‘Back to the drawing board’ – House of Representatives’ NCAA settlement in jeopardy after judge criticizes agreement

The NCAA’s landmark settlement in the House antitrust cases of Hubbard and Carter has been put on hold and is at risk of falling through.

During a two-hour virtual hearing on Thursday, the judge ordered the parties to “go back to the drawing board” regarding provisions of the settlement that limit third-party payments to athletes, particularly from sponsors and sponsor-led collectives.

U.S. District Court Judge Claudia Wilken of the Northern District of California challenged a part of the settlement that explicitly bars school sponsors from paying athletes through sponsorship agreements — a clause in the document that the judge said would be difficult to enforce and could reduce current payments athletes receive.

The plaintiffs’ attorneys in the case, Jeff Kessler and Steve Berman, as well as the defendants, the NCAA and the energy conferences, will now attempt to reach an agreement on changing the language — something the NCAA and the energy leagues appear reluctant to do. They are expected to report back in three weeks.

The current language is a “central part” of the settlement, NCAA outside counsel Rakesh Kilaru told the judge during Thursday’s hearing. “Without it, I’m not sure there will be a settlement to submit.”

Based on the judge’s comments, Kilaru later said: “We need to talk about whether we can reach an agreement.”

For some in college sports circles, it was highly anticipated. For others, it was a stunning result that could doom the deal to failure.

Said one of the presidents of the Power Conference schools: “This is absolutely crazy. There is no reason to have an appointment under these circumstances. Let’s go to court and try our hand at an appeal.”

The issue — the ban on third-party support payments — prompted more than 30 minutes of discussion between the judge, Kilar’s ​​NCAA attorney and plaintiffs’ lawyers, primarily Kessler. The conversation centered on one of the most important questions in the settlement: How will the NCAA and power leagues prohibit and then oversee third-party payments to athletes?

Such payments now occur because sponsors and the collectives they run distribute millions of dollars in salary-like payments to retain and recruit athletes, many disguised as commercial and sponsorship deals. The settlement would potentially limit or eliminate such payments, allowing schools to pay their athletes directly through a salary-cap system instead.

Wilken, however, suggested that such a move could limit the pay athletes currently receive — some of which is “a lot of money,” she said — and expressed skepticism about the NCAA’s ability to enforce or enforce its policy against “pay-to-play.”

In one of the more shocking moments, Wilken appeared to admit that she entered the hearing believing the settlement allowed for “pay-for-play” from outside entities. The NCAA’s ban on pay-for-play “isn’t going to apply anymore, is it?” Kilaru asked in one of the most jarring exchanges of the hearing.

Kilaru — to Wilken’s surprise — informed the judge that the “pay-to-play” policy would continue to apply.

She looked at him blankly during the video call, shaking her head.

“I think we have a problem with that,” Wilken said. “I have no idea how to fix it. I’ll turn it over to you to come up with something better and more consistent. Remember, taking something away from people doesn’t work well.”

The discussion was a significant development in a case that plaintiff and defendant lawyers had expected to approve. There are more hurdles, too.

Kilaru has made it clear that the NCAA wants all three cases — House, Hubbard and Carter — to be approved, or there will be no agreement on any of them. Hubbard is in the best position to get approved, but the judge, based on Kilaru’s comments, did not approve it.

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For now, the House case is on hold until a judge reverses the ruling, and Carter’s case has its own problems.

Carter’s case has competition in the form of a similar antitrust case, Fontenot v. NCAA. During Thursday’s hearing, the NCAA asked for Fontenot’s case to be stayed — and ultimately dismissed — and for her claims to be dismissed as part of the settlement. The judge instead decided to send the case home to Colorado — a decisive victory for Fontenot’s lawyers, one of whom, Garrett Broshius, represented them at the hearing.

But the bigger issue remains the settlement agreement’s third-party name, image and likeness (NIL) clause — a bane that many in the sports world fear will come under scrutiny.

The settlement aims to shift payments to athletes from outside entities—such as sponsors—to the schools themselves, allowing universities to share the same amount of pool money with athletes each year. The pool cap—an average of 22% of a power conference school’s revenue—will apply to all schools and will fluctuate based on built-in escalators and school revenue growth. Projections suggest the cap for Year 1 will be $20 million to $23 million.

Under the current system, most conference boosters distribute between $5 million and $15 million to athletes each year, though a few schools, such as Ohio State, earn closer to or more than $20 million.

Several SEC football coaches told Yahoo Sports in July that they expect to distribute between $12 million and $17 million to their players under the new revenue-sharing model.

Wilken didn’t dispute the pot or the cap, or even the fact that Title IX isn’t addressed in the settlement. Instead, she pointed to a clause that prohibits sponsors from paying athletes unless the sponsor can prove the compensation is for a legitimate sponsorship agreement and has “fair market value.”

She questioned not only the enforcement of that clause — “How are you going to enforce something like that?” — but also took issue with the very definition of “supporter.” It’s an ambiguous term, she suggested, that the NCAA has used for years to describe someone who has a personal interest in a university and is supporting that university financially in some way.

Kilaru supported the clause, provided a detailed definition of a doping agent and presented the judge with a new enforcement model, which Yahoo Sports reported on Wednesday.

Led by the power conferences, college leaders are vetting third-party entities to manage and enforce the new revenue-sharing model. Third-party endorsement agreements—those that don’t come from schools—are supposed to be sent to a clearinghouse, which then determines their validity.

As Kilaru described the entire process, Wilken shook her head vigorously, clearly disagreeing with the possibility of such a situation occurring.

Kessler joined the conversation, telling the judge that the plaintiffs and defendants “did not attempt to prohibit anything (in the settlement) that was not already prohibited. It was not intended to eliminate NIL from boosters that are currently prohibited.”

Wilken, looking at you coolly, said, “That may be your point of view, but I’m not sure it’s the same as the NCAA’s.”