The House Settlement: What It Means for Intercollegiate Sports and Mid-Atlantic Universities
A new era of revenue sharing payments to college athletes dawns for mid-Atlantic universities
About Alexandria welcomes Chuck Finke as a guest contributor.
Chuck retired as Deputy General Counsel of the Pension Benefit Guarantee Corporation in September 2201 after a distinguished legal career.
A native of Scottsbluff, Nebraska, Chuck is a graduate of the University of Nebraska, the University of Nebraska College of Law (J.D. 1979), and Columbia Law School (L.L.M 1984).
An insightful observer, Chuck brings a special understanding to the recent dramatic changes in college sports.
College sports fans are likely aware that the governing body of major college athletics, the National Collegiate Athletic Association, has settled cases brought by many current and former college athletes challenging NCAA rules that limited the ability of athletes to receive payments while playing their sport in college and seeking damages.
The lawsuits sought tens of billions of dollars in damages from the NCAA and the major athletic conferences. On June 6, after several years of litigation and settlement discussions, the NCAA and the major college conferences obtained court approval of a settlement in a case called House v. NCAA.
No one can say with any certainty exactly how the House settlement will affect college athletics, but nearly everyone—college athletic directors and coaches, athletes, journalists, and fans—agree the changes will be profound.
Background
Historically, intercollegiate sports were played by student athletes who were considered amateurs. Beyond scholarships that paid for tuition, room, and board, payment of money or goods by the school or the school’s boosters was prohibited. As major college sports got bigger, the television dollars being paid to schools grew very large and coaches earned millions of dollars annually. Repeated demands called for the students performing the money-making activities to receive a share of that revenue. The NCAA resisted, and lawsuits proliferated.
In the Alston case, the Supreme Court ruled on antitrust grounds that the NCAA could not prohibit student athletes from receiving payments for the use of their name, image, and likeness. Thus began a new era where student athletes were receiving payments from third parties for use of their name, image and likeness (called NIL payments). As a result of other suits, the NCAA agreed that it could not prohibit students from transferring from one school to another with immediate eligibility. The NCAA established a “portal” into which students wishing to transfer could put their names, so other schools could contact them.
Here is an NIL commercial in which Decoldest Crawford, a Nebraska football player, promotes SOS Heating and Cooling, an Omaha HVAC contractor.
This combination of NIL payments and immediate transfers led to the recent “wild west” atmosphere in which athletes, enticed by promises of large NIL payments, jump to another school.
The House Settlement
Building off the Alston case, plaintiffs in the House litigation sought back pay for a class of student athletes that were unable to obtain NIL payments prior to Alston, and also sought a share of the schools’ revenues going forward. The suit also challenged the NCAA-imposed limitations on scholarships, and other NCAA rules. The NCAA feared it could lose the case in a way that would bankrupt it. Accordingly, settlement discussions focused on rewarding the plaintiffs, and keeping the NCAA and the major conferences afloat.
On June 6, the Judge Claudia Wilken of the United States District Court for the Northern District of California approved the House settlement. A detailed legal analysis of the House settlement by the Ropes & Gray law firm can be seen
The settlement provided approximately $2.8B in back pay to athletes for the years 2016 to 2024. The money will be paid out over a ten-year period. The settlement laid out a complex set of factors to determine how much each class member receives, but it generally is paying 80% of the total to football players, 10% to men’s basketball players, 5% to women’s basketball players, and 5% to the athletes in all the other sports combined.
More germane to the future of college athletics, the settlement also establishes a detailed framework for future payments to student athletes for all schools that “opt in” to the settlement. The key components are: (1) schools can pay athletes directly up to $20.5M annually (but no more), beginning in the 2025-26 school year; (2) every sport will have a roster limit, and schools are able to provide as many scholarships as they want up to the roster limit; and (3) student athletes can accept NIL payments from third parties without a dollar limit, except all such deals exceeding $600 must be approved by the newly formed College Sports Commission, which in turn has contracted with Deloitte to provide the enforcement.
NIL deals will be approved only if they have a “valid business purpose” and are within a range of reasonableness in terms of value provided. The Commission has explained how its review will work in a series of frequently asked questions viewable
The four largest conferences—the Big Ten Conference (Big 10), the Southeastern Conference (SEC), the Atlantic Coast Conference (ACC), and the Big Twelve Conference (Big 12) were defendants in the lawsuit and have “opted in” to the settlement. All other NCAA Division 1 (D1) schools have the option to be bound (“opt in”) or not (“opt out”), a decision to be made each year. Schools that opt out are not bound by the roster limits or NIL requirements, and will operate as they do now.
The date for selecting whether to opt in or out was July 1. Media reports state that 319 of the 365 D1 schools have opted into the settlement. That means they are bound by the roster limits and NIL restrictions, and, if they choose, they can share revenues with athletes up to the $20.5M limit. The schools that opted out include most notably the Ivy League schools, who have long prohibited athletic scholarships, the Patriot League (another group of academically elite schools) and the military academies, who are prohibited by law from paying their students.
Possible Winners and Losers
The settlement was primarily focused on the four major conferences, whose schools receive tens of millions of dollars annually from the conferences’ media rights deals. These conference members are now committed to sharing revenues with the student athletes. While each school will determine how to disburse the monies, major football schools that have disclosed their initial plans are distributing the fund similar to the back pay awards – 75-80% to football, 10-15% to men’s basketball, 5-7% for women’s basketball, and 5% to other sports important to the particular school.
While the major conferences strongly support the settlement, it means that to remain competitive each school likely needs to come up with more than $20M annually to share with athletes. Many schools don’t have that readily available. So, while football and men’s basketball players are certainly winners, even some large schools have said they will have to consider cost savings in other “nonrevenue” sports to make the finances work. Many speculate the impact could be even greater on the “mid-major” and smaller football conferences, who don’t receive much revenue from outside media deals. At this point, the impact on the nonrevenue sports remains mostly conjecture.
Impacts on Mid-Atlantic Universities
The D1 schools seem to occupy four tiers: (1) The four major conferences; (2) The “mid-major” football schools that make up the rest of the Football Bowl Subdivision (FBS); (3) The remaining D1 football schools that make up the Football Championship Subdivision (FCS); (4) The D1 schools that do not play football.
Eleven D1 universities inside or near the Beltway and in Virginia are in one of the four tiers. They provide a microcosm of the varied impacts the House settlement will have nationally.
Major conference members are the University of Maryland, the University of Virginia, and Virginia Tech. As a member of the Big 10, Maryland receives more than $60M from the conference’s media deal, and should be well-positioned to revenue share and thus stay competitive. While the ACC’s media deal is much less lucrative than the Big 10’s, members Virginia and Virginia Tech should still be able to revenue share and stay competitive.
American University is a full member of the Patriot League and is the only D1 school in the region to opt out of the settlement. The Big East and Atlantic 10 have media deals providing revenue for their members, and the conferences do not offer football. Atlantic 10 members George Washington and George Mason have opted in. Neither has athletic departments with revenues sufficient to fund anything close to $20M in payments. But because they don’t play football, whatever revenue sharing they do for basketball and other sports may give them an advantage in basketball compared to schools in conferences that emphasize football and who will devote most of their revenue share to that sport.
Georgetown, a member of the Big East, is in an unusual situation for an opt in school. It has a football team that is an associate member of the Patriot Conference, and the pure Patriot Conference teams have opted out of the settlement. So, it is possible that Georgetown, the recipient of lucrative Big East basketball-only media revenues, will devote most of its revenue share money to the basketball teams, and not the football team. Otherwise, it would be at a competitive disadvantage with its basketball-only conference colleagues.
Similarly, the University of Richmond, a member of the Atlantic 10 for all sports except football, has opted in to the settlement with the other Atlantic 10 schools. But, like Georgetown, it will play football in the Patriot League conference with schools that have opted out. It may therefore also focus revenue sharing on basketball more than football. That is because Atlantic 10 schools like Virginia Commonwealth, which don’t have football teams, will focus on basketball as its primary revenue generating sport.
Howard, a D1 FCS football school playing in the MEAC conference, and James Madison, an FBS football school playing in the Sun Belt conference, have both opted in. It is unclear if schools like these have revenues to share, and if so, how they intend to use those funds.
Other Implications of the Settlement
Somewhere north of 80% of the monies for both the backpay award in the House settlement and the future revenue share payments are going to male athletes. A federal law, Title IX, provides “no person shall, on the basis of sex, be excluded from participation in, or be denied the benefits of, or be subject to discrimination under any education program or activity receiving federal financial assistance.” All D1 schools receive significant federal dollars. This is not the place to analyze the legal arguments for and against the application of Title IX—there are good arguments on both sides and the matter is being litigated presently. In fact, several groups of current and former women athletes have appealed the House settlement itself on these grounds.
Additionally, the NCAA settled this suit in part because it has been on the losing end of several cases saying its rules violate antitrust laws. Some observers believe there are antitrust implications in the framework established by the House settlement. As a result, Congress is considering legislation to deal with his issue. But Congress is considering many issues, so there is little guarantee that Congress will resolve these issues.
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