Attempt to regulate aid-funded NIL collectives becomes obstacle to NCAA settlement agreement

A proposed $2.8 billion settlement of multiple antitrust claims against the NCAA and the nation’s largest college sports conferences has hit its first major hurdle.

District Judge Claudia Wilken shook her head and appeared to disagree as an NCAA lawyer tried to explain Thursday why the plan for schools to pay their athletes directly is not actually paying them to play, and therefore the payments they receive separately from relief-funded organizations must be limited.

So-called NIL collectives have become the No. 1 way for college athletes to earn money by using their name, image and likeness. According to Opendorse, a company that provides NIL services to dozens of schools, 81% of the $1.17 billion spent on NIL deals with college athletes last year came from collectives.

Now, as part of a settlement of three antitrust lawsuits that threatened to financially ruin the NCAA and its five most powerful conferences, the defendants want to impose sanctions on the collectives.

Wilken, a judge who has overseen several antitrust cases that helped overturn NCAA amateurism rules over the past decade, wasn’t ready for that.

“What are we going to do about it?” Wilken asked at a hearing where lawyers were hoping for preliminary approval of the sweeping plan. “I’ve found that taking things away from people is usually not very popular.”

The House settlement hearing took a complicated turn about an hour and 15 minutes into the 2½-hour proceeding, when Wilken expressed opposition to the idea of ​​trying to regulate who is in favor of the increases and what is the “real” NIL agreement.

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

Here’s why this collective problem is so vexing for college sports.

The revenue-sharing plan negotiated as part of the settlement mimics the salary caps used in professional sports leagues to create competitive balance. Each school will be allowed to spend up to about $21 million annually on payments to its athletes, divided among the sports as they see fit.

Some college administrators worry that collectives will be used to circumvent that cap and give schools with the most aggressive and wealthiest sponsors an advantage in talent acquisition.

Some argue that it has always been this way in college sports, whether it is about illegal payments or completely honest financing of luxury sports facilities and astronomical salaries for coaches.

The settlement plan includes “certain new rules restricting sponsors from making payments at fair market value for NIL” and somehow ensuring that NIL transactions will be “for a legitimate business purpose related to the promotion or endorsement of goods or services provided to the general public for profit, with compensation at rates and on terms commensurate with compensation paid to similarly situated individuals with comparable NIL value who are not current or prospective student-athletes at a member institution.”

Attorneys representing athletes in the lawsuit against the NCAA and conferences told a skeptical judge that it would have no impact on sponsorship deals athletes could strike with big companies like Nike or Coke.

Steve Berman, a Seattle attorney representing the plaintiffs, said the settlement agreement did not explain in detail the purpose of the proposed restrictions.

“Previously, the collectives would recruit players for cash. Now, schools have the ability to pay players as they see fit in a competitive market,” Berman told the AP on Friday. “The NCAA doesn’t want an additional pay-for-play system when players can now be paid directly by the schools. So getting the collectives to stick to fair NIL agreements seems like a fair compromise to put some limits on pay-for-play after Judge Wilken twice upheld all of the rules on pay.”

The settlement calls for athletes to disclose contracts with teams or sponsors worth more than $600, and those contracts will be subject to review through arbitration. Enforcement will be somewhat removed from the hands of the NCAA.

“This is an improvement from a student-athlete perspective on the status quo,” NCAA general counsel Rakesh Kilaru told Wilken. “If the NCAA were to enforce an improper financial assistance payment against an institution or student-athlete tomorrow, it would have immediate effect.”

Kilaru admitted that removing the amplifier restrictions from the proposal could be a critical factor in the deal’s success.

Notably, the NCAA was forced to back down from cracking down on collectives that used payments as recruiting incentives (a provision that is still in effect) when it was sued by the states of Tennessee and Virginia following an NCAA investigation into contracts entered into by a collective operating in Tennessee.

For people working in the collectives, Wilken’s reprimand was a kind of justification.

“Anyone who read the proposed settlement could see that it was problematic,” said Russell White, who heads The Collective Association. “It was another attempt by the NCAA to limit financial opportunities for college athletes and regain the power they had lost over the years.”

Wilken has sent both sides “back to the drawing board” and wants to hear from them with proposed solutions within three weeks.

The preapproval is an important step. Parties can file objections to the agreement after the preapproval; Wilken indicated at the hearing to some who had already filed objections that she did not find their arguments persuasive.

It seems her own concerns may be more likely to thwart her plans, though Wilken said she believes “there is a strong possibility that a settlement will be reached,” and the NCAA responded after the incident that the questions asked by the judge “are not unusual in the context of class action settlements.”

The earliest Wilken could grant final approval is 150 days after notices are sent to members of the compensation class, which has numbered more than 400,000 athletes since 2016. But it will now be at least another three weeks before any action takes place.

Berman said he was confident a settlement would be possible.

“It was clear at the beginning of the hearing that Judge Wilken understood the seismic shift this settlement represents for athletes,” Berman said. “She may have to decide whether the billions that would have gone to athletes should not be passed on because of this one limitation.”

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Follow Ralph D. Russo on https://twitter.com/ralphDrussoAP

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