College sports could see a dramatic change. Here’s what you need to know

Ben Morse, CNN | 5/23/2024, 10:04 a.m.
College athletes could soon get dramatically different paychecks.

College athletes could soon get dramatically different paychecks.

At issue is a lawsuit called House v. the National Collegiate Athletics Association (NCAA), a class action that seeks to change how collegiate players get paid for the endorsements referred to as name, image and likeness (NIL) deals as well as for a share of broadcast revenue.

The NCAA could have to pay out as much as $20 billion if it loses the case, while a settlement could come to $2.7 billion in back-pay damages as well as a reshuffling of how student athletes are paid.

The NCAA and the conferences will reportedly meet in the coming days to decide on the terms of a settlement.

The lawsuit

The House v. NCAA lawsuit was filed by Grant House and Sedona Prince, two college athletes, against the NCAA and the Power 5 conferences – the Pac-12, Big Ten, Big 12, Southeastern and Atlantic Coast – in US District Court Northern District of California Oakland Division in 2020.

The lawsuit focused on the eight-year, $8.8 billion extension the NCAA signed to broadcast coverage of the March Madness basketball tournament, as well as seeking back-dated damages for payments the suit calls wrongly withheld.

College sports is a huge business, with enormous sums of money flowing in and out.

Football and basketball at Division I schools – those considered the top of three tiers of college sports – produced revenue of $7.9 billion during the last school year, according to data compiled by the Department of Education.

Overall Division I athletics generated nearly $17.5 billion in revenue in 2022, according to a report by the NCAA, the governing body for college sports.

NIL deals stem from an NCAA policy change in 2021 that allowed student-athletes to profit from sponsorship opportunities.

The move came after California started a nationwide trend in 2019 by passing a law entitling athletes to earn endorsement money, followed by a landmark 2021 U.S. Supreme Court decision that said student-athletes could receive education-related payments, reshaping the landscape of college sports.

But college athletes in the House lawsuit say current NIL rules and an “anticompetitive” college system hurt their chances to make money.

The current system also “undermines schools’ efforts to compete freely for the best college recruits,” the lawsuit alleges. Schools may be severely punished if they break these rules.

As college athletes, Iowa basketball star Caitlin Clark and USC football player Caleb Williams appeared in commercials for major national brands such as State Farm and Wendy’s, but the class-action lawsuit says the wider harm from the current restraints are “obvious.”

“Many college athletes have created significant value in their NILs and, absent the challenged restraints, would receive compensation for their use in an open market,” the lawsuit says.

The suit claims the NCAA restricts how much student athletes can earn outside employment.

For example, the suit says one NCAA bylaw, regulating jobs athletes can hold at their universities, “specifically prohibits athletes from receiving ‘any remuneration for value or utility that the student-athlete may have for the (outside) employer because of the publicity, reputation, fame or personal following that he or she has obtained because of athletics ability.”

“The harm is exacerbated by the fact that only a small percentage of college athletes will ever play professionally. And although this fact is often touted by the NCAA as a justification for not compensating them, it highlights that for most student-athletes, college is when their NIL is most valuable.”

In 2021, the Supreme Court opened the door for greater compensation for student-athletes when it ruled unanimously that NCAA rules prohibiting compensation to student-athletes violated antitrust laws.

However, the commissioners for the major college conferences said two years later that the Supreme Court ruling had resulted in a complicated series of state laws that have undermined collegiate sports and could ultimately lead to the collapse of sports programs across the United States.

The ascension of the transfer in college has offered athletes the freedom to switch allegiances with more regularity, with students no longer required to miss a year of eligibility after changing programs.

Athletes’ increasing use of the transfer portal, the commissioners said, has become problematic in college sports, particularly for student-athletes’ quest to get a degree.

They said college boosters have taken advantage of the current patchwork of laws to help their universities recruit the top athletes by promising big paydays – to the detriment of colleges in other states that are forced to play by a different set of rules.

CNN has reached out to the NCAA and the five conferences listed as defendants for comment.

When approached by CNN for comment, the National Association of Collegiate Directors of Athletics declined to comment.

The potential settlement

According to documents circulated among power conference presidents and administrators and obtained by Yahoo Sports, losing the case at trial would result in $20 billion worth of payments for the defendants and could force the NCAA to file for bankruptcy. The report did not detail who wrote the document.

A loss at trial would also free up athletes in the NIL system, the plaintiffs claim. “So essentially, if we win, there would be a complete free market in NIL, including from broadcast payments,” Jeffrey Kessler, one of the attorney’s representing the plaintiffs, told The Athletic.

When approached by CNN, Kessler declined to comment, saying: “Negotiations are ongoing.”

Any settlement will likely be in the range of $2.7 billion in NIL back-pay damages, according to reports, as well as including a system in which roughly $20 million a year can be distributed directly from a power-conference school to its athletes.

Per ESPN, the NCAA would pay the damages while the conferences would implement the revenue-sharing structure moving forward.

According to ESPN, the ACC and Big 12 both voted to approve the settlement on Tuesdaywith the NCAA and the Big Ten reportedly also voting to approve the settlement on Wednesday.

The possible settlement comes against a backdrop of attitudes toward college athletes receiving payments gradually changing.

Earlier this year, members of the Dartmouth College men’s basketball team became the first college athletes to vote to join a union, a significant milestone in the rapidly changing business for collegiate sports.