TAKEAWAYS
- The NCAA and five athletic conferences approved paying nearly $2.8 billion in retrospective name, image and likeness (NIL) compensation to settle three pending antitrust lawsuits.
- The proposed settlement contemplates a prospective revenue-sharing model that will permit schools to distribute up to 22% of their defined, annual athletic revenue directly to student-athletes.
- Legal issues critical to the future of collegiate athletics governance remain unresolved, including student-athlete employment status and compliance with Title IX for revenue distribution.
In 1984, Supreme Court Justice John Paul Stevens wrote that “[t]he [National Collegiate Athletic Association (NCAA)] plays a critical role in the maintenance of a revered tradition of amateurism in college sports.” To uphold this “revered tradition,” the NCAA needed “ample latitude” to set and enforce its rules without outside interference. For the next three-and-a-half decades, this principle could be relied upon by the NCAA in defense of its rulemaking authority and in response to pressure to rescind compensation restrictions on student-athletes.
Recently, however, court rulings and the passage of state laws have eroded “amateurism” both as a governing principle and as legal defense upon which the NCAA could rely. That trend reached an inflection point on May 23, 2024, when the NCAA and the five “power” athletic conferences approved settlement terms to resolve three pending antitrust lawsuits in the Northern District of California. (The publicly announced “settlement” is more accurately described as an agreement to terms. A more detailed and complete agreement still needs to be worked out and approved by the court.)
If approved, the settlement would entail payments of nearly $2.8 billion to former players and allow schools to directly compensate student-athletes going forward. An approved settlement, however, will only resolve the claims brought in these lawsuits. A variety of complicated legal issues—including compliance with Title IX and labor laws as they pertain to student-athletes—remain unresolved.
The House Lawsuit and its Companion Antitrust Cases
In 2020, former collegiate swimmer Grant House and current women’s basketball player Sedona Prince filed a federal antitrust lawsuit in the Northern District of California against the NCAA and the five “power” athletic conferences (the Atlantic Coast Conference, the Big 10 Conference, the Big 12 Conference, the PAC-12 Conference and the Southeastern Conference) —In re College Athlete NIL Litigation, 4:20-cv-03919-CW (N.D. Cal.) (House).
House alleges, inter alia, that the NCAA and athletic conferences violated the Sherman Antitrust Act of 1890 both by promulgating and enforcing rules restricting and prohibiting student-athletes from receiving compensation for name, image and likeness (NIL), including as it pertains to the distribution of revenue generated from the licensing of media broadcast rights.
The House plaintiffs seek relief in the form of damages for student-athletes that would have been eligible to receive NIL income but for the NCAA’s prohibition on such compensation that was in effect until June 30, 2021. The plaintiffs also seek damages for continuing restrictions, particularly in regard to revenue generated from licensing media broadcast rights, as well as a permanent injunction barring the defendants from continuing to enforce such rules. House was granted class certification in late 2023 and scheduled to go to trial in 2024. If the plaintiffs prevail at trial, they are eligible to receive treble (triple) damages under federal law. While damages are likely to be fiercely contested at trial, the amount is expected to total in the billions.
In 2023, two additional antitrust lawsuits were filed in the same district as House: Hubbard v. NCAA and Carter v. NCAA. Hubbard seeks damages for athletes in connection with NCAA rules that were found to violate antitrust laws in the Supreme Court’s NCAA v. Alston decision in 2021 and which prohibited certain education-related benefits, or so-called “Alston payments.” Carter alleges that the NCAA’s rules capping financial grant-in-aid and prohibiting compensation “untethered to education,” or “pay-for-play” rules, violate federal law. The proposed settlement to resolve House would also—if approved—encompass Carter and Hubbard.
A fourth antitrust class action lawsuit was also filed in 2023 in the District of Colorado—Fontenot v. National Collegiate Athletic Association, No. 1:23-cv-03076 (D. Col.). Fontenot similarly alleges that the enforcement of NCAA rules restricting student-athletes’ rights to earn NIL compensation generated through the licensing of media broadcast rights violates antitrust law.
The Proposed Settlement Terms
NIL Remunerations for Student-Athletes
Under the announced settlement, $2.77 billion in compensation will be made available to student-athletes for lost NIL earning opportunities. That amount will be paid over a period of 10 years. Reportedly, roughly 40% of the $2.77 billion will come from NCAA reserve funds and insurance. The other 60% will come from athletic conferences in the form of reductions in future revenue distributions. Of that amount, the five conferences that are parties to the agreement will pay 40%.
The class of plaintiffs eligible for remunerations extends back to 2016, the limitations period established by applicable federal law.
Revenue Sharing
Perhaps most significantly, the proposed settlement will allow NCAA schools—for the first time—to compensate student-athletes directly through revenue sharing. Each school will be permitted (but not required) to set aside up to approximately $22 million in annual “revenue” (as defined by the agreement) to distribute to its student-athletes. This figure represents 22% of the annual income generated by the average “power” conference school through its media rights, ticket sales and sponsorships. The annual “cap” is expected to increase in the coming years. If approved, revenue sharing could begin in the fall of 2025.
Other Prospective Changes
The reported settlement “terms” also contemplate a number of other prospective changes and obligations:
- A release of federal antitrust claims for former, current and future student-athletes for a period of 10 years.
- Support for the NCAA’s efforts to lobby Congress to pass federal legislation shielding the NCAA from future claims.
- An affirmation of the validity and enforceability of existing NCAA compensation rules, including those that pertain to NIL.
- An “enforcement” component through which the NCAA will administer those rules moving forward.
- Changes to varsity roster construction, including potentially eliminating “walk on” (non-scholarship) roster positions and limitations on the overall number of players a program may compete with.
Legal Implications for Schools
If a final settlement agreement is approved by the court, it will resolve the claims brought in Carter, House, and Hubbard. However, the NCAA and schools still must address a number of other legal issues critical to the future governance of collegiate athletics, including some arising out of the settlement itself.
Continuing Legal Exposure
In an effort to limit vulnerability to antitrust claims moving forward, the House agreement would cover future student-athletes as part of the plaintiff class. However, the settlement will reportedly include an “opt-out” mechanism for those future student-athletes who do not wish to be covered. While more details are needed, those student-athletes who do not wish to remain covered will purportedly forgo their share of annual revenue distribution but will retain claims the student-athlete might have against the NCAA and the athletic conferences. It is unclear at this time how many student-athletes might choose to opt out. That number could be impacted by a variety of circumstances, including how much annual revenue a school chooses to distribute and whether amounts distributed are subject to Title IX.
Even if the House agreement is approved, the NCAA and schools nevertheless remain at risk from a variety of legal exposure. The House settlement does not resolve the pending Fontenot class action suit. Any player that opts out of the settlement will retain potential antitrust claims against the NCAA and the athletic conferences. The agreement also does not resolve the case brought by Virginia’s and Tennessee’s attorneys general alleging that NCAA rules concerning NIL and third-party communications violate federal law (Tennessee v. National Collegiate Athletic Association, 3:24-cv-00033-DCLC-DCP). Nothing in the resolution prevents other states from bringing lawsuits alleging that NCAA rules violate state or federal law. Nor does the settlement protect the NCAA (or individual schools) from—as discussed below—claims that financial distributions pursuant to the settlement are subject to Title IX, or labor claims that student-athletes are “employees” subject to federal protections.
For these reasons, the NCAA continues to lobby Congress for federal legislation that will, at a minimum, shield the NCAA from future antitrust claims and legislatively establish that student-athletes are not “employees.” However, even if Congress did pass such legislation, it would not protect individual schools from certain legal claims, such as Title IX compliance in connection with revenue sharing.
Title IX Compliance
The proposed House resolution raises new questions concerning whether the potential financial distributions to former and current student-athletes are subject to Title IX of the 1972 Education Amendments. This civil rights law broadly prohibits discrimination on the basis of sex in education programs that receive federal funding. In college sports, Title IX is designed to ensure that student-athletes are provided with equitable opportunities to participate in sports, receive proportional athletics scholarships, and have access to similar benefits like tutoring, equipment, and support staff, regardless of gender.
First, it is unsettled as to whether Title IX applies to the nearly $2.8 billion in NIL “back pay” to student-athletes under the agreement. At this time, it is still unclear whether the parties will voluntarily make an effort to comply with what they believe Title IX requires, or whether the court will provide guidance during its review of the settlement terms. Reportedly, the parties to the settlement intend to distribute the significant majority of these funds to football and men’s basketball players—those individuals whose NIL generally have the highest market value. If that comes to pass, the settlement payments may be challenged in court as a violation of Title IX.
Second, it is also unclear whether Title IX applies to revenue distributions that will be made to student-athletes going forward. Whether the law applies may be significantly influenced by the form of payments revenue distribution takes. For example, if a school controls the distribution of payments and directly compensates its student-athletes, then Title IX would likely apply. However, the extent to which a school would be required to consider gender-equity is unclear if it makes payments to student-athletes based on the market value of their NIL rights. The analysis may become further complicated if the revenue distributed to student-athletes comes through a school’s athletic conference in the form of annual media distribution payments from the conference to the school. The applicability of Title IX to payments made to athletes through a third-party NIL collective also remains unclear and may turn on the level of coordination between the parties and the degree of involvement the school has in the collective.
Moreover, even if Title IX applies to revenue sharing, it is unresolved as to what federal law would require. For example, in the context of athletic scholarship aid, generally, schools are obligated to provide support that is proportional to participation rates. That calculation, in theory, is fairly straightforward: if 50% of a school’s athletics program are women, then, generally, women should receive approximately 50% of available financial assistance. But that does not necessarily mean that the number of male and female scholarships needs to be precisely equal. How would this apply to revenue distribution that may be categorized as payments for the market value of an individual student-athlete’s name, image and likeness? Will Title IX obligate schools to distribute an equal percentage of revenue, regardless of the specific number of female athletes to which revenue is distributed? In other words, if a school voluntarily chooses to distribute $18 million in annual revenue to student-athletes in 2026, would Title IX require that $9 million of those funds be distributed to female student-athletes, without consideration of how many players receive the funds?
Student-Athlete Employment Status
The House settlement also does not address student-athlete employment status. In fact, the revenue distribution component may complicate the issue.
Currently, student-athletes are not classified as “employees” under federal law. Accordingly, schools are not obligated to adhere to the requirements of the National Labor Relations Act (NLRA) or other federal labor law with respect to their players. Players are not entitled to unionize, receive minimum wage or other employment benefits.
However, there are several pending legal challenges seeking to change this. As covered by Pillsbury, there are multiple labor petitions pending before the National Labor Relations Board (NLRB) that seek to establish that athletes are “employees” under the NLRA. In February, an NLRB regional director ruled that Dartmouth College’s men’s basketball team were “employees” and entitled to unionize. While the decision has been appealed to the NLRB, the team voted to unionize the following month. There is also a pending federal class action lawsuit seeking minimum and overtime wage protections under the Fair Labor Standards Act.
Here, if approved, the House settlement will usher in a new “compensation” model pursuant to which schools can directly distribute revenue to student-athletes who play varsity sports. Such a relationship may strengthen the legal argument that student-athletes are actually performing “work” in exchange for “compensation,” thereby rendering them “employees” under the NLRA. Moreover, the revenue that schools are permitted to share is capped based on an agreed-upon formula. The NLRB (or a court) may view this as akin to the “salary caps” adopted by professional sports leagues. There, however, the employees—the professional players—have collectively bargained for the compensation system in place.
Legislatively, on June 13, 2024, the “Protecting Student Athletes’ Economic Freedom Act” advanced through the House Committee on Education and the Workforce through a 23-16 vote. The four-page “skinny” bill, if it becomes law, will exempt collegiate student-athletes from being deemed employees. While the bill is now eligible to be brought to the floor of the House of Representatives for a vote, it faces many hurdles to becoming law.
Rules Enforcement/Impact on NIL Collectives
Finally, there are numerous questions with respect to how a finalized, approved House settlement will impact NIL collectives and rules enforcement.
The agreed-upon terms do not prohibit third-party NIL compensation (nor is it likely that any settlement could). However, the NCAA and schools are telegraphing the desire to change the current compensation landscape and enforce at least some rules. Their intentions are foreshadowed by the revenue distribution with student-athletes, the affirmation of existing NCAA NIL rules, and the stated desire to enforce NIL rules moving forward. This dovetails with the NCAA’s recent openness to legislative changes allowing schools to bring NIL “in house.”
But many questions remain: What will this enforcement mechanism look like? Will the NCAA augment the existing enforcement staff? Will there be a “new” investigative and enforcement entity? What adjudicative body will hear and decide infractions cases? What rules will govern the quasi-judicial rules enforcement process? What due process protections will be implemented? How closely will a new enforcement process resemble the NCAA’s (perhaps unfairly) maligned Independent Accountability Resolution Process?
Finally, what rules will actually be enforceable? For example, the NCAA’s existing rules “prohibiting student-athletes from negotiating compensation for [NIL] with any third-party entity” have been enjoined by District Judge Corker in Tennessee v. NCAA. As it stands today, the NCAA cannot enforce these rules—even if it so desired.
Conclusion
While the court still must approve the proposed House settlement terms, the announcement nevertheless represents an enormous change in the direction of collegiate athletics. For the first time, student-athletes can receive direct compensation from schools for their efforts. The NCAA (and the five conferences) will also have resolved significant, immediate legal risks that could have resulted in exponentially more significant financial harm.
Nevertheless, schools still face an unsettled landscape and unresolved, complicated legal issues. Colleges and universities should proactively seek guidance from sophisticated counsel in the pertinent areas moving forward.
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