The National Collegiate Athletics Association and the five most prominent athletic conferences agreed to a $2.77 billion settlement of a class-action lawsuit on Thursday, ushering in a new era of college sports in which schools can pay athletes directly.
The move marks a dramatic shift for the NCAA, breaking with its century-old stance that college athletes are amateurs and therefore cannot share in any of the money they generate for their universities.
The settlement will resolve a case that began in 2020 and was seeking back pay for athletes who were barred from earning compensation from endorsements, as well as a cut of future broadcast revenues.
It also marks the latest rule the NCAA has been forced to change amid an onslaught of legal challenges in recent years.
First, the NCAA allowed athletes to receive academic bonuses and profit from their name, image and likeness. Now, the biggest domino of all has fallen: For the first time ever, some players are going to be paid directly by their schools for playing their sports—a seismic shift that will completely reshape the business model for the top end of this billion-dollar industry.
The result is the creation of a system that will give Division I schools the ability to distribute roughly $20 million a year to their athletes, said people familiar with the matter. Though a final agreement is likely months away, the NCAA’s willingness to modify its stance on athlete compensation so dramatically—after a century of treating the notion of paying players as an existential threat—signals a landmark shift.
“All of Division I made today’s progress possible, and we all have work to do to implement the terms of the agreement as the legal process continues,” said NCAA President Charlie Baker in a joint statement with the commissioners of the five conferences named as co-defendants in the lawsuit. “We look forward to working with our various student-athlete leadership groups to write the next chapter of college sports.”
Former Arizona State University swimmer Grant House and others had challenged all NCAA restrictions on players earning money from the use of their likeness—including through a share of television revenue—in federal court in California in 2020. He named the NCAA as well as the five richest athletic conferences—the Atlantic Coast, Big 12, Big Ten, Pac-12 and Southeastern Conferences—as co-defendants. The boards of those six entities voted this week in favor of proceeding with a settlement that will likely end his case, along with two other antitrust lawsuits brought by the same legal team, one of them taking aim at the association’s limits on education-related benefits, the other at its ability to restrict compensation at all.
The settlement doesn’t solve all of the NCAA’s most pressing problems, however. The association faces other antitrust cases, and still has three legal challenges looming over whether athletes should be classed as employees. There are also ongoing questions about the NCAA’s ability to maintain competitive balance, as it is regularly sued over its rules, and state laws in about half the country have overridden it on athletes’ ability to profit from their name, image and likeness.
Lawyers for the plaintiffs had been publicly goading the NCAA to settle, saying it was the only way it could avoid enormous damages at trial and a complete loss of control over the future of college sports. By agreeing to resolve one of the biggest antitrust cases it has ever faced ahead of going to trial, the NCAA is overturning more than a century of tradition while avoiding a potentially ruinous financial outcome.
“It’s long overdue and a long time coming,” said Jeffrey Kessler, one of the lawyers representing the plaintiffs. “It’s finally getting really close to a system that, for the first time, will treat the athletes the way they should be treated.”
Some university leaders were less pleased with the outcome. “The settlement, though undesirable in many respects and promising only temporary stability, is necessary to avoid what would be the bankruptcy of college athletics,” said Notre Dame president Rev. John Jenkins in a statement.
The settlement comes with major financial ramifications for all of the NCAA’s members—both the richest conferences that were named as co-defendants in the class action lawsuit and the smallest leagues that rely on disbursements from the NCAA to help fund their athletic programs.
According to people familiar with the matter, there are two components to the tentative agreement. First, the NCAA has agreed to pay $2.77 billion in damages over a 10-year period. It is not clear how this sum will be distributed, though most is expected to go to football and men’s basketball players from the top five conferences.
The NCAA is funding the damages through two mechanisms. The association will fund approximately $1.2 billion of the damages from new revenue sources and savings accrued across the length of the settlement, according to a person familiar with the matter. To cover the balance, roughly $160 million per year, the NCAA will reduce its member disbursements on a proportional basis.
This has become a sticking point for many of the smaller conferences, many of which don’t sponsor big time football, and rely on the NCAA distributions to fund a larger portion of their athletic departments than powerhouse Division I schools. Several conference commissioners believe it is unfair that they have to bankroll damages that will mostly go toward former athletes from more lucrative conferences.
Second, the NCAA will allow schools to pay athletes a portion of the revenue they help generate. Among the schools that compete in the most deep-pocketed conferences, there exists large variance in total athletics revenue. At the top end, schools like Ohio State and Texas pull in north of $250 million per year; on the flip side, Washington State generates roughly $80 million, according to Education Department data.
To account for this discrepancy, the settlement agreement calls for schools to pay athletes 22% of the average annual athletic department revenue among schools in the top conferences. According to people familiar with the matter, that figure is roughly $20 million per school.
The settlement doesn’t lay out how schools should distribute this money to their athletes. It is possible that the teams that generate the most revenue—football and men’s and women’s basketball—would receive the most. However, several legal experts have suggested that such a model might violate Title IX, the federal statute that calls for schools to provide equitable opportunities, scholarships and benefits to male and female athletes.
The revenue sharing model proposed in the settlement agreement differs from that of professional sports leagues in an important way: it is unilateral. In major American sports, there are players’ associations that collectively bargain with league owners to determine what goes into the pool of revenue and how that money is split up. There is no parallel body in college athletics to represent the interests of athletes.
It is not clear if athletes could collectively bargain with the NCAA if they don’t first become employees, a designation the association adamantly opposes.
Several steps remain before the settlement could be certified by U.S. District Judge Claudia Wilken. People familiar with the matter predicted that the soonest it could take effect would be the 2025-26 academic year.
NCAA Agrees to Share Revenue with Athletes in Landmark $2.8 Billion Settlement - WSJ