By Lauren Merola, Ralph D. Russo and Justin Williams
College athletes are about to get paid — directly, by their universities — and the amateurism model that has ruled college sports for more than a century will nearly cease to exist at the Division I level.
On Friday, a federal judge in California approved the landmark, multi-billion dollar settlement of three separate antitrust cases against the NCAA and power conferences.
Power conference schools and other Division I universities that opt into the settlement terms are now able to directly pay athletes via a revenue-sharing pool starting July 1, which will be capped at roughly $20.5 million in year one.
In addition, nearly $2.8 billion will be set aside as back-pay damages for athletes dating back to 2016 who did not have the opportunity to be compensated for their name, image and likeness (NIL).
In an era when collegiate athletics faces more questions than answers, here’s how the settlement will reshape the current landscape and what complications the industry could continue to face.
What does the settlement do?
The settlement resolves three separate antitrust cases: House v. NCAA, Hubbard v. NCAA and Carter v. NCAA. The “House” refers to former Arizona State swimmer Grant House, who brought a federal lawsuit in 2020 seeking damages for athletes who could not earn NIL money. The three lawsuits were among a flurry filed against the NCAA and its power conferences in recent years related to college athletes’ earnings.
The NCAA had an incentive to settle because it could have owed as much as $20 billion in damages had it lost the House case.
The settlement’s wide-ranging effects stand to benefit former athletes while setting up a new revenue-sharing era for current and future athletes.
NIL compensation for current and former athletes
A major component of the settlement is nearly $2.8 billion in back-pay damages the NCAA will owe to current and former Division I athletes who competed since 2016, which the association plans on paying in installments over 10 years.
Most of that money will go to power conference football and men’s basketball players, given that those media rights generate the most revenue among college sports.
Revenue sharing with current athletes
The settlement allows power conference schools and other Division I universities that opt in to begin directly sharing revenue with college athletes beginning July 1. The revenue-sharing cap is expected to be roughly $20.5 million in year one (2025-26) and increase on an annual basis. The number is calculated as 22 percent of Power 5 schools’ average athletic revenue.
College athletes are still permitted to sign “over-the-cap” NIL deals with third-party organizations that will not count toward a school’s revenue-sharing pool, but there are new constraints on outside NIL deals under the settlement, focused on restricting the type of pay-for-play payments popularized by NIL collectives.
What else?
In another new development from the settlement, scholarship limits will be replaced by roster limits. Schools can allocate scholarship funds — partial or full — as they see fit, potentially allowing more athletes to fund more scholarships than before. In a late change to the settlement terms, any athletes who lost or were in danger of losing a roster spot because of the new roster limits can now receive legacied status for the remainder of their college eligibility, allowing those athletes to retain their spot and remain exempt from roster limits, whether at their current school or a new institution.
How could this change the current NIL system?
Two previous court cases — Alston v. NCAA and O’Bannon v. NCAA — preceded the NCAA removing restrictions on NIL payments in July 2021.
Quite predictably, NIL became a recruiting tool and a de facto pay-for-play device, but with fans and donors, rather than the universities themselves, footing the bill for players to represent their schools through NIL collectives, or organizations that fundraised with the intent to direct that money to a school’s athletes through NIL deals.
The settlement establishes new NIL guidelines, mandating athletes declare any third-party NIL payments over $600 to a clearinghouse dubbed “NIL Go” and run by the accounting firm Deloitte (more on that later).
NIL collectives will be impacted by the settlement as well. Some schools intend to absorb collectives (and any existing funds and resources) into the athletic department, or shutter them altogether. Others are keeping the collective separate as another means to facilitate those outside, over-the-cap NIL deals.
What are schools doing to prepare for the settlement?
The short answer? Trying to find the $20.5 million a year for revenue sharing.
The vast majority of schools are having to figure out where those revenue share funds will come from. Some schools are raising ticket and concession prices — what Tennessee is calling a “talent fee.” Others are pushing fundraising campaigns. All are adjusting budgets in some fashion, trying to find any cuts or pockets of inefficiency that can be redirected toward the cap.
This will be easier for some schools than others — particularly those with the biggest budgets atop the Big Ten and SEC — but even the most well-resourced programs are having to adapt. And there are plenty of schools that won’t hit the top of that roughly $20.5 million cap, at least not in year one.
Once those funds are earmarked, the next step is determining how to distribute those dollars. Most FBS schools that opt in plan to use the formula for the backpay damages as a blueprint: 75 percent to football, 15-20 percent to men’s basketball, 5-10 percent to women’s basketball, and whatever is left to Olympic and non-revenue sports. However, there are no stipulations for how the funds are allocated, as long as they stay under the cap. That is already creating internal jockeying over which teams will get how much.
Scholarships are a similar deal. Under the new roster limits, some schools are increasing the number of overall scholarships — Ohio State announced it will add 91 across all programs — while others are reducing or redistributing the number of available scholarships per sport, which led to the late revision offering exemption status.
Will this widen the gap between power and non-power conferences?
Yup! It’s simple: The richest programs will have the easiest time allocating revenue share and additional scholarships, along with finding ways to generate those over-the-cap NIL deals. It’s much more accessible for Power 4 schools, bringing in tens of millions of dollars a year in television revenue, to max out revenue sharing compared to the Group of 6, in the same way it’s much easier for schools like Ohio State or Texas to earmark that $20.5 million a year and orchestrate outside marketing deals for their star players.
None of this guarantees success — we’ve already seen plenty of instances of programs investing NIL poorly, or without results. But the more money you have in college sports, the larger your margin for error.
On a more micro level, how different approaches and philosophies play out will be revealing. Will the Big East have an advantage in basketball without needing to fund football? Will differences in distribution allotments between schools be reflected on the field and court?
But big picture, the power conferences are best positioned to succeed in the House settlement era. Same as it ever was.
What’s next for the NCAA?
As college sports become more professionalized, at least at the highest levels of competition, the NCAA’s role as a governing body is diminishing.
But it’s not going away.
The power conferences that were named defendants in the massive antitrust lawsuits covered by the settlement are in the process of creating a new enforcement and regulatory structure outside the NCAA, named the College Sports Commission. The new governing body will be responsible for overseeing NIL deals between athletes and third parties that don’t fall under the revenue-sharing agreements between schools and athletes.
Deloitte has been contracted to assess the fair-market value of those deals. The new governing body will also be tasked with monitoring how much schools are spending in revenue sharing to ensure they stay under the agreed-upon cap.
The new body will also handle enforcement of the financial rules related to the so-called cap, investigations into possible violations and handing down penalties — essentially taking over an area of college athletics the NCAA has struggled to for decades to police: The influx of improper benefits.
So what does that leave for the NCAA to do? Well, mostly run national championships in 91 sports sponsored by the association in three different divisions, including March Madness basketball. The NCAA will also still be charged with the standardization of playing and administrative rules for sports and overseeing the academic eligibility of athletes.
What issues lie ahead?
The settlement will not put an end to the legal challenges facing college sports.
There are still other prominent, ongoing cases. Fontenot v. NCAA involves pay-for-play and overlaps with the Carter case that was resolved with the House settlement, but is still ongoing. The Johnson v. NCAA case is arguably the most notable regarding athlete employment, and the debate over college athlete employment status, unionization and collective bargaining could be the next high-profile legal standoff in collegiate athletics.
The NCAA, power conferences and to-be-established College Sports Commission are all still susceptible to additional litigation regarding Title IX disputes, antitrust claims over the restrictions on third-party NIL, and conflicts with state laws. Many states already have laws that contradict terms of the settlement, which has led to the College Sports Commission drafting a potential “membership agreement” that would contractually bind universities that opt into the settlement to adhere to decisions of the new oversight and enforcement. This potential agreement, first reported by Yahoo, is still in the preliminary stages and may not be legally viable. But it underscores the fact that the settlement is not a cure-all for the NCAA and power conferences.
It’s why those groups continue to lobby for federal NIL legislation and an antitrust exemption, similar to what American professional sports leagues have. That’s the only way to shield college sports from more and more legal challenges, though those efforts in Washington D.C. have thus far been unsuccessful, and it’s unclear if they can occur without addressing employment status. There’s also a potential presidential commission forthcoming, though it was recently paused, that could have a say in the future of the industry, as well as private equity firms and “super league” concepts angling to get involved as well.
The House settlement marks a significant, landscape-altering transition for college sports. But there is clearly more change ahead.
(Illustration: Dan Goldfarb / The Athletic; Isaiah Vazquez / NCAA Photos / Getty Images)