The NCAA and the recognized Power 5 Conferences (the ACC, Big Ten, Big 12, Pac-12 and the SEC) and the athletes represented as part of the multiple class action antitrust litigations (House, Hubbard and Carter) have filed a motion for preliminary approval of their more than 100- page proposed settlement agreement with the U.S. District Court for the Northern District of California in an effort to finalize the resolution and settlement of three of the outstanding class action antitrust lawsuits that have been filed against the NCAA.
Background Facts
The financial terms of the settlement of these three actions have already been negotiated and were preliminarily resolved in a term sheet agreed to in May requiring the NCAA and its member schools to pay approximately $2.8 billion in equal annual installments of approximately $280 million a year for the next ten years. Of particular interest, the settlement payments will not be shared equally among the class action members. It is anticipated that football players will receive about 75% of the annual payments, with men’s and women’s basketball players receiving about 20% and the remaining 5% being shared by all other athletes.
In addition, it is interesting to note who will be making these specific damage award payments. Although these three actions only named the NCAA and the Power 5 conferences as defendants – and about 90% of the backpay settlement amount will be paid to former Power 5 athletes – it is currently expected that a significantly larger portion of these payments will be made by the non-power conferences that were not named as defendants in any of these class actions. Specifically, it is expected that the 27 non-power conferences will pay about $990 million of the settlement amount, with the Power 5 schools only contributing about $664 million of the total and the NCAA absorbing the remainder.
The Settlement
While the NCAA and its members have spent years and millions of dollars in legal fees to avoid judicial and congressional intervention into their affairs, the NCAA has now submitted a proposed settlement document to the Northern District Court of California for the review and approval by Federal District Court Judge Claudia Wilken. Judge Wilken, an experienced jurist in NCAA matters, having served as the presiding judge in the Ed O’Bannon and Shawne Alston matters, will review the settlement terms and decide whether to accept the negotiated written terms or to potentially revise and modify the proposed “new way” of doing business.
The settlement addresses three primary issues:
- On a look-back basis-payment of back damages for claims relating to name, image and likeness (NIL), academic-related awards and other benefits;
- On a go forward basis-increased revenue sharing from institutions to future student-athletes on a prospective basis, including additional NIL opportunities for student-athletes directly with the institution; and
- Eliminating scholarships limits in favor of expanded, full roster eligibility.
Another major proposed change is the parties’ agreement to create a new arbitration-based enforcement system to be overseen by the judicial system, replacing the NCAA in this enforcement role.
Highlights of the Proposed Settlement Submission
- The settlement allows the Power 5 members (and other Division I schools that choose to participate in the new structure) to provide increased benefits to student-athletes in an athlete-pay model. If this model is approved by Judge Wilken, it will allow schools to provide up to 22% of the average sports revenue from the sale of media rights, ticket sales, and sponsorship revenue to student-athletes, starting in the 2025-26 academic year. Each individual school would be able to pay their athletes up to an initial cap of about $21 million. This initial capped amount is for all athletes and each school will possess complete discretion for allocation of the distribution. The initial $21 million limitation will have mandatory annual growth during the ten-year period, which according to the NCAA could result in student-athletes receiving $1.5 billion to $2 billion in new benefits annually.
- Under the new model, colleges will be able pay student-athletes directly for their NIL rights. However, any NIL payments made by a school to one of their athletes would apply toward the 22% revenue sharing cap.
- Student-athletes may continue to enter into NIL agreements on their own with outside individuals or corporate partners. These NIL payments with outside third parties would not apply toward the 22% cap but any agreement in excess of $600 must be disclosed to a designated clearinghouse for review to ensure they are legitimate, fair market value agreements and not used for pay-for-play. If the clearinghouse concludes that the proposed NIL deal does not satisfy the necessary requirements to be an NIL deal, including fair market value of the deal, the current settlement language proposes an arbitration system, where an arbitrator approved by both parties would issue a finding and award relating to the proposed NIL deal. The establishment of a clearinghouse for NIL payments over $600 would give institutions access to information about external NIL activities, providing a level of transparency that does not currently exist to allow for better management of third-party influence and better assurance of legitimate NIL activity.
- Lastly, scholarship limits will be eliminated in all sports, and roster limits will be established. For example, football roster limits are now expected to rise from 85 to 105 players, with other sports such as baseball increasing from a prior scholarship limit of 11.7 to a new roster limit of 34. Colleges will have the discretion to offer partial or full scholarships to all their athletes, provided they do not exceed the roster limits. This change will allow schools to provide additional scholarships to more student-athletes than are currently available.
Legal Issues Remain
The potential settlement agreement, if approved by Judge Wilken, will still leave numerous legal issues open and outstanding for the NCAA. While it is likely that Judge Wilken will take several months to review and assess the proposed settlement language, her action or inaction with regard to the terms could still be appealed to the U. S. Court of Appeals for the Ninth Circuit, and may even lead to a potential return to the Supreme Court for the NCAA. In addition, the proposed settlement will not stop potential claims from future athletes and others who opt out of the settlement, and it also fails to cover and insulate the NCAA from the remaining antitrust lawsuits still pending against the NCAA.
The proposed settlement also does not address the remaining legal issues facing the NCAA in other areas of law, including the potential employee status of athletes. For example, two current matters involving the National Labor Relations Board and a judicial interpretation of the Fair Labor Standards Act remain regarding the potential employee status of athletes. If the NLRB concludes in the appeal of the initial regional determination that the members of the Dartmouth College men’s basketball case are employees within the definition of the National Labor Relations Act, and if it concludes that football players and men’s and women’s basketball players at USC are employees, the issue of athletes unionizing will remain front and center. In addition, the potential outcome of the Johnson v. NCAA case could also result in a finding that athletes are employees under the terms of the Fair Labor Standards Act, allowing the athletes to seek compensation for their athletic efforts, including potential overtime eligibility.
The final area of potential dispute and litigation involves Title IX. While it is possible that certain payments could be considered outside the limits of Title IX, other payments could be considered within the purview of Title IX and result in men’s and women’s athletes needing to be paid equitably. Unfortunately, without legislative assistance, the potential issues relating to potential Title IX application will result in significant and costly further NCAA litigation.
