Ahead of crucial House-NCAA hearing, leaders trying to establish new system to manage revenue sharing

This Saturday, at college football stadiums across the country, games kick off to mark the second full weekend of the sport.

Arkansas plays at Oklahoma State in an SEC vs. Big 12 duel, Iowa State battles Iowa in the CyHawk rivalry game and Tennessee meets NC State in a neutral site clash in Charlotte. In Ann Arbor, the biggest game commences: No. 3 Texas at No. 10 Michigan.

While the eyes of the sport are focused on these high-profile matchups on the field, there are perhaps even more important battles unfolding off it — most of them related to the NCAA’s landmark settlement of the House antitrust case, an agreement expected to usher into the industry a new athlete revenue-sharing model next July.

Far removed from the touchdowns and the field goals, there are legal games being played. Strategic moves. And crucial decisions that may impact the future of college athletics.

There’s a lot going on.

Quietly, conference and NCAA leaders are working to establish a regulatory system to manage and enforce this new rev-share model. Seeking to hire outside entities to oversee the management and enforcement systems — not the NCAA — power conference officials have seen presentations from some of the world’s largest professional service providers, such as PricewaterhouseCoopers.

All the while, the settlement itself still needs approval, something that could happen on a preliminary level this Thursday during a virtual hearing before California District Judge Claudia Wilken. She will hear arguments from those who believe it should be approved (House plaintiff lawyers and those from the NCAA/power leagues) and the chief objecting party to the settlement: attorneys for a separate antitrust case, Fontenot v. NCAA, who are arguing that their case should continue as their claims are not released in the settlement.

On the eve of the hearing, in two separate interviews conducted recently, the two lead House plaintiff attorneys, Steve Berman and Jeffrey Kessler, expressed their confidence the judge will approve the settlement, even if it means requiring modifications to language in the agreement — something that many expect.

“We’re very positive she’s going to overrule the [Fontenot] objections,” Berman said before adding, “There could be minor changes.”

On the local level, school leaders are bracing for the approval of the settlement and the arrival of the revenue-sharing concept. They are maximizing previously untapped revenue sources (think naming rights and sponsorships); they are beginning a restructuring of their departments to resemble a more professional model (general manager and other pro-like personnel positions); and they are overhauling their budgets to tier sports (investing more in sports that bring eyeballs, generate revenue and/or have the capability to compete for championships).

In the meantime, on the national scene, work has started in earnest in identifying the regulatory systems related to college sports’ new revenue-sharing model. Leaders are in the process of selecting outside companies to oversee a cap management reporting system; regulate a clearinghouse for third-party endorsement/NIL deals; and enforce existing NCAA rules, such as those against pay-for-play, etc.

Interviews with Berman, Kessler and college administrators produce a more clear picture of college sports’ new regulatory structure.

Cap management

As part of the settlement agreement, each school will be permitted to share the same amount of pool money with athletes on an annual basis. The pool’s cap — 22% of an average of power conference school revenues — will apply to all schools and will fluctuate based on built-in escalators and school revenue increases.

The Year 1 cap (2024-25) won’t be established until March, Kessler said. That’s when schools report to the NCAA and plaintiff attorneys their revenue figures from the previous academic year (2023-24). Those figures are used to gain the average of several revenue categories included in the revenue-share formula, most notably ticket sales, conference distribution (TV contracts mostly) and bowl money.

Projections put the Year 1 cap at $20-23 million.

Plaintiff lawyers say they plan to hire an accounting firm to audit schools to ensure they are submitting accurate revenue figures and that their payroll is staying within the cap. “We don’t want schools taking other sources of revenue and disguising it as a category outside of what counts,” Berman said.

College administrators expect to use a reporting system to submit their contract figures with athletes into a database of some kind that tracks cap numbers. Details and policies around contracts between schools and athletes remain unclear, but several administrators are working toward building multiyear agreements that feature buyout language to limit transfer movement.

Clearinghouse

One of the unanswered questions of the settlement is how the NCAA and power conferences will police compensation to athletes from sources outside of their schools.

By permitting schools to directly share revenue with their athletes, the new model incentivizes schools to shutter or at least limit their booster-led NIL collectives. The settlement confirms existing NCAA rules that prohibit pay-for-play, specifically noting that boosters are prohibited from compensating athletes through endorsement/NIL deals unless they can prove that the deals are authentic and meet fair market value.

The settlement requires athletes to report to their school their outside compensation, Kessler said, but the agreement does not require the approval of deals through any governing body or clearinghouse. NCAA and power conference leaders are establishing a clearinghouse on their own, he said, as well as a new enforcement entity.

“The NCAA has indicated that it may change its enforcement bureaucracy or may even outsource it,” Kessler said. “Frankly, we don’t care if they do that or don’t do that. That’s up to them.”

The clearinghouse, operated by a third-party entity and not the NCAA, is charged with determining if outside NIL deals are kosher, and the enforcement entity is responsible for levying penalties. Those deals deemed impermissible must be modified or corrected for the player to avoid possible enforcement sanctions such as ineligibility.

Details around this remain murky, and even plaintiff lawyers question the process. Will the clearinghouse really reject a deal for an athlete from a booster-owned business or NIL collective/agency?

“We’ll see what the NCAA tries to impose,” Kessler said. “The NIL [collectives] have not agreed to anything. If the NCAA tries to punish a student or school, if they try to take action against an NIL [collective], I think they’ll probably see that NIL organization in court.”

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Arbitration

But before the issue finds the inside of a courtroom, the settlement offers a final step in the process: a hearing before a neutral arbitrator.

If the clearinghouse rejects a deal because it is deemed above fair-market value or if a school is found to have violated the cap, whatever new enforcement entity exists would presumably investigate and sanction that athlete or school. That is when, Kessler said, the parties — NCAA/power conferences vs. the school and/or athlete — will appear before a neutral arbitrator to argue their case.

“The way it would work is, the NCAA would bring a case against somebody — a school or athlete — and if they do, the school or athlete has a right to appeal whatever enforcement they imposed,” Kessler said. “The arbitrators hear the evidence presented and make a decision.”

How an arbitrator rules may “depend on what evidence” each side produces during a trial-like set of hearings, Kessler said.

One of the lingering questions with arbitration: Will an athlete’s school fight alongside him or her in the case?

“I expect that if the athlete pursues it, the school will support the athlete and help provide the athlete with counsel to help represent them in that challenge,” Kessler said.

What’s next

The settlement is a long way from a final approval.

Thursday is the next possible step in the road. If Wilken grants the preliminary approval, plaintiff lawyers get 90 days to gather names of class members from universities and issue them notices of the settlement. There is another 90-day period for those members to individually object to the settlement, Berman said.

A final approval is not expected before January and could stretch into March, Kessler said.

In the meantime, many organizations, individuals and even some college administrators have expressed skepticism and doubt that the settlement offers a strong long-term solution for college athletics. The settlement may still need codification from Congress to grant the NCAA and conferences authority to police outside, third-party NIL payments, and it offers little in the way of a solution when or if athletes are deemed employees — a concept that may be significantly impacted by the results of the November U.S. presidential and Senate elections.