Takeaways from the NCAA House Settlement
With the filing of the Motion for Preliminary Approval of the House settlement today, here are our top ten initial takeaways from the settlement agreement:
1. Long-Term Peace, at Least on the Antitrust Front. The Settlement Agreement should provide universities, conferences, and the NCAA with a decade of protection against antitrust litigation. An important point that many journalists (and Twitter lawyers) miss is that the Injunctive Relief Settlement Class is a Fed. R. Civ. P. 23(b)(2) class, which in simple terms means the class members will not be able to opt out if it is approved. The term of the injunction is ten academic years (2025-2026 thru 2034-2035) and could be extended even longer. Future student-athletes will have the opportunity to object, but that is unlikely as it would require Judge Wilken to approve the ten-year injunction and then, subsequently, based on a future objection, change her mind.
2. Broad Antitrust Release. Any potential antitrust claims and all existing conference rules and NCAA rules relating to scholarship limits are encompassed by the release. Thus, Fontenot and any other antitrust actions focused on current rules would need to opt out for any past damages claims and would still be bound by the injunctive relief terms. Any future antitrust claims would be prohibited by the release.
3. But, No Circumvention. That does not mean that the NCAA, conferences, or universities can engage in anticompetitive conduct. To the extent the NCAA or an A4 Conference attempt to pass a rule that is designed to defeat or circumvent the injunctive relief, then class counsel will have an opportunity to object and any objections would be litigated before a Court Appointed Neutral and, ultimately, the Northern District of California.
4. But, Conference Rules Are Not Circumvention. The Settlement Agreement clarifies the ambiguity in the term sheet regarding whether conferences could adopt rules regarding benefits provided to student-athletes. Such conference rules are expressly allowed, which should permit conferences to set revenue sharing ceilings or floors, or even allocation formulas. Yet, conferences cannot enter into agreements with each other to limit or restrict benefits.
5. What About Employment and Title IX? The terms “employment” and “Title IX” are not expressly stated in the release, but the release is very broad and does expressly cover claims “on account of, arising out of, or resulting from” rules regarding “monies or benefits provided to student-athletes.” There is specific law relating to the release of these types of claims that would need to be addressed, but that language is arguably broad enough to cover employment and Title IX claims. Moreover, the Settlement Agreement contains a covenant not to sue and a prohibition against future actions that provides additional protections against such suits. Nevertheless, until a court rules on the application of that release language, universities and conferences will need to be careful and tread lightly to mitigate their risks in those areas.
6. In that Vein, Everyone Needs a Three-Headed System. As we have been advising our clients for a while, the best practice post-House will be three separate entities interacting with student-athletes: (1) the university, (2) an independent collective handling authentic NIL, and (3) a conference-wide independent rights clearing entity. Although the setup is a bit complex, this is the best mechanism we have seen for providing a seamless revenue distribution model, protecting universities against future employment/Title IX litigation, and ensuring that the university’s annual spend, including litigation costs, does not exceed the amount of the revenue distribution pool. Whether that happens is to be determined as many schools are already frustrated by the lack of control over collectives and want to bring everything in-house, but that same control is what could create future liability.
7. Collectives (or “Marketing Agents”) Are Alive and Well. Amounts paid to student-athletes for group licensing or endorsements are not deducted from the revenue sharing pool. In the hyper-competitive world of the A4 (and some would say a world disconnected from economic realities), that likely means that universities will not seek those rights in exchange for the revenue sharing payments. Rather, authentic NIL payments will become the recruiting pitch as revenue sharing will likely be fairly uniform at the A4 level. It is far safer to have collectives contracting with the student-athletes, though most of the work will be done by Learfield and other multimedia rights holders. Nevertheless, the collective model will have to transform from the booster inducement model to an authentic NIL model with the requirement that the rates and terms paid for NIL be commensurate with compensation paid to similarly situated individuals with comparable NIL value who are not current or prospective student athletes at the school. If this is enforced, which is a big if, it will require a defensible valuation formula and bona fide services.
8. Nonprofit Collectives Are Now Officially Dead. The Settlement Agreement provides that a booster license/payment must be for a valid business purpose related to the promotion or endorsement of goods or services provided to the general public for profit. Along with last summer’s IRS General Counsel Memo, this is an effort to end nonprofit collectives as they have previously operated, as boosters and collectives will need to demonstrate that that they have a public, for-profit business objective. So, boosters paying student athletes to perform services for charities will not be permissible; nor will endorsements for a booster’s passive business that has no public facing operations. This also removes university foundations from acting as collectives.
9. Number of Scholarships and Alston Payments Decreasing? The Settlement Agreement provides separate $2.5 million offsets against the revenue sharing pool for both Alston payments and new scholarship increases. Although it makes sense from a budget perspective to recognize these payments as benefits to student athletes, will it disincentivize schools wanting to maximize revenue sharing for recruiting purposes from spending $5 million in those areas? We think so. Historically, prospective student athletes have discounted the value of Alston and in-kind benefits versus cash, though athletic departments like them as they incentivize academic success and help ensure student athletes maintain NCAA eligibility. On the scholarship side, it is likely numbers will be increasing in football and baseball. Consequently, they will either increase in many women’s sports to balance for Title IX or be reduced by the same number in other men’s sports, likely leading to a bleak outlook for scholarships in men’s non-revenue sports.
10. Number of Sports Decreasing? The Settlement Agreement expressly states that universities and conferences maintain the right to unilaterally reduce the number of sports. For years, many rationale voices in college sports have tried to explain that the expense of revenue sharing will have to be balanced by cuts in other areas. Usually, such warnings have been ignored by the press, but the economic reality of balancing athletic budgets will require cuts from somewhere. From an economic perspective, it is hard to argue against cutting sports with large losses. But, for fans of those sports and fans of the collegiate athletics model, those provisions are a stark reminder that there will be consequences.
Please Contact us with questions:
Jay Ezelle 205-868-6025 or jezelle@starneslaw.com
Daniel Feig 205-868-1844 or dfeig@starneslaw.com
Tabor Novak 205-868-6042 or tnovak@starneslaw.com
Clayton Bromberg 205-868-6084 or cbromberg@starneslaw.com
Averie Jones 205-868-6043 or ajones@starneslaw.com
