News

NCAA settlement Q&A: How will schools distribute revenue, what is the future of NIL collectives and more

NCAA settlement Q&A: How will schools distribute revenue, what is the future of NIL collectives and more

In August, after first meeting with representatives from the NCAA and power conferences over a possible landmark settlement, Steve Berman, one of the country’s leading class-action attorneys, was so encouraged by the discussion that he got into his Uber without his luggage.

“I thought, ‘We are going to make history!’” he said in a recent interview with Yahoo Sports. “And then I realized I left my bags behind!”

More than nine months later, Berman, co-counsel Jeffrey Kessler and their legal teams have reached a historic settlement agreement that will distribute $2.8 billion in back damages to former athletes and, perhaps more consequential, features a revenue-sharing model for athletes in the future.

Berman, a triathlete and cyclist who lives with his family in Seattle, is no stranger to big wins. He took down big tobacco. In fact, he has sued the NCAA more than a dozen times, the first a 2004 case on behalf of walk-ons.

But this one — a settlement of three consolidated antitrust cases: House, Carter and Hubbard — is different from them all. This agreement topples the NCAA’s long-standing rules around amateurism and, he says, protects the organization from future legal challenges.

Trust him on that, he says. If anyone would know, it’s him.

“I can’t imagine there’s another case out there. I’ve been the guy thinking about them all!” Berman laughed. “I’m now like ‘Oh my gosh, I may have no more NCAA litigation! What am I going to do with myself?!’

“We’ve totally revolutionized compensation for athletes,” he continued. “It’s been a 20-year battle. An amazing journey.”

The defendants, the NCAA and power conferences, and the plaintiffs, a bevy of former athletes, notified the court of an agreement of settlement terms Thursday. Such a move only closes one chapter and opens another: a lengthy settlement finalization process and then — of most importance — the creation and implementation of a new college model, including a potential new-look enforcement and scholarship structure.

Berman and Kessler, as well as others, spoke to Yahoo Sports at length this week to answer the most vexing questions regarding college athletics’ new model.

The NCAA and its power conferences all voted to approve a settlement this week. (Taylor Wilhelm/Yahoo Sports)

The short answer is 22% of their average athletic department revenue, or about $21-22 million annually.

The longer answer? Attorneys and commissioners agreed to use an average of power conference revenue streams as a sort-of formula to determine an annual revenue-sharing limit. They took three of the four most significant revenue streams in an athletic department — TV contracts, ticket sales and sponsorships (donations were not included) — to generate an average for the 69 power schools. That average, according to documents obtained by Yahoo Sports, is around $100 million.

What’s 22% of $100 million? That’s right, $22 million. But that figure has not been finalized for Fall 2025, when the revenue-sharing model takes effect.

That figure, once set, will fluctuate as it includes an escalator. While the 22% will remain the same through the 10-year agreement, the money figure will change. Over the first three years of the deal, the money figure will automatically increase by 4% each year.

In Year 4, the figure is likely to undergo a further reevaluation, especially if significant new monies flow into departments through new television deals, for instance. There are exceptions that can be counted toward the cap, including as much as $2.5 million in Alston-related money already going to athletes and $2.5 million in additional scholarships (we’ll get to that later).

The two plaintiff attorneys in the case, Berman and Kessler, will be heavily involved throughout the duration of the settlement, specifically as it relates to the cap figure.

“We are going to be monitoring it every year to make sure revenues are adequately distributed,” Berman said. “We are going to be auditing. We’ll be watching.”

The cap is the same for all schools despite wide variance in resources. Ohio State’s athletic department, for instance, led all programs with $250 million in revenue last year — $100 million more than the program that ranked 20th in the nation (Arkansas at about $150 million).

A $20 million price tag for Ohio State is 8% of its budget. A $20 million price tag for Arkansas is 13% of its budget.

How officials landed on 22% is not completely clear, but a theory does exist. As explored in this story, scholarship costs — about $15 million on average for a power school — are in addition to the revenue-share cap. The two figures, as well as other costly athlete benefits, combine to account for a figure approaching 50% of athletic department revenues — the going rate for any collective bargained revenue-sharing agreements at the professional level.

Short answer: It is at the discretion of each school. There are no constraints on the distribution of revenue.

However — and this is very important — Title IX is not addressed in the settlement terms. It still applies. Title IX is a federal law that requires education institutions to provide equal opportunities for women and men athletes. It’s why many schools offer similar or the same amount of women scholarships as men scholarships.

In a revenue-sharing model, how does Title IX apply? Will schools that reach the, let’s say, $22 million cap be required to share $11 million of that money with women athletes?

It depends on who you ask. In a previous interview, NCAA president Charlie Baker contended that Title IX only applies to opportunities and not monetary compensation, suggesting that more revenue could be shared with the athletes who generate most of it: football and men’s basketball players. But the Department of Education hasn’t weighed in on the issue.

Title IX is the single most pressing issue in this entire settlement, most administrators say.

“That’s the trump card,” said one power school athletic director.

“Campuses must weigh their risk toleration,” said another.

On one hand, an unequal split of revenue sharing puts a school at risk of a Title IX lawsuit.

On the other hand, an equal split of revenue sharing puts a school at risk of a lawsuit from football players who believe that they are not receiving enough of the revenue they are generating.

“Don’t those generating the money need to get the most in distribution?” asked one university leader.

“The whole reason we are in this scenario is because we’ve been funneling money from football to pay for country club sports,” said an associate athletic administrator at a power conference.

The administrator was referring to a traditional structure of athletic department finances: Revenues often related to football and men’s basketball (TV contracts, ticket sales and donations) are used to fund Olympic sports that, at many schools, lose a combined $30 million or more annually.

Even one of the plaintiff attorneys in the settlement case believes that football players should keep the money football players generate.

“(Football players) should not receive anything so that the money can go to the golf and tennis team,” Kessler said last month. “Think of the composition of those teams and think of the composition of the teams that are giving up the money. What is that about?”

Kessler expects the Title IX issue to end in a courtroom. That’s where, he says, it will eventually be “resolved.”

But there are perhaps ways to circumvent or, at the very least, attempt to bend the Title IX rules by skewing more cash to football and men’s basketball players.

The first involves the classification of the revenue-sharing deals that schools strike with athletes. Though left up to the schools’ discretion, many of the deals are expected to be classified as agreements to purchase the use of their name, image and likeness (NIL). NIL deals are widely based on the value an athlete brings to a team or school. The more valuable, the more money.

This is a potential way for schools to defend a plan to pay male athletes more than female athletes. Some officials are even discussing the use of a “Q-Score,” which is a measurement of a person’s brand appeal. Others are seeking data on “fair market value.”

“What if you are buying NIL rights from players and those rights have different market values for men and women?” asked one power conference administrator.

There is, of course, a second way around Title IX: Have an outside third-party entity share revenues with your athletes.

Such as, a currently existing booster-backed NIL collective.

The second most unknown issue is the future role of booster collectives — third-party entities raising donor money on the school’s behalf to distribute to athletes under the guise of “NIL.”

Starting in Fall 2025, schools can directly pay athletes, so will collectives be shut down?

Not necessarily.

“Collectives aren’t going anywhere,” said Russell White, the president of The Collective Association, a trade association of collectives representing more than 25 different schools.

Many within the sport believe that schools will keep their collective around for two reasons: (1) circumvent the revenue-sharing cap by using the third-party entity to offer “bonuses,” said one person; and (2) bend Title IX rules as collectives aren’t under the umbrella of the university.

The NCAA and college leaders are under the belief that this settlement provides them with a stronger ability to enforce its rules and protects it from lawsuits challenging those rules. Remember, a court — the Northern District of California — has oversight of the settlement and thus, the new model.

Will a court’s backing give the NCAA, or a potentially new third-party enforcement entity, real teeth?

“I don’t know and, frankly, I don’t care,” quipped Berman. “It’s beyond my worries.”

That’s not so reassuring for college leaders.

Kessler also gave little confidence in the court assisting in monitoring rule-breaking associated with collectives, telling Yahoo Sports, “I fully expect devoted alumni will continue to support their institutions.”

Put simply, said one NCAA official: It’s up to the schools to bring their collectives in-house, thus eliminating the possibility of rule-breaking. (OK. Sure.)

This is where the NCAA needs help from Congress. They are expected to continue to lobby on Capitol Hill for legislation that codifies the settlement, offers them a limited antitrust protection and prevents an employment model, which, as one source said, “could wreck the whole thing.”

There is, however, another incentive to drive donors to give to schools now that the universities can pay players directly: Their donations are subject to tax deductions, unlike those to a collective.

There are other ways the settlement could police this issue. The document includes:

• A reporting mechanism that will require athletes to report their third-party NIL deals — possibly a mandatory measure tied to a player’s revenue-share pay from the school and their eligibility.

• A requirement that third-party NIL deals must be what is termed “true NIL,” according to settlement documents.

• A definition of “True NIL” as based on to-be-developed “fair market value” data, said two people with knowledge of the concept. In the simplest terms, true NIL is real marketing NIL-based contracts with a corporation or business — not a booster.

• If an outside NIL deal is struck with a booster — a business owner, perhaps — the burden is on the school and/or athlete to prove that it is “true NIL,” with significant risks (eligibility maybe) if the deal is not.

Will this all work? There are plenty of doubts.

“That’s the big unknown,” said one administrator.

Yes.

As part of the settlement, scholarship caps are eliminated and new roster limits will be implemented. Schools are now permitted to put on scholarship every member of a roster as long as they stay within a newly set roster limit.

More deeply explored in a story two weeks ago, this could mean an increase in scholarships for many sports — except football.

In a plan socialized with coaches and administrators this month, football rosters could be set as low as 85, which is the NCAA maximum for scholarship positions. Such a move would eliminate all walk-on spots. This was met with pushback, enough pushback that conversations are continuing about how to create either more spots (possibly 90 or 95?) or create a non-scholarship practice squad.

For many other sports, the scholarship expansion is good news. For instance, the NCAA maximum number of scholarships for a baseball team is 11.7 spread over 32 players. If baseball’s roster remains the same (32), then schools would be permitted to put all 32 players on scholarship.

Some power conference administrators say they plan to add as much as $5-10 million in additional scholarship costs as they work to compete on the recruiting trail and satisfy Title IX (if you add 20 baseball scholarships, for instance, 20 more need to be added in women’s sports).

The portal is not addressed in the settlement. However, the new revenue-sharing model gives schools the opportunity to sign athletes to potentially binding, multi-year contracts. Most athletic administrators who spoke to Yahoo Sports believe this will decrease player movement.

Officials are discussing a range of possibilities for athlete contracts, including implementing buyout clauses that are often found in coaching contracts. There is a possibility as well to tie academic performance to contracts.

As part of the settlement, a school is expected to have the ability to purchase a player’s exclusive NIL rights — a significant and possibly binding deal and one that would eliminate all third-party payment as well.

Source

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button