LOCALIZE IT: How will direct pay for athletes impact collegiate sports programs and school finances?

EDITORS/NEWS DIRECTORS:

College sports are on the cusp of becoming even more professionalized in the wake of a groundbreaking antitrust settlement allowing schools to share with their athletes a portion of the millions of dollars their athletic departments generate each year.

Since 2021, college athletes have been allowed to make money from the commercial use of their name, image or likeness (NIL). It is not uncommon for some to earn into the six figures, and a few have topped $1 million through NIL.

More money will be coming to athletes after the NCAA and the Power Five conferences (ACC, Big 12, Big Ten, Pac-12 and SEC) agreed to a settlement in the House v. NCAA lawsuit in May.

Under the terms, pending approval by a judge perhaps early next year, a pool of $2.8 billion will be set aside to pay roughly 400,000 college athletes who competed from 2016 through late 2023, with the majority of those funds going to 14,000 Division I football and men’s basketball players. Those athletes can claim they could have received money for NIL had the NCAA permitted it.

Beginning in 2025, up to 22% of the average Power Five school's revenue from media rights, ticket sales and sponsorships can be paid to current and future athletes, up to approximately $21 million per year under a formula that can change depending on revenue generated. Also, scholarship limits will be removed and roster limits will be put in place.

The economic and cultural impact of these changes provide ample opportunities for local reporting, from high school recruiting to colleges across all three NCAA divisions.

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WHAT LED TO THE LAWSUIT?

The deal covers three antitrust cases — including the class-action lawsuit known as House vs. the NCAA — that challenged NCAA compensation rules dating to 2016. The plaintiffs claimed NCAA rules denied thousands of athletes the opportunity to earn millions of dollars off the use of their names, images and likenesses. The NCAA lifted its ban on athletes earning money through endorsement and sponsorship deals in 2021.

The complaint in House vs the NCAA, brought by former Arizona State swimmer Grant House and Sedona Prince, a former Oregon and current TCU basketball player, said the NCAA, along with the five wealthiest conferences, improperly barred athletes from earning endorsement money.

The suit also argued that athletes were entitled to a piece of the billions of dollars the NCAA and those conferences earn from media rights agreements with television networks. Had the case gone to trial, experts have said the NCAA and power conferences could have been ordered to pay athletes up to $20 billion.

The case is being adjudicated in the U.S. District Court for the Northern District of California. Judge Claudia Wilken held a Sept. 5 hearing and raised concerns, giving attorneys three weeks to come back with some new ideas. At the conference and school level, details are expected to be discussed for months. Athletes would be sent formal notices in October, and in January there would be a 105-day period when athletes could object to the settlement. After that, Wilken would consider the settlement for final approval.

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WHO IS GETTING PAID?

The class-action lawsuit covers more than 400,000 former and current college athletes from all sports, dating to 2016. Payments will be determined by sport played, conference competed in, when and for how long.

The range of damage payments vary widely, with football and men’s basketball players who competed in the Power Five conferences (ACC, Big Ten, Big 12, Pac-12 and SEC) set to receive the largest sums. Many will be in line to recover more than $100,000. Plaintiffs’ attorneys say at least one athlete is estimated to be eligible for $1.8 million.

Women’s college basketball players are next, with payments estimated to range from about $15,000 to potentially a few hundred thousand each.

Football and basketball players from top conferences and schools outside the Power Five could receive a few thousand dollars each on average; Power Five baseball players are estimated to be eligible to receive an average of about $400.

Athletes in other sports might only be eligible for less than $100.

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HOW ARE SETTLEMENT DAMAGES BEING PAID FOR?

Here is where the impact goes beyond the power conferences and hits other member schools of the NCAA.

The NCAA is set to pay nearly $2.8 billion in damages over 10 years to tens of thousands of athletes. A reduction of operating expenses, insurance and reserve funds is expected to cover about $1.2 billion. The rest would come from withheld distributions to 352 Division I member schools. The NCAA distributes more than $700 million per year to its 1,100 member schools in three divisions, the vast majority to Division I.

Even though the lawsuit specifically targeted five conferences that are comprised of 69 schools, dozens of other NCAA member schools will see smaller distributions from the NCAA to cover the mammoth payout.

Detailed numbers:

— The settlement calls for the NCAA to cover 41% of the $2.77 billion in damages, or roughly $1.2 billion.

— The Power Five conferences (ACC, Big Ten, Big 12, Pac-12 and SEC) will cover 24% of the damages, with the other five major college football conferences — the so-called Group of Five (American Athletic, Mid-American, Conference USA, Mountain West and Sun Belt) — covering 10%.

— The conferences that compete in the second tier of Division I football, the Championship Subdivision, would cover 14% of the overall settlement and the non-football D-I conferences would be on the hook for 12%.

With less NCAA money coming to conferences, league commissioners and school athletic directors are already preparing on how to deal with the loss in revenue.

You can view FAQs about the proposed settlement here from the plaintiff attorneys website.

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A NEW AGE OF REVENUE SHARING

The Big Ten, Big 12, ACC and SEC will be making the largest investment going forward because the settlement includes a proposed revenue-sharing system that will allow schools to commit approximately $21 million per year to be paid directly to athletes. The overall commitment, including damages, is expected to be about $300 million per school (there are 69 in all) over 10 years. Schools are not required to spend that much, but not doing so leaves them vulnerable to losing current players and incoming recruits.

How that will work is a major question that will take time for schools and conferences to work out. NCAA rules will likely need to be re-written.

Whether the new compensation model is subject to the Title IX gender equity law is unknown along with whether schools will be able to bring NIL activities in-house as they hope and squeeze out the booster-run collectives that have sprouted up in the last few years to pay athletes. Wilken, the judge, specifically raised concerns about attempts to regulate collective payments to athletes and both topics could lead to more lawsuits.

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CONCERNS ABOUT DISPROPORTIATE IMPACTS

The conference commissioners from leagues that do not compete at the highest tier of Division I football, the Bowl Subdivision, have taken issue with the $1.6 billion in settlement funds that will come from withheld distributions to schools.

The conferences made up of leagues with and without football and not named in the lawsuit, are expected to cover 60% of withheld distributions, with the other 40% coming from power conferences.

The commissioners of these 22 non-FBS conferences sent a memo to NCAA leadership, proposing the finance structure be flipped so power conference withheld distributions cover 60% of the $1.6 billion.

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CONSIDER THESE REPORTING THREADS

— Research revenues and expenses for the schools you cover to establish a foundation for your reporting. Schools are required to file an annual financial report to the NCAA. These often are posted on official school athletic websites. If not, the report should be available through a public records request, though private institutions are not required to release the report. A general rundown of athletic department finances, the Equity in Athletics Data Analysis, also can be found on the U.S. Education Department’s website at Equity in Athletics.

— Under the settlement plan, each school would be allowed to set aside up to $21 million to pay athletes, a cap that could change. It could start as soon as the 2025 fall semester. Interview a college athletic director to see if his or her school will be able to that money to athletes. If not, how much can the school afford? What factors determine how much the school can pay? How much will competitive balance be effected between schools that can pay the maximum to athletes and those that can’t? Which sports will you prioritize for revenue sharing? What guidance, if any, has your school been given on whether equitable distribution of money between men’s and women’s sports will be required? If your school is smaller, is it possible some sports will be cut because of the impacts of withheld distributions? How will this impact the school's budget overall and could this influence funding for other programs beyond sports now or in the future? Some of these questions can also be posed to a university president.

— Booster-run collectives that have recently been paying college athletes are a point of contention in the proposed settlement. Talk to people who run one of the collectives at a school near you and ask how they feel about limits the NCAA is trying to impose. Athletes have benefitted from these collectives. What do they think? What does your local athletic director think of this clash?

— Part of the idea behind revenue sharing is that paying athletes directly compensates them for the sacrifices they make to play their sports and generate revenue for their school. Consider doing a day-in-the-life story on a college athlete to illustrate how they juggle academics with their sport-specific obligations.

— Interview college athletes about how they plan to use their money. Will they spend it? Will they invest it? Will they hire a financial adviser? Are they worried about taxes?

— Who are the top-performing high school athletes in your area? Are they already being recruited? How much of a factor is potential revenue shares factoring into their decision of where to go to school?

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READ ADDITIONAL AP COVERAGE

Final Four, football, fencing? College athlete salaries will deeply impact future US Olympic hopes

Damages to college athletes to range from a few dollars to more than a million under settlement

Big Ten and SEC are again the top conferences in revenue with athlete pay plan on horizon

College sports departments gearing up for ‘economic earthquake’ with direct pay for athletes looming

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Localize It is a resource produced regularly by The Associated Press for its customers’ use. Questions can be directed to Katie Oyan at koyan@ap.org.