new language that would clearly “indicate that endorsers may be liable for their statements such as when they make representations that they know or should know to be deceptive.” The agency expects endorsers to research products and services they endorse, with an endorser’s initial “level of expertise and knowledge” one factor.
The agency stresses that even a “non-expert endorser” may be liable “when the endorser makes misleading or unsubstantiated representations about performance or efficacy that are inconsistent with the endorser’s personal experience.” The FTC also warns of liability for endorsers should they “fail to disclose unexpected material connections between themselves and an advertiser” or use the NIL of another person if doing so proves deceptive. The agency further expresses concern for younger users of social media, “where the lines” between ads and non-ads “are blurred” and where “influencers” should make clear they are “being paid to promote a product.”
In other words, an influencer ought to think twice about posting on Instagram or TikTok if they’re either unfamiliar with the products or services they’re praising, their praise doesn’t mesh with personal experiences or their messaging lacks transparency.
It’s not only athletes that should be mindful of the FTC; their business partners could also be liable. The FTC explicitly states that advertising agencies, public relations firms and other “intermediaries” will be held responsible for disseminating content that misleads consumers. Social media companies are warned of liability if their “tools for endorsers are inadequate.”
The FTC provides several illustrations of celebrities or wanna-be celebrities taking on legal duties. A golfer hired by a ball company to post a video on social media, a college esports player paid by a video game publisher to play and live stream its new game, and a tennis player paid to tout a health clinic on social media are three examples. Another example concerns a high-profile person telling consumers that a hot air roaster provides for a “perfect chicken every time,” when in reality, their own experience with the product was less favorable. The endorser is “subject to liability” for attempting to deceive.
The FTC’s announcement illuminates how NIL-related legal risks extend beyond state statutes, federal antitrust law, contract law and NCAA rules.
At the same time, the power of administrative agencies is under fire. On May 18, the U.S. Court of Appeals for the Fifth Circuit held that the Securities and Exchange Commission violated the Seventh Amendment’s right to a jury trial by relying on “in-house adjudication.” An SEC administrative law judge (ALJ) found that hedge fund manager George Jarkesy committed securities fraud.
Like the FTC, the SEC relies on ALJs, who are part of the federal government’s executive branch rather than the judicial branch, to conduct fact-finding, oversee disputes about discovery and evidence, interpret statutes and apply the law. An ALJC serves as both the judge and trier of fact, meaning there are no juries in the proceedings. Critics say this system sometimes makes it difficult for a citizen to get a fair shake, particularly since applicable standards for review of agency decision-making are deferential.
Fifth Circuit Judge Jennifer Walker Elrod opined the SEC “often acts as both prosecutor and judge, and its decisions have broad consequences for personal liberty and property.” She reasoned that SEC enforcement action “is akin to traditional actions at law to which the jury-trial right attaches” and does not “concern public rights alone.”
The ruling governs federal district courts in three states (Texas, Mississippi and Louisiana), and is persuasive authority elsewhere. Although neither the FTC nor other agencies were defendants, judges might find Judge Elrod’s reasoning convincing and use it against those agencies should opportunities surface. The SEC could petition the U.S. Supreme Court to review the case, though the Court’s conservative majority might be inclined to concur that agencies have become too powerful.
For college athletes and the schools and conferences overseeing them, changes in agency action and administrative law are worth watching.
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