House-NCAA settlement on hold as judge sends parties ‘back to drawing board’

The landmark settlement in the House of Representatives’ case against the NCAA and other antitrust cases was challenged during a court hearing Thursday over a provision that would limit payments for third-party names, images and likenesses from sponsors and collectives.

Judge Claudia Wilken of the Northern District of California declined to rule on the preliminary approval after raising concerns about the NCAA’s efforts to limit athlete pay from outside parties and advised settlement lawyers to “go back to the drawing board.” The settlement, if ultimately approved, could change the face of college sports and was approved this spring by the NCAA and five power conferences.

Wilken, who remained optimistic that a deal could be reached, raised a number of issues with the current proposed terms. If Wilken ultimately grants preliminary approval, the settlement would still need to go through a final approval process before it can be formalized, a process that would likely take until early next year.

During the more than two-and-a-half-hour discussion, Wilken’s biggest sticking point was the settlement’s proposed restrictions on NIL payments to third parties, particularly by NIL collectives led by supporters, and the justification for those restrictions.

One key aspect of the settlement for the NCAA is enforcing rules limiting NIL payments to a “legitimate business purpose” and eliminating pay-for-play payments that have become common among NIL collectives.

“For us, this is an important part of the agreement,” said Rakesh Kilaru, an attorney representing the NCAA.

Kilaru later added: “Given the comments (of the judge) today, we need to talk about whether we have reached an agreement (with the plaintiffs).”

Both parties to the settlement — plaintiffs representing college athletes and defendants representing the NCAA and energy conferences — agreed to confer, consider Wilken’s concerns, and file a supplemental brief addressing those concerns within three weeks on September 26.

Jeffrey Kessler, one of the lead attorneys for the plaintiffs, admitted there was a possibility that if an agreement on a modified settlement could not be reached, the cases could go to trial.

“If we’re going to resolve these issues and move forward, that’s great,” Kessler said. “And if we’re not, we want a trial date.”

The NCAA issued a statement after the hearing saying it would “carefully consider the court’s questions, which are not uncommon in the context of class action settlements.”

Here’s what else you need to know about Thursday’s hearing.

Issues regarding boosters, collectives and third party NILs

Under the proposed settlement, college athletes would be required to report all third-party NIL contracts worth $600 or more to a newly created clearinghouse database. Those transactions are not part of schools starting to pay players through a revenue-sharing pool that will start at more than $20 million per school. The settlement would also authorize the NCAA and the Power conferences to create a “designated enforcement agency” to determine whether reported third-party NIL transactions qualify as “true NIL” and provide fair market value. In theory, that would eliminate pay-for-play incentives — which currently violate NCAA rules but are largely unenforced, especially since a federal ruling in Tennessee earlier this year.

Wilken on Thursday questioned the proposed settlement restrictions, saying, “I’m concerned that changing what’s in the guidelines to what’s in the settlement agreement will mean that some people who currently receive large sums of money in the form of NIL from third parties will no longer be able to receive it.”

When told that current NCAA rules limit pay-for-play, Wilken responded, “So what’s going on with that?” and referred to what she had read “in the papers.” She later added, “I’ve found that taking things away from people is usually not very popular.”

Wilken also questioned the distinction between sponsors and other outside companies or entities that may be interested in signing sponsorship and endorsement deals with NIL collegiate athletes.

“What if Mr. Fan loves his team and wants to give them all a truck or a million dollars to get a new player?” Wilken said. “Is it a valid business goal for your team to win?”

General Information About the Settlement and Hearing

The terms of the settlement, agreed to in May and formally filed in court in July, would cover claims from three separate antitrust cases brought against the NCAA: House, Hubbard and Carter. If finalized, the agreement would establish $2.8 billion in retroactive damages for former college athletes dating back to 2016 who had no opportunity to seek compensation for their NIL. It would also allow college athletic departments to opt for direct revenue sharing with current and future college athletes.

Thursday’s preliminary approval hearing included comments from both sides of the settlement: plaintiffs’ attorneys representing college athletes, as well as representatives from the NCAA and energy conferences. The hearing also included arguments from two groups opposing the settlement. One represented a group of female athletes who argue that the structure of how compensation payments are allocated is unfair to female athletes. The other represented Fontenot v. NCAA, a separate antitrust lawsuit filed in Colorado that seeks claims similar to Carter’s, arguing that NCAA rules prohibiting “pay-for-play” compensation for college athletes violate antitrust law.

Garrett Broshuis, the attorney in the Fontenot case, argued that the backpay damages are understated, that the forward revenue-sharing model does not adequately engage athletes in the process and unfairly binds future athletes, and that having the same plaintiffs’ attorneys representing the backpay class and the forward revenue-sharing class constitutes a conflict of interest. Wilken said she will not hold the Fontenot case in Colorado.

What’s next?

If Wilken grants preliminary approval, the settlement parties could begin notifying class members, including former athletes eligible for damages and current athletes eligible for optional revenue sharing. A final approval hearing could be scheduled for early next year. If that approval is granted, the settlement would become effective immediately, with revenue sharing set to take effect next July.

But all of that seemed much more fragile after Thursday’s hearing. For now, the two sides in the settlement will return to the negotiating table to determine whether the agreement covering all three antitrust lawsuits — House, Hubbard and Carter — can still be saved.

“I think I have more questions, but I don’t think it’s a good time to ask them now,” Wilken said, ending the hearing. “Otherwise, I think you’ve agreed to come back to me in three weeks with a prognosis on all the things we talked about today, and then we’ll take care of the rest.”

“If I need a hearing after receiving your report, I will schedule one. If not, I will simply try to rule on the matter.”