Historic NCAA home settlement suffers major setback

The historic proposed settlement in House v. NCAA hit a major snag this week, as U.S. District Judge Claudia Wilken declined to grant preliminary approval to the agreement. That’s not the end of the road for a potential deal between the two sides, as they have several weeks to work on the agreement. Still, it’s a significant step back and drastically increases the likelihood that the case will go to trial, keeping the college sports landscape uncertain for the foreseeable future.

The case was brought by a group of then- and former college athletes who claimed the NCAA violated antitrust laws by limiting to zero the damages they could recover from their name, image and likeness. The lawsuit was filed in 2020, just a year before the Supreme Court’s ruling in Alston v. NCAA was the final push to force the NCAA to confront the era of NIL in college sports.

With potential damages exceeding $4 billion, the NCAA was clearly interested in settling the case before trial. The historic settlement agreement was largely in place, including $2.8 billion in back damages and significant structural changes to the NCAA’s athlete compensation rules that allowed schools to directly share revenue with athletes to the tune of about $22 million per year. Remarkably, these payments from schools to athletes were still considered NIL payments, and pay-for-play was still prohibited. That was until Judge Wilken told both sides to go back to the drawing board.

Wilken’s decision is somewhat surprising, since most settlements are approved. On the other hand, it is not surprising, since some of the settlement terms are controversial.

The $2.8 billion in back pay is unfair regarding who would pay the funds and how the funds would be distributed. Despite the fact that 95% of the money was to be given to athletes from the Power 5 (now Power 4) conferences, other conferences in Division I footed almost a third of the bill. This angered some athletic departments in smaller Division I conferences to the point that Houston Christian University filed a motion to intervene and accompanying briefs that were highly critical of the terms of the settlement, particularly the amount of money that members of the FCS Southland Conference would have to pay under the agreement.

The proposed settlement terms are still antitrust. It is worth noting that the athlete salary cap is still a cap, even after the cap increases from $0 to over $20 million. It is still an anti-competitive salary cap. The only way professional sports leagues can legally impose a hard cap on their players’ salaries is through collective bargaining. The NCAA is trying to circumvent collective bargaining through the settlement. A maneuver without legal precedent and one that does not carry any of the antitrust protections of a collective bargaining agreement.

The proposed settlement also includes provisions that create a new clearinghouse that will verify whether any NIL transaction over $600 is at the appropriate market rate for a particular athlete. How they will determine the appropriate market rate remains a mystery, but it is clear that they do not want to allow the “free market” to operate in this sense. This is another provision that is unlikely to withstand antitrust scrutiny for athletes who opt out of the settlement. This interference in third-party transactions will also likely draw the ire of NIL school collectives that will still want to be active in the NIL space.

The vast majority of the revenue-sharing money will go to athletes in revenue-generating sports, raising questions about Title IX. Athletic directors at major schools have already signaled how they will allocate their revenue-sharing funds. Even the largest athletic departments, such as Ohio State, have publicly discussed diverting resources from some nonrevenue-generating sports. There is no consensus in the legal community on whether Title IX will apply to revenue-sharing funds distributed by schools, but the issue will almost certainly be decided in court.

It is debatable whether many current and future athletes would opt for the settlement. While the details of how the money would be paid out are not known, the benefits of opting into the settlement may be nonexistent for most athletes outside of Power 4 football and basketball. If the payout to other athletes is negligible, it is likely that those athletes will opt out of the settlement, thereby preserving their right to sue the NCAA for antitrust violations. Co-lead plaintiffs’ attorney Steve Berman has publicly expressed doubts that those who opt out would pose a significant antitrust threat. He has expressed doubts that the value of the NIL of those who opt out would not be high enough to justify the significant costs of an antitrust lawsuit. It was an odd position to take publicly, and while Judge Wilken did not specifically address the comments, they certainly did not help sway her thoughts toward preliminary acceptance.

Wilken deliberated and asked questions about the above issues, but the sticking point seemed to be the NCAA’s attempts to regulate and oversee transactions outside of the NIL, which it cannot effectively do under the current circumstances. The NCAA’s attorney expressed that his client may not be willing to enter into another agreement, indicating that the NCAA would rather continue the litigation than make further concessions.

Such willingness to litigate is a puzzling strategy for the NCAA, which is already defending itself against lawsuits on multiple fronts. The NCAA would be wise to make concessions on outside NIL contracts and even potentially soften its stance on pay-for-play. It recently lost an appeal in Johnson v. NCAA, a case involving the employment status of college athletes. If it ultimately loses on the employment issue, why risk potentially billions of dollars more in antitrust damages?

Moreover, while the House case will not resolve all of their legal problems, or even protect them from antitrust litigation, it will at least protect them from the plaintiffs’ lawyers, Jeffrey Kessler and Steve Berman. Kessler and Berman were the Heffalumps and Woozles to the NCAA, and Kessler also represented the plaintiff in the Alston case. Judge Wilken has also been a thorn in the NCAA’s side, having presided over the infamous O’Bannon v. NCAA and Alston cases, both of which were ultimately appealed to the U.S. Supreme Court. These are two of the most important legal cases in recent NCAA history, and they lost both.

The smart move is, and always has been, for the NCAA to make the necessary concessions to reach an agreement that can get Judge Wilken’s approval. Continuing to litigate will only prolong the seemingly inevitable shift toward college athletes as employees and accrue more attorney fees along the way. It’s time for the NCAA to embrace a new era of college sports and once and for all abandon the billable-hour era of the past few decades. But the chances of that happening seem slim. Pay-to-play bans are the NCAA’s sacred cow. They will drag this out as long as possible.