This coming Monday (April 7), the eyes and attention of every college athletics administrator, journalist, scholar, and even nerdy fans will be fixated on one event. It is not the aftermath of the women’s basketball tournament championship game to be played Sunday afternoon, nor is it the men’s tournament championship game to be played Monday night. While these are marquee events that are practically assured to have major brands and star players, their impact on the future of college athletics pales in comparison to what will occur in a Federal District Courthouse at 1 pm Eastern Time on Monday.
This is the setting for the final approval hearing for a legal settlement agreement, colloquially known as The House Settlement, regarding three separate antitrust lawsuits filed against the NCAA and the wealthiest athletic conferences, which were known at the time of the filing as “The Power 5.” This series will prepare readers for the hearing on Monday. Part I explained the background of the House settlement and how we got here. Part II (this article) will analyze the proposed NCAA rule changes contained in the House settlement.
What is the House case?
House v NCAA is a class action lawsuit against the NCAA and the Power 5 Conferences by Arizona State swimmer Grant House and Oregon (now TCU) basketball player Sedona Prince on behalf of a class of over 10,000 athletes who played NCAA Division-I sports from 2016 onward. The lawsuit alleges that the NCAA’s amateurism rules regarding athlete compensation, particularly their prohibitions on NIL activities prior to 2021, are an illegal restraint of trade in violation of antitrust laws.
Last May, the NCAA and the plaintiffs’ counsel agreed upon settlement terms that included $2.6 billion in “NIL backpay” and injunctive relief (a legal term for protection from future lawsuits) as they attempt to institute and enforce new rules that significantly change the landscape of college athletics. These rule changes include allowing schools to directly pay their athletes up to $20.5 million total annually, vetting any third-party NIL deal worth over $600 through a clearinghouse to make sure it is for a legitimate business purpose and not “pay for play” in disguise, and removing existing scholarship limits and replacing them with roster limits.
Revenue Sharing
This aspect of the settlement is the most significant departure from the NCAA’s stance and principles of amateurism that they have fought tooth and nail to uphold through numerous legal challenges. Under the terms of the settlement, the NCAA will allow schools to pay their athletes up to a cap of $20.5 million per year total for the entire athletic department. How schools choose to distribute their money among their athletes and teams is up to the individual schools.
Ohio State’s College Football Playoff championship-winning roster is believed to have been fueled by over $22 million in NIL compensation. The school won’t be able to pay that to its football roster under the new revenue-sharing cap, but its widely assumed that most major athletic programs will distribute as much as 75% of their revenue-sharing to the football team, with another healthy percentage going to men’s basketball teams. This could create a sneaky advantage for schools without major football programs as they may be able to outspend in other sports. For example, the Big East is a strong conference for men’s and women’s basketball, but only one school in the conference (UConn) has an FBS football team.
This has raised plenty of Title IX and gender equity concerns. Whether revenue sharing by the schools will be subject to Title IX scrutiny remains to be seen. The issue will most likely find its way to a courtroom at some point, but it will be an individual school, not the NCAA, as the defendant in that case.
While NCAA athletes have been getting paid “NIL compensation” from boosters and booster-led collectives for the last several years, the schools have had to be more of a middleman in payment negotiations with players, as they are currently prohibited from paying their players. This has created some interesting problems, as illustrated by the ongoing Jaden Rashada saga and the recent NIL lawsuit filed against former Florida State coach Leonard Hamilton. While these payments appear to be “pay-for-play”, the settlement characterizes them as NIL revenue-sharing payments. However, there is no requirement that payments to athletes are tied to a specific revenue stream from the athletic department. While the $20.5 million cap was calculated based on an estimate of 22% of the Power Four schools’ (plus Notre Dame’s) average athletic revenues each year, any school who can find the money and wants to use it for revenue sharing is permitted to do so, regardless of how much athletics revenue they earn.
This de facto salary cap is a major point of contention in the House settlement and the grounds for several of the objections filed. Even the Biden DOJ expressed skepticism about its legality on their way out. The central allegation at issue in this lawsuit is that the NCAA has illegally restrained athlete compensation at $0. Just because a cap moves from $0 to $20.5 doesn’t make it any less of a cap, which a facial violation of antitrust law. Professional leagues get away with salary caps through collective bargaining which exempts them from antitrust scrutiny. The NCAA does not collective bargain with their athletes, nor does any conference or individual school.
NIL Clearinghouse
While college athletes will be paid by their schools, third-party endorsement deals are not going away, but they are going to be more heavily regulated. Under the current landscape, booster collectives regularly pay athletes with few obligations (sometimes called deliverables) for the athlete. This is not what true NIL was meant to be; this is thinly veiled pay-for-play. Most booster collectives have no legitimate business purpose; they exist solely to funnel money to athletes at their preferred schools.
This has, somewhat understandably, frustrated the NCAA. In an effort to curb this type of booster activity, the settlement proposes a clearinghouse that would vet any third-party NIL deal of over $600 to ensure that they are for a legitimate business purpose. The exact mechanics of this clearinghouse have not yet been determined, but the Power 4 conferences are trying to iron that out before these rules go into effect. They have been working with Deloitte, the massive consulting/accounting firm, to develop a system to determine whether deals are at a fair market value.
This clearinghouse is likely to create some controversy. It seems obvious that boosters will want to try to circumvent the $20.5 million cap at several schools, and this clearinghouse is a tool to try to prevent that. There will almost certainly be legal challenges to this type of meddling in free market business deals.
Roster Limits
The strangest, and perhaps most contentious, proposed rule change in the House settlement is the implementation of roster limits for each sport. Currently, the NCAA limits the number of athletic scholarships a school can award for each sport, but largely leaves the total number of roster spots and walk-on athletes up to the schools. Under the terms of the settlement, the NCAA is doing away with scholarship limits in favor of roster limits.
For example, under the current rules FBS football teams are limited to 85 scholarships but the average roster is above 125. This means there are roughly 40 walk-on football players per team on average. Under the settlement, rosters will be limited to 105, but schools can give all 105 full scholarships. Any additional scholarships awarded will count against the $20.5 million salary cap.
The end result is far fewer roster spots at the Division-I level, which would seem antithetical to the NCAA’s overall mission. What makes it all the more puzzling is that there is no apparent justification for this. Statements by plaintiffs’ attorney Jeffrey Kessler have indicated that this is something the NCAA asked for in the settlement, but the reasons for that are unclear. While the cap and clearinghouse have their problems, the justification for them as a way to promote some competitive balance that has largely been missing in college sports is clear. Roster limits do not contribute to this.
The NIL era has created a redistribution of talent with teams like Indiana and SMU (not traditional football powers) making the CFP. Athletes want to go where they have a chance to play, showcase their talents, and earn NIL income. Assuming they work as the NCAA expects (not a safe assumption), the salary cap and the clearinghouse should assuage any concerns of a school being able to horde talented players on its roster who do not get much playing time. While all of the proposed rule changes present some issues, the roster limits in particular will create more problems than they solve.
The roster limits have been at the center of several formal objections to the settlement. Still, the NCAA has yet to show any intention of changing them, or even implementing them more gradually. Taking opportunities away from athletes as a potentially redundant competitive balance measure would be an odd hill for the NCAA to die on.