The NCAA Settlement: The 4-1-1
Earlier this year, inn a landmark development for college sports, a federal judge granted preliminary approval of a $2.7 billion settlement in a class action lawsuit against the National Collegiate Athletic Association (NCAA). This proposed settlement, which caps the NCAA’s financial liability, is seen as a pivotal moment in the ongoing battle over athlete compensation and the broader legal landscape of college athletics.
The settlement stems from a 2014 lawsuit known as O’Bannon v. NCAA, which challenged the NCAA's restrictive rules on athlete compensation, particularly with regard to the use of athletes’ names, images, and likenesses (NIL) in media, video games, and broadcasts. The lawsuit alleged that the NCAA's amateurism rules violated antitrust laws by preventing athletes from receiving compensation for the use of their NIL rights.
While the O'Bannon case was resolved years ago, the new settlement, which would allocate $2.7 billion to former NCAA athletes, marks a significant step forward in the legal fight over athletes' rights to share in the revenue generated by college sports.
Background: The O’Bannon Case and NCAA’s NIL Fight
The O’Bannon case was one of the first major legal challenges to the NCAA’s amateurism model. In 2014, former UCLA basketball player Ed O'Bannon filed a class action lawsuit against the NCAA, alleging that the organization’s prohibition on athletes receiving compensation for the use of their NIL rights violated antitrust law. O'Bannon argued that the NCAA’s rules resulted in athletes being denied a fair share of the billions of dollars in revenue generated by college sports, particularly in the realm of broadcasting and video games.
In 2015, U.S. District Judge Claudia Wilken ruled in favor of O'Bannon, stating that the NCAA’s rules governing athlete compensation were anticompetitive and that the NCAA’s prohibition on NIL compensation violated federal antitrust laws. The judge’s ruling was a monumental moment in sports law and ignited an ongoing debate over how college athletes should be compensated.
The case’s outcome led to a number of reforms in college athletics, including a push toward allowing athletes to profit from their NIL rights. The NCAA eventually adopted NIL rights rules in 2021, allowing college athletes to sign sponsorship deals and receive compensation for the use of their names, images, and likenesses.
However, the O’Bannon case did not end with these reforms. In 2019, a new class action lawsuit was filed against the NCAA, claiming that the NCAA's cap on NIL compensation continued to harm athletes by restricting their ability to access financial opportunities. The settlement in question is part of that ongoing legal battle.
The $2.7 Billion Settlement
The $2.7 billion settlement represents the total financial liability that the NCAA will face as part of the ongoing lawsuits over its restrictive rules on athlete compensation. The proposed settlement will provide compensation to tens of thousands of former NCAA athletes who participated in college football, basketball, or other NCAA Division I sports from 2009 to 2020. It will also include provisions for future athletes who have been affected by similar NCAA policies.
This settlement represents a historic shift in the way the NCAA is required to address athlete compensation. Previously, the NCAA had long maintained that it was an amateur organization that existed to foster educational opportunities for students, rather than to turn athletes into paid professionals. The idea was that athletes should not be compensated beyond the cost of their education, with the assumption that the “amateurism” model helped protect the integrity of college sports.
But with the advent of NIL rights, along with the growing financial power of college sports, the NCAA's stance has been increasingly challenged in court. In many ways, this $2.7 billion settlement is a recognition by the NCAA that its previous legal position was untenable, especially in light of changes in public attitudes toward athlete compensation and legal rulings against the NCAA's restrictions.
Key Aspects of the Settlement
Compensation for Athletes: The settlement will allocate $2.7 billion in compensation to athletes who were part of NCAA Division I programs. The funds will be distributed based on the athletes' participation in revenue-generating sports like football and basketball. This amount will provide compensation for both current and former athletes whose NIL rights were used in broadcasts, video games, and other commercial endeavors.
Caps on NCAA’s Liability: One of the key aspects of the settlement is the cap on the NCAA’s financial liability. While $2.7 billion is a massive sum, it is important to note that the amount is capped, meaning the NCAA’s exposure is limited. The settlement represents the maximum amount the NCAA could be required to pay under the terms of the agreement, regardless of future developments or additional claims by athletes.
Ongoing Legal Protections for Athletes: The settlement also includes provisions designed to protect future athletes by ensuring that the NCAA’s rules will not unjustly limit their ability to profit from their NIL rights. The agreement sets out specific guidelines for how NCAA institutions should handle NIL compensation, ensuring that future athletes will not be subject to the same restrictive rules that governed the O'Bannon era.
The Role of NCAA Conferences and Schools: The settlement does not necessarily absolve individual NCAA conferences or member schools from liability. While the NCAA is the central defendant in this case, member institutions will also be implicated, as they benefit from the commercial use of athletes’ NIL rights. These schools may still face separate legal challenges or liability claims from former athletes in the future.
Legal Implications of the Settlement
The $2.7 billion settlement has far-reaching legal and financial implications for the NCAA and college sports as a whole:
Antitrust Precedent: The settlement further cements the antitrust precedent that the NCAA’s traditional approach to amateurism is not compatible with modern competition laws. The O'Bannon case and subsequent legal challenges have reshaped the landscape of college athletics, and the settlement underscores the NCAA’s recognition that its policies must evolve to comply with antitrust principles.
NIL Rights as a Legal Standard: The ruling and the settlement bring NIL rights into the mainstream of college athletics. The idea that athletes have the right to profit from their own name, image, and likeness has now been firmly established in both the legal and regulatory arenas. While the NCAA’s rules on NIL rights may still evolve, the settlement marks a pivotal point in the ongoing fight for athlete compensation.
The NCAA’s Changing Role: The settlement also signals a change in the NCAA’s role in regulating college athletics. Historically, the NCAA had strict control over what athletes could and could not do in terms of compensation, sponsorships, and professional development. This settlement may be the first of many steps in redefining the NCAA’s relationship with athletes, especially as courts continue to challenge its traditional business model.
Conclusion
The $2.7 billion proposed settlement represents a watershed moment in the ongoing legal and financial battles over college athlete compensation. By granting preliminary approval, the federal judge has paved the way for a resolution that will provide athletes with compensation for the commercial use of their NIL rights—fundamentally changing the future of college sports.
While the settlement marks a major victory for college athletes, it also highlights the deepening divide between the NCAA’s traditional model and the modern realities of college sports, where athletes are increasingly seen as stakeholders in the financial ecosystem. As the settlement progresses, it will likely have lasting impacts not only on the NCAA but also on the future of athlete rights, college sports governance, and the regulation of NIL compensation. The case remains a testament to the changing legal and financial landscape of college athletics and the growing recognition of athletes as essential participants in the multi-billion-dollar industry.