The Journal. - $2.8 Billion for College Athletes and a New World for the NCAA

Episode Date: May 28, 2024

For over a century, the NCAA has refused to pay athletes. After a recent settlement, that’s going to change. The organization has agreed to set aside $2.8 billion in back payments for some student athletes and moving forward, allow players to get a cut of television revenue. WSJ’s Jared Diamond explains what it might mean for the future of college athletics. Further Reading: -NCAA Agrees to Share Revenue With Athletes in Landmark $2.8 Billion Settlement  -He Was the $13 Million QB Recruit. Now He’s Suing the Boosters Who Never Paid Up.  Further Listening: -Why an Ivy League Basketball Team Voted to Unionize  -The TikTok That Changed College Hoops  Learn more about your ad choices. Visit megaphone.fm/adchoices

College sports, from football to lacrosse to field hockey, have been based on the idea that the athletes who play are students first and amateurs on the field, meaning they don't get paid for playing. For a century plus, the NCAA has treated the idea of athlete compensation as this existential threat that would destroy college sports. That's our colleague Jared Diamond. For years, the NCAA, the organization that regulates student athletics, and the major athletic conferences have said that paying student-athletes was impossible. But last week, those organizations were forced to reconsider. It's a new era in college sports after a landmark agreement last night

between the NCAA and the most powerful conferences. Yeah, the deal calls for college athletes to be paid directly by their schools. In a monumental move, the NCAA board approved a settlement in its antitrust lawsuit. It would officially end amateurism in college sports. In order to settle a lawsuit, the NCAA agreed to set aside $2.8 billion in back payments for some student-athletes

and, moving forward, allow players to get a cut of television revenue. And the settlement is bringing up all kinds of questions. This is one of the biggest, most seismic moments in the history of college sports. The bedrock of college sports. Forever without athletes or amateurs, they can't be paid. The idea now that the NCAA is agreeing to allow schools to pay athletes directly is absolutely seismic. It completely upends the entire paradigm of college sports that's existed for a hundred plus years. And now it feels like anything is truly possible. Now it feels like anything is truly possible.

Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudsen. It's Tuesday, May 28th. Coming up on the show, what will paying student-athletes mean for the future of college sports? We understand that your business is unique, so your business insurance should be too. Contact a licensed TD Insurance advisor to learn more. College athletes have been pushing to get paid for a long time, especially when sports like football and basketball bring in enormous TV deals. These athletes are bringing in a lot of money for their schools. Why is it that these football coaches get to make millions and millions of dollars when these athletes are actually the ones on the field playing make nothing? In recent years, a number of lawsuits have chipped away

at the NCAA's rules against paying athletes. And starting in 2019, some states passed laws that allowed student-athletes to make endorsement deals. Players can profit off their name, image, and likeness. They refer to it as NIL, name, image, likeness. Essentially means endorsements, that athletes still can't be paid directly for their performance, but they can be paid because of their fame.

In 2021, the NCAA allowed all student athletes across the country to do NIL deals. Now, look, for most athletes, most college athletes in the various sports, NIL money is sort of small to non-existent, right? If you're a volleyball player, maybe you'll get someone, a company will pay for-existent, right? If you're a volleyball player, maybe you'll get someone, a company will pay for your knee pads, right?

And that was not allowed under the old rules and now it is, great. But in the case of really big athletes, the big football players or the big basketball players, there was big money to be had. So if you're the star quarterback at Alabama, you can be making millions of dollars. If you're Kaitlyn Clark, she's not in college anymore, but she was, you're doing Gatorade

commercials. If I can sign with Gatorade, you can too. So this was a huge step in college sports. It was really the first time college athletes were being paid. But students who played before the NCAA lifted its ban felt they had unfairly missed out on money they could have made. And so a group of athletes across different sports decided to bring a lawsuit. It was started by, first by

the swimmer at Arizona State University and a couple other people sort of joined on and ultimately became a class action lawsuit. But the basic gist of the lawsuit at the beginning was that these athletes felt that they were entitled to back payments of endorsement money that they were not able to get, that athletes now are.

The players sued the NCAA and the five biggest and wealthiest athletic conferences, the ACC, the Big Ten, the Big 12, the Pac-12, and the SEC. These conferences include schools like Alabama, Ohio State, and USC, and are the ones that signed billion-dollar TV deals. And what were the athletes suing for? The athletes were suing essentially for back payments of NIL money that they were not essentially able to participate in. Again, as states were coming online with legal NIL, at least under their laws,

these athletes were saying, hey, we were not able to participate in NIL. Our states didn't allow it. They didn't pass a rule yet on it. We should be entitled to back payments and a cut of broadcast revenues. That TV revenues should be shared and essentially claiming through antitrust grounds. The players argued that the NCAA was a monopoly

and that it had been illegally preventing athletes from profiting off their likeness. And not just by banning endorsement deals, but also by not sharing revenue from TV contracts. The case was set to go to trial early next year. But last week, the NCAA and the five big conferences named in the suit agreed to settle. But last week, the NCAA and the five big conferences named in the suit agreed to settle.

What did the people that you spoke with say about why the NCAA agreed to settle? What became clear is that the NCAA was very nervous about going to trial and the possibility of losing. The NCAA ultimately settled this for just shy of $3 billion, about $2.8 billion. The NCAA was concerned that if this had gone to trial and they had lost, they could have been on the hook for as much as $20 billion if this had sort of continued on. They were even concerned that they would throw the NCAA into bankruptcy if they had

to sort of pay it out, especially if they had to pay it out all at once or in bigger chunks if they had gone to trial and loss. This allows them, A, to only pay out $2.8 billion to this class, but also it's spaced out over 10 years. It gave them the opportunity essentially to plan for how they were going to pay it. Then it gives them some clarity of what at least the near future looks like. Student-athletes have been agitating for compensation for years, for a really long time now. Does this settlement mean that that fight is over? The fight is not over until it becomes clear one way or the other about whether they're going to be employees.

Employees. That fight is after the break. With Uber Reserve, good things come to those who plan ahead. Family vacay? Reserve your ride as soon as you book your flights. To all the planners, now you can reserve your Uber ride up to 90 days in advance. See Uber app for details. DQ presents... Picture this.

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The settlement was for about $2.8 billion. And essentially what they agreed to is two things one they will pay that 2.8 billion dollars in damages over a 10-year period to this class of of mostly former athletes who are seeking back payment for lost nil money the other part of it, is this issue of revenue moving forward. And that's really, in many ways, the more important part of this. The idea that moving forward, the NCAA has agreed to share some of their revenues with athletes moving forward. And the future component is, in many ways, the bigger deal here. The settlement ruled that all Division I schools will now be allowed to pay student-athletes if they want to.

The NCAA came up with a calculation that puts a cap on how much schools are allowed to pay. And our understanding from our reporting is, at least right now, based on current revenues, that's about $20 million a year per school. So roughly $20 million per school, for now, will be current revenues, that's about $20 million a year per school. So roughly $20 million per school, for now, will be going to the athletes. And as revenues increase, assuming they do, that figure can and will go up. So with this roughly $20 million number, the idea is that

it won't matter if you're a rich, super successful school or a poor one that's not very good at sports. Every school will essentially have the same limit or the same salary cap, so to speak, on how much they're allowed to pay student-athletes. Exactly, yes. Because, for example, we have a basic sense of revenues of some schools if they're public, right? some schools if they're public, right? So we know that a school like, say, Ohio State University, one of the wealthiest sports schools in the country, they're making more than $250 million a year in sports, right?

The sports revenue. But then you look at a school like, say, Washington State University, they're making more like $75, $80 million a year off their sports. So to account for that discrepancy, that's why the settlement agreement calls for it to be based on this average. Because you don't want to give one school such a massive advantage over others. Right. It would make it so that every single good athlete would want to go to Ohio State or Texas because they know they can make more money if they go there. So how will that money be distributed among student-athletes?

go there. So how will that money be distributed among student-athletes? Nobody really knows. The settlement does not spell out how that money should be distributed. You would think, again, that most of it would go to football, men's basketball, women's basketball. They're the ones who bring in the revenue. However, there's other factors at play. One of those factors is Title IX, the federal statute that requires schools to provide equitable opportunities to male and female athletes. So we know that, but how does this work with Title IX, for instance, right?

And how does this impact the sports that aren't revenue drivers, right? There's a lot of college sports, and the only ones that really make money are football, men's basketball, women's basketball increasingly. So what happens with field hockey or with volleyball? We don't know yet. And I don't think the NCAA fully knows yet. But we have to be honest here. Not all sports make as much money. Football brings in so much more money than every other sport. It just does. Even men's basketball, women's basketball, football is on a whole other

level. So how do you find a way to be equitable in a landscape where the big revenue drivers are football players? In a joint statement, the NCAA and the five major conferences said the settlement was, quote, an important step in the continuing reform of college sports. For college athletes, the settlement likely isn't the end of the fight. Many of them want to be classified as employees and have sued the NCAA over it. There are some athletes, there are some athletes that believe that they should be deemed employees and be given the full rights that employees receive, which is, of course, they'd be bound by labor laws, more pay, benefits, all of the things that come with employment.

The NCAA is desperately trying to stop that from happening. Why does the NCAA not want athletes to be considered employees? Like, why does that word matter? The NCAA will say they don't want athletes being employees for all the reasons they always said they didn't want people to be paid because college sports, they're about amateurism

and these are student athletes first and et cetera, et cetera. That's what they'll say. But the biggest reason is money, right? Your athletes being employees is extraordinarily expensive. Employees are protected by labor laws, right? They'd be entitled not just to salaries, but health insurance, benefits,

other things that come with full-time employment. And there are a lot of NCAA athletes. And the NCAA will always say, well, if we'd had to do employees, there'd be no other sports but football and men's basketball, women's basketball, because we just couldn't afford to do it for the other sports. And all those other sports will disappear.

That's their threat? Who knows? Like, no one really knows, but that is why. At the end of the day, because they don't want to have to pay the incredible costs it will be if all these athletes are employees, especially when you remember the NCAA's business for all these years, all the money they've made,

they've never had to give any of it to the athletes, right? But if they're going to have to start even giving more and more and more, it obviously would totally change the whole financial picture of college sports. The NCAA says that schools wouldn't be able to afford paying all athletes as employees because most sports don't generate much money. So the NCAA has been lobbying Congress to pass a law that would give it an antitrust exemption, which would allow it to pay athletes but not classify them as employees. And this is sort of the final frontier. We are moving in the direction of college sports feeling more like professional sports. How far does it move in that direction? Is there going to be union? Are they going to be employees? Is there going to be

some sort of organized collective bargaining unit? You know, it sort of feels that that's the direction we're heading. How is Congress going to step in? All of these questions are going to have to be resolved moving forward here. So this is a huge moment, but there are still lots of questions. Exactly. And the big question that still remains is, are we going to end up in a space where athletes are employees of their school? The big E word is employee. That is the big outstanding question. The NCAA is adamantly opposed to the idea of athletes being labeled employees as opposed to student athletes or whatever phrase you want to use. Adam and Leah pose. But it doesn't feel impossible now.

It feels like something that really is, could be part of the future because now athletes are being paid. And once you cross that barrier, who knows where this ends up. That's all for today. Tuesday, May 28th. The Journal is a co-production of Spotify and The Wall Street Journal.

Additional reporting in this episode by Lane Higgins. Thanks for listening. See you tomorrow.