Authors
Key takeaways
- On May 23, 2024, the NCAA and the Power 5 conferences released a joint statement announcing a $2.8 billion settlement that was reached in the class action lawsuits House v. NCAA, Hubbard v. NCAA, and Carter v. NCAA.
- These cases brought antitrust challenges against the NCAA concerning compensation and benefits limits and NIL regarding student-athletes.
- The settlement eliminates prior NCAA rules banning direct payment to athletes from schools, and more.
- The settlement will have immediate impacts on recruiting, collectives, Title IX compliance, state laws, sports programming, and wealthier schools being able to recruit better talent.
On May 23, 2024, the NCAA and the Power 5 conferences (the ACC, Big Ten, Big 12, Pac-12 and SEC) released a joint statement announcing a $2.8 billion settlement that was reached in the class action lawsuits House v. NCAA, Hubbard v. NCAA, and Carter v. NCAA. These cases brought antitrust challenges against the NCAA for its limits on compensation and benefits that student-athletes receive, including the monetization of their right of publicity (i.e., their name, image, and likeness (NIL)).
Under the reported settlement terms, student-athletes will receive $2.8 billion in back-pay damages over the course of ten years. The NCAA plans to cover this cost by reducing distributions to schools, tapping into reserve funds, and seeking coverage from its insurance carriers. Universities are currently evaluating the implications of the ruling, including how they will manage their budgets, and future payments to student-athletes.
The NCAA’s long-standing business model prevented universities from sharing revenue with their student-athletes. This settlement, however, eliminates the NCAA’s prior rules banning direct payment to athletes from schools. It also allows, but does not require, revenue sharing between universities and current student-athletes. If approved by the United States District Court for the Northern District of California, the settlement would allow universities within the Power 5 to share up to 22% of their revenue with student-athletes, which is tens of millions of dollars per school, per year. The settlement also eliminates the NCAA rules capping student-athlete scholarships.
This watershed settlement will immediately impact the following areas:
- Recruiting will change: Effectively, NCAA Division I and specifically the Power 5 schools, will be able to pay student-athletes to play at their schools. In practical terms, this means that the top schools will have a stronger pull in recruiting five-star athletes, which will impact competitive balance.
- Impact on collectives: Off the heels of the State of Tennessee and Commonwealth of Virginia v. NCAA and the NCAA’s board of governors’ vote to end “amateurism” rules, collectives may have a modified role in the NIL landscape. The settlement decision, on paper, lessens the need for schools to avail themselves of collectives as a means of paying student-athletes.
- Universities will need to address title IX compliance: Title IX requires that universities maintain policies that do not discriminate based on sex, gender identity, or sexual orientation. The new revenue-sharing model will have to be applied equitably to universities’ athletic programs.
- State laws will be amended: As of January 2024, there are more than 20 state laws that require disclosures of NIL agreements by student-athletes. The House settlement will have a direct impact on states’ desire to increase transparency in NIL deals.
- Sports programming may be cut: Generally, football and basketball are the two primary sports that fuel athletic department budgets for schools in the Power 5 conferences. To the extent that athletic departments are unable to increase revenue from advertisers to help pay student-athletes across all programs, they may consider eliminating non-revenue sport, such as wrestling or swimming, from their departments but will need to remain compliant with Title IX obligations and may face legal challenges from participants in programs slated for elimination.
- Wealthier schools will command better talent: Similar to the professional leagues, where teams such as the Mets and the Yankees have considerably higher payrolls than the A’s and the Pirates, collegiate athletic departments with larger budgets will be able to command better talent by offering them more lucrative payments and NIL deal opportunities. While this exists today, we believe it will be exacerbated by the settlement.
Client Alert 2024-123