NCAA Settlement 101: Legal and Labor Implications, Explained (1)

The landmark $2.8 billion NCAA settlement, which went into effect in July 1, allows colleges to pay student athletes directly for the first time ever, fundamentally reshaping the landscape of amateur sports in the U.S. But the deal has already hit several snags, with numerous objectors appealing and claiming Title IX violations. Adding to the complexity, President Donald Trump on July 24 signed an executive order establishing name, image, and likeness standards.

During an Ask-Me-Anything (AMA) conversation on Reddit, Bloomberg Law reporters Katie Arcieri and Parker Purifoy discussed the legal implications of this historic settlement. Arcieri covers antitrust issues while Purifoy reports on labor and employment matters. This is an edited and condensed version of the AMA.

How will schools pay athletes without them being employees? Will they be contractors or something?

Purifoy: From speaking to lawyers who have been directly reviewing these contracts, it does seem like they’re being modeled like independent contractor agreements. This allows schools to pay the athletes without taking on the legal responsibility of designating them as employees.

But just because an employer calls you an independent contractor, doesn’t mean you are one. In fact, the addition of direct payments will likely make the employment argument even stronger now.

Misclassification is a well-adjudicated issue in employment law. Courts use various tests when evaluating these claims, but they all consider factors such as the level of control exerted over the worker, whether they have their own independent practice, and if the employer provides benefits or working materials.

I don’t have a crystal ball, but I would be shocked if some of these revenue sharing agreements aren’t challenged in court.

Are the rules different for schools in power conferences versus those outside? Are payments completely discretionary?

Arcieri: As far as the House settlement goes, the rules are the same for all schools in the power conferences and those that opt in. Any school that opts in can start paying athletes directly.

And yes, schools have discretion to pay some athletes and not others. There currently aren’t any rules about whether Title IX applies to the payments, although there are groups of objectors who say this settlement is a violation of federal law and would cause irreparable harm to women’s sports.

I talked to NCAA President Charlie Baker about this. He said each school oversees its own Title IX compliance.

It’s also important to note that the Biden administration had guidance that said Title IX applies to these NIL payments. And then the Trump administration came out, saying that Title IX doesn’t require equal distribution of NIL compensation.

Are there any rules in place to prevent super-rich schools from buying all the top talent?

Arcieri: There’s a salary cap now; schools are allowed to distribute up to $20.5 million annually to athletes. Antitrust scholars say there shouldn’t be a cap at all, and we may see some litigation related to that in the not-too-distant future.

But yes, the richest schools, and those that have the most donors and the most money are going to sweep up the best talent. A school that has lots of boosters and NIL collectives is going to have its act together and have enough money to attract talent that other schools just won’t.

You always had big schools with big resources going against smaller schools with more modest budgets, but in many ways, this can exacerbate the inequities.

It’s important to note that there are rules around payment from collectives. NIL payments of $600 or more are overseen through a new entity called the College Sports Commission. The collectives must present a legit business deal that assesses the fair market value of the athlete. They can’t just throw money around anymore; there are guardrails now. And any disputes between athletes and the commission go to arbitration.

How might this impact smaller universities and non-revenue generating sports?

Purifoy: The only schools that are locked into the terms here are the Power 5 conferences. Smaller universities can decide whether they want to opt in or not. For example, the Ivy League has chosen to opt out of the revenue sharing as a collective.

And the long-term impact of the settlement on smaller sports is unknown. President Trump’s executive order said colleges should preserve non-revenue generating sports and those that funnel into US Olympic programs but it’s uncertain how or whether it will actually be enforced.

Do NIL standards set by executive order have any legal standing?

Arcieri: It’s important to note that Trump’s order isn’t law, it’s policy. So, the executive order has no legal force to require schools to follow.

But it’s a clear direction from Trump that colleges should make sure to prohibit third-party pay-for-play payments, which technically violate NCAA bylaws.

He’s creating some incentive for colleges to do this but no, they aren’t required to follow it. That said, colleges should be wary of any blowback from the administration too, whether it’s a concern about yanking funding or being the target of an investigation. Legally, they aren’t obligated to follow the order, but practically, they should be wary.

What are some unintended consequences we might see?

Arcieri: There are definitely going to be some unintended consequences. Especially when it comes to the transfer portal, which allows athletes to publicly announce plans to transfer to another school.

We are going to see a lot more athletes entering the portal in efforts to go to the colleges offering the most money. So that means constant churn on rosters, which creates headaches for schools and coaches.

Before, it was “OK, I’ll go into the transfer portal because this NIL collective is promising money.” But now since it’s the schools offering money directly, it’ll be free agency every single year.

Also, colleges looking to balance their budgets are going to look to cut nonrevenue-generating sports.

How might this impact high school sports?

Arcieri: It has already. High school kids now know there is NIL money to be had. They are learning to become even more business savvy at a young age, even engaging advisers on potential NIL deals.

Last year, the NCAA was banned from enforcing rules that banned donor-funded organizations from pursuing high school athletes with lucrative deals. The unintended consequence is handing a lot of money to an 18-year-old.

To read the AMA in its entirety, click here.