The House v. NCAA settlement plans to reshape college sports by providing initial rules for allowing universities to directly pay their athletes. It is unlikely that everything will be black or white even with the settlement, which invites strategies for teams to optimize their roster building methods. In this article we will provide more clarity on what the settlement says and what will still be decided.
Revenue Sharing Cap
The settlement will allow all NCAA Division 1 schools to make direct payments to players (some states, like Georgia and Tennessee, already have laws in place to provide this) from their annual athletic revenue up to $20.5 million per school in the first year covered by the settlement. This cap is expected to grow at a 4% annual rate, hopefully eclipsing $30M per year over the course of the next ten years. The $20.5M largely comes from a 22% distribution of average P4 athletic revenue ($100M average from USA Today reporting: NCAA Finances: Revenue & Expenses by School - USA TODAY), discounted for revenue that comes directly from tickets, TV media, licensing, conference distributions, bowl game revenue, and game guarantees. This notably doesn’t include school support via contributions from student fees or alumni/boosters. Not everything will count against the $20.5M cap and we will dive deeper into that a bit more later. An assumption could be that the $20.5M is a baked in buffer from using a direct 22% distribution of the $100M.
With that being said, any change in rule structure or even media deals will be cause for renegotiation of that amount. So, if there is a change to the postseason playoff structure (within any sport, but mostly driven by football), we fully anticipate there to be a renegotiation of the cap. Currently, most schools on average get nearly 75% of their revenue from football, nearly 17% from men’s and women’s basketball with the remaining coming from baseball, hockey, and “Olympic sports” such as track and field, swimming, gymnastics, etc. Breaking that down further: $15M of the $20.5M budget is anticipated to go to football alone. Schools that do not have a major football program may see a competitive advantage in other sports (i.e., Big East basketball programs). The first major strategic decision a school will be forced to make is: “Am I 75% football school?” This cap may end up forcing some hard decisions on revenue share allocation, including the possible reduction of sports at a given school. St. Francis played a game in the most recent NCAA men’s basketball tournament but still decided to reclassify to Division III in preparation for the pending settlement. Title IX compliance could also impact schools.
Using the USA Today reporting of revenue and the 22% distribution guidelines initially set in the settlement, not all schools would come close to the $20.5M cap (SEC/Big 10 schools on average would eclipse the cap). P4 programs could distribute revenue share at 8x that of a G5 program, making it nearly impossible for G5 programs to retain high end talent on their roster for each transfer portal. G5 programs could be nearly 20x that of an FCS program just given the pure media deals in place for many G5 programs. We have seen an upward rise of talent through the transfer portal over the past few years, but this system could provide greater visibility into the fundraising capabilities at various schools. Schools with high amounts of athletic revenue may see an advantage in non-athlete expenditures. In a recent report piece from Yahoo! Sports, Texas reported $331.9M in revenue during the 2024 fiscal year so using 22% benchmark, that would mean $72M would be allocated towards the athlete distribution but since that is ~$52M above the cap (assuming all money is reinvested back into athletics, which may not always be the case), this gives Texas revenue to begin to support their athletes more (retaining coaches, investments in sports science, technology, facilities, etc.)
What Doesn’t Count Against the Cap?
The 22% benchmark sets specific rules against what school revenue can be used against the $20.5M cap. The following do not count against the cap:
- 3rd party NIL deals – payments made to student-athletes by third parties such as businesses, individuals, or collectives that are not owned or control the school.
- Traditional scholarship benefits: tuition, room and board, meals, etc.
- Backpay of former athletes (approximately $2.8B will be back paid to athletes; separately pool funded by NCAA and conferences)
- Payments made before July 1st, 2025
- State appropriations – several states have had specific laws enacted that say state funds may not be used for athlete compensation for funding
- This calls for a need to have a federal anti-trust exemption to codify the rules, otherwise we could see even more litigation.
3rd party NIL deals are worth a closer look. They must have a legitimate business purpose and reflect a “fair market value” determined by an independent clearinghouse (Deloitte) and be publicly reported. Some states have already enacted laws blocking any reporting of these deals. Many deals also contain NDAs that prohibit athletes from disclosing terms (this portion could result in mass litigation). Overall, any payment made of $600 or more will be reported to the NCAA.
Given that, the second major strategic decision a school will make is how to identify how to pay athletes a fair market value but also not count against the $20.5M cap. The accounting of where these payment sources will be largely a strategy that is different from school to school. In the NFL, we see teams using void years to spread cap charges over multiple years while retaining the superstars. Multi-year contract structures could be an ever-increasing need for schools to get creative within their cap. If athletes can get paid from 3rd party sources, one strategy could be promotion of athletes on social media to get them closer to their desired fair market value (i.e., QB1 in SEC) while keeping direct school revenue sharing low. Yet promoting every single athlete could dilute the market and it would be difficult to promise ahead of time. We could potentially see re-routing of donor funds to a 3rd party collective to be able to acquire appropriate talent too. The NCAA has said there will be stricter scrutiny of collectives but with so many flows of payments, that may be ultimately very difficult. Some conferences have interconference agreements too that might make it difficult for the NCAA to have strict scrutiny of the collectives.
Fair Market Value
Fair Market Value (FMV) will be a Deloitte evaluation based on 12 factors:
- Athlete’s individual marketability and social media reach
- Athletic performance and public profile
- Type and scope of deliverables (appearances, content, etc.)
- Geographic market size and demand
- Deal duration
- Exclusivity clauses
- Renewability or extension terms
- Comparable market benchmarks
- Involvement of donors or booster entities
- Timing of the deal (Relative to recruiting, transfers, etc.)
- Quality and completeness of documentation
- Red flags suggesting illegitimacy or inducement
If there is a rejection, an athlete, payor (i.e. collectives), or institution can still dispute the FMV assessment through arbitration. The arbitrator’s role is not to renegotiate a deal but to make a final call if the deal complies with FMV standards. With this, we could expect an avalanche of lawsuits in the initial years as FMV standards accumulate more data to begin to find “comparable” deals. There is also consideration if going to arbitration makes sense given the rapid pace to which college football moves through key time periods such as transfer portal, or HS recruiting. Additionally, it is important to note there is an “arbitration window” where players can renegotiate their value. In theory, a player can renegotiate their Fair Market Value every time a new similar player renegotiates theirs. Although the legal fees could be costly to do so. The third strategic decision a school will make is: Do I have enough information internally to properly assess an FMV prior to reaching Deloitte’s review?
What Isn’t Solved by the House Settlement
There are many topics discussed in the House Settlement, but there are still lingering issues:
- Transfer Portal Rules
- Player Agent Regulation
- Buyout Language
- Walk-on/partial scholarship protections
- Booster regulations / Collective standards
- Title IX implications
The fourth major strategic decision a school must make is which items related to athlete payments and not specified by the house settlement will serve as a strategic advantage for our school. Assessing a player’s “fair market value” with the speed of the transfer portal is not defined and will cause some more friction in the marketplace. It may leave athletes in flux pending an arbitration decision. The involvement of player agents hasn’t been mentioned but is a key point of player payments. Who pays the agent’s fees? The school or the collective? The school will want to make sure every penny of a deal goes to the athletes, so how does the remaining balance get distributed to 3rd party negotiators? Some schools have enacted buyout language if a player leaves early. How is that enforceable if a player goes to achieve their fair market value? And who enforces the repayment, the school or the athlete?
With the parallel increase in scholarship limits to sports, players who are on partial scholarships or walk-ons will be the victims in the process as they could lose a roster spot to another athlete who a school wants to bolster their depth because. Walk-ons have been a major component of college sports and could evaporate as a result. The settlement is said to be “critical” of collectives but has yet to put out specific rules or standards for that means, which could lead to more booster fatigue and risk to year-to-year sustainability of the system altogether. Lastly, the settlement compliance with Title IX isn’t fully resolved and could lead to greater gender equity challenges in college sports if most funds are directed to football and basketball and could eliminate other sports in the process.
This settlement is a massive splash for direct payment by schools to athletes and will be a landmark case for college athletics. Still, the lack of clarity in some aspects of the settlement could mean that big portions of the system could be unresolved for years to come.
