Domestic settlement filed for court approval: Impact on future of college sports

On July 26, the plaintiffs in the case In the case: Legal proceedings concerning university athletes NIL (also known as House dispute) submitted formal settlement documents (ie(Proposed Settlement) with the United States District Court for the Northern District of California, expediting the approval process for a settlement in the hopes of ending class action lawsuits(1) involving the National Collegiate Athletics Association (NCAA) and the five Power Five athletic conferences — the ACC, Big Ten, Big 12, Pac-12 and the SEC.

The proposed settlement is intended to resolve three issues: (1) pay compensation to former NCAA athletes for their claims regarding name, image, and likeness (NIL), academic awards, and other benefits that they were unable to obtain due to NCAA rules; (2) provide institutions with enhanced benefits for student-athletes in the future, including additional NIL opportunities for student-athletes paid directly by the institutions; and (3) repeal of scholarship limits in favor of roster limits.

Terms of the proposed settlement

In a recent episode of our program Podcast “Highway to NIL”we discussed potential conditions House settlement, which included three proposed classes and subclasses: an “Injunction Class,”(2) a “Social Media Damages Subclass,”(3) and a “Class License Damages Subclass.”(4) These classes of student-athletes ultimately seek back wages (in addition to the injunction) to compensate them for lost NIL revenues they were unable to earn while participating in NCAA athletic competitions, including lost NIL revenues from broadcasting, video gaming revenues and NIL transactions with third parties.

The proposed settlement, which was filed in court, recommends that these back payments be paid in the amount of $2.78 billion, to be paid over 10 years. This equates to about $280 million per year, and the exact division of these back payments will be determined by the plaintiffs. The proposed settlement also allows Power Five conferences and other Division I schools that choose to participate in the new structure to provide enhanced benefits to their student-athletes, including NIL benefits, institutional branding, and other rights.

Under this new model, member institutions will be able to distribute additional payments/benefits to student-athletes above and beyond existing stipends, capped at a “pool” amount that is up to 22% of average Power Five conference sports media, ticketing, and sponsorship revenues for student-athletes — expected to be between $20 million and $22 million per school per year when the settlement goes into effect at the beginning of the 2025-26 academic year. The capped “pool” amount will be recalculated every three years with a 4% annual increase in the second and third year of each term, ending at $32.9 million per school by the 2034-35 academic year.

Under these settlement terms, student-athletes would retain the ability to receive compensation for NIL transactions from third parties. The NCAA believes the terms of the proposed settlement will allow them to create a “more robust and effective enforcement and oversight program” to ensure that third-party transactions are “legitimate NIL activity.”

The proposed agreement would also eliminate NCAA Division I athletic scholarship limits in all sports, replacing them with roster limits that the NCAA would set (e.g.(football limited to 105 players on the roster; men’s and women’s basketball limited to 15 players). Importantly, these roster limit changes will not result in the loss of scholarships for current student-athletes, nor will they reduce the number of scholarships below what the NCAA currently allows. Member institutions will still have the flexibility to offer partial or full scholarships, provided they do not exceed the roster limits.

Distribution of settlement proceeds

Under the terms of the proposed settlement, all student-athletes will have the opportunity this fall to object to certain terms of the settlement or opt out entirely. If a student-athlete opts out, they will retain the right to sue the NCAA in the future for alleged antitrust violations. However, if enough student-athletes opt out of the settlement, the NCAA and the Power Five conferences will be able to opt out of the settlement on their own. The specific number of student-athlete opt-outs that would trigger this provision is unknown, as it has been removed from the proposed settlement.

As for damages, which compensate former student-athletes for money they could have otherwise earned during their careers if NIL had been allowed, the proposed settlement provides that all student-athletes who played in Division I sports from 2016—the statute of limitations for antitrust claims(5)—to the present are entitled to a portion of those damages. Plaintiffs’ attorney Steve Berman indicated that football and basketball players from Power Five colleges could receive an average of $135,000, and basketball players from the same college could receive an average of $35,000. Some of the payments are likely to be based in part on the student-athlete’s potential earning power if he had been able to sign NIL agreements while in school.

Additional comments and issues

NIL Collectives

Under the proposed settlement, member institutions would be permitted to directly compensate student-athletes for their salaries through revenue sharing and by having the NCAA lift previous restrictions prohibiting schools from directly engaging in NIL agreements with student-athletes (which the NCAA had previously indicated it would continue to “enforce” in the wake of the Tennessee vs. Virginia). And while the settlement does not mention collectives and third-party NIL compensation, it does make clear that third-party NIL compensation to student-athletes will be NO be counted as part of the revenue-limited funds that schools can pay. It is therefore likely that collectives will continue to operate after House settlements, as they have operated since the interim NIL policy went into effect. Because collectives can offer student-athletes additional compensation beyond revenue-sharing payments, it would not be surprising to see the number and use of collectives increase.

Title IX

One notable omission in the proposed settlement is the structure that addresses Title IX and the federal requirement that schools “provide equal opportunities for athletic participation to members of both sexes.”(6) Given that the proposed settlement creates a system in which many schools would share nearly half of their revenue with student-athletes as a single group rather than on a sport-by-sport basis, whether some or all of these benefits must be shared equitably under Title IX becomes a significant compliance issue for schools. Because the proposed settlement provides no guidance on how Title IX applies to these new benefits, it seemingly leaves it up to schools to decide how (or perhaps even whether) Title IX applies to these benefits. The likely result of this uncertainty will be divergent positions taken by different schools and the need for litigation to resolve it all.

Antitrust concerns

Even under the terms of the proposed settlement, the NCAA could still face future antitrust lawsuits, particularly regarding rules and regulations regarding student-athlete eligibility and compensation, since the settlement was not reached with the players’ union. While the settlement purports to resolve several antitrust lawsuits filed by former athletes, the terms of the settlement could be interpreted by some as still allowing the NCAA to limit student-athlete compensation. For example, it would not be surprising for someone to argue that the 22% salary cap violates antitrust laws, since the cap and percentage were not included in the collective bargaining agreement.

Congress has not granted federal antitrust protection to the NCAA, and such an exemption does not seem imminent, especially in an election year. Major League Baseball is currently the only major U.S. sport with a general exemption from antitrust laws. However, other professional sports leagues have relied on a nonstatutory labor exemption that allows them to negotiate collective bargaining agreements (CBAs) with players’ unions. Because these CBAs primarily address employment terms and are the result of remote negotiations, the nonstatutory exemption protects both the professional leagues and the unions from antitrust liability. The NCAA could also try to go down this route, although it may not be able to do so if it successfully pressures Congress to declare that student-athletes cannot participate in collective bargaining agreements and are not employees.

Application

Judge Claudia Wilken is expected to review the proposed settlement terms in the next few weeks and decide whether to accept them provisionally in early September or sooner. Notices of the details and terms of the settlement will then be sent to student-athletes on October 1, giving student-athletes until January 14, 2025, to object to its terms. Once student-athletes have had a chance to review the terms, Judge Wilken will issue a final ruling in early 2025.

Troutman Pepper will continue to monitor developments in this case.

(1) The collective action consists of three cases: House v. NCAA, Hubbard vs NCAAAND Carter v NCAA.

(2) The “enforcement class” consists of all current and former student-athletes who compete or competed on an NCAA Division I team at any time between the four years prior to the filing of the complaint—or 2016—and the date of adjudication.

(3) The “Social Media Damages Subclass” includes all current and former student-athletes who compete or competed on an NCAA Division I team at a school that is a member of one of the Power Five conferences at any time between the four years prior to the filing of the complaint—or 2016—and the date of adjudication.

(4) The “group licensing damages subclass” includes all current and former student-athletes who compete or competed on an NCAA Division I men’s or women’s basketball team or a bowl subdivision football team at a school that is a member of a Power Five conference at any time between the four years prior to the filing of the complaint—or 2016—and the date of adjudication.

(5) The limitation period under the Sherman Antitrust Act of 1890 is “four years from the date of the last injury.” See 15 United States Code § 15b.

(6) See 34 Code of Federal Regulations § 106.41(c).