Good morning and welcome to another edition of Free Agent! Hold onto your buckets and your babies—this might be a wild ride.
College sports is officially entering a new era. Amateurism is over and professionalism is (mostly) here. Athletes can officially get paid directly by their schools without a workaround involving boosters or a name, image, and likeness (NIL) collective. Instead of our usual format, the newsletter this week is focused on this monumental change.
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But first, I want to thank everyone who voted in our survey last week about who you’re rooting for in the NBA and NHL finals. Free Agent readership was surprisingly evenly split in both series. Shoutout to the fan who said “Seattle kid. Anyone but Thunder.” You’ll have your team soon, I’m sure. As for hockey, I was amused by this response: “I want Ron Desantis to have more Stanley Cups than Canada.” Three down, 40 to go.
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Late on Friday, a federal judge gave final approval to a settlement in House v. NCAA, bringing to an end three antitrust cases against the NCAA and power conferences. It’s a huge change: Starting July 1, college sports will spend a decade (at least) in a revenue-sharing system, with schools directly paying athletes for their NIL. Next school year athletic departments will be allowed to pay a combined $20.5 million to athletes across all their sports, with the number rising in the future. (The NCAA and power conferences will also pay almost $2.8 billion in damages to athletes who, dating back to 2016, weren’t allowed to sign NIL deals.)
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I talked to Mit Winter, an NIL attorney at Kennyhertz Perry, about how all of this is going to work. Hopefully this answers all the questions you might have about the new system, although a lot of it is still in limbo. I’ve been following this closely and I still learned a lot from our conversation. If you have lingering questions, email me at freeagent@reason.com and I’ll try to figure out an answer for you.
Q: With final approval of the House settlement, colleges will be able to directly pay athletes for the first time. Give us a brief breakdown of how these payments are going to work.
A: Looking forward for college athletics, schools will be able to directly pay their athletes NIL compensation. So they are actively entering into contracts now with their athletes that spell out, “All right, here’s how much we are going to pay you for the use of your NIL in various ways.” That’s obviously a change from how things have worked in the past in college athletics where the cardinal rule was, “Schools, you cannot pay your athletes.”
Q: But the athletes still aren’t technically employees, so that’s causing some other complications, right?
A: Correct, they’re not currently considered employees. These agreements they’re entering into with schools are just NIL licensing agreements. Sometimes they include a services component as well, where the athlete might make appearances or sign autographs or something like that.
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Q: But there are some new restrictions on outside NIL deals with boosters?
A: In addition to now allowing schools to directly pay their athletes, the House settlement also contains some new rules around deals athletes can do with NIL collectives and boosters. Athletes will have to disclose to a new clearinghouse entity called the College Sports Commission all third-party NIL deals they do. The College Sports Commission is contracted with Deloitte to do this review process of all of the deals.
If an athlete submits a third-party NIL deal and it’s determined that the deal is with an associated [to the school] entity or individual, then there’s a couple of extra layers of review of that deal. First, the deal has to be for a valid business purpose. Once that determination is made, then the next overview Deloitte will be performing is, “Okay, is the amount being paid to the athlete within what’s being called an appropriate range of compensation for the services being provided by this specific athlete?”
But if Deloitte determines either the deal’s not for a valid business purpose, like they think it’s just a “pay-for-play” booster deal in disguise, or if the amount of compensation being provided to the athlete is not within the appropriate range of compensation, then Deloitte will notify the College Sports Commission that, “Hey, there’s a problem with this deal.” Then at that point it’s up to the College Sports Commission to say, “All right, athlete, you can go ahead and do this deal if you want to, but you might be ineligible to participate in college athletics.”
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Q: Some believe this might lead to the old ways of under-the-table payments and recruiting violations.
A: It’s a definite possibility because the amount of NIL compensation that schools could pay their athletes is going to be capped at, for the first year, $20.5 million for the entire year for all of the school’s athletes, so not just the football team. And there are some football teams making well over $20 million in NIL compensation from booster and collective deals for this upcoming season.
So you can see if you have a football team right now taking $30 million, and then in the future, the cap for all of the school’s athletes is going to be $20.5 million, there’s obviously a $10 million gap right there, that if you can’t do it through legitimate deals, third-party NIL deals and Deloitte is shooting down all these third-party deals, that’s when you might go back to under-the-table payments from boosters to win recruiting battles or keep a guy at a school.
Q: Talk to us about this from the conference level.
A: Every Division I school, no matter what your athletics revenue is, you’re going to be able to pay [athletes] up to $20.5 million. That money can come from any source that the university can use to find that money. Obviously, it’s going to be easier to come up with that money for some Division I schools than others. Big Ten and SEC schools might have the easiest time just because the amount of TV revenue those conferences receive and then distribute out to their members is higher than any other conference, including the Big 12 and the ACC. But schools, they’re going to be heavily reliant on donors for sure, but then there are other potential strategies they’re going to use.
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There’s a lot of talk about private equity or private capital that some schools might access. There are businesses out there that are very heavily focused now on helping schools generate revenue through different types of creative partnerships, so it’s going to be all over the map in terms of how schools are trying to come up with this new $20.5 million. And then you’ll have some schools that will cut staff. Some have already cut staff, including Oklahoma, who’s an SEC school, obviously, so they’ve cut staff. You’ve had some schools announce they are dropping a few sports, like tennis programs have been dropped in some places, swim and dive teams. So it’s going to vary from school to school on how they come up with this money.
Q: Now, back to the athletes themselves, there are no changes to the transfer system, right? Athletes are still kind of on these one-year contracts, with a fair amount of ability to move at will?
A: Yes, correct. The transfer rules are going to stay the same, they’re not affected by the House settlement at all. Although schools and conferences would love to be able to put some more transfer restrictions back in place and they’re hopeful that Congress will pass a law that gives them an antitrust exemption that would then allow them to put some of those transfer rules back in place because courts have held right now that those transfer rules violate antitrust law.
Some of the contracts that schools are entering into with their athletes, they have some provisions that are trying to prevent as much movement as there has been, like buyouts and clawbacks and things like that. [It] remains to be seen whether those will be effective or not in limiting movement, so we’ll just have to see how that plays out.
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Q: There are already some lawsuits challenging the current NCAA eligibility rules, but what lawsuits are coming next, or are already in play after the House settlement?
A: A big one’s going to be Title IX. There will be a lot of Title IX lawsuits, because as we talked about earlier, [schools] will be able to pay out $20.5 million to their athletes, and most schools are planning on paying out, at least if you are a [Power Four] school with a football team, are paying out 75 percent to 80 percent of that $20 million to the football team, around 15 percent to the men’s basketball team, maybe 5 percent to the women’s basketball team, and then 5 percent to other sports, which might be softball, baseball, whatever other sport a school chooses—85 percent to 90 percent of that $20 million is going to go to male athletes. Some people think that’s not in compliance with Title IX, other people think it is. It’s a gray area right now, there’s no black-and-white law. That will be litigated probably in lots of places and there will be probably lots of lawsuits filed against schools on that issue.
I also think we will see some litigation related to the salary cap, because it was not agreed to by a player’s association where, like in pro sports, the salary caps and things like that are collectively bargained with a players association, which makes them exempt from antitrust law. But this salary cap in college athletics is not going to be exempt from antitrust law. So future college athletes coming into college athletics will be able to bring damages, lawsuits, challenging that salary cap, so I think we’ll definitely see some of that.
I think we’ll probably see some more employment litigation for determination that college athletes are employees. There’s already one big case pending on that issue called the Johnson v. NCAA case in federal court. It said college athletes can be employees, it didn’t say they are. It said, “They can, and here’s the test to determine whether they are.” That was an appellate court, it’s now down at the trial court level to actually make that determination. But I definitely think we’ll see some more of that litigation, especially now that you have the schools contracting with athletes. It potentially makes that employment argument stronger than it was before.
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This interview has been condensed and edited for style and clarity.
Lots of great candidates this week that you’ve probably already seen, like the Tyrese Haliburton game-winner, a brawl in the Stanley Cup Finals, and perhaps the best home run robbery you’ll ever see (the A’s still lost). But here’s a wild golf shot you probably missed (and that wasn’t even the craziest golf shot this weekend).
That’s all for this week. Enjoy watching the real game of the weekend, the UFL championship game featuring the D.C. Defenders against the Michigan Panthers (Saturday, 8 P.M., on FOX). Many are calling it the Jason Bowl due to my dual loyalties.
The post Amateur Hour Is Over: College Athletes Can Get Paid by Schools appeared first on Reason.com.
