Weekly Column: Contract Language, Judge Wilken delay House Settlement

California Sports Lawyer® Founder and Managing Attorney Jeremy M. Evans column about the House settlement hearing with Judge Claudia Wilken that is set to determine the future of college sports.

You can read the full column below. (Past columns can be found, here).

Judge Claudia Wilken has been at forefront of the NCAA, college sports, and law for at least a decade. Judge Wilken decided the O’Bannon v. National Collegiate Athletic Association, 802 F.3d 1049 (9th Cir. 2015) case that held NCAA rules barring name, image, and likeness (NIL) compensation violate antitrust law, but the court stopped short of requiring full payments—allowing schools to offer full cost-of-attendance scholarships instead. She now holds the power in approving the settlement in the House v. National Collegiate Athletic Association, No. 4:20-cv-03919-CW (N.D. Cal. filed June 15, 2020) that will allow NCAA Division I universities and colleges that opt-in to pay student-athletes directly through a $20.5 million annual revenue-sharing mode (e.g., a salary cap), while providing $2.8 billion in backpay for pre-2021 NIL restrictions. The settlement if approved will fundamentally alter the NCAA's amateurism model.

Judge Wilken’s decision is on the heels of the United States Supreme Court decision in National Collegiate Athletic Association v. Alston, 594 U.S. _, 141 S. Ct. 2141 (2021) that was decided 9-0 and held that NCAA’s restrictions on education-related benefits for student-athletes violated federal antitrust law under the Sherman Act. All three of the aforementioned cases have focused on antitrust law only. While the O’Bannon case was the first to put a kink in the NCAA’s proverbial amateurism model, Alston broke off a piece of the armor, and House has the opportunity to replace the armor for a new model that is based on paying college athletes with a systematic salary cap of $20.5 million annually per university.

What remains to be decided in the House settlement are three issues. First is the inclusion of future student-athletes that have yet to start playing an NCAA sport. One work-around is to have a renegotiation period every five to ten years (see issue no. 3 below), much like the players associations do for professional athletes. Contractually, it is very difficult to bind a person or set of people to an agreement they have not agreed to, but that may actually be the wrong question in this circumstance. People often agree to terms without being at the table for the decision. Job postings have salary bands, restaurants have rules and policies, and tax rates and regulations are set well before someone earns the money or starts the business. The NCAA rules are separate and apart for any one athlete, playing or not playing.

Second, there is the concern of roster limits that coincide with the “salary cap”. Judge Wilken seems to prefer language in the settlement agreement that protects athletes who were promised roster spots before the settlement takes effect, much like a “grandfather” clause. This should be an easy fix assuming there is additional funding set aside for those added roster spots.

Third, and connected to the first issue, is the duration, flexibility of the House settlement agreement. Again, this can be settled through a renegotiation period. The problem here is that it sets up a potential for litigation with regard to student-athletes creating a union and being classified as employees. More on that below.

What remains to be decided beyond and outside the House settlement are three issues. First is student-athlete employment status. Again, the O’Bannon, Alston, and House cases all dealt with antitrust law (e.g., promoting fair competition by prohibiting monopolistic practices, price-fixing, and other conduct that restrains trade or harms consumers). Northwestern University athletes did attempt to unionize administratively through the National Labor Relations Board (NLRB), but it was not through the courts. The students were unsuccessful, but a future lawsuit may have a different result.

Are student-athletes who play a sport part-time, while going to school full-time and receiving an education and scholarship, considered independent contractors, employees, or something else, like a student-athlete or new category? No legal case has dealt with the issue of NCAA student-athlete wages or union rights. However, Alston made it clear that education-related benefits could not be limited and health insurance is already covered, but what about typical employee-related benefits?

Second, is the settlement or a pay-to-play NCAA system compliant with Title IX (e.g., Title IX is a federal law that prohibits sex-based discrimination in any education program or activity receiving federal financial assistance)? NIL in the private market is surely Title IX compliant because private businesses that sponsor athletes generally to not accept federal funding like educational institutions do. Educational institutions like universities, private and public, often receive federal funding so paying athletes directly subjects those payments to Title IX scrutiny and means all athletes must be paid the same to be compliant, which may not be fair based on inputs and outputs. On other hand, if the U.S. Department of Education is disbanded, there may be changes that Congress might address in the definition. However, once the NCAA and the student-athletes crossover to a pay-for-play model they likely loosen their claim to Title IX as such principles in a capitalist market are rare and frowned upon with moneymaking sports being the preference.

Third, and related to the first issue, are related to wage and hour and labor standards. Much like the NFL is having to negotiate adding another game to the season, conference realignment, scheduling, and much more would be subject to litigation, review, and approval. The NCAA and student-athletes are in for a wild ride after House.

The above fails to mention that any model of paying athletes should require student-athlete contracts for a length of time—otherwise constructing rosters is impossible (and frankly less fun) and creates a power inequity in favor of the student-athletes that will only lead to more litigation. The NBA and NFL must also establish legitimate minor league systems and processes, while getting rid of the restrictions on declaring for the draft. Whether the above is settled through the courts, legislation, or negotiation is yet to be seen. Judge Wilken’s decision in two weeks or so from April 7, 2025, will set the course of the NCAA and student-athletes for years to come.

About Jeremy M. Evans:

Jeremy M. Evans is the Chief Entrepreneur Officer, Founder & Managing Attorney at California Sports Lawyer®, representing entertainment, media, and sports clients in contractual, intellectual property, and dealmaking matters. Evans is an award-winning attorney and industry leader based in Los Angeles and Newport Beach, California. He can be reached at Jeremy@CSLlegal.com. www.CSLlegal.com.