NCAA Approves Athlete Revenue Sharing in Settlement
New Orleans CityBusiness published Fritz Metzinger and Sanders Colbert's guest perspective "NCAA Approves Athlete Revenue Sharing in Settlement." The article can be found on the CityBusiness website here or the full article is below.
For decades, the NCAA has maintained in legal proceedings that to permit schools to pay any of the revenue earned by their athletic programs to the athletes themselves would threaten the very existence of college athletics. Now, revenue sharing with student athletes is official NCAA policy.
Judge Claudia Wilken has granted final approval to what has become known as the House v. NCAA class action settlement, marking a watershed in big-time college athletics and transforming the manner in which student-athletes can earn compensation for their participation.
The settlement arises from a series of class action lawsuits filed against the NCAA and the so-called Power Conferences (SEC, ACC, Big Ten, and Big 12) before Judge Wilken, who presides in the U.S. District Court for the Northern District of California. The lawsuits involved claims for past "Name, Image, and Likeness" ("NIL") and other damages as well as efforts to invalidate the NCAA's limits on athletic scholarships on antitrust grounds. According to the plaintiffs, such limits—long defended by the NCAA as a core tenet of "amateurism" and thus integral to college sports' viability as a product—constituted an illegal "price ceiling" on the amount students could earn for providing their services as athletes in violation of the Sherman Act.
Attorneys for the parties reached an agreement in principle on a settlement in May 2024, with Judge Wilken approving a finalized agreement nearly 13 months later. As part of the settlement, the NCAA will pay more than $2.576 billion to Division I student-athletes who competed between 2016 and 2024 and "opted in" as class members. Football and men's and women's basketball players during that timeframe will receive more than 90 percent of these settlement funds.
But it is the forward-looking portion of the agreement that will radically change the landscape of college athletics. Beginning in 2025-26 and lasting for a 10-year term, Division I schools will be allowed—but not required—to share 22 percent of its average athletic revenues directly with student-athletes. For the 2025-2026 season, that cap amounts to about $20.5 million, with that figure set to grow incrementally each year. Schools will have the discretion to allocate this "pool" of revenue however they choose—whether entirely to standouts in "revenue" sport athletes such as football and men's and women's basketball, or equally among all participating athletes, or not at all. Member institutions will further be able to pay athletes revenue in a variety of ways, including by entering exclusive or non-exclusive agreements to purchase student-athletes' NIL rights and conditioning payments on athletes participating for no more than four total years. Colleges and universities that opt to pay the entirety of this revenue pool could be sharing roughly 50 percent of their average athletic revenues with their athletes.
The settlement has also fostered the creation of a new enforcement apparatus for preventing boosters and collectives from using NIL as a vehicle to induce athletes to enroll and remain at certain schools. Although the NCAA suspended its rules prohibiting NIL payments from third-parties in 2021, NIL as "pay-for-play" (i.e., as an inducement to play at a certain school or perform at a certain level) has remained prohibited. But "pay-for-play" payments have grown rampant in the last few years, with the NCAA fearful of further court losses and even suspending its enforcement of NIL rules entirely when the states of Tennessee and Virginia successfully obtained a preliminary injunction against the NCAA in March 2024.
With the settlement approved, however, a new entity called the College Sports Commission ("CSC") will seek to enforce both the revenue sharing rules and the prohibition on NIL "pay-for-play" deals from boosters and collectives. Representing the power conferences, the CSC—through a new platform to be known as "NIL Go"—will analyze any NIL deal exceeding $600 to ascertain whether (1) the deal involves a booster or collective; and (2) if so, whether the deal has a "valid business purpose" and a reasonable value for the services rendered, or otherwise functions as a disguised method of paying a player to participate or perform for a certain program. If the CSC concludes that the NIL agreement violates the rules, student-athletes will have the option of seeking neutral arbitration to determine whether they can proceed with the deal.
The NCAA also agreed through the settlement to replace its existing scholarship caps with "roster limits" for each sport—a proposal that threw a serious wrench into the settlement approval process. In anticipation of the settlement's approval and the implementation of roster limits, many Division I programs for began cutting and revoking roster spots from athletes in non-revenue "Olympic" sports. Judge Wilken found merit in objections that the settlement unfairly prejudiced these particular athletes. Attorneys for the parties responded by revising the settlement to allow schools to create a list of athletes cut in anticipation of the settlement's approval and permit these athletes to participate without counting against the new roster limits.
Judge Wilken held that, with these revisions, the settlement was "fair, reasonable, and adequate" in accordance with Federal Rule of Civil Procedure 23(e)(2). According to Judge Wilken, the settlement provides significant monetary compensation to past athletes, unprecedented monetary opportunities for current and future athletes, and an NIL enforcement mechanism that represents "a significant improvement over the NCAA's current system for enforcing NCAA restrictions."
These new rules will certainly prove transformative, with student-athletes now capable of earning a piece of the revenue pie their exploits help earn for the NCAA and its member institutions. Still, the settlement's approval is far from a definitive denouement in the ongoing college sports compensation saga. For one thing, approval of the settlement will result in a 10-year injunction supervised by Judge Wilken's court—not a federal law or binding Supreme Court decision. As such, the new rules (including both the revenue sharing cap and the new NIL enforcement rules) will still be subject to antitrust lawsuits and scrutiny. Per Judge Wilken, even those athletes who opted into the class and agreed to abide by the NCAA's new rules "will be free to sue Defendants for claims arising out of the [revenue sharing] cap."
States have also continued to pass laws that conflict with NCAA policy, with a recent law in Tennessee even authorizing schools based in the state to ignore and exceed the 22 percent cap in sharing revenue with student-athletes. A lawsuit to have student-athletes declared employees also remains pending. The settlement is silent as to the applicability of Title IX, inviting the possibility of Title IX-based lawsuits and challenges in the likely event that schools allocate more revenue to male athletes than female athletes. And the NCAA has faced a rash of lawsuits from student-athletes in recent years seeking to invalidate restrictions on the maximum number of years of eligibility.
The relative lack of resolution provided by the settlement has impelled the NCAA to persist in its so-far unsuccessful efforts to lobby Congress for a federal college sports compensation law. In an open letter, NCAA President Charlie Baker characterized the settlement as a "road map to legislative reform."
Questions also persist regarding the efficacy of the new CSC and NIL Go enforcement bodies. With NIL pay-for-play becoming commonplace since 2021, collectives have grown exponentially in influence and power, with many schools (including LSU and Tulane) working directly with their collectives to facilitate NIL deals. The new rules, however, contemplate stricter scrutiny on NIL deals to ensure they represent "true" NIL endorsement deals, rather than thinly-veiled pay-for-play. Whether schools and their supporters will abide by the new rules or attempt to utilize boosters and collectives to circumvent the salary cap and attract top talent remains an open question. The answer could depend heavily on the CSC's ability and authority to distinguish between "true" NIL and "pay-for-play," enforce the rules, and levy punishments on offending parties.
The planned "crackdown" on NIL payments also conflicts with a recent legislative trend in Southern states, which have been particularly aggressive in introducing proposed tax breaks for NIL income in an attempt to attract top recruits. On March 31st, Louisiana State Representative Dixon McMakin pre-filed draft legislation which would authorize a Louisiana state income tax deduction for NIL compensation earned by intercollegiate athletes. The bill follows several parallel NIL tax relief measures recently introduced in the Alabama, Arkansas, North Carolina, South Carolina, and Georgia state legislatures as Southern states compete for athletes in the wake of the easing of student athlete compensation restrictions across the country. If passed, the tax deduction would seek to level the playing field with college athletic recruiting programs in nearby states such as Texas, Florida, and Tennessee which currently impose no state level income tax applicable to student NIL compensation.
Finally, and as the scrutiny on roster limits underlines, the settlement could further threaten the existence of non-revenue/Olympic sport programs. Already in a precarious position, these programs and the athletes who participate in them could face further danger now that schools can share millions in revenue with student-athletes, potentially depriving less profitable sports of needed funding. This is particularly true for less affluent athletic programs, as the revenue cap constitutes a percentage of average Power conference revenues—making the new payments a larger burden for schools whose revenues fall below that average.
It's a new dawn for college athletics. But legal disputes and intrigue still await.