Important Updates on the House v. NCAA Settlement

The House v. NCAA settlement was officially filed with the court on Friday, giving us all weekend to start to digest the terms of the settlement. Friend of the firm Kristi Dosh did a great job breaking down the settlement, and we think you should read her article over on Business of College Sports.

Here are some additional key takeaways, specifically focusing on the expanded scope of shared revenue categories and the financial implications for athletic departments.

Revenue Share

The Benefits Pool cap is 22% of average shared revenue based on the most recent NCAA Membership Financial Reporting System (MFRS) reports available. The amount is recalculated every three years, with a 4% annual increase applied during the intervening years.

Shared Revenue includes revenue categories 1, 7, 11, 12, 13, 13A, 15, and 19 from the MFRS. This encompasses a broad range of revenue sources, including but not limited to media rights, ticket sales and sponsorships. Average Shared Revenue is calculated based on MFRS data for the conference defendant member institutions including Notre Dame.

Suite licenses are explicitly included in Category 1, excluding contributions or events like concerts. New agreements under Category 11 (media rights) with a year-over-year rights fee escalator greater than 4% may adjust the average shared revenue calculation.

Category 18 will be closely monitored to ensure no revenues are included that should be categorized as one of the shared revenue categories. Changes/updates to the MRFS categories will be closely evaluated to ensure reclassifications are handled appropriately within the benefits pool.

Counting Benefits Against the Pool

The benefits pool will primarily be comprised of the new direct payments to athletes for use of their NIL to promote the brand of the institution, athletics programs or teams.

Alston Awards (up to $2.5 million per institution per year) will count against the pool.

New athletic scholarships (up to $2.5 million per institution per year) will also count against the pool. The settlement included an example of an institution currently offering nine scholarships in baseball versus the 11.7 permitted. If the institution opts to award 15 scholarships in baseball after final approval of the settlement, the number of new scholarships is 3.3 (15-11.7, not 15-9).

Payments from third parties resulting from the institution acting as a marketing agent, or funds from sublicensing the institution’s rights under a direct contract with the athlete, are not counted against the pool. For those institutions looking to distribute more than the cap, this is how it can be done (but not without strict reporting requirements for outside deals).

Roster Sizes and Scholarship Limits

The elimination of scholarship limits and adjustments in roster sizes will require careful planning to maintain gender equity under Title IX (which is not addressed in the settlement) and manage overall costs.

Potential New Rules for Collectives

The NCAA or conferences may adopt additional rules prohibiting boosters (individually or collectively) from entering into NIL agreements unless it is 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.”

It’s not clear whether this rule is aimed to shut down 501(c)(3) collectives, NIL contracts without a quid pro quo, or both. Where market value will come from and who will be monitoring it is also ambiguous at this time.

Important Reporting and Audit Requirements

Athletes will be required to report all third-party NIL contracts or payments exceeding $600. Institutions will be required to disclose this to a designated clearinghouse that has yet to be defined.

Institutions must provide to their conference or the NCAA detailed reports within 60 days after the close of each academic year, including all payments and benefits provided to student-athletes.

Annual MFRS data must be submitted from the NCAA to Plaintiff’s counsel no later than May 15 each year. Plaintiff’s counsel has the right to audit this data and have specifically indicated they will be paying close attention to Categories 11 and 18, as well as any changes to MFRS categories by the NCAA.

It’s not yet apparent whether payments made by third parties (such as collectives) will be considered as funded by or made on behalf of the school for purposes of MFRS reporting. It seems unlikely the settlement intends to consolidate this information into the MFRS, because revenues generated outside of the shareable revenue categories would produce payments above the benefit pool cap.

Action Items

Now is the time for athletic departments to adjust financial strategies to accommodate for the new requirements. Not only are you considering the direct financial impacts of revenue share and increased roster sizes, but you should also contemplate the additional personnel needed to ensure compliance and continue to support your athletes effectively.

Our collegiate athletics CPAs and consultants will continue to advocate for the financial voices in college athletics and help institutions navigate the new demands coming your way.