Just three years ago, the decision in National Collegiate Athletic Association v. Alston forever changed the landscape of collegiate athletics by affording college athletes the right to benefit from their Name, Image, and Likeness (“NIL”). This was seen as a win for the athletes, a loss for the NCAA, and an unknown for everyone else in between. The big question looming at the time was: Who would govern this new landscape? The NCAA adopted an “interim policy,” but overall governance was left to the individual states, creating a lack of uniformity among the laws being passed. Although the Supreme Court provided this monumental decision, the federal government remained on the sidelines. The last three years have truly been the “Wild, Wild West,” now a cemented term in the NIL field. So many questions remained unanswered until the most recent settlement of three antitrust lawsuits, most notably, House v. NCAA. The big question that has been answered . . . Pay-for-Play has arrived.
At the onset of the Alston decision, Pay-for-Play was strictly forbidden and was considered a violation of NCAA rules, as well as a violation of many state NIL laws. The importance of the most recent settlement in House v. NCAA cannot be overstated as it will change the college athletic landscape for at least the next decade. Universities and conferences are now permitted to directly pay players through revenue sharing. NCAA President Charlie Baker states, “The five autonomy conferences (Power 5) and the NCAA agreeing to settlement terms is an important step in the continuing reform of college sports that will benefit student athletes and provide clarity in college athletics across all divisions for years to come.”
What’s Next?
1. Back Pay. The settlement provides $2.8 billion in “back pay” that conferences and the NCAA will pay over the next ten years to current and former athletes (as far back as 2016) for potential NIL revenue that was lost prior to the Alston decision.
2. Revenue Sharing. This component allows conferences and schools to pay student-athletes directly.
Revenue sharing will be the first institution/athlete Pay-for-Play Program in the history of college athletics. Revenue sharing will create a future framework for schools and conferences to share their revenue with athletes without violating NCAA rules or state law. While the settlement is not finalized, the proposal does contain spending caps of approximately $22 million per year for each Power 5 school (similar to a salary cap in the professional leagues). As with salary caps, the revenue-sharing cap will increase. In fact, the settlement contains built-in metrics for such increases. Although the revenue sharing will be capped, there is no clear guidance on how the revenue must be shared. Each school will likely determine how much to offer each athlete, which will most likely be determined by the individual’s “fair market value.” If each university paid every athlete the same amount, they could be further opening the doors to antitrust violations.
It is important to remember that revenue sharing will supplement third-party NIL deals. The House settlement is not a retraction for college athletes; in fact, it is a new layer of pecuniary benefit to athletes who generate billions of dollars in revenue each year for their schools.
Two Big Questions to be Answered:
1. What is Fair Market Value?
While we have some guidance on Pay-for-Play, we still do not know what the definition of fair market value is in NIL. As tax-exempt entities, universities need to be vigilant with fixed payments that could attract the scrutiny of the IRS. In order to avoid IRS scrutiny, the payments should reflect fair market value. Unfortunately, fair market value has not been defined. It will require universities to ensure compliance through individualized valuations and diligent documentation. These antitrust settlements are paving the way for new jobs, as athletic departments may need to add new staff to manage this new landscape.
2. What are the Title IX Implications?
A unique component of the settlement is that it eliminates NCAA scholarship caps and contemplates revised roster limits. The changes to the scholarship model and roster caps raise immediate Title IX risks if they are not implemented equitably.
NIL was a massive shift in collegiate athletics; revenue sharing is the next brick in that shift, and for every other party involved, this landscape remains the “Wild, Wild West.” Alston laid the foundation, and it is safe to say that House may be the first big piece of the puzzle.
Protecting our college athletes is paramount in the “Wild, Wild West” of NIL. As a parent, relative, or friend of a college athlete, you should recommend that these athletes surround themselves with a team of professionals who can ensure their compliance throughout their collegiate career while also ensuring that they capitalize on their NIL to the fullest extent possible.
