After decades of brushing aside calls for the reform of college sports, the National Collegiate Athletic Association is now facing a formidable coalition of critics – from star athletes and trustbusters to class-action lawyers and politicians – who sense a decline in the courts’ tolerance for what amounts to an unregulated cartel.

And on first (and maybe even second) glance, those pressing to undermine the NCAA’s control of sports that generate tens of billions of dollars in revenue have a solid case. What’s missing thus far, though, is a sense of what will replace the wounded cartel once it has lost its dominance. For my take on where we are and where we might be heading, read on.

The Enemies Gather

Since the inception of the NCAA in 1905, a fundamental premise of intercollegiate athletics has been that the athletes are students first – and, most definitely, not professional athletes. Of course, universities have found ways to pay some star athletes under the table, but the overwhelming majority of athletes have been amateurs. The tsunami of commercialism, which largely accounts for changing attitudes, only hit college sports after the Supreme Court ruled in 1984 that the NCCA could not limit TV broadcasts of games to serve its own interests.

The subsequent explosion of revenue from media was not shared with the athletes who produced the paying audience. Much of it was siphoned off by the coaches who recruited the star athletes, while much of the rest went into beefing up university budgets for men’s and women’s “non-revenue” Olympic sports. But as coaches’ earnings approached those of Fortune 500 CEOs, pressure built to share the bonanza with the athletes. And the wall of opposition to compensating college athletes began to crumble in earnest with the 2006 U.S. District Court decision in White v. NCAA.

Jason White, who played football for Stanford from 1999 to 2003, filed an antitrust complaint in 2006 against the NCAA alleging that an illegal “horizontal” agreement existed that denied Division I student-athletes a legitimate share of the financial benefits generated by big-time college sports. The particular focus of the case was the limit imposed by the NCAA on the amount of a grant-in-aid (GIA), which athletes argued was insufficient to cover the cost of attendance (COA) at college. (Along with the traditional tuition, room, board and texts, the COA includes items such as transportation from home to school and back, laptops, optional books and clothing required by the coaches.)

The case was settled in 2008 before it went to trial in what amounted to a compromise. For its part, the NCAA agreed to make available $218 million during 2007-13 from existing student aid funds of Division I schools to use for the benefit of student-athletes, as well as $10 million during 2007-10 for distribution on a claim-by-claim basis to aggrieved student-athletes. However, the settlement stipulated that the NCAA was not deemed guilty for its exhaustive efforts to limit grants-in-aid, and it allowed modified limits to remain in place. Still, the White case served as a benchmark that provided a point of departure for a series of antitrust cases – and rulings cumulatively amounting to (likely) death by a thousand cuts – that were to follow.

Consider the case brought by Edward O’Bannon, once UCLA’s superstar basketball player, who sought in 2009 to change the NCAA rules to permit compensation for publicity rights (aka names, images and likenesses, or NIL) for student-athletes. A federal district court decision in 2014 by Judge Claudia Wilken concluded that there were two less restrictive ways that the NCAA could maintain amateurism and yet improve the compensation of athletes: first, by allowing member-schools to offer scholarships large enough to cover cost-of-attendance, and, second, by allowing member-schools to offer compensation to athletes of up to $5,000 annually for use of their NILs, with payment deferred until they left school.

The NCAA appealed the ruling to the Ninth Circuit, which in 2015 decided that the NCAA did not have to allow a deferred NIL payment to athletes because it would amount to pay for a noneducational function and would violate the norms of amateurism. To arrive at this conclusion, the appellate judges bought the argument that consumers of college sports would lose interest in the product if athletes received NIL payments, even if payments were made after they left college. Following the O’Bannon decision, the NCAA voted to allow schools to increase the GIA to include COA.

Now, it happens that just a month before the Ninth Circuit decision in O’Bannon, the National Labor Relations Board had ruled that Northwestern University football players did not have the right to form a union. But the ruling left open the door for a more favorable decision down the road if institutional considerations were more permissive. One hundred seventeen of the 134 schools in the Football Bowl Subdivision (FBS) – the competitive elite within the NCAA’s Division I – are public and thus are not subject to collective bargaining under the National Labor Relations Act.

Subsequent to O’Bannon, a number of additional lawsuits challenged the NCAA’s restrictions on “educationally tethered” compensation for athletes. The cases were combined into NCAA v. Alston in the Northern District Court of California. Judge Wilken, who was also overseeing this case, ruled against the NCAA in March 2019. Wilken found that NCAA’s restrictions on “non-cash education-related benefits” violated the Sherman Antitrust Act and required the NCAA to allow certain types of academic benefits, such as for “computers, science equipment, musical instruments and other tangible items not included in the cost of attendance calculation but nonetheless related to the pursuit of academic studies.”

Not ready to give up, the NCAA appealed the ruling to the Supreme Court. The court unanimously upheld the court of appeals and district court decisions. In particular, the nine justices ruled that the NCAA could not limit the size of educationally tethered benefits offered to student-athletes, nor could it limit cash educational awards to athletes below the level of athletic awards already allowed ($5,980 at the time).

As this compensation dynamic was playing out in the courts, state legislatures plunged into the fight. California led the way, passing legislation in 2019 that barred state schools from disciplining student-athletes who signed NIL promotional contracts. And a couple of dozen other states passed similar legislation.

The NCAA, having lost previous antitrust suits on which it had spent over $200 million in defending itself, now gave signs of jettisoning a lost cause. In particular, the association did not want to risk a new complaint about the prohibition on NIL deals for athletes. Accordingly, the NCAA declared that it would allow NIL contracts for student-athletes under three conditions: the contracted work had to be performed (that is, it couldn’t just be a reward for excellence on the field), the compensation had to be at fair market value and the contracts could not be an inducement to enroll or remain at a particular school.

While the NIL market began to blossom after July 2021, other challenges to limiting student-athlete rights in the labor market continued. The Johnson case in the Third Circuit seeks to have college athletes declared “employees” of their universities under the Fair Labor Standards Act, possibly opening the way toward unionization and protection through minimum wages. Meanwhile, Jennifer Abruzzo, general counsel to the NLRB wrote a memorandum asserting that big-time college athletes meet the criteria for employee status and thus should be permitted to bargain collectively.

Abruzzo also filed a complaint against the University of Southern California, the Pac-12 Conference, and the NCAA alleging that their failure to use the term “employee” to refer to student-athletes intentionally discourages the rights of student-athletes to organize. Taking the cue, the regional NLRB director backed Dartmouth College basketball players’ right to unionize and join the Service Employees International Union.

Although the NCAA changed its policy to allow athlete NIL income from third parties under three conditions, the organization has done little to enforce its guardrails or control the evolution of the NIL marketplace. The NCAA, after all, does not have subpoena power, and it remains leery of engaging in any market controlling policy that might be deemed in violation of the Sherman Antitrust Act.

The accelerating momentum of the NIL marketplace was given an extra push by the NCAA’s introduction of the “transfer portal,” which allows athletes to move to other universities that make them more lucrative offers. Today, NILs can be used not only to lure star high school athletes to particular colleges, but also to induce athletes already enrolled to jump to new schools.

Without effective regulation, the NIL market has been transformed from one in which athletes were paid for the value of their publicity rights into one in which affluent team boosters, in coordination with coaches and athletic departments, pay athletes based on their performance on the field or court. According to statistics published by the NCAA, during the first seven months of 2024 the average NIL earnings of football players and men’s basketball players within the ultra-elite Power Four college conferences was $89,643.

It was in this context that potentially more revolutionary class-action litigation, House v. NCAA, was filed in June 2020. The suit seeks compensation for college athletes based on the use of their NIL in television broadcasts. The case was subsequently joined by two others (Carter and Hubbard). And while the NCAA and the Power Five conferences fiercely contested their liability, they decided in the end that discretion was the better part of valor and settled.

Some $2.8 billion in damages will be paid to thousands of college athletes who competed from June 2016 to the present. The average award for a football or men’s basketball player at a Power Five conference school will be approximately $135,000 for the broadcast NIL part of the settlement. (Note: these sums are before deduction of attorneys’ fees and costs, which are estimated to total an eyepopping $495 million.)

Moreover, under the agreement, the elite sports schools will be able to compensate their athletes to the tune of $21-22 million collectively each year. The figure equates to 22 percent of the average Power Five school’s generated revenue. School revenue will be reassessed every three years, with compensation in the interim period rising at 4 percent annually.

This settlement must now be approved by Judge Wilken. And four principal challenges have already emerged. First, although the House, Carter and Hubbard suits were primarily concerned with alleged athlete exploitation in the 65 schools in the Power Five conferences, the formula that the NCAA intends to apply to distribute the $2.8 billion in back damages assigns the lion’s share to the other 28 conferences in Division I. In effect, the 28 conferences that are not part of the Power Five would pay 60 percent of the annual damages bill, assessed in the form of reduced NCAA distributions from media revenues

The loss of hundreds of thousands of dollars per school annually will put these athletic programs, which are already collectively drowning in red ink (the vast majority of Division I schools don’t break even on sports), into an untenable financial predicament. Indeed, if the Power Four (down from the Power Five because the Pac-12 is no longer a power conference now that 10 of the 12 schools left) get their way, these lesser programs will, among other consequences, be forced to cut their sponsorships of many men’s and women’s Olympic sports. And don’t be surprised if these schools pass on a portion of the costs to non-athlete students in the form of higher general tuition charges, student fees and less generous academic scholarships.

Second, as noted, the settlement establishes a cap on pay-for-play compensation to athletes of 22 percent of average Power Four sports revenues. This, plain and simple, amounts to a salary cap, like the caps employed in professional football, basketball and hockey to limit competition for players. They constitute antitrust violations unless they are negotiated at arm’s length with players’ unions.

But no union was involved in negotiating the settlement in these college athletics suits. Moreover, individual athletes can opt out of the settlement and bring their own antitrust claims to court. Thus, the settlement, which was intended to sweep away antitrust issues, has created the basis for ongoing Sherman Act litigation.

Third, and perhaps most significant, by establishing a market test for athlete compensation, the agreement violates the equalbenefit- equal-treatment requirement of Title IX amendments to the Education Act. The 1972 amendment requires that schools receiving federal aid must provide equal treatment and benefits to both sexes regardless of the source of revenue.

Steve Berman, the co-lead plaintiff attorney in the House case, has stated that 90 percent of the settlement dollars would go to men (75 percent to football and 15 percent to men’s basketball), with 5 percent going to women’s basketball and 5 percent to other sports (without specifying the gender). The “other” 5 percent is likely to be heavily tilted toward men’s sports, such as baseball and hockey, so the men’s share would actually be above 90 percent.

Interestingly, the settlement attempts to skirt Title IX problems by having past damage payments come directly from the NCAA rather than from the schools on the dubious theory that since the NCAA does not directly receive federal financial aid, it is not subject to the law. But there are legal theories (controlling authority, joint employer) and even a federal law (Civil Rights Restoration Act of 1987) that appear to block this end run. The second major part of the settlement, which calls for injunctive relief by allowing future payment for athletic performance, will, however, be paid by the schools or conferences. So the value of the NCAA shield under any interpretation of the law is limited.

Fourth, it is claimed that the NCAA constitution does not grant NCAA CEO Charlie Baker the power to unilaterally negotiate the House settlement since it controverts a fundamental principle of the organization – amateurism.

Further clouding the picture going forward, there are pending antitrust and labor actions awaiting resolution. And gilding the lily, Congress has taken a new interest in reforming college sports. Bills from both sides of the aisle have been floated with a wide assortment of goals. Where this goes, nobody knows.

For Whom The Bell Tolls

U.S. universities receive direct financial aid as well as privileged tax treatment from both Washington and the states. At least in theory, they benefit from this preference because they perform an important educational purpose.

Of 1,100 schools belonging to the NCAA, only 364 of them are in Division I – and in a typical year only about 25 (that’s right, just 25) college athletic departments report a financial surplus. Even among the FBS (the 134 most commercialized schools in Division I), the median athletics department loses over $20 million yearly. The actual numbers are surely much worse because the reported results often exclude capital expenses – think stadiums and luxurious athletic centers needed to lure fans and players.

If the proposed settlement in House is approved by the courts, the intended educational purpose of big-time intercollegiate athletics will be transformed into a commercial purpose. Ultimately, free labor markets are likely to emerge, requiring schools to cover Social Security, workers’ comp and unemployment insurance, as well as taxes owed on what the IRS calls unrelated business income. Sharp pay disparities among athletes will be commonplace. Athletes will be recruited out of high school with compensation packages, and coaches will expect more dedication – and less time in the library – from well-remunerated employees.

The ecosystem of intercollegiate athletics will be severely, and possibly irreparably, disrupted. The Olympics program in the United States is the only one in the world that does not receive government financial support. Most of it is sustained by college sports financed by universities, where 75 percent of our Olympic athletes (and hundreds of athletes from other countries) receive training. University athletic programs, under acute financial pressure, will be forced to eliminate sports.

The training, preparation and maturation of future professional athletes in our major sports of football, basketball, baseball, hockey and soccer will be challenged. The healthy growth of women’s sports will stagnate or go into reverse.

All this in the name of ending the exploitation of college athletes. It is true that many, if not most, big-time college athletes are exploited. But it is less because they are not paid salaries and more because they are cheated out of a robust education and not given proper short- and long-term medical care for athletic-related injuries. In any event, the few who have been financially exploited by receiving scholarships in exchange for generating hundreds of thousands of dollars for their college teams are about to move on to the pros where they will earn millions of dollars.

Meanwhile, the situation for college athletes is improving. They are (finally) allowed to receive healthy incomes via newly acquired NIL rights, medical benefits are more accessible, scholarship coverage is expanded, new awards are available and, in many ways, they are treated like royalty on campus.

The tumult that now afflicts college sports is the product of past and present legal challenges around antitrust and labor law. These cases make sense within the confines of existing legislation and judicial precedent. But to judge the activity of nonprofit, tax exempt educational institutions as if they were driven primarily by commercial purpose is wrongheaded. Antitrust and labor law concerns must be leavened by the institutional context and primary educational purpose of college sports.

If policymakers decide that the overriding value here is that the fewer than 2 percent of college football and men’s basketball players who ever play a game in the NFL or NBA be remunerated according to the dictates of the free market, there’s a straightforward way to accomplish that: remove these top-level sport competitions from the educational system and turn big-time college sports into minor leagues for the NFL and NBA. Each Major League Baseball team already spends over $30 million annually maintaining its minor league system. Why are we asking universities to spend hundreds of millions annually to subsidize the NFL and NBA?

The answer is not to fit a square peg into a round hole. College sport is far from perfect and requires profound change – but that change should be in the context of the broad goals and educational purpose it espouses. It should not be left to the tender mercies of class action litigants seeking riches and judges required to follow the letter of the law rather than its spirit.