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Good Thursday Morning. Here’s the rundown of this week’s Sports Business Playbook:

• 📰 This Week’s Topic: The NCAA board of governors and the Power Five conferences have approved a historic settlement that, pending legal review and judge approval, will end “amateurism” as we know it and usher in a new era of college athletics where student athletes are paid by the schools. We break down the settlement in more detail, highlight three key impacts the deal will have, and ask three burning questions about what could happen to college athletics in the future.

• 🍸️ Impress Your Friends at Cocktail Party: Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? Hit the “Impress Your Friends at Cocktail Party” section at the bottom for a CliffsNotes of this week’s topic

• 🤯 “Whoa of the Week”: The W’s rookie class continues to make an impact.

• 💪 Weekly Reminders that Sports are Awesome: A fitting tribute to Bill Walton, a true basketball legend, and a big league prophecy that came true.

Hey team,

I feel like I start a lot of these newsletters with “historic news,” a “groundbreaking deal,” or “industry-shaping development” that sent “shockwaves through the business.”

Not to be the boy who cried wolf, but this week is the “Grandaddy of ‘em all” in terms of a historic, groundbreaking, and industry-shaping agreement that sent shockwaves through the industry.

The NCAA board of governors and the Power Five conferences have approved a historic settlement that, pending legal review and judge approval, will end House v. NCAA and two other antitrust lawsuits currently levied against the governing body.

There are still way more questions than answers and a lot to figure out, but the one fundamental thing that has been agreed upon with this settlement: the notion of “amateurism,” the much maligned, 100+ year-old bedrock of the current college sports system that has long been guarded by the NCAA and other college administrators, is dead.

In its place, there is a framework for $2.8 billion in backpay to former athletes for lost compensation plus a revenue sharing agreement on up to $20 million per year for future players.

Yes, you read that right. The NCAA is now allowing its member schools to truly pay its players.

As you would expect with college sports, there’s a lot of complexity and uncertainty around the deal — this agreement is as confusing as it is historic.

Luckily for you, the Future Mrs. SBP is in Europe and I’ve had way too much on my hands the last several days, so I’ve dug into this subject to the nth degree so you don’t have to.

In this week’s edition, you’ll learn:

• What are the terms of this historic settlement

• What does it mean for the NCAA, the schools, and the players

• Three key takeaways I have from the deal and three burning questions that remain

What is the House lawsuit

The settlement in question stems from a 2020 class action lawsuit of current and former athletes, led by former Arizona State swimmer Grant House. There are two other lawsuits — Hubbard v. NCAA and Carter v. NCAA — that are similar and have been rolled into this settlement.

At its heart, the suits allege that the NCAA and its member institutions exploit student athletes by working together to restrict the athletes’ compensation pre-2021 before NIL was allowed while also controlling the revenues from ticket sales, TV money, and more.

These restrictions prevent athletes from profiting on their true market value, which is more than just the scholarships and education funding — the foundational components of amateurism — that they have been receiving while the NCAA/schools have made billions.

In the plaintiffs’ view, this concerted effort by the NCAA and schools is a “restraint on trade,” a hallmark red flag in antitrust cases under the Sherman Antitrust Act, which states that “agreements among competitors to fix prices or wages, rig bids, or allocate customers, workers, or markets, are criminal violations.”

Because of this violation, the athletes argue they deserve backpay for the unlawful restrictions placed on them in the past as well as a cut of future revenues to rectify the issue.

The case had some steam and, if a verdict was rendered against them, the NCAA and the schools would have been on the hook for damages that would have been above $4 billion and even approached $20 billion, a figure that would have been a death knell to the NCAA and required it to enter bankruptcy.

Facing an existential threat, the defendants did what was once unthinkable: they agreed to pay the athletes.

What is in the settlement

The historic settlement, approved by the NCAA board of governors and all five of the power conferences, includes the below deal points.

One important note: this settlement is currently really just a term sheet and not necessarily a legally binding agreement. It’s not as flimsy as another famous sports term sheet (PGA-LIV Golf merger), but let’s just say there is a lot to still figure out.

The true work begins over the next several months to get the final structure in place and send it to Judge Claudia Wilken for approval. Once approved, the earliest these concepts would be implemented is Fall 2025.

Here’s what we know at this point.

Backpay

Nearly $2.8 billion will be paid over the course of 10 years to more than 14,000 student athletes who played from 2016 until 2023 should they opt in (more on that later).

The money will be divided up amongst the athletes based upon a formula created by sports economists. Some money will be split equally between athletes who opt into the agreement, while some money will be allocated based on each athlete’s market value, which helps fairly compensate the bigger stars.

The $2.8 billion will be split by the NCAA and the schools as follows:

• NCAA: $1.1 billion

• Power Five Conferences: $1.65 billion

• Remaining 27 D1 Conferences: $990 million

Much of the NCAA’s portion is expected to be paid by withholding payments (i.e., the NCAA March Madness distributions) that would normally be sent to D1 schools. Schools will be on their own for their own portion.

Future Revenue Share Agreement

Looking forward, institutions will be able to pay players through what looks like an optional salary cap.

The schools will be allowed to pay athletes from a pool of funds worth up to 22% of the average Power 5 school’s revenue per year based upon TV money, ticket sales, and sponsorships (interestingly, not donations). Most P5 schools bring in about $100 million in revenue per year under these guidelines, so that figure settles in about $21-22 million.

There will be a 4% annual automatic escalator of the revenue figure for the first three years of the deal, with a “look-in” provision every three years to evaluate how the system is working.

While 22% seems arbitrary and not close to a 50/50 revenue share seen in professional leagues, there may be a method to the settlement’s madness, per Ross Dellenger from Yahoo Sports:

The important thing: this payment program is optional.

Each school will be required to determine the amount they want to pay each athlete and whether they want to participate in the revenue sharing plan at all. To avoid the same price fixing scrutiny from before, schools can choose how much they want to pay overall, and they likely rely upon paying players based upon their individual market values.

Other Provisions

These are light on the details but also included in the settlement.

• Clearer definitions around NIL. The goal would be to delineate between the “true NIL” where brands are compensating a player for his/her endorsement at a fair market value vs. the “pay for play” model that has taken over college athletics via the collectives. The settlement proposes a high-level idea of a third-party reporting mechanism and potential enforcement concepts, but there are not a lot of details here.

• The elimination of scholarship caps and implementation of roster limits. There are currently limits on the number of scholarships a school can provide in each sport. Football, for example, is 85, but it can keep more players as “walk-ons.” Under this new agreement, the schools will have the option to expand the number of scholarships to what they please, but there will be a total roster limit implemented. In my opinion, this is not that big of a deal in football or basketball where the teams already fund most of their rosters with full scholarships and the players the schools would want to pay are already going to be receiving a scholarship, but it could be applied to “Olympic sports.” For example, college baseball rosters have between 35-40 players on a team, but they can currently only give out 11.75 scholarships. Under this new model, that 11.75 cap is removed and the school can give out as much as they wish.

So, where do we go from here?

As mentioned before, this agreement is a term sheet; not an ironclad legal document.

While there are a number of things to still be figured out, one thing is for certain: what will eventually emerge is sure to reshape the college athletics industry. Here are my three key takeaways and my three burning questions from the agreement as it currently stands.

🧠 Key Takeaway #1: This proposed system is a net positive, but it will only deepen the chasm between the “have’s and the “have not’s.”

To state the obvious, this settlement overwhelmingly favors the major programs at the top of the Power Five.

The big boys will be able to cover the backpay requirements with ease, but the splits have upset many of the smaller conferences that feel they are footing the bill for an issue caused by the football powers in the Power Five conference.

As an example, the Big East, a non-football conference known for basketball will be responsible for between $5 million-$7 million annually, or about $600,000-$700,000 per school per year. That’s a material amount for a smaller school that is using the distributions from basketball to fund the other parts of its athletics programs.

Big East Commissioner Val Ackerman summed up these schools’ feelings in a recent email to member institutions obtained by Yahoo Sports:

When looking at the future revenue share agreements, it also quickly becomes evident some schools will be hit harder by this than others.

Ohio State generated $250 million in revenue last year, so the $20 million is less than 10% of its overall turnover. A drop in the bucket compared to newly minted Big Ten school UCLA, which generated $103 million. 20% of the Bruins’ annual revenue would now be going to the players under this model. It also gets much that much harder for the small private schools — i.e., Boston College, Vanderbilt — that are trying to keep pace.

On top of that, you will likely see the high-end programs invest in the college version of “capologists” that will help the athletic department figure out what it should pay to the athletes and how it can manage its “salary cap.” This data-driven approach will likely yield long-term benefits under this system but be a luxury that only the elite can afford.

So, is this new system generally the right thing? Yes.

Is it going to create new challenges for the smaller schools? Yes.

Is it really any different than the direction we were already heading, as we’ve seen time and again with the money-motivated decision making that favors the major powers? No.

I continue to maintain that we are not far away from a college athletics super league. The heavies in the Big Ten, Big 12, SEC, and ACC are eventually going to grow tired of having to abide by the same rules as a Group of Five school or even one of the smaller P5 schools that have “ridden their coattails” in their minds. Plus, they may see a smaller contingent with similar size and interests as a better landscape to scope out what the evolution of this system looks like as opposed to a blanket agreement covering all different shapes and sizes of schools.

Notable power brokers have started to do roadshows promoting this idea, and I think the clock for when it happens is now counting down. My finger-in-the-air prediction: within the next 10 years once the current media deals expire.

🧠 Key Takeaway #2: The settlement doesn’t provide a real solution for collectives, and they are unfortunately going to continue to operate mostly as is, for now.

For a refresher pulled from my recent deep dive on NIL a few months ago, collectives are a group of alumni and donor bases that pool money to pay the school’s athletes in exchange for their NIL rights, which the collectives then use for merchandise, autograph signings, appearances, etc. In addition, many are helping facilitate NIL deals with prospective recruits.

These collectives currently live in a weird gray area where they are technically independent of the schools but can be officially recognized by the school and are able to effectively recruit high school and transfer players in a quid pro quo, “pay-for-play” style — something that was determined to be against the NCAA NIL rules but has not been enforced well.

In this new world order, I believe collectives are going to look slightly different but end up doing the exact same thing — monetarily incentivizing players to come to their schools.

Collectives will likely have more direct affiliation with the schools and even receive funding from them instead of solely subsisting off of donations. In fact, the donors’ funding will likely go through the school and then to the collective, thus making it tax deductible for them.

Once funded, the collectives will then look more like third-party marketing agencies that can go find brand deals for the athletes at their schools.

The problem with this system: NIL money is not counted against the $20 million salary cap.

So, the collectives will be able to find “marketing deals” that can be added on as bonuses in addition to whatever compensation athletes receive from the schools via revenue share in order to gain a competitive advantage.

The House settlement attempts to develop a framework for denoting what is “True NIL” — where a brand pays an athlete fair market value for his/her endorsement — and what is “pay for play,” but the reality is that this is likely hard to prove and is also unenforceable due to the same antitrust issues faced before.

This is a gaping loophole in my opinion, and it perpetuates the same problematic system we currently see.

I’m not suggesting that the NIL money should count towards the cap.

Rather, I think that the players should operate in more of a pro model where they are paid by the school for their portion of the revenue while their NIL is handled completely separately by true third-party agencies; not those affiliated with the respective schools.

🧠 Key Takeaway #3: Private Equity is going to fill the void for these schools in need of salary cap funding, and it likely paves the way for the privatization of athletic departments

Schools are not required to pay the $20 million salary cap, but if they want to compete, they will likely need to fund some, if not all, of this revenue share pool.

There are discussions about finding net new revenue streams — i.e., sponsorships for on-field signage, jersey patches — and there will likely be belt tightening in facility upgrades, services, and other discretionary areas.

But, there is still likely going to be a revenue gap.

This also doesn’t count any funding a major school in a lesser conference like Florida State may need if they were to break their conference’s Bill of Rights and try to jump to one of the two mega conferences. That figure is estimated to potentially be in the hundreds of millions of dollars in FSU’s case.

The schools need an outside funding source with serious dry powder. Enter: private equity.

There have been rumblings of this over the past few years that funds were interested, but we have now seen the first group, College Athletic Solutions, make a public announcement about its intentions to enter the space.

The firm, financed by sports power broker Redbird Capital and Weatherford Capital, an equity firm founded by former FSU quarterback Drew Weatherford, plans to invest $50 million-$200 million in 5-10 top athletic departments to help them with their strategic capital needs.

It’s important to note that these will not be your traditional PE deals (i.e., payment in exchange for equity in the acquired company, 5-10 year hold time and then sell), but structured more like private credit deals, per Sportico.

In this setup, the investment group would pay a lump sum and then receive a guaranteed annual return (estimated to be 10-12% based upon industry standards) from the school instead of equity.

This is much more palatable for publicly-financed academic institutions to sell to their constituents, but I personally believe this is also a stepping stone towards the schools privatizing the commercial operations of athletics departments and allowing investment firms to take an equity stake.

This model has been used FC Barcelona and some of the prominent European soccer leagues, and it could work here, too.

I’d guess this will come with the Super League I predicted earlier.

🔥 Burning Question #1: Does this new world run afoul of Title IX?

In a sport context, Title IX gives women athletes the right to equal opportunity in sports in educational institutions that receive federal funds. There are three parts to how it applies:

1. Effective accommodation of student interests and abilities (participation)

2. Athletic financial assistance (scholarships)

3. Other program components that are benefits to and treatment of athletes. Examples include: equipment and supplies, scheduling of games and practice times, travel and daily per diem allowances, access to tutoring, coaching, locker rooms, practice and competitive facilities, medical and training facilities and services, publicity, recruitment of student athletes and support services.

There is likely not a true case based upon the settlement itself, as sports attorney Mit Winter lays out:

Where it gets dicey is how the settlement funds are distributed and how the schools operate in this new paradigm when they’re the ones making the decisions on who gets what portion of the revenue share pool.

According to The Athletic, some school officials believe the annual revenue-sharing total dollar amount will likely need to be equal as a whole between men’s and women’s teams, even though individual athletes and teams do not have to make the same amount.

This seems much easier said than done and is likely to cause problems.

A potential workaround to this scenario is allowing the aforementioned third-party collectives to pay the athletes so it’s a third party determining fair market value and paying the athletes instead of the schools, but that could also get called into question if the collectives are taking funds from the schools.

Regardless, this is an area to watch. There are prominent Title IX experts that will be paying close attention to how this system operates and there is high potential for a lawsuit.

🔥 Burning Question #2: Will athletes keep going and push to be employees?

This settlement will be touted as the magic bullet that solves all of the NCAA’s legal problems, but there are still landmines everywhere.

Namely, what about the players not covered under this settlement (or those who chose to opt out), and this salary cap could still cause antitrust issue because it would be considered a restraint on trade (i.e., all schools agree to not pay more than $20 million) that has not been collectively bargained.

Lastly, there is the question of whether athletes are employees, as Michael McCann from Sportico points out:

This question is currently working its way through the courts in a few different cases, including a recent victory for the Dartmouth men’s basketball team, which voted 13-2 in favor of forming a union after a National Labor Relations Board regional director agreed that the basketball players are employees and entitled to union representation.

If there a lot of opt outs and the employment rebel yell starts to happen more at scale, this agreement is toast.

We would then see a scenario where the thousands of student athletes would need to band together to collectively bargain with the NCAA and the schools.

Some groups like Athletes.Org are attempting to help create this framework, but it comes with a whole new set of challenges for both sides that would drag out this settlement for years.

Some leaders are proposing a collectively bargaining model without employment, which brings me to the last burning question.

🔥 Burning Question #3: Will Congress finally step in and create a national standard?

The NCAA and other college athletics leaders have been lobbying Congress for years to help put together a national standard on the post-NIL world.

Bills have been introduced, but there has never been any serious chance of them passing.

One of the NCAA’s hopes with settling the House case is that it can take a tangible set of terms and sign of goodwill to Congress in order to ask for the following:

1. Lay out a national standard that unites the disparate state laws (i.e., the patchwork NIL regulations) and removes any uncertainty or overlap.

2. Provide college sports with an antitrust exemption so that it can implement these rules without facing further litigation.

3. Make a final determination that student athletes are not employees but can still be collectively bargained with to help move this settlement forward.

This is probably the biggest question of the bunch, because 1). it is the thing the NCAA and college sports likely need the most, and 2) it is going to be the hardest to acquire.

There is zero chance comprehensive legislation will pass during this election year, and college leaders will then be on the clock to try to get something passed with a new Congress before the likely implementation date of the settlement agreement in 2025.

This uncertainty sets up a potential crash landing into this new world order where there are still state-by-state NIL laws, unclear expectations on how the revenue sharing cap will work and stay within Title IX guidelines, and myriad additional lawsuits that attempt to take the NCAA to the woodshed (again).

Would we expect anything less from college sports at this point, though?

🍸️ Impress Your Friends at a Cocktail Party

Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? This section is the CliffsNotes of this week’s topic

• Opener: The NCAA board of governors and the Power Five conferences have approved a historic settlement that, pending legal review and judge approval, will end “amateurism” as we know it and usher in a new era of college athletics where student athletes are paid by the schools.

• Shot: There are still way more questions than answers and a lot to figure out, but the one fundamental thing that has been agreed upon with this settlement: the notion of “amateurism,” the much maligned, 100+ year bedrock of the current college sports system that has long been guarded by the NCAA and other college administrators, is dead.

  In its place, there is a framework for $2.8 billion in backpay to former athletes for lost compensation plus a revenue sharing agreement on up to $20 million per year for future players. If approved, this new framework would be implemented by 2025.

• Shot: My three takeaways from the deal:

  • This proposed system is a net positive, but it will only deepen the chasm between the “have’s and the “have not’s.”

  • The settlement doesn’t provide a real solution for NIL collectives, and they are unfortunately going to continue to operate mostly as is, for now.

  • Private Equity is going to fill the void for these schools in need of salary cap funding, and it likely paves the way for the privatization of athletic departments

• Chaser: As I mentioned, there is still much to be sorted out with this new system. Three burning questions about the deal below. Time will tell how these shake out.

  • Does this new world run afoul of Title IX?

  • Will student athletes keep going and push to be student athletes?

  • Will Congress finally step in and create a national standard?

🤯 “Whoa” of the Week

Insane, mind-blowing things constantly happen in the sports business world. Here was my favorite of the past week.

1. The W’s rookie class continues to break records.

💪 Weekly Reminder that Sports are Awesome

This newsletter is, of course, mostly centered on the business side of sports and the things that happen off the field. That being said, it’s important to remember why we fell in love with sports in the first place, though.

This section is meant to highlight the amazing things that happened in sports this week that serve as that reminder.

1. A fitting tribute to basketball legend Bill Walton after he passed away from cancer at 71.

2. A big league prophecy comes true. Cheering for Ryan Bliss!

Thanks for reading! Let me know what feedback you have.

Also, if you enjoyed this breakdown, please consider sharing it with your friends and network by clicking the social media icons at the top of the newsletter.

Until next time, sports fans!

-Alex