NCAA Proposed Settlement Receives Preliminary Approval

After nearly five months of waiting, the National Collegiate Athletic Association (“NCAA”), the former Power Five college athletics conferences¹ (now known as the Power Four following the departure of 10 schools from the Pac-12), and plaintiff student-athletes have received preliminary judicial approval for their proposed settlement in the consolidated antitrust litigation of three class action lawsuits filed by former student-athletes. If finalized, the settlement will enable former and future student-athletes to receive compensation from schools and will revamp the current landscape of collegiate athletics.

As discussed in our previous alert, the settlement covers three of the major class action lawsuits brought against the NCAA: House v. NCAA, Hubbard v. NCAA, and Carter v. NCAA. The parties originally announced that they had reached a settlement on May 23, 2024, and then filed a Stipulation and Settlement Agreement (the “Original Settlement”) on July 26, 2024, which was rejected by Judge Claudia Wilken based in part on the broad definition of the term “Booster” and its potential harm to student-athletes that have existing deals with Boosters. The parties then filed an Amended Stipulation and Settlement Agreement (the “Amended Settlement”) on September 26, 2024, which was preliminarily approved on October 7, 2024.

The key terms in the Amended Settlement remain largely the same as those in the Original Settlement, including (a) a settlement of damages totaling $2.576 billion for former student-athletes dating back to 2016;² (b) an opt-in revenue sharing model allowing schools to share revenues directly with their current and future student-athletes;³ (c) updates to the NCAA’s rules governing name, image, and likeness (“NIL”) deals, including (i) removing prohibitions that would allow for schools to enter into NIL deals directly with student-athletes (excluding NIL agreements that grant broadcasting rights for athletic events and performances) and that are subject to certain limitations, and (ii) reporting requirements for both schools and student-athletes;⁴ and (d) an overhaul to the NCAA’s rules governing roster sizes and scholarship requirements that would (i) remove all athletic scholarship limitations, and (ii) allow the NCAA to adopt and set roster limitations. Perhaps the most notable changes in the Amended Settlement are the clarifications regarding the term “Booster,” in order to address concerns raised by Judge Wilken regarding provisions that restricted payments to student-athletes from Booster-run collectives.⁵

Key Change to the Settlement Agreement Terms

In the Amended Settlement, the term “Booster,” which was vaguely defined in the Original Settlement, has been replaced with the new term “Associated Entity or Individual” to specify which parties may be subject to additional oversight by the NCAA and the former Power Five college athletics conferences when entering into NIL deals with student-athletes.

In the Original Settlement, “Booster” was defined as a “representative of athletics interests,”⁶ and the NCAA and former Power Five college athletics conferences were allowed to prohibit Boosters from “entering into NIL licenses with or for the benefit of current or prospective student-athletes . . . unless the license/payment is for a valid business purpose related to the promotion or endorsement of goods or services . . . at rates and terms commensurate with compensation paid to similarly situated individuals with comparable NIL value.”⁷ In her preliminary hearing held on September 5, 2024, Judge Wilken expressed concerns that the broad definition of “Booster” could leave too much room for interpretation and that allowing such a prohibition on deals with Boosters may harm student-athletes who already have such deals in place.

The Amended Settlement replaces the term “Booster” with “Associated Entities or Individuals”:

• “Associated Entities” include (a) entities that are or were known to “the athletics department staff of a Member Institution (NCAA Division I schools),⁸ to exist, in significant part, for the purpose of (i) promoting or supporting a particular Member Institution’s intercollegiate athletics program or student-athletes; and/or (ii) creating or identifying NIL opportunities solely for a particular Member Institution’s student-athletes,” and (b) “any entity owned, controlled, or operated by, or otherwise affiliated with, such entity or an Associated Individual, other than a publicly traded corporation.”⁹
• “Associated Individuals” are those who (a) are or were “a member, employee, director, officer, owner, or agent” of an Associated Entity, (b) “who directly or indirectly . . . have contributed more than $50,000 over their lifetime” to a particular Member Institution or to an Associated Entity, and (c) that “(i) have been directed or requested by a Member Institution’s athletics department staff to assist in the recruitment or retention of . . . student-athletes, or (ii) otherwise has assisted in the recruitment or retention of . . . student-athletes.”¹⁰

Like the Original Settlement, the Amended Settlement allows the NCAA and the former Power Five college athletics conferences to prohibit Associated Entities or Individuals from making NIL payments to “current or prospective student-athletes unless the license/payment is for a valid business purpose related to the promotion or endorsement of goods or services . . . at rates and terms commensurate with compensation paid to similarly situated individuals with comparable NIL value.”¹¹ The purpose of this provision in both the Original Settlement and Amended Settlement is to prevent “pay-for-play” deals between third parties and student-athletes that are disguised as NIL payments.¹¹ The inclusion of language related to the “promotion or endorsement of goods or services” at rates “paid to similarly situated individuals” clarifies that a third party may not make an irrationally large offer to a student-athlete that goes beyond the reasonable value of that student-athlete’s NIL. The reason to make such an offer would no longer be for the value of the NIL, but instead for the student-athlete’s performance for a particular institution (i.e., pay-for-play). Student-athletes may receive payments for performance under their school’s revenue sharing model, but the settlement prevents affluent third parties from circumventing the revenue sharing cap and other restrictions through oversized payments. By including this language and continuing to prohibit pay-for-play payments from third parties, the NCAA is likely trying to find the balance between the former model of amateurism and the new era of student-athlete compensation.

Next Steps for Settlement Approval

Judge Wilken’s order granting preliminary settlement approval includes a few key deadlines before the settlement is finalized:

• October 18, 2024 through January 31, 2025: The claims period for eligible class action members. Eligible class action members include (a) Division I student-athletes who were eligible for competition between June 15, 2016 and September 15, 2024 and student-athletes who will compete on a Division I athletic team any time from the fall of 2025 and 10 years thereafter under House v. NCAA; and (b) Hubbard v. NCAA class action members, including Division I student-athletes who were eligible for competition between April 1, 2019 and September 15, 2024 who would have met the requirements for receiving an Academic Achievement Award under the criteria established by their schools for qualifying for such an award.¹³
• December 17, 2024: An allocation estimate will be made available,¹⁴ which will provide a projected amount of the monetary settlement.
• April 7, 2025: Court hearing for final settlement approval¹⁵ (coinciding with the NCAA Men’s March Madness final).

Challenges to Final Settlement Approval

There are a number of obstacles that can prevent the settlement from being approved and finalized. As a threshold matter, if the number of class action members opting out of the settlement exceeds a certain number—which has been redacted from the settlement agreement made publicly available—the class members may terminate the settlement,¹⁶ and the parties will need to resume negotiations or go to trial.

In addition, during the final settlement approval hearing, Judge Wilken will consider any written or raised objections that have been presented. Notably, the preliminary settlement has already received objections from a law firm representing the former plaintiffs of the O’Bannon v. NCAA trial, Hausfield LLP, who have argued that the settlement figure is too low, violates state law, and is unfair, among other arguments.¹⁷ Furthermore, other parties may object to the settlement by appealing to the U.S. Court of Appeals for the Ninth Circuit or the U.S. Supreme Court. Earlier this year, Houston Christian University (“HCU”) filed a motion to intervene in the case due to a lack of representation of their interests,¹⁸ which was denied by Judge Wilken. In August 2024, HCU appealed their case to the Ninth Circuit,¹⁹ and it was voluntarily dismissed without prejudice in October 2024.²⁰ Moreover, several lawsuits have been filed against the NCAA and former Power Five college athletics conferences by high profile athletes, such as Reggie Bush,²¹ which could have substantial impact on settlement approval. Many of these lawsuits allege that previous NCAA rules preventing student-athletes from receiving financial benefits (which have since been struck down) violated antitrust laws.

Finally, in ultimately determining whether to approve the settlement, Judge Wilken will likely examine whether the settlement is “fair, reasonable, and adequate” based on certain factors, including whether (a) the class was adequately represented by counsel, (b) negotiation of the proposal was at arm’s length, (c) adequate relief is provided by the settlement (weighed as the costs, risks, and delay of trial and appeal, effectiveness of distributing relief, attorney’s fees, and any corresponding agreements), and (d) the proposal treats class members equitably relative to each other.²²

What’s Ahead and Open Questions

Even if the Amended Settlement is finally approved, a number of lingering questions remain, including (a) how institutions that share revenue are to remain in compliance with Title IX (prohibiting discrimination on the basis of sex in federally funded educational programs and requiring schools to provide equal opportunity based on sex in athletics programs)²³, (b) the employment status of student-athletes, (c) the implications of the Amended Settlement on international student-athletes, and (d) changes to transfer eligibility. In addition, the settlement also only resolves three lawsuits (House, Hubbard, and Carter), and there are many other open federal antitrust matters against the NCAA.²⁴ Furthermore, as detailed in our previous client alert, there are a number outstanding lawsuits against the NCAA that are not expressly covered by this settlement, including addressing issues related to recruitment-related compensation and prize money at non-NCAA events.²⁵

If the settlement is finally approved by Judge Wilken, then student-athletes, universities, and collectives will move into uncharted territory. Brands and collectives interested in pursuing deals with student-athletes must understand and adhere to university, state, and NCAA authority before engaging in NIL deals. Universities and athletics departments will need to quickly understand the revenue sharing model and ensure that its distribution is compliant with Title IX and the settlement terms. Student-athletes will be positioned to receive compensation, but they will need to continue to adhere to university, state, and NCAA authority and consider adequate representation and compliance with state and federal authority, including any tax implications of payments. We will continue to monitor the outcomes of the settlement, as well as its broad-sweeping impact to student-athletes and the college athletics landscape.