A federal judge recently granted preliminary approval to a multibillion-dollar settlement of three athlete-compensation antitrust cases against the National Collegiate Athletic Association (NCAA), Atlantic Coast Conference, Big Ten Conference, Big 12 Conference, Pac-12 Conference and Southeastern Conference. The proposed settlement, filed with the U.S. District Court for the Northern District of California, brings a closer resolution to the three class-action lawsuits. If finalized, student-athletes would be prohibited from bringing legal action against the NCAA for potential antitrust violations, and they must abandon their pending lawsuits in the following cases: House v. NCAA, Hubbard v. NCAA and Carter v. NCAA.
A New Financial Model
The decision moves the NCAA and the conferences closer to funding a nearly $2.8 billion damages pool (over a span of 10 years) to compensate current and former student-athletes. This would set the stage for a fundamental change in college sports. Division I schools would be allowed to start paying athletes directly for use of their name, image and likeness (NIL), subject to a per-school cap that would increase over time.
If eligible, current and former student-athletes received notification starting on October 18, and those covered under the settlement agreement can opt out or reject by January 31, 2025. Certain athletes have already objected to the proposed settlement and filed an opposition to the preliminary approval.
In addition, the proposed settlement would clear the way for schools to inaugurate a new financial model in which revenue is shared between schools and athletes. Future benefits include athletic compensation through revenue-sharing, which would permit colleges to spend about $22 million annually on paying athletes with no guidelines for how the money can or cannot be spent. The revenue model allows schools to provide up to 22% of the average athletic media, ticket and sponsorship revenue to student-athletes starting in the 2025-26 academic year. In addition, third parties may continue to enter into NIL agreements with student-athletes.
Employment Status
However, even if finalized, the pending settlement does not resolve ongoing efforts, mainly by the National Labor Relations Board (NLRB) and plaintiffs lawyers, to designate student-athletes as employees under state and federal labor and employment laws. College conferences or institutions should examine whether student-athletes might be deemed employees under the federal Fair Labor Standards Act (FLSA) such that the athletes would be entitled to a minimum wage and overtime compensation. It is important to point out, however, that the legal landscape regarding the status of student-athletes is uncertain at this point and is rapidly evolving.
In a pivotal decision issued several months ago by the U.S. Court of Appeals for the Third Circuit, the court did not definitively rule whether student-athletes are employees. Instead, the court in Johnson v. NCAA indicated that student-athletes might be deemed employees depending on the economic realities of the situation. The court articulated a four-part “economic reality” test to determine whether an athlete is an employee. The test considers whether: (1) the student-athlete performs services for another party (i.e., the university); (2) such activity is for the benefit of the university; (3) the student-athlete services are performed under the university’s supervision and control; and (4) the work is being performed in return for express or implied compensation or other in-kind benefits. The FLSA requires that each athlete’s employment status be evaluated on a case-by-case basis.
Title IX and Walk-Ons
Another unresolved issue is how universities will comply with Title IX when creating revenue-sharing models. Title IX, among other things, prohibits discrimination based on sex in educational settings. The statute’s protections may be the sole means for guaranteeing that women would be compensated fairly. The primary concern is how universities will create an equitable distribution of payments between men’s and women’s teams when male-dominated sports generate most of the revenue. Institutions are responsible for creating their own revenue model, which will require compliance with Title IX, careful management of the NIL marketplace, understanding of market needs and providing transparency in their operations.
It is also uncertain how the proposed settlement will affect “walk-on” athletes. The prospective settlement emphasizes that full scholarships should be awarded for all roster spots. However, an unintended consequence of limited roster spots may be that athletic programs are less inclined to maintain non-scholarship sports or to accept walk-ons.
The federal court’s preliminary approval of the settlement agreement is a significant step forward in addressing student-athlete compensation. However, many issues remain unresolved, which will drive continued litigation and may foreshadow the need for federal legislation.
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