Unpacking the “House” Settlement’s Impact on Collegiate Athletics

Transcript

INTRO

The recently decided landmark class action antitrust lawsuit, House v. NCAA, is expected to restructure the landscape of collegiate athletics.  

On this episode of We get work®, we explore the case, the settlement and the potential long-term impact on collegiate athletic departments.  

Today's hosts are Bernie Dennis, principal in the Washington D.C. region office of Jackson Lewis, Dani Bland and Jason Kaner, associates, respectively, in the firm’s Raleigh and Philadelphia offices.    

Bernie, Dani and Jason, the question on everyone’s mind today is: What changes will collegiate athletics departments be required to make pursuant to the House settlement, and how will that impact my business?

CONTENT

Bernie Dennis
Principal, Washington D.C., Region

Welcome everybody to this episode of We get work. We are in September, students are back on campus, and college sports have started. What better time to recap what happened this summer in collegiate athletics with members of our Education and Collegiate Athletics Group? I'm Bernie Dennis, a principal here in the Washington, D.C., region office of Jackson Lewis. I'm joined here by two of our great associates in the Education and Collegiate Athletics Group, Dani and Jason. I want you guys to go ahead and introduce yourself really quickly.

Dani Bland
Associate, Raleigh 

I'm Dani, and I'm an associate in the Raleigh, North Carolina, office.

Jason Kaner
Associate, Philadelphia

Hey everyone, Jason Kaner here. I'm an associate in the Philadelphia, Pennsylvania office.

Dennis

All right, great, everybody. There was a lot of action this summer on the collegiate athletics front, with what is commonly called the House Settlement. The House v. NCAA settlement was accepted by the Courts in early June and led to a lot of action over the summer with institutions. Why don't we just level set for everybody that's listening in? 

Dani, can you tell us what the settlement was about? Who's involved with the settlement?

Bland

The House Settlement, as it's called, consolidates three antitrust cases that were brought against the NCAA. It involves currently about 75 institutions that are members of the ACC, the Big 10, the Big 12, the SEC, and formerly the PAC 12, as well as the University of Notre Dame. The Power conferences and then the University of Notre Dame, which is not tied to a conference. Institutions that will join one of these conferences during the term of the settlement agreement will be added to that agreement's terms as well during the term of the agreement.

Dennis

It's not just the power conferences, right? Other Division One institutions had an option to opt in and have an option to opt in annually as well. The initial deadline is July 1st, and then March 1st every year. Schools that want to make a move or participate in the financial portions of this settlement have an annual option to do so. 

Jason, why don't you tell us a little bit about what the settlement entailed? What are the details that listeners want to know?

Kaner

The big number here is $2.78 billion, and that's the back pay damages which are going to be paid out over 10 years. The NCAA is committing this money to current and former D1 athletes. It comes out to approximately $280 million per year, and the award of these damages covers the period from June 15th, 2016, through September 15th of last year. The claims window for current and former athletes to file a claim is now October 1st, so the beginning of next month. 

The funding for this massive settlement is the NCAA reserve pools of money, as well as some insurance compensation. Approximately $1.1 billion is going to come from those two sources. Then, the remaining $1.6 billion is going to be derived from future reductions in these annual distributions that are made to the NCAA member schools.

Dennis

So, you've got the NCAA and schools pitching in on this settlement. Who is receiving the benefit of these? Is the settlement equally divided amongst athletes, or will there be some apportionment of the settlement?

Kaner

That's a great question. Obviously, in NCAA sports, you think about football and basketball, men's and women's, as the primary earning activities. Within the fund, the payouts are allocated based on the categories of athlete experience and what's categorized as missed NIL opportunities. Some of the funds are designated explicitly for football and men's basketball, women's basketball, and then other pools for other sports. 

The detailed breakdowns under the plan are in flux, but it looks like it's going to be $71.5 million earmarked specifically for video game NIL compensation for football and men's basketball. I know a lot of people love the college football video game. It came back for the first time last year. This is now the second year they've released it. A men's basketball game is also apparently in the works. An additional $1.8 billion is allocated for broadcast NIL compensation. Again, that is directed towards football and men's basketball. $89.5 million is set aside to cover lost NIL opportunities- that's cumulatively. Then, there's a $600 million pool, which is going to be available for additional compensation claims. 

The distribution framework of all this, I know we just threw a lot of numbers at you, is 95% of the funds are going to be dedicated to Power Five Sports, and it's going to be divided among football, men's basketball, women's basketball, and the other sports. Three-quarters of it is going to go to football. Men's basketball will get about 15%. Women's basketball, 5%. Then, the remaining 5% to the other sports.

Dennis

A lot of this settlement is lumped in with what they commonly refer to as those revenue-generating sports, football and basketball. I'm sure there are people who are not happy about that- some of those other athletes in other sports. 

Dani, have there been any challenges to this appeal over the summer?

Bland

Yes, there are several different avenues that people are going to take to challenge and have been taking to challenge this settlement. First, we saw in an executive order from the Trump administration, “Save College Sports,” that aims to preserve what is commonly referred to as Olympic sports and non-revenue-generating sports, but the Executive Order doesn't define what revenue-generating sports are. It's a little unclear, but we should be getting some guidance later in September from the Department of Education on how they want some of those things to be implemented. 

We'll also see some Title IX challenges to this settlement. The important thing to note regarding Title IX is that the case this agreement settles, those three cases, have no Title IX claims underlying them. However, anyone out there who thinks Title IX isn't going to come up is wrong. Under the settlement of antitrust claims, male student athletes who are anticipated to receive a good majority of the damages, probably over 90%. Female student athletes are anticipated to receive about 5% of the damages to resolve the antitrust claims. The important thing to note, though, for the schools is that again, these are settlements of antitrust claims and not Title IX claims. These past damage calculations shouldn't be used as a tool to calculate future payments. It's not listed as a Title IX-compliant model because it has nothing to do with Title IX. These are just back damages for antitrust issues. That is something that schools will need to keep in mind as they figure out how they're going to make these revenue-sharing payments going forward. 

Then, you also have your antitrust challenges. Some people argue that the settlement itself, with the cap of $20.5 million for this upcoming academic year for the revenue sharing, could be an unfair restriction on trade. Also, you have the common class issues that you see in class actions, which are whether the class is adequately represented and whether they'll receive adequate notice. 

Those are some of the issues and challenges that you may see in appeals to the settlement.

Dennis

Great, thanks, Dani. As Jason mentioned up front, this settlement really only covers 10 years. A permanent solution is not yet in place. Each Congressional session, there continues to be legislation put forward, and this session is no different. It remains to be seen if anything will ultimately be passed to provide some surety. I know the NCAA is still pushing for nationwide guidance on what those structures are going to be. 

That covers a lot of the back pay in how former athletes were harmed, but this settlement also covers some forward-looking relief to student athletes in the form of injunctive relief. Jason, why don't you tell us something about this injunctive component of the settlement?

Kaner

Looking forward now for the next 10 years, at least, we have schools paying direct compensation to student athletes via this revenue sharing. Starting July 1st, 2025, schools may share up to 22% of their average Power Five revenues with student athletes. The first year, this payout begins at approximately $20.5 million per school. That's the cap in essence. That'll increase annually through the next decade, projected at around 4% annually each for the next couple of years. It could potentially reach up to $33 million by 2035. 

We talked earlier, Dani referenced opting in and opting out. A great analogy I've heard is this is like putting an ante in at the poker table. You don't know what's ahead, but you need to do it so you can see what's coming over the next decade.

Dennis

Right, opting in will allow each institution to pay student athletes directly up to $20.5 million. We'll see how many schools fully fund their programs to that maximum. Part of the settlement is also going to restructure how institutions staff and have athletes in their programs. Right, Dani, what's some of the settlement going to address with that?

Bland

First, as of now, we have 319 schools, so 82% of all D1 institutions have opted in. This is something we're going to see across the board in all of Division 1. There was some question at the beginning about how many schools outside of these power conferences would opt in, but it seems like everyone wants to be able to stay competitive. 

There is this elimination of scholarship limits, so the previous headcount cap is lifted, and institutions may now offer more flexible scholarship models. However, the caveat to that is that there will be some sports-specific roster limits. For example, a lot of times the roster may cut down below what we've seen the average rosters be in the past, but you can fund all of those players with full scholarships if you so choose. For example, football's roster cap is now 105 athletes, but there are teams in Division I who carry as many as 180 student-athletes on their roster. Now, they're not subject to those prior scholarship limits that were far below the 180 number. They can now roster only 105 athletes, but if they wanted to, they could fully scholarship all 105 of them. It is a huge game-changer, especially with those top athletes.

Dennis

Dani, you mentioned that there are going to be roster limits that are going to leave out 75 to 80 football players, and other athletes in other sports are going to have their roster spots cut by these roster limits. That held up some of the acceptance and led to the court's reluctance to accept this settlement. The settlement ultimately addressed that. What does the settlement do for those athletes?

Bland

Right. The settlement kept in mind the fact that there would be this shift in rosters. Rosters are having to shrink, which would obviously impact student-athletes who are currently playing their sport and potentially losing their spot. The deadline was back in July to designate a student athlete. The idea was that you would essentially mark the athletes who are going to be cut if you were limited to the roster cap that is now in place. But that athlete is allowed to participate for the rest of their eligibility and doesn't count against your cap. Then, moving forward, it gives some leeway for a few years for this settlement and new roster sizes to go into effect so that you're not really upending these student athletes’ academic and athletic careers by suddenly just dropping the settlement on them. It gives a nice transition period. 

These athletes who were rostered or recruited by April 7th, 2025, and were designated as of the deadline are exempt from counting against the new roster limits for the rest of their eligibility. Whether they have four years remaining of eligibility or one year remaining, the timeline follows the athlete as opposed to the school.

Dennis

That designation will follow the athlete, not just in their careers at their current institutions, but should they transfer, they wouldn't count against their new institution's roster limits, too. That designation was important for schools to get in by the deadline over the summer. 

With these changes, roster limits, and direct payments to student athletes, there have still been grumblings about concerns about competition and pay for play. How is this settlement going to be enforced, Jason?

Kaner

The shiny new oversight committee that's being rolled out is the College Sports Commission, the CSC. It's brand new. It's an independent enforcement body for all these settlement-related terms. The CSC was created and reports to the Power Five commissioners, rather than the NCAA itself, in Indianapolis. The NCAA will still handle enforcement for rules outside the settlement scope. Bryan Seeley, who's a former Department of Justice attorney and MLB compliance chief, is now the CEO of this new commission. He’s being tasked with oversight and making sure that oversight is meaningful. The CSC is going to provide compliance guidance, NIL deals, and reporting requirements via NIL Go. They're going to administer the revenue sharing under this CAPS, College Athlete Payment System model, manage roster assignments, and enforce the arbitration protocols that are going to be in place. Overall, it's a comprehensive enforcement body that's going to hopefully bring some clarity to this system. 

Now, I mentioned NIL Go. That's a big piece of this. NIL payments for deals that are going to be over $600 need to be reported now via this NIL Go portal. It's going to be operated by the CSC and Deloitte, a Big Four accounting firm. It's to confirm the market value of these deals and make sure that there's some transparency. There are major enforcement questions here, so we'll see. This is the first year it's going to be rolled out. 

There are also some questions about how arbitration is going to look under the CSC model. The arbitration they're trying to roll out is mandatory expedited arbitration in a very short timeline. We're all litigators here, so we know that's not always easy. We'll see how that goes, but there's a valiant effort via the CSC to oversee this whole process.

Dennis

With the CSC reporting to the conferences, they're trying to build in a little bit of flexibility and ability to respond swiftly to institutions' and Power Conference concerns. We did see a little bit of that already over the summer. At the beginning of July, the CSC has been rolling out guidance about how it's going to evaluate these deals. It seemed to indicate that they weren't going to look too favorably upon the use of collectives by institutions. Those Power Conferences said, hold up, we've got this system in place. Within a couple of weeks, the CSC guidance changed. We’ll see if that's an initial function of this new governing body that is so flexible, as its guidance is new, or if that's going to continue to be something where they're going to be at the whim of what the Power Conferences want to do in how they adjust and go through things. Certainly, as any challenges to deals, rosters, or anything like that come up, and we have these arbitration hearings in place, how quickly they can resolve that to everybody's satisfaction is certainly going to be an ongoing issue. 

Then, like you said, Jason, the NCAA is still going to cover things outside of this settlement. Anything about eligibility issues and things like that. We've continued to see over this summer, just putting a bow on everything, that there continue to be those challenges. Does junior college eligibility count against your time to compete under NCAA rules? Circuits seem to start splitting on that issue. Just recently, actually just last night, I believe there was a challenge to the “four-and-five rule,” and whether that's an antitrust violation. As busy a summer as it was, it's going to continue to be interesting to follow sports this fall as our competition ramps up. We've got one weekend of college football in the books with some exciting games and some exciting new athletes. 

Thanks for joining us. Feel free to reach out to us or a member of the Jackson Lewis Education and Collegiate Athletics Group with any questions you may have. We look forward to assisting any institution with questions they might have as these things progress, and we keep an eye on everything.

OUTRO

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