In the aftermath of the $2.8 billion settlement in three class action lawsuits (House v. NCAA, Hubbard v. NCAA, and Carter v. NCAA) brought by Division I athletes against the NCAA and the Power 5 conferences, many Division II and III colleges are raising questions about how these changes will affect their programs.
At the core of the discussion is whether schools in Divisions II and III will need to adopt new compensation models to remain competitive or risk facing athletic and financial consequences. Equally significant is the concern that unprecedented commitments to student-athlete payments at the Division I level may prompt fundamental shifts in college sports, triggering both opportunities and challenges down the line for schools competing outside of the top tier.
Although the settlement’s most sweeping provisions apply exclusively to Division I programs, observers anticipate significant ripple effects within Divisions II and III.
Under the agreement approved June 6 by the U.S. District Court for the Northern District of California, Division I programs must allow new forms of compensation, including revenue sharing and direct payments. The settlement resolves antitrust claims against the NCAA and the Power 5 conferences (the ACC, Big Ten, Big 12, Pac-12, and SEC) related to limits on compensation and benefits for Division I student-athletes. The settlement also lifts scholarship limits while imposing additional roster restrictions.
The settlement mandates significant changes to NCAA Division I rules and practices, including:
- Permitting revenue sharing and direct payments from universities to student-athletes, including name, image, and likeness (NIL) payments and brand promotion payments
- Enacting mandatory reporting requirements regarding payments and benefits to Division I student-athletes
- Eliminating all Division I athletic scholarship limits
- Establishing new and more restrictive roster limits for each Division I sport
With these major changes slated for immediate implementation at the Division I level, Division II and III institutions face an uncertain future and must determine how to recruit and retain high-caliber talent amid evolving economic realities. Some administrators worry that they lack the resources to provide similar benefits or marketing opportunities for student-athletes, potentially widening the gap between larger and smaller programs. Others see possible benefits in competitive repositioning, especially if the emphasis on compensation at the Division I level sparks renewed interest in a more “amateur” model offered by lower-tiered schools.
Under the settlement, Division I student-athletes will receive $2.8 billion in back pay over 10 years, including nearly $2 billion for those who were eligible at any time between 2016 and 2020, and $600 million to those who competed or will compete at any time from 2020 through 2035. In exchange, class members released and discharged all current and future claims on these issues for a 10-year period.
Division II and III schools are already experiencing “trickle-down” effects, which will likely only increase and intensify with time. The groundbreaking settlement will likely include the following impacts, among others, on Division II and III college athletics:
- Shifting direct payment and NIL landscape: Schools in Divisions II and III are caught in a difficult position because the NCAA guidelines – as applied to them, but not to Division I under the settlement – still prohibit direct payments to athletes. In other words, Division II and III schools are prohibited from providing NIL deals or other forms of payment directly to student-athletes under NCAA rules. And there is a lack of guidance from the NCAA and collegiate athletic conferences as to how Division II and III schools can operate post-House. Even at the Division I level, there is a lot of uncertainty, but the issue is exacerbated in Divisions II and III, where the most recent guidance suggests that schools are prohibited from making direct NIL payments to athletes.
This raises a host of questions about whether and how Division II and III schools can be active and take advantage (or at least not fall behind) in recruiting in this environment. Such questions include: Can Division II and III boosters form collectives? How much assistance, if any, can Division II and III schools provide? Can Division II and III schools take advantage of the various third-party offerings – marketplaces, etc. – and if so, can any funding provided be institutional dollars? Consulting with counsel is especially important in navigating this shifting landscape, given all the uncertainty that exists pending further guidance from the NCAA and conferences.
- Increasing athletic competition: Some Division I schools have expressed opposition to the settlement, particularly regarding revenue sharing and direct payments to student-athletes. To avoid the shifting realities and increased expenses of Division I athletics, certain schools – including, for example, Saint Francis and the University of Hartford – have elected to reclassify from Division I to a lower division. This trend may continue, especially with other smaller or low-major Division I schools, potentially increasing the level of competition in Divisions II and III.
- Rising costs and possible program cuts: Division II and III schools, many of which operate with already-constrained budgets, may face increased financial pressure from reduced NCAA distributions and other resource cuts as a result of the NCAA funds being redirected toward the settlement. At a minimum, Division II and III schools may assume a greater share of post-season championship expenses.
Some schools, such as Mississippi College and California Polytechnic State University (Cal Poly), have already eliminated certain athletic programs – including both revenue and non-revenue sports – to avoid any further financial burden. As these pressures intensify, additional program cuts are likely. Athletic departments considering reductions must remain compliant with Title IX requirements and should prepare for potential legal challenges from affected participants.
- Evolving recruiting and retention landscapes: With the growing trend toward transactional college athletics in all NCAA divisions, Division II and III schools must adapt to the rapidly changing recruiting landscape. Stricter roster limits at Division I schools as a result of the settlement could drive more athletes – especially those considering Division I walk-on positions – to explore opportunities with Division II and III programs. This may result in an influx of talent in Divisions II and III.
But this group of talent also has new opportunities to capitalize on, and they can make use of their skills in a variety of ways, including NIL deals and transfer opportunities, both formerly prohibited by NCAA rules. Retaining such talent may thus prove challenging given the prevalence of athletes entering the transfer portal to obtain better opportunities. Division II and III schools will therefore need to present creative solutions. For example, Spalding University has established an official NIL collective – believed to be one of the first in Division III – to foster compensation opportunities for student-athletes. These initiatives should be established in close consultation with counsel, however, since under the NCAA rules, Division II and III schools still cannot directly provide NIL benefits or direct payments to athletes.
- Challenging impacts on multidivisional schools: Multidivisional schools (Division II or III schools that sponsor at least one Division I sport) may opt in to the settlement agreement for its Division I program(s), subjecting them to the agreed-upon terms, including revenue sharing, NIL, and roster limits for their Division I program(s) only. This choice is not without its problems. NCAA rules and federal laws, such as Title IX, provide requirements for equity in college athletics across each school’s programs, creating legal challenges for a school with only some of its athletes eligible for the settlement’s benefits. Accordingly, these schools should carefully assess the opt-in prospect in consultation with counsel.
The House v. NCAA settlement, approved in June, is still in the early stages of implementation. Schools should work closely with counsel to stay informed and proactive as they face various evolving risks and opportunities. As always, the Reed Smith Higher Education team is willing and able to assist.
Client Alert 2025-188
