As reported in our prior Alerts (including on June 6, and August 1, 2024), the parties involved in three of the major class action antitrust lawsuits brought against the NCAA: House v. NCAA, Hubbard v. NCAA, and Carter v. NCAA — all from athletes claiming the NCAA violates the Sherman Act, conducted a fairness hearing on September 5, 2024, before U.S. District Judge Claudia Wilken. At the fairness hearing, the Court declined to rule on preliminary approval of the settlement, after hearing arguments from the attorneys for the NCAA, plaintiffs’ counsel, and other attorneys involved in other litigations against the NCAA, e.g., Fontenot v. NCAA who have raised objections to the settlement. By way of brief background, and as set forth more fully in our August 1, 2024 alert, the settlement agreement outlines a system where the NCAA and Power Five Conference schools will pay $2.75 billion in “back-pay” damages to multiple classes of athletes, provides an opportunity for colleges and universities to opt in to a revenue sharing arrangement to share approximately 22% of the average annual power conference revenue with the athletes, and imposes restrictions on “pay-for-play” payments by third-party collectives an boosters.
At the fairness hearing, Judge Wilken declined to rule on preliminary approval after raising various concerns regarding the NCAA’s efforts to limit athlete compensation from outside entities. Specifically, and most notably, Judge Wilken stated that she was “quite concerned” with the settlement’s proposed restrictions on third-party NIL payments, particularly from boosters and NIL collectives, and the justifications for those restrictions. Under the proposed settlement, college athletes would be required to report all third-party NIL contracts worth $600 or more to a newly created clearinghouse database, and requires all such deals to be for a profit seeking business purpose and represent a “fair market value” payment. The settlement would also empower the NCAA and power conferences to form a “designated enforcement agency” that would determine whether those reported third-party NIL deals provide fair market value. In theory, this would eliminate pay-for-play inducements — which are currently against NCAA rules, but have gone unenforced since a federal ruling in Tennessee v. NCAA earlier this year.
Judge Wilken took issue with the settlement’s proposed restrictions regarding third-party NIL, and how they differed from the current NCAA guidelines, stating: “What I’m concerned about is whether the change from what’s in the guidelines to what is in the settlement agreement is going to mean that some people who are getting large sums of money in third-party NIL right now will no longer be able to get them.” Judge Wilken seemed concerned about the Settlement’s attempt to “cap” these third-party NIL deals, and how this is not just another artificial and anticompetitive cap on player compensation – asking questions such as: “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?” said Wilken. “Is having your team win a valid business purpose?”
Counsel for the NCAA, without referencing the current injunction on the NCAA’s third-party NIL restriction rules, expressed that it was unlikely that a deal could be reached without a provision in the settlement restricting third-party deals to fair market value. Nonetheless, Judge Wilken expressed optimism that a settlement could be reached, but declined to rule on preliminary approval and advised the settlement attorneys to redraft the agreement to assuage with the Court’s concerns. The parties agreed to confer, and will make supplemental submissions to Judge Wilken on September 26, 2024.