Attempt to regulate booster-funded NIL collectives becomes hurdle to NCAA settlement agreement

(AP) — The $2.8 billion proposal to settle of host of antitrust claims against the NCAA and the biggest college sports conferences in the nation has run into its first significant hurdle.

U.S. District Judge Claudia Wilken shook her head no and seemed to roll her eyes on Thursday as an NCAA attorney tried to explain why a plan for schools to pay their athletes directly is not actually paying them to play and therefore payments they get separately from booster-funded organizations need to be restricted.

So-called NIL collectives have become the No. 1 way college athletes can cash in on use of their name, image and likeness. According to Opendorse, a company that provides NIL services to dozens of schools, 81% of the $1.17 billion spent last year on NIL deals with college athletes came from collectives.

Now, as part of a settlement of three antitrust lawsuits that were threatening to financially cripple the NCAA and the five most powerful conferences, the defendants want to put the clamps on collectives.

Wilken, the judge who has overseen several antitrust cases that have helped dismantle NCAA amateurism rules over the last decade, wasn’t having it.

“What are we going to do with this?” Wilken asked at the hearing, where attorneys were hoping for preliminary approval of the sprawling plan. “I found that taking things away from people is usually not too popular.”

The hearing on the House settlement took this complicated turn about an hour and 15 minutes into what ended up being a 2 1/2-hour proceeding, when Wilken took issue with the idea of trying to regulate who is a booster and what is a “true” NIL deal.

“What if Mr. Fan loves his team and wants to give them all a truck, or give them $1 million dollars to get a new player? Is having your team win a valid business purpose?” she said.

Here’s why the collective issue is so vexing for college sports.

Getting around the cap

The revenue-sharing plan that was negotiated in the settlement mimics salary caps used in professional sports leagues to create competitive balance. Each school would be will be permitted to spend up to about $21 million per year on payments to their athletes, divvied up among sports at their discretion.

The concern among some college administrators is that collectives will be used to essentially circumvent that cap and give the schools that have the most aggressive or wealthiest boosters an advantage when it comes to acquiring talent.

Some would argue it’s always been that way in college sports, whether it’s under-the-table payments or the very-much-above-board funding of opulent athletic facilities and astronomical salaries for coaches.

Reining in collectives

The settlement plan calls for “certain new rules limiting boosters to making fair market value payments for NIL” and somehow ensuring NIL deals are “for a valid business purpose related to the promotion or endorsement of goods or services provided to the general public for profit, with compensation at rates and terms commensurate with compensation paid to similarly situated individuals with comparable NIL value who are not current or prospective student-athletes at the Member Institution.”

Attorneys representing athletes in the lawsuit against the NCAA and the conferences told the skeptical judge this would have no impact on endorsement deals athletes might make with big companies such as Nike or Coke.

Steve Berman, a Seattle-based attorney for the plaintiffs, said the settlement agreement failed to thoroughly explain the purpose of the proposed restrictions.

“So before, collectives were recruiting players with cash payments. Now the schools have the option to pay players as they see fit in a competitive market,” Berman told the AP on Friday. “The NCAA doesn’t want booster pay-for-play in addition now that players can get paid directly by schools. So making collectives stick to bona fide NIL deals seems a fair compromise to have some pay-for-play limits after all the pay rules have been upheld by Judge Wilken twice.”

Reining in collectives

The settlement calls for athletes to disclose deals over $600 with collectives or boosters, and those deals would be subject to review through an arbitration process. Enforcement will be taken out of the NCAA’s hands to a certain extent.

“That is an improvement from the student-athlete’s perspective on the status quo,” NCAA lead counsel Rakesh Kilaru told Wilken. “If the NCAA enforced tomorrow against an institution or a student-athlete for an improper booster payment, that would have immediate effect.”

Kilaru conceded removing the booster restrictions from the proposal could be a deal breaker.

It is notable that the NCAA was forced to back off a crackdown on collectives using payments as recruiting inducements (a rule still on the books), when it was sued by the states of Tennessee and Virginia following an NCAA inquiry into deals made by a Tennessee-focused collective.

For those who work in and for collectives, Wilken’s rebuke was a bit of vindication.

“Anybody who read the proposed settlement could see that this was problematic,” said Russell White, who leads The Collective Association. “This was another attempt by the NCAA to limit financial opportunities for college athletes and take back power that they’ve lost over the past years.”

What now?

Wilken sent both sides “back to the drawing board” and wants to hear back from them with solutions in three weeks.

Preliminary approval is an important step. Parties can file objections to the agreement after preliminary approval; Wilken signaled in the hearing to some that have already filed objections that she did not find their arguments persuasive.

Her own concerns seem more likely to derail the plan, though Wilken said she believes it is “likely enough that there will be a settlement” and the NCAA responded after the haring by saying the questions raised by the judge “are not uncommon in the context of class-action settlements.”

The soonest Wilken could grant final approval is 150 days after notices go out to members of the damages class, which numbers more than 400,000 athletes dating to 2016. But now it will be at least another three weeks before any movement.

Berman said his confidence level remains high a settlement will be reached.

“At the beginning of the hearing it’s clear Judge Wilken understood the seismic shift this settlement brings to athletes,” Berman said. “She may have to decide if the billions that will go to athletes should not go forward because of this one restriction.”