A Major Sports Settlement Is Poised to Cost Colleges Billions. How Would They Pay for It? By Nell Gluckman MAY 22, 2024 There has been so much legal action about college sports in the last decade — including Supreme Court cases, National Labor Relations Board decisions, and active lawsuits — that you may have understandably tuned it out.
Now is the time to tune back in.
This week, the colleges that make up the National Collegiate Athletic Association’s most prominent conferences are voting on a proposed settlement in the case House v. NCAA, which seeks damages for athletes who played before the association began allowing them to monetize their names, images, and likenesses.
Details of the settlement are not public, and some aspects of it remain murky. But others have been leaked to the press. Multiple news reports suggest the NCAA and the power conferences will vote by Thursday on the terms of a settlement that would cost them about $2.8 billion in damages — and a subset of the institutions even more in the future. Such a settlement, which would be reviewed by a federal judge after the two sides agreed to it, is aimed at heading off a trial that could reportedly cost the association an exponentially greater sum of around $20 billion. Even by today’s standards of constant challenges to the association’s limits on player compensation, this case is monumental.
“It is a big, big deal,” said Scott Schneider, an education and employment lawyer who once served as the in-house counsel at Tulane University. “You’re talking about literally billions of dollars of antitrust exposure.”
Hence, the settlement talks. The fee for damages would be shouldered by the NCAA and Division I conferences, which would reportedly make the payment over 10 years by reducing distributions to colleges.
But on top of that payment, the settlement reportedly includes a revenue-sharing plan in which universities in the most lucrative athletic conferences would have the option of paying up to about $20 million per institution a year to their athletes — a historic step for an enterprise that has long prohibited direct pay. Those colleges would face pressure to contribute to the athletes’ pool or risk losing top players to rival institutions.
That’s a heavy financial toll, and it could severely squeeze athletic programs already struggling to stay competitive.
This is the third major antitrust case that the NCAA has faced in recent years. The association had for decades argued successfully that “amateurism” was the source of college sports’ appeal, and thus could not be struck down on antitrust grounds. That argument began to falter with O’Bannon v. NCAA, which the association lost in 2015, and Alston v. NCAA, which it lost in 2021.
“Alston was a huge deal,” Marc L. Edelman, a law professor at Baruch College of the City University of New York, said, because it “put an end to the argument that NCAA was somehow different when it came to antitrust law.”
The U.S. Supreme Court’s ruling was 9 to 0 in Alston, a decisive verdict that legal scholars say sent an unmistakable message to the association’s member colleges: If the House case went to trial, the NCAA would probably lose.
“It’s an amazing wake-up call for the NCAA member schools,” Edelman, who teaches sports and antitrust law, said of Alston and House.
Sink or Swim According to news reports, hundreds of colleges will see revenue drops over the next decade to pay damages, while a smaller subset of the highest-profile conferences will put revenue away to share with players.
The question of how to divide up payments into the former pot has gotten contentious, according to multiple news reports. In some versions of the settlement, Division I conferences outside the power conferences have been on the hook for a sizable percentage of the payments. Leaders of those conferences have argued that is unfair because the payments would not be going to their former players, but would mainly benefit football players from the conferences that generate much more revenue, The Athletic reported.
Then there’s the revenue-sharing plan, which would apply only to the Power 4: the Atlantic Coast Conference, Big Ten, the Big 12, and the Southeastern Conference. News reports indicate that the proposed settlement would give each member college the ability to devote about $20 million annually to players directly.
Given the competitive pressures in the major conferences, it’s likely most colleges will opt to pay. Where will they find the money? Will sports that do not generate revenue — think swimming, soccer, squash — be cut? Would the state legislature help? Could insurance cover it? Much depends on the precise language in the settlement, but assuming revenue-sharing comes to pass, some scenarios are more likely than others.
First of all, athletic departments with the biggest revenues, like those at Ohio State University and the University of Texas at Austin, will be able to take this hit much more easily than will their peers by, for example, drawing on major donors.
Other power-conference institutions that want to remain competitive but do not have $20 million lying around will most likely pull together the money from a variety of sources, said Dean O. Smith, an emeritus professor of physiology at the University of Hawaii-Manoa. Smith has also worked in the administrations of the Universities of Alabama at Huntsville, Hawaii-Manoa, Tulsa, and Wisconsin at Madison, as well as Texas Tech University.
Most institutions in the power conferences are public, so a handful may get a boost from their state legislatures. But Smith said that’s no guarantee. Even if a college received a little extra to get past the hurdle in the first year after a settlement, that might not happen again in two years, let alone 10.
Taking from a university’s endowment would not be a conventional business decision, Smith added. “It would be pretty rare for a university to dip into the endowment to pick up this athletic revenue.”
Cutting less-lucrative sports has been a hard sell in the past. Stanford University, for example, tried to cut 11 sports in 2020 to save money but reversed course after it faced lawsuits. Eastern Michigan University also tried to eliminate four sports programs for financial reasons, only to be ordered by a judge to reinstate two of them.
Insurance may also be a mixed bag, Smith said. Some colleges may have a policy that could help with a one-time payment, but many will not have even that.
So what options will colleges have? Student fees, booster clubs, ticket sales, and the institution itself.
Dean speculated that colleges could raise millions a year by substantially increasing the annual fees students pay toward athletic departments. Colleges might also rely on booster clubs — fans and alumni who pay a premium for perks at football games — by increasing membership fees. Then the ticket prices could be raised.
And the main campus itself might step in. Universities often lend money from their operating budgets to their strapped athletic departments. “The provost will generally honor that request,” Smith said. “There’s a recognized value to a healthy athletic program.”
Such loans, if sometimes controversial, reflect a reality about college athletics.
“The academic side of higher education routinely subsidizes athletic programs,” said Michael H. LeRoy, a labor and employment-relations professor at the University of Illinois at Urbana-Champaign.
He gave a few examples: When the University of California at Berkeley retrofitted its stadium to be earthquake-safe, it fell to the university to help pay off millions of dollars in debt. A NorthJersey.com and USA Today Network New Jersey investigation found in 2021 that Rutgers University was helping pay millions in athletic-department debt after the university joined the Big Ten. And at the height of the pandemic, the University of Iowa lent $50 million to its athletic department.
The bottom line is that a big new yearly expense will hurt some universities much more than others. “This is like throwing 60 swimmers in the deep end of the pool,” LeRoy said. “We’ll find out who can’t swim at the end of the day.”
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