Ahead of key House and NCAA hearing, leaders try to establish new revenue sharing management system

This coming Saturday, college football stadiums across the country will host games that will mark the second full weekend of competition for the sport.

Arkansas plays Oklahoma State in an SEC vs. Big 12 matchup, Iowa State battles Iowa in a CyHawk rivalry game, and Tennessee meets NC State in a neutral-site clash in Charlotte. The biggest game of the season begins in Ann Arbor: No. 3 Texas vs. No. 10 Michigan.

While the eyes of the sport are on these high-profile matches on the field, perhaps even more important battles are being fought off it — most of them tied to the NCAA’s landmark antitrust settlement with the House of Representatives, a deal that is set to usher in a new revenue-sharing model for the industry next July.

Far beyond the touchdowns and field goals, legal games are being played. Strategic moves. And key decisions that could impact the future of college sports.

There’s a lot going on.

Quietly, conference and NCAA leaders are working to establish a regulatory system that will govern and enforce this new revenue-sharing model. In their push to hire outsiders to oversee the governance and enforcement systems—not the NCAA—conference officials have seen presentations from some of the world’s largest professional services providers, such as PricewaterhouseCoopers.

All the while, the settlement itself still needs to be approved, which could happen at a preliminary level next Thursday in a virtual hearing before California District Judge Claudia Wilken, who will hear arguments from those who believe it should be approved (lawyers for the House plaintiffs and those from the NCAA/power leagues) and the settlement’s lead opponent: lawyers from the separate antitrust case Fontenot v. NCAA, who argue their case should continue because their claims were not dismissed in the settlement.

On the eve of the hearing, in separate recent interviews, the top two House attorneys, Steve Berman and Jeffrey Kessler, expressed confidence that the judge would approve the settlement, even if it meant changing the terms of the agreement — as many expected.

“We are confident that she will overturn (Fontenot’s) objections,” Berman said, adding: “There may be some minor changes.”

At the local level, school leaders are preparing for the approval of the settlement and the advent of revenue sharing. They are maximizing previously untapped revenue streams (think naming rights and sponsorships); beginning to restructure their departments to resemble a more professional model (general manager and other professional-style staff positions); and revising their budgets to align with the sports at the level (investing more in sports that attract attention, generate revenue, and/or have the ability to compete for championships).

Meanwhile, serious work has begun nationally to identify regulatory systems related to the new revenue-sharing model for college sports. Leaders are in the process of selecting outside firms that will (1) oversee the cap management reporting system; (2) regulate the clearinghouse for third-party endorsement/NIL agreements; and (3) enforce existing NCAA rules, such as those against pay-to-play, etc.

Interviews with Berman, Kessler and university administrators provide a clearer picture of the new regulatory structure for college sports.

Limit management

Under the settlement, each school will be allowed to share the same amount of pool money with athletes each year. The pool limit — 22% of average revenue for Power Conference schools — will apply to all schools and will fluctuate based on built-in escalators and school revenue growth.

Kessler said the cap for Year 1 (2024-25) won’t be set until March, when schools report their revenue from the previous academic year (2023-24) to the NCAA and plaintiffs’ attorneys. Those numbers are used to average several revenue categories included in the revenue-sharing formula, specifically ticket sales, conference distribution (primarily television contracts) and bowl money.

Projections indicate the cap for Year 1 will be $20-23 million.

Plaintiffs’ lawyers say they plan to hire an accounting firm to audit the schools to make sure they are reporting accurate revenue figures and that their salaries are within the limit. “We don’t want schools to take other revenue sources and hide them as a category outside of what counts,” Berman said.

College administrators expect to use a reporting system to upload their athlete contract data to a database that tracks caps. The details and rules of the contracts between schools and athletes remain unclear, but several administrators are working to create multiyear agreements that will include buyout provisions to curb transfer activity.

Clearing House

One of the unresolved questions in the settlement is how the NCAA and power conferences will control compensation paid to athletes from sources outside their schools.

By allowing schools to directly exchange revenue with their athletes, the new model encourages schools to shut down or at least limit sponsor-driven NIL collectives. The settlement reaffirms existing NCAA rules that prohibit pay-for-play, specifically noting that sponsors cannot compensate athletes through sponsorship/NIL agreements unless they can prove the agreements are genuine and meet fair market value.

Kessler said the settlement requires athletes to report outside compensation to their schools, but the agreement does not require any governing body or clearinghouse to approve the agreements. The NCAA and power conference leaders are creating their own clearinghouse, he said, as well as a new enforcement entity.

“The NCAA has indicated that they could change their enforcement bureaucracy or even outsource it,” Kessler said. “We honestly don’t care whether they do that or not. That’s their business.”

The clearinghouse, operated by an outside entity rather than the NCAA, is tasked with determining whether outside NIL transactions are kosher, and the enforcement entity is responsible for imposing penalties. Transactions deemed impermissible must be modified or corrected for the player to avoid possible enforcement sanctions such as inadmissibility.

The details of this remain unclear, and even the plaintiffs’ attorneys are questioning the process. Would a clearinghouse really reject an offer for an athlete from a company owned by boosters or a NIL collective/agency?

“We’ll see what the NCAA tries to impose,” Kessler said. “The NIL (collectives) didn’t agree to anything. If the NCAA tries to punish a student or a school, if they try to take action against the NIL (collective), I think they’ll probably face that NIL organization in court.”

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Arbitration

But before the case goes to court, the settlement provides for one final step in the process: a hearing before a neutral arbitrator.

If the clearinghouse rejects the deal because it deems it higher than fair market value or if the school is found to have violated the cap, any new enforcement body would likely review the case and impose sanctions against the athlete or school. At that point, Kessler said, the parties — NCAA/power conferences versus school and/or athlete — would go before a neutral arbitrator to present their case.

“The way it would work is the NCAA would bring a case against someone — a school or an athlete — and if they do, the school or athlete has the right to appeal the enforcement that they impose,” Kessler said. “The arbitrators hear the evidence and make a decision.”

How the arbitration is decided could “depend on the evidence” each side presents during trial-style hearings, Kessler said.

One of the unresolved questions surrounding arbitration is: Will the athlete’s school fight alongside him in the case?

“I would expect that if the athlete pursues, the school would support them and help them get legal advice to help represent them in that fight,” Kessler said.

What’s next?

There is still a long way to go before the settlement is finally approved.

Thursday is the next possible step along that path. If Wilken grants preliminary approval, plaintiffs’ lawyers would have 90 days to collect the names of class members from the universities and issue them settlement notices. There is also a 90-day period for those members to individually object to the settlement, Berman said.

Kessler said final approval is not expected before January and could take until March.

In the meantime, many organizations, individuals and even some college administrators have expressed skepticism and doubts that the settlement offers a strong long-term solution for college sports. The settlement may still need to be codified by Congress to grant the NCAA and conferences the authority to oversee third-party NIL payments, and it offers little in the way of a solution for when or if athletes are considered employees — a concept that could be significantly affected by the results of November’s presidential and U.S. Senate elections.