Proposed Settlement for Revenue Sharing in College Sports Moves Forward

The latest Earthquake will see universities directly pay players, limit roster size

(I edited this post at 11:30am to reduce repetition and improve flow)

A federal judge yesterday began a final hearing in the settlement talks of three anti-trust lawsuits against the NCAA that have been combined. The outcome of the case appears to be a $2.8 Billion settlement with former players who graduated before Name, Image and Likeness (NIL) payments began in 2021, and revenue sharing with players moving forward in the form of a capped amount ($20.5 Million/year) starting in the 2025-26 academic year to be distributed to current players. Apparently a key sticking point is that the judge seems interested in placing a hard cap on roster size that would limit the practice of having a large number of ‘walk ons’ in football especially, but also basketball.

A quick look back, and then a look ahead.

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I was looking back at a blog post I wrote on October 24, 2011 (Sharing the Wealth in College Sports). It is always interesting to look back and what you used to think….and the internet remembers!

The post discussed a BloggingHeads episode that I held with my University of Chicago colleague Harold Pollack who was arguing for a market-based payment approach college sports, while I clung to college sports as providing public goods of sorts. I was responding as a fan whose policy goal was maintaining the quality of competition. Harold did not reject that public goods may be produced by college sports, but argued for market based compensation for players, based on the logic that it was unfair to them to not do so. Harold’s basic point was:

Even if rules promoting amateur competition make things simpler, even if restrictions on player compensation have clear social benefits, we don’t generally accept such arguments to constrain people’s ability to negotiate the terms of their employment.

This is a straightforward argument for market-based compensation given that is how we typically handle such things in the U.S.

My proposal 14 years ago was as follows:

• Scholarships should cover the full cost of attendance

• All players in these two sports should get a modest "spending money" stipend

• Star players should receive a share of the money earned from the sale of their likeness and/or jersey

All of these came to pass to a degree, but I was using the language of image and likeness in a far more limited way than what we now call NIL. I was suggesting a cut for players from the sale of their jersey and the like, that would mean the university paying players a market-determined share. What began in 2021 is nothing like that, but instead a system of payment via arms-length NIL collectives with third parties (not the university) directly paying players in consultation with coaches. All power 5 conference members have an NIL collective of some sort that is used to recruit and pay players. Here is a list of the top 100 NIL recipients this academic year.

Harold’s argument won out, and what I was proposing today seems quaint.

Outline of the Settlement & What It Says About $ in College Sports

The settlement with former players ($2.8 Billion) will be distributed as follows:

• 75% for football players, 20% to basketball players and 5% split among all other sports. Some former football players will get 6 figure checks. This breakdown reinforces that the huge money in college sports is from football.

The second big change is that the power 5 conference schools will be required to initiate a revenue sharing program with players beginning in Fall, 2025. This means that players will be able to receive NIL payments via the collective that is ‘affiliated’ with the university, and receive payments directly from the university. Other Division 1 schools can choose to develop revenue sharing if they wish to do so. The amount distributed will be capped at $20.5 Million this fall, to be inflated 4% per year until the process for recalculation is set.

There is a ‘salary cap’ ($20.5 Million next year) and penalties for going over it, so I am not sure how much of an actual cap it will be. Again, many details to be hashed out in the settlement talks, but the only limiting factor appears to be how much universities will be willing to spend, a la major league baseball where there is a $221 Million salary cap for the 2025 season, but the Los Angeles Dodgers have a total salary of $380 Million + Millions in penalties for being over the cap. I think that the ‘salary cap’ will eventually vary by the power 5 conferences, meaning that all members of the ACC will have the same cap, all members of the SEC, etc. but I am unsure.

A few questions and comments:

• How much discretion will universities have in determining how revenue share amounts are determined? I assume the (75% to football, 20% to basketball and 5% to all others) will guide this new payment source, but it is unclear to me.

• From the perspective of the university, revenue sharing simply enumerates another cost of being involved in big time sports for universities. I think that revenue sharing is just and reasonable, and may better be viewed as ending an unfair subsidy from which universities have benefitted versus a new cost, but it raises university costs next year compared to this year, whatever you call it.

• The litigation being ended by this settlement has been underway in one form or another for a decade, but this is coming to a head at a very difficult time for universities given changes in NIH rules, title 6 and title 9 changes being imposed by the Trump Administration and the general sense of higher education as a target. There are only a few universities that could be understood as being fully exposed to Trump Administration changes and university revenue sharing with players and most of them are state universities. Duke, Stanford, Northwestern, Vanderbilt, TCU are the private universities fully exposed to both. Duke, Northwestern and Stanford are the only Ivy Plus universities fully exposed to both.

• In one sense, the Ivy League sports cost profile may be instructive for the new world of athletic budgets. They do not have the same revenue to share that the power 5 conferences have, and so their athletic programs are “all cost” without the revenue. Revenue sharing will nudge the economics of sports at Duke, Northwestern, Stanford, Vanderbilt, TCU directionally toward that of the Ivy league (more cost from university perspective) and for all the power 5 universities.

• The language is important. I was at the women’s final four this past weekend and was chatting with some folks about revenue sharing and they were describing the looming settlement as “profit sharing” between universities and players. I told them that there was not that much profit, at least as defined by revenue - expenses = larger than 0) for most universities. I could imagine some sort of hedonic analysis that would impute a non-trivial share of philanthropy to Duke, for example, as influenced by sports, but I am not going to take on such a calculation.

To underline the point, the NCAA publishes annual financial reports of revenue and costs for public universities, who must by law release such. The top 10 revenue generating athletic programs in academic year 2022-23 were as follows:

Ohio State was first at $251 Million in revenue, and with $225 Million in expenses meaning that they showed a ‘profit’ of $26 Million, none of which was transferred back to the university. Alabama had $214 Million in revenue and $195 Million in costs and transferred $11 Million back to other parts of the university. This is real money, but any plausible profit is relatively small in terms of overall university budgets. The only other point I will make is that the top 10 in revenue have dominated winning the Football Playoff since it began in 2013. In that time, Clemson is the only university outside of the top 10 here to have won the football title (twice; they are 17th in revenue ($158 Million revenue, $143 Million expenses).

The highest 3 public university revenue programs from the ACC are Virginia (14th), Clemson (17th) and UNC (34th). Their revenue and cost figures are as follows:

• UVA $161 Million - $150 Million

• Clemson $158 Million - $143 Million

• UNC $122 Million - $120 Million

Duke Athletics does not have to report to the source above, but does have to report into the Equity in Athletics Disclosure (which is part of title 9 compliance monitoring):

Note that both Duke and UNC had less than $2 Million in ‘profit’ and this is 2022-23 academic year, so before the revenue sharing cost was added (see line 16 of Duke and UNC totals below).

Duke Grand Total in Equity in Athletics Disclosure system

UNC Grand Total Equity in Athletics Disclosure system

Note that there are all sorts of accounting issues in these comparisons that might not be identical for all universities, for example, based on how an out of state player’s tuition is calculated. I know that at some point in the past, UNC charged out of state players in state tuition, which reduced the cost to the Rams Club (booster club), while also reducing the revenue to the University. Now the Ram’s Club pays out of state tuition. I have no idea how Michigan, Texas, Alabama etc. handle that. A private university does not have in state v out of state tuition, but Duke does have a different financial aid guarantee for residents of North and South Carolina now, but not when these figures were reported. Similarly, athletes are eligible for Pell Grants, but I doubt that every university in these lists does exactly the same thing.

The Duke/UNC comparison provides a clear sense that two very successful athletic programs had very small ‘profit’ in 2022-23.

My main point is that these upcoming payments are just, and I suspect they will often be called profit sharing. However, there is not typically that much in profit for big time athletic programs, at least as measured by annual flows of revenue and costs. If you add $20.5 Million in costs and assume there are no dynamic changes, then basically all the ‘profitable’ schools become break even or slight loss at best.

Given all the upheaval in higher education, it is not an ideal time for this to be occurring, but as I said, the litigation is a decade old and this will force more discussions on campus about sports and money as there are going to be fairly painful decisions that begin to be implemented on campuses this summer and beyond. Each campus will have to find a way to talk about these changes, and the expanded attention paid to money and college sports.

• I leave you with an unobserved counterfactual as food for thought. When the Ed O’Bannon lawsuit was decided in 2014 and affirmed on appeal in 2015, I am fairly certain that every President or Chancellor of the ACC would say that they would take a wait and see approach. And that if you then described the world of sports and money today, they would all say their university would never participate in such. However, here we are.

On the whole, I think our current state of affairs for the power 5 conferences is at least becoming more honest.