Factual & Legal Background:
As previewed in the first installment of Wink Thinks, Promises and Pitfalls: Inside Jaden Rashada’s NIL Deal Gone Wrong, on May 23, 2024, the National Collegiate Athletic Association (the “NCAA”) and the Atlantic Coast Conference (“ACC”), the Big Ten Conference (“Big10”), the Big 12 Conference (“Big12”), the Pacific-12 Conference (“Pac-12”), and the South Eastern Conference (“SEC”, and collectively with the ACC, Big10, Big12, and Pac-12, the “Power Five College Athletic Conferences” or the “P5, and the P5 together with the NCAA, the “Defendants”) announced that a settlement had been reached in the consolidated antitrust litigation of three class action lawsuits filed by former student-athletes against the NCAA and the P5. The three class action lawsuits consist of (i) House v. NCAA, (ii) Hubbard v. NCAA, and (iii) Carter v. NCAA. Each of the suits were filed in federal court in the Northern District of California Oakland Division. This article examines the claims made by each of the three underlying class action suits, discusses the terms of the proposed settlement that would jointly settle each of the three cases, and provides a glimpse into the road ahead, legally and practically.
House v. NCAA
On June 15, 2020, Grant House, a then All-American swimmer for Arizona State University, and Sedona Prince, a then women’s college basketball player for the University of Oregon, filed suit against the Defendants on behalf of themselves and others similarly situated, (i) requesting an injunction permanently restraining the Defendants from enforcing “unlawful and anticompetitive” agreements to restrict the amount of name, image and likeness (NIL) compensation available to all current and former student-athletes who compete on, or competed on, an NCAA Division I athletic team at any time from June 15, 2016 [1] until the date of judgement [2]; (ii) seeking social media earnings for all current and former student-athletes who compete on, or competed on, an NCAA Division I athletic team at a college or university that is a member of one of the P5, at any time from June 15, 2016 until the date of judgement; and (iii) seeking a share of game telecast group licensing revenue that all current and former student-athletes who compete on, or competed on, an NCAA Division I men’s or women’s basketball team or a Football Bowl Subdivision (FBS) football team, at a college or university that is a member of one of the P5, any time between June 15, 2016 and the date of judgement.
Hubbard v. NCAA
On April 4, 2023, Chuba Hubbard, a former star running back for Oklahoma State University, and Kiera McCarrell, a former Division I athlete who competed for the University of Oregon and Auburn University track & field teams, filed suit against the Defendants on behalf of themselves and others similarly situated, seeking damages in the amount of the Academic Achievement Award (defined below). However, to understand the Hubbard case, we must first examine In re NCAA Grant-in Aid Cap Antitrust Litigation, a previous antitrust suit against the NCAA. On March 19, 2019, in In re NCAA Grant-in Aid Cap Antitrust Litigation, the U.S. District Court for the Northern District of California held that NCAA rules prohibiting NCAA member schools from offering educated-related compensation, including cash payments of up to $5,980 in “academic or graduation awards or incentives” (“Academic Achievement Awards”), violated antitrust laws. On August 12, 2020 – after the court’s injunction in Grant-in Aid Cap took effect – the NCAA adopted Bylaw 16.1.4.5 to permit men’s and women’s basketball and bowl subdivision football players to receive Academic Achievement Awards in an amount up to $5,980 each academic year. Subsequently, on October 6, 2021, following the United States Supreme Court’s decision in NCAA v. Alston [3], the NCAA revised Bylaw 16.1.4.5 to allow all Division I college athletes to receive Academic Achievement Awards in an amount up to $5,980 each year. Notably, the injunction at issue in Alston did not require schools to pay Academic Achievement Awards, but with the anticompetitive prohibition removed, free-market competition for the services of athletes has led over 50 colleges to offer such Academic Achievement Awards. [4]
In Hubbard, the plaintiffs (and the class they represent) were not members of the Grant-in Aid Cap damages settlement classes, which the court certified in March 2017. Rather, the Hubbard plaintiffs are all current and former NCAA athletes who competed on a Division I athletic team at any time between April 1, 2019 and the date of class certification who would have met the requirements for receiving an Academic Achievement Award under the criteria established by their respective schools for qualifying for such an award. In other words, the Hubbard plaintiffs seek to rectify the damages suffered by thousands of Division I athletes who attended schools that have since decided to offer Academic Achievement Awards following the changes to the NCAA Bylaw 16.1.4.5 (noting that thousands of class members play or played sports other than football or basketball that will directly benefit from the action). As of March 2024, the NCAA cited that a whopping $313 million in actual damages would be owed to athletes for the three academic years before the Alston ruling went into effect. [5]
Carter v. NCAA
On December 7, 2023, DeWayne Carter, a then member of the Duke University football team, Nya Harrison, a member of the Stanford University women’s soccer team, and Sedona Price, a then member of the Texas Christian University women’s basketball team, filed suit against the Defendants on behalf of themselves and others similarly situated, seeking (i) a permanent injunction against challenged restraints on “pay-for-play” compensation for all student-athletes who compete on, or competed on, a Division I athletic team at any time between December 7, 2023 and the date of judgement in the case; and (ii) damages, in a yet to be ascertained amount, for all current and former student athletes who compete on, or competed on, a P5 school or Notre Dame basketball or football team, at any time between December 7, 2019 and the date of judgement in this matter. In other words, the plaintiffs are suing the Defendants for a piece of the revenue generated by college athletics. Note, the relief sought in Carter is different than the relief sought in House (which is now In re College Athlete Litigation) as House only challenged the Defendants’ restraints on NIL compensation.
The Proposed Settlement Agreement
Taken together, House, Hubbard, and Carter present a myriad of legal challenges for the NCAA and the P5 Conferences, collectively exposing the Defendants to potentially catastrophic damages. [6] Accordingly, on May 23, 2024, the NCAA announced that the P5 Conferences and the NCAA had a reached a tentative agreement for $2.77 billion to settle the consolidated antitrust claims set forth in House, Hubbard, and Carter. While the full terms of the settlement agreement have not yet been publicly disclosed, some of the key terms of the agreement include: (i) the back payment of $2.77 billion over a 10-year period to a class of approximately 14,500 former athletes who were members of Division I athletic teams from June 15, 2016 until November 3, 2023 (i.e., the date of class certification in House) and could have received compensation for the commercial use of their NIL rights and group licensing rights for video games and broadcasts but for the NCAA prohibitions on such commercialization; (ii) direct payments from schools to student-athletes in the form of a revenue sharing model that will allow schools to pay approximately 22% of total revenue to student-athletes (which, in dollars, is estimated to initially be between $20-22 million annually and includes a 4% per year automatic escalator of the revenue figure for the first three years of the agreement, with a mutual reevaluation of terms in Year 4); (iii) the implementation of roster size limits rather than a cap on the number of scholarships available; and (iv) a somewhat loose commitment that the student-athlete plaintiffs, in agreeing to and opting into the settlement, will generally support and cooperate with the NCAA’s effort to lobby for a Congressional bill that will grant the NCAA a partial antitrust exemption. [7]
As for the allocation of the settlement proceeds, the $2.77 billion in back payments to student-athletes is intended to compensate for the actual damages incurred by the class members in House. Of the $2.77 billion earmarked to satisfy the House plaintiffs’ actual damages, it likely that somewhere between 25% to 35% of such damages (i.e., $692.5 million to $969.5 million) will be awarded to the plaintiffs’ legal counsel, as is customary in class action lawsuits with contingent fee arrangements. Note, however, that courts have authority to reject proposed class action attorneys’ fees if they are deemed to be unfair (i.e., if the attorneys’ fees are disproportionate when compared to the benefits recovered by the class members). As for the class members, the remaining proceeds after legal fees (estimated to be $2.08 billion to $1.81 billion based on a 25% to 35% fee assumption) will be divided pursuant to a formula created by a sports economist. Of the $1.81 billion to $2.08 billion going to student-athletes, it has been reported that some proceeds will be split equally among those who opt into the settlement, while other proceeds will be allocated consistent with each student-athletes purported fair market value as of the date the damages occurred. [8] While it is unclear as to how each player’s fair market value will be determined, factors such as playing time or snap count, ratings provided by recruiting services, statistical performance, or post-season accolades could be used in the calculation. Similarly, while the split of the settlement proceed burden among the Defendants has not been confirmed, Forbes has reported that the NCAA will pay approximately $1.1 billion, the P5 Conferences will pay approximately $680 million, and the remaining Division I conferences will pay approximately $990 million. The funding will come from direct payments, reserve funds, and insurance payouts. In order to be able to pay the $1.1 billion obligation, the NCAA will reduce annual distributions to its member conferences.
The Road Ahead: Legally and Practically
Settlement Agreement – Next Steps
In terms of the legal process, once the details of the settlement agreement are finalized between the parties, the next required step will be for the parties to present the finalized deal to the court to approve the terms of the settlement agreement. To be approved, the settlement terms must be fair, reasonable, and adequate to all class members (i.e., a group of approximately 14,500 former and current student-athletes). To determine whether the settlement meets the fair, reasonable, and adequate standard, the presiding judge, Judge Wilken [9], will examine the formulas selected for measuring the student-athletes’ respective NIL values and will want to understand why certain formulas or metrics were selected versus reasonable alternatives. As discussed earlier, it is currently unclear as to what formulas will be used or what factors will be considered in determining how much compensation each athlete would have received for use of their NIL rights and group licensing rights from video games and telecasts. Precise amounts will be impossible to determine, but Judge Wilken will need to believe that the selected formula and weighted factors are fair and reasonable. In addition to understanding the formulas and the methods for selecting the formulas, the court will also require details regarding communication with, and notification to, the class members in terms of giving class members the ability to opt out of the settlement agreement and informing class members of the amount and the timing of the expected settlement payments. The decision for class members to opt out is a question for each class member to determine whether the deal as it relates to their share of the settlement proceeds is worth releasing any future claims against the Defendants relating to the Defendants’ prohibitions against the commercialization of their NIL rights or group licensing rights for income that could have been derived from video games or telecasts. For any class members that opt out of the settlement agreement payments, those class members will not receive any compensation pursuant to the House Settlement, but they will preserve any antitrust claims against the Defendants for so long as the statute of limitations with respect to their claims has not expired. In most cases, the statute of limitations for antitrust claims is four years from the occurrence of the conduct at issue.
Assuming that the settlement is approved, the next step will be for Judge Wilken to create a system for the implementation of the terms of the settlement agreement. As for who is in charge of leading the implementation, Judge Wilken could appoint herself or another individual with the legal background and relevant experience to be in charge. From a practical perspective, the person ultimately in charge of implementing the settlement will be in control of how college athletes are compensated and would arguably become the most important and powerful person in college athletics for the next ten years.
Legal Concerns with the Settlement Agreement and Beyond
While the publicized terms of the settlement agreement have been widely celebrated as a large step in the right direction for the compensation of student-athletes and the cessation of endless litigation against the NCAA, there are a number of critical legal issues that will need to be resolved before there is stability and a clear vision ahead for college athletics. A brief discussion of some of the larger legal challenges that are likely to impact the settlement agreement and the day-to-day operations of college athletics beyond the scope of the settlement agreement is set forth below.
Non P5 Schools Objecting to the Settlement Agreement
The House, Hubbard, and Carter cases were filed against the same Defendants (the NCAA and the P5 Conferences), yet according to the terms of the proposed settlement agreement, non P5 schools are reportedly obligated to pay roughly 36% ($990 million) of the $2.77 billion settlement obligation, which is approximately $310 million more than will be paid by the P5. How is this fair? It’s probably not. From a process standpoint only the P5 were named parties and therefore only the P5 were part of the settlement negotiations. While non P5 schools are members of the NCAA, a named defendant in each of the three antitrust cases, non P5 schools were not named defendants. Accordingly, many officials from non P5 schools have expressed their discontent with their lack of involvement in the NCAA’s representation of their interests in settlement talks and have further labeled the settlement as disproportionately financially burdensome as initial models estimate that roughly 90% of settlement proceeds will be paid to P5 football and men’s basketball players while non P5 schools are obligated to pay roughly 20% more (a 60-40 split) when compared directly with the P5’s financial obligations.
On June 20, 2024, Houston Christian University, a Division I school in the Southland Conference, filed a request for intervention to the settlement terms. An intervention occurs when a third-party (Houston Christian University) that was not an original party to an existing civil lawsuit enters a lawsuit because the party has a personal stake in the outcome. An intervention can occur as a matter of right or at the discretion of the court, without the permission of the original parties to the lawsuit. In the filing, Houston Christian is requesting intervention arguing that the settlement will adversely impact the school’s finances and cause the cost of attendance to rise due to the school's loss of funds (likely alluding to Houston Christian’s share of the obligations to student-athletes for NIL back payments and the reduced distributions to the member conferences by the NCAA in order to pay its own $1.1 billion settlement obligations).
Title IX Concerns
Under the terms of the proposed settlement agreement, schools will have discretion in distributing revenue to student-athletes. However, Title IX is a federal law that requires schools to provide male and female student-athletes with equal treatment and benefits in the administration of publicity, promotions, recruitment, and supporting services, including financial assistance, provided by the schools.
While third-party NIL payments will largely continue to be individualized and rewarded to the highest revenue-generating athletes, there are legitimate Title IX concerns with respect to the proposed student-athlete revenue sharing model that will enable student-athletes to be paid up to 22% of the total revenue (i.e., 22% of the average media rights, ticket sales, and sponsorship revenue) of each P5 school. At the crux of the issue is the inevitable tension between free-market forces favoring higher revenue-generating sports, such as football and men’s basketball, and federal gender equity laws under Title IX.
Arguments in favor of a free-market approach range from arguing the inapplicability of Title IX altogether since the proposed revenue sharing is for making use of the players’ NIL rights in television broadcasts and therefore any such compensation should be viewed as a free-market valuation payment rather than financial assistance, to proposing that the settlement agreement should structure the revenue sharing payments to be based on a fair-market valuation approach and come from the respective conferences, rather than the schools, to avoid Title IX implications, to arguing that Title IX only applies to opportunities, not compensation. Conversely, a number of school officials have already asserted their view that the revenue sharing model will likely be subject to Title IX requirements for schools receiving federal funding. For those whom argue that Title IX applies, the general consensus is that the total dollar amount (expected to be ~$22 million in Year 1 of the deal) will need to be split equally between men’s and women’s teams, but that individual athletes and teams do not have to make an equal amount. For example, the athletic director for the University of Illinois has recently expressed that he expects approximately 50% of the revenue share (~$11 million) will be paid to student-athletes on the football and men’s basketball teams, while the other 50% will be shared with student-athletes that are members of women’s athletic programs. Ohio State University’s athletic director recently expressed a similar, but slightly different interpretation whereby athletic compensation would be proportionate to the enrollment demographics of Ohio State (e.g., 52% of Ohio State students are female and therefore 52% (~$11.4 million) of the direct athlete payment funding would go to female athletes with the remainder going to members of men’s athletic programs).
While there are defensible legal positions on both sides of the Title IX debate and given the latitude provided in the settlement agreement for schools to decide on the division of the revenue sharing among student-athletes, it is likely that some schools will take a more aggressive, free-market approach and others will take a more conservative, Title IX-friendly approach; however, one thing is fairly certain: there will be more lawsuits and courts will eventually decide this issue.
Current and Future Antitrust Concerns
A key distinguishing factor between the NFL’s revenue-share with players and the go-forward 22% revenue share with Division I student-athletes is that the NFL’s revenue share is the result of collectively bargained negotiations between sophisticated parties that have the protection of a non-statutory labor exemption that allows the players and owners to collectively bargain, free of potential antitrust scrutiny. This is not the case in collegiate athletics. There is no bargaining agreement, there is no union, and players are not employees. This distinction is critical for a few reasons. The labor exemption is what allows the owners and players to agree to a salary cap and controlling the cost of labor despite free market supply and demand forces. Without the labor exemption, the NFL would be in violation of antitrust laws. Accordingly, while the House Settlement aims to settle three antitrust suits against the NCAA, it is quite feasible that the solution to settle the current litigation, the 22% revenue-share with student-athletes over the next ten years, invites future antitrust claims because the 22% cap could be considered a restraint on compensation that is not the result of a collectively-bargained agreement with the protection of a labor exemption. Keenly aware of the potential antitrust litigation surrounding the 22% compensation cap, the NCAA and P5 Conferences once again requested Congressional assistance in the shaping of the future of college athletics in their joint statement announcing the settlement agreement and will continue to lobby Congress for a labor exemption.
There is also an additional pending antitrust suit against the NCAA in federal district court in Colorado, Fontenot v. NCAA, in which the plaintiff, a former football player for the University of Colorado, has sued the NCAA and the P5 Conferences alleging that the NCAA’s rules prohibiting student-athletes from receiving compensation from schools and conferences violates antitrust laws by restraining competition. While the Fontenot and Carter claims are similar, the judge in the Fontenot case denied the NCAA’s attempt to consolidate the cases on May 23, 2024 (notably, the same day that the NCAA and P5 Conferences released their joint statement on the proposed House settlement agreement). Going forward, if the House Settlement would fall apart for any reason or if student-athletes believe their share of the settlement proceeds in House are inadequate and decide to opt out, the Fontenot case may present another option for the applicable class of student-athletes. Furthermore, as discussed earlier, the NCAA will also continue to be exposed to antitrust liability for any student-athlete that opts out of the House Settlement whose claims are not yet time barred.
Transfer Portal and Transfer Eligibility
In late 2023, a coalition of states filed an antitrust suit against the NCAA challenging the NCAA’s requirements that athletes who transfer more than once must sit out a year of competition. In late December 2023, U.S. District Court Judge John Preston Bailey in West Virginia issued a preliminary injunction enjoining the NCAA from enforcing the transfer eligibility rule, and the U.S. Department of Justice (DOJ) joined the suit in January 2024. In April 2024, the NCAA amended the transfer rule to allow student-athletes to become immediately eligible to play as long as they meet academic eligibility standards. On May 30, 2024, a proposed entry of consent judgement and permanent injunction was filed jointly by the plaintiffs and the NCAA which would permit student-athletes to transfer an unlimited number of times without penalty and would restore a year of eligibility for any current student-athletes who missed a year of competition since 2019-2020 due to the previous NCAA transfer restrictions. The proposed entry of judgement will need to be approved by Judge Bailey. For the foreseeable future, student-athletes will have greater mobility than ever before (and more mobility than players in any professional league).
Recruitment-Related Compensation and Collectives
As more thoroughly discussed in Promises and Pitfalls: Inside Jaden Rashada’s NIL Deal Gone Wrong, the State of Tennessee and the Commonwealth of Virginia sued the NCAA alleging that the NCAA violated federal antitrust laws under the Sherman Act by controlling compensation for use of prospective student-athletes’ name, image and likeness as a recruiting inducement. In the case, the plaintiffs are seeking a permanent injunction barring the NCAA “from enforcing its NIL-recruiting ban or taking any other action to prevent prospective college athletes and transfer candidates from engaging in meaningful NIL discussion prior to enrollment, including under the NCAA’s Rule of Restitution.” On February 23, 2024, the court (i) granted a preliminary injunction temporarily prohibiting the NCAA from enforcing any rule that prohibits student-athletes from negotiating compensation for NIL with any third party, including boosters, and (ii) ordered that the NCAA may not enforce the Rule of Restitution with respect to NIL activities until the final court decision (meaning that the NCAA may not retaliate against any student-athlete that engages in such NIL activities while the preliminary injunction is in effect, even if the court later rules in favor of the NCAA). In response, on March 1, 2024, the NCAA notified all member schools that the NCAA enforcement staff had paused all current investigations, and would not begin any new investigations, relating to third parties participating in NIL activities. On May 1, 2024, the plaintiffs filed an amended complaint adding the states of Florida, New York and the District of Columbia as co-plaintiffs. The NCAA has until July 1, 2024 to respond to the amended complaint.
Practically, What Does the Future Look Like for Student-Athletes?
Assuming that the House Settlement is approved in the next several months, student-athletes can expect to receive payments as early as Fall 2025 and will enjoy greater freedoms than ever before. In a world where student-athletes (i) are receiving direct payments from schools via revenue sharing, (ii) still have the ability to earn uncapped NIL money from boosters, collectives, and other third parties, (iii) can transfer an unlimited number of times, and (iv) can openly negotiate recruiting inducements prior to enrollment, this may be the beginning of the golden era of the student-athlete empowerment movement (at least for P5 football and men’s basketball players). Not even the NFL, nor any other professional league, possesses unlimited, perpetual free agency for the duration of their careers. For fans of college athletics that preferred the traditional NCAA model, coaches that would like to see some form of transfer restrictions for purposes of planning recruiting, roster retention and player development, or stakeholders of institutions and conferences that would like to see stability, it is understandable why an increasing cohort believes that forming “super leagues” for the major revenue generating sports (football and men’s basketball), consisting of all or some portion of the top P5 athletic programs, and abandoning the NCAA as a governing body altogether, presents the most straightforward pathway towards student-athletes unionizing and being able to collectively bargain for a future model akin to professional sports leagues. However, aside from negotiating a materially larger percentage of a revenue-sharing arrangement with such a league, I cannot fathom why any P5 football player or men’s basketball player would agree to or lobby for any antitrust exemptions that would potentially shift the leverage from student-athletes back to the NCAA, its member schools, or a new “super league” comprising of select member schools. For the first time in history, student-athletes hold the cards and they may want to think about holding onto them for a while.
[1] The reason behind the June 15, 2016 lookback date in House is due to the statute of limitations (i.e., the amount of time one has to file a suit). Federal law requires that a private cause of action under antitrust law must be brought within four years of the date the cause of action accrued. A cause of action generally accrues from the time the injured party suffers the alleged injury to his or her business or property. The same rule and logic follow for the lookback dates in the Hubbard and Carter cases, discussed below.
[2] On July 26, 2021, the House Plaintiffs amended their complaint in response the NCAA’s suspension of NIL rules effective as of July 1, 2021. The amended complaint combined an additional case and became consolidated into one action titled In re College Athlete NIL Litigation. In the consolidated action, the amended complaint incorporates admissions from the NCAA and representatives of Defendants regarding the benefits of NIL and makes clear that any student-athletes benefitting from the NCAA’s suspension of NIL rules after July 1, 2021 are also part of the suit.
[3] In Alston, the U.S. Supreme Court upheld the lower court’s ruling that the NCAA rules limiting education-related compensation violated Section 1 of the Sherman Antitrust Act. To note, the Alston ruling only concerned educated-related payments and did not address restrictions on direct compensation to athletes.
[4] Of the 50+ schools offering Academic Achievement Awards, at least 16 pay the maximum amount (i.e., $5,980) to every Division I athlete who maintains academic eligibility under NCAA standards. The remaining schools have their own eligibility requirements that apply to the athletes at their respective schools.
[5] Note, however, by statute, if an antitrust case goes to a jury verdict, treble damages are available (i.e., actual damages are tripled). The policy rationale for such damages is to encourage citizens to sue for violations that are harmful to the broader society and to deter a defendant from committing future violations. In Hubbard, treble damages would result in a potential $939 million damage award.
[6] Notably, the Plaintiffs in each of House, Hubbard, and Carter have engaged the same legal counsel, Steve Berman and Benjamin J. Siegal of Hagens Berman Sobol Shapiro LLP, and Jeffrey Kessler and Jeanifer Parsigian of Winston Strawn LLP.
[7] Co-lead counsel for the Plaintiffs, Steve Berman, further elaborated that he would comply if the NCAA asked him to speak with members of Congress to explain why the House Settlement is a good deal for student-athletes and why the NCAA should receive a partial antitrust exemption (i.e., a liability shield) with respect to the terms and payments contemplated thereby.
[8] A Sports Illustrated article has reported that approximately 90% of the $2.77 billion in NIL damages will be paid to P5 football and men’s basketball players.
[9] Notably, Judge Wilken was also the district court judge in the famed O’Bannon v. NCAA and NCAA v. Alston cases.
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