NCAA Offers Student Athletes A Taste Of The Pie They Baked

But only the boys.

Columbia University Freshman Football Team Class of 1887, via Wikimedia Commons

Last week a federal judge in California scuttled a plan to pay college athletes for their work. The deal would have addressed the manifest unfairness of supposedly “amateur” sports where student athletes provide 100 percent of the labor, absorb 100 percent of the injury risk, and receive none of the tens of billions of dollars generated every year for schools and the National Collegiate Athletic Association (NCAA). The parties will now go back to the drawing board and try once again to back-formulate a compensation scheme for a sporting league that existed before color television, much less the rise of women’s athletics.

The Fiction of “Amateur” College Sports Is Untenable 

In 1984, Justice John Paul Stevens wrote for the Supreme Court that, “In order to preserve the character and quality” of collegiate sports, “athletes must not be paid.” But in 2021, SCOTUS invalidated certain NCAA restrictions on providing benefits to student athletes, calling them an illegal restraint of trade in violation of the Sherman Antitrust Act.

Justice Kavanaugh’s concurrence made clear that there would be no more judicial paeans to the nobility of amateur athletics:

The NCAA acknowledges that it controls the market for college athletes. The NCAA concedes that its compensation rules set the price of student athlete labor at a below-market rate. … [T]he NCAA says that colleges may decline to pay student athletes because the defining feature of college sports… is that the student athletes are not paid. In my view, that argument is circular and unpersuasive. The NCAA couches its arguments for not paying student athletes in innocuous labels. But the labels cannot disguise the reality: the NCAA's business model would be flatly illegal in almost any other industry in America.

Seeing the writing on the wall, the NCAA crafted regulations allowing student athletes to profit from their name, image, and likeness (NIL) through endorsement deals or by selling autographs and memorabilia. (We did a deep dive into the issue on Episode 61 of the podcast.)

But that token concession, which cost the NCAA nothing, failed to put the matter to rest. Current and former student athletes filed a raft of lawsuits seeking to claw back some of the revenues they’d generated over the years, as well as lost NIL income. Two class action cases, one led by former Arizona State swimmer Grant House, and the other by Illinois football player Tymir Oliver, were consolidated in 2021 as In Re College Athlete NIL Litigation and referred to mediation. It was this case that produced the settlement rejected last week by Judge Claudia Wilken, who instructed the parties to go back and negotiate some more. It remains the most likely vehicle for a global plan to get collegiate players a piece of the enormous financial fruits of their own labors.

The Proposed Settlement

Ordinarily, a civil settlement does not require court approval. But class actions by their nature incentivize represented parties to negotiate for a deal that favors themselves over the rest of the members of the class, who are nonetheless bound by the settlement. Here, the proposed agreement would have bound all college athletes for the next ten years unless they specifically opted out now, even though the freshman class of 2034 is currently in the third grade. And so, to protect the unrepresented parties, Rule 23(e) of the Federal Rules of Civil Procedure requires that any class action settlement be approved by the court only upon a finding that the settlement is “fair, reasonable, and adequate.” 

The proposed deal involved a $2.8 billion lump sum payment to compensate current and former student athletes for lost broadcast, video game, and NIL rights, plus an injunction establishing a framework to pay college athletes going forward. Division I schools could have paid college athletes a maximum of 22 percent of direct revenues from college sports, and schools would have had discretion to divide the money among athletes, with no requirement that funds be dispersed evenly among players.

This is a much smaller share of the profits for players than in the National Football League, where salary cap is set at 48.8 percent of revenues. And the NCAA settlement would have excluded the ancillary economic benefits that flow to a school and the NCAA itself from collegiate athletics, such as the spike in alumni contributions that comes from recruiting a star player. While some athletes were delighted to get any money at all, others protested that the omission meant the deal was not “fair, reasonable, and adequate” for purposes of Rule 23 and should be rejected.

In any event, the dollar value of the cap did not appear to be a sticking point for Judge Wilken.

The Sticking Point

The issue for the court was that the proposed deal would have revoked the NCAA’s prior concession on NIL rights, taking away a student athlete’s right to negotiate endorsement deals and injecting schools back into the process to ensure that any transaction totaling more than $600 was entered into “for a valid business purpose” and at a prevailing market rate. Specifically, the NCAA would have been empowered to prohibit third-party organizations from entering into NIL licenses with student-athletes at rates above “compensation paid to similarly situated individuals with comparable NIL value who are not current or prospective student-athletes.” 

“What are we going to do with this [provision]?” Judge Wilken demanded during oral arguments. “I found that taking things away from people is usually not too popular.”

The court worried that allowing the NCAA to reinsert itself into the NIL transactions would  actually result in less money for students, most of whom rely on third-party NIL collectives to negotiate on their behalf.

The Elephant in the Room…

The NCAA has faced years of criticism for the racial inequity baked into the business of college athletics. But the proposed settlement highlights the gender inequity that will come from any revenue-based compensation plan. Because historically the vast majority of television broadcast revenue and video game licensing fees come from football and men’s basketball. And so virtually all of the roughly $2 billion in retrospective payments for broadcast and video game rights will go to men. And while women’s sports are gaining in popularity every year, the proposed deal would not erase that disparity for future players.

The settlement contemplated that the average men’s football or basketball player would receive $91,000 for broadcast rights, as much as $4,000 for video game rights, $17,000 for lost opportunities to pursue other income, and $40,000 in additional compensation, for a total of $152,000 per student-athlete.

Meanwhile, the average women’s basketball player would receive $23,000 for broadcast rights, $8,500 for lost opportunities, $14,000 in additional compensation, and nothing for her nonexistent video game rights, for a total of $45,500 — less than a third of her male counterpart’s pay. Worse still, for other female athletes, the average compensation was just $50. Unsurprisingly a group of prominent female athletes has objected to the proposed settlement as not “fair, reasonable, and adequate” in light of this overwhelming gender disparity.

The NCAA argues that the massive disparity is simply a mathematical fact, based on the commercial marketability of football and men’s basketball. But market value is at least partially driven by the amount of money, time, and effort the NCAA and colleges put into promoting an individual sport. Moreover Title IX of the Education Amendments of 1972 requires that schools provide equal opportunity for both men’s and women’s sports, with “publicity” being one of the principal considerations. 

In 2021, the NCAA commissioned a report from a prominent law firm on gender equity in men’s and women’s basketball. The findings were stark: “NCAA’s broadcast agreements, corporate sponsorship contracts, distribution of revenue, organizational structure, and culture all prioritize Division I men’s basketball over everything else in ways that create, normalize, and perpetuate gender inequities.”

In fact, it wasn’t until after that report came out that the NCAA even used the world-famous “March Madness” trademark to include women’s basketball. Prior to 2022, that was a men-only joint. And indeed this year, when the NCAA women’s basketball championship game was finally promoted as part of “March Madness,” it drew a television audience of 18.7 million, compared to 14.8 million for the men’s final. It would be difficult to argue that Caitlin Clark’s NIL rights are worth less than, say, Zach Edey’s.

… Isn’t Going Away Soon

Eventually, the parties will come back to Judge Wilken with a deal that addresses her NIL concerns. But it’s likely to make no one happy. 

Although Rule 23 grants the trial judge broad powers to reject a settlement that is not “fair, reasonable, and adequate,” in practice, the specific considerations set out in the rule tend to focus on questions of procedural fairness, rather than substantive ones. Courts typically defer to the lawyers’ own determinations, particularly when they reach a settlement with the aid of a mediator, as here. So as long as it is reasonable to segregate “Male College Football and Basketball Players” as a separate class from “Female Basketball Players” (and “Other Athletes”), Judge Wilken’s inquiry will focus on whether those classes as a cohort were adequately represented by competent counsel who negotiated the settlement at arm’s length.

A settlement is also permitted to reflect the risks and costs of litigation to pursue those claims separately. Because the women’s objectors’ claims are based on more speculative legal theories, Judge Wilken could conclude that it is reasonable to discount those claims more than comparable claims that could be brought by male athletes.

It will be no easy task to retrofit an amateur hobby league to reflect the multi-billion dollar business it’s become — particularly since that growth was predicated on free labor by the players themselves, with the schools taking all the profit. 

Judge Wilken will certainly have her work cut out for her.