The landmark settlement in the House v. NCAA and other antitrust cases was called into question during a court hearing on Thursday over language that would limit third-party name, image and likeness payments from boosters and collectives.
Judge Claudia Wilken, of the Northern District of California, declined to rule on preliminary approval after voicing concerns regarding the NCAA’s efforts to limit athlete compensation from outside entities and advised settlement attorneys to “go back to the drawing board.” The settlement, if ultimately approved, stands to reshape college sports, and was agreed upon this spring by the NCAA and the five power conferences.
Wilken, who still expressed optimism that a settlement could be reached, raised numerous issues with the terms as currently proposed. If Wilken were to eventually grant preliminary approval, the settlement would still face a final approval process before it can be formalized, which would likely stretch into early next year.
During more than two-and-a-half hours of discussion, Wilken’s biggest point of contention was in regard to the settlement’s proposed restrictions on third-party NIL payments, particularly from booster-led NIL collectives, and the justifications for those restrictions.
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One of the key aspects of the settlement for the NCAA is enforcement of rules limiting NIL payments to “a valid business purpose” and eliminating the pay-for-play payments that have become commonplace among NIL collectives.
“For us it’s an essential part of the deal,” said Rakesh Kilaru, a lawyer representing the NCAA.
Kilaru later added: “Based on (the judge’s) comments today, we have to talk about whether we have a deal (with the plaintiffs).”
Both sides of the settlement — the plaintiffs representing college athletes and defendants representing the NCAA and power conferences — agreed to confer, consider Wilken’s concerns, and make a supplemental submission addressing those concerns in three weeks, which would be Sept. 26.
Jeffrey Kessler, one of the lead plaintiff attorneys, acknowledged the possibility that if a revised settlement cannot be agreed upon, the involved cases could go to trial.
“If we’re going to solve these issues and go forward, that’s great,” Kessler said. “And if not, then we want a trial date.”
The NCAA released a statement after the hearing that it would “carefully consider the court’s questions, which are not uncommon in the context of class action settlements.”
Here’s what else you need to know from Thursday’s hearing.
Issues regarding boosters, collectives and third-party NIL
Under the proposed settlement, college athletes would be required to report all third-party NIL contracts — which are not part of the revenue sharing pool — worth $600 or more to a newly created clearinghouse database. The settlement would also empower the NCAA and power conferences to form a “designated enforcement agency” that would determine whether those reported third-party NIL deals qualify as “true NIL” and provide fair market value. In theory, this would eliminate pay-for-play inducements — which are currently against NCAA rules, but have largely gone unenforced, particularly since a federal ruling in Tennessee earlier this year.
Wilken questioned the settlement’s proposed restrictions on Thursday, stating: “What I’m concerned about is whether the change from what’s in the guidelines to what is in the settlement agreement is going to mean that some people who are getting large sums of money in third-party NIL right now will no longer be able to get them.”
When told that current NCAA rules restrict pay-for-play, Wilken responded, “Then’s what’s going on about that?” and alluded to what she has read “in the papers.” She later added, “I’ve found that taking things away from people is usually not too popular.”
Wilken also questioned the distinction between boosters and other outside businesses or entities that might want to sign college athletes to NIL endorsement and sponsorship deals.
“What if Mr. Fan loves his team and wants to give them all a truck, or give them $1 million dollars to get a new player?” said Wilken. “Is having your team win a valid business purpose?”
Background on the settlement and hearing
Terms of the settlement, agreed to in May and formally submitted to the court in July, would cover claims from three separate antitrust cases brought against the NCAA: House, Hubbard and Carter. If finalized, the agreement would establish $2.8 billion in retroactive damage payments for former college athletes dating back to 2016 who did not have the opportunity to earn compensation for their name, image and likeness (NIL). It would also allow college athletic departments to opt into revenue sharing directly with current and future college athletes from an annual pool that will start at north of $20 million per school.
Thursday’s preliminary approval hearing featured comments from both sides of the settlement: plaintiff lawyers representing college athletes, as well as representatives for the NCAA and power conferences. The hearing also included arguments from two dissenting groups advocating against the settlement. One represented a group of women crew athletes who argue that the allocation structure for the damage payments is unfair to female athletes. The other group represents the Fontenot v. NCAA case, a separate antitrust suit filed in Colorado that is seeking claims similar to the Carter case, arguing that the NCAA’s rules prohibiting “pay for play” compensation to college athletes violates antitrust law.
Garrett Broshuis, a lawyer in the Fontenot case, presented a series of dissenting arguments at the hearing, alleging that the back-pay damages are undervalued, that the forward-facing revenue sharing model did not properly involve athletes in the process and unfairly binds future athletes, and that having the same plaintiff attorneys representing the retroactive damages class and forward-facing revenue-sharing class is a conflict of interest.
Wilken said that she would not pause the Fontenot case in Colorado.
What’s next?
If Wilken grants preliminary approval, the settlement parties can begin notifying class members, which include the former athletes eligible for damages payments and current athletes eligible for the optional revenue sharing. A final approval hearing could be scheduled for early next year. If that approval is granted, the settlement would immediately go into effect, with the revenue sharing implemented next July.
But all of that seemed much more tenuous after Thursday’s hearing. For now, both sides of the settlement will go back to the negotiating table to determine if a deal that covers all three of the antitrust suits — House, Hubbard and Carter — can still be salvaged.
“I think I have more questions but I don’t think it’s a good time to try to look for them now,” Wilken said when wrapping up the hearing. “Otherwise, I guess you’ve agreed to get back to me in three weeks with a prognosis about all of the things we’ve talked about today and then we’ll take it from there.
“If I need a hearing after I get your report, I’ll set one. If I don’t, I’ll just try to rule on it.”