Federal Court allows colleges and universities to directly pay student-athletes

A US federal judge granted approval Friday of a landmark $2.6 billion class action settlement that transforms college athletics by allowing schools to directly pay student-athletes for the first time in National Collegiate Athletic Association (NCAA) history, reported Jurist.

In a released statement, NCAA President Charlie Baker said, “This is new terrain for everyone… Opportunities to drive transformative change don’t come often to organizations like ours. It’s important we make the most of this one.”

The settlement resolves antitrust claims brought by  Division I student-athletes in a class action lawsuit challenging NCAA restrictions on Name, Image, and Likeness (NIL) compensation and athletic services payments. The case affects over 389,000 class members comprised of current and former student-athletes dating back to 2016.

The settlement creates multiple funds to pay out damages, the majority of which will be paid to class members made up of football, men’s basketball, and women’s basketball players. Within each sport, damages will be paid out based on the sport, conference, years played, recruitment ratings, and various performance metrics.

Friday’s settlement also requires the NCAA to enact new rules for student-athlete compensation over the next 10 years. Schools in the NCAA’s five largest (“Power 5”) conferences will supply benefits and direct compensation to student-athletes in amounts worth up to 22% of the average annual athletic revenue for participating schools. Revenue is estimated to be more than $20 million per school in the 2025-26 school year and over $19 billion in total for the 10-year period.

Shortly after Friday’s court ruling, it was announced that former Major League Baseball executive Bryan Seeley had been appointed to run the College Sports Commission, a newly-formed organization that will oversee student-athlete revenue distribution for the Power 5 schools.

The case involves a contentious legal history starting with O’Bannon v. NCAA. The 2015 case established that NCAA amateurism — a doctrine purported to maintain the fundamental character of collegiate sports — did not exempt the NCAA from federal antitrust laws. However, the court still allowed the NCAA to limit student-athlete payments to the full cost of attending college.

In 2019, California approved Senate Bill 206, allowing for student-athletes playing in-state to accept NIL compensation, and several other states passed similar laws the following year. A 2021 Supreme Court ruling further established that the NCAA was violating antitrust regulations by restricting athlete pay. In July 2021, the NCAA adopted an interim policy that allowed student-athletes to receive NIL payments while maintaining amateur eligibility. NIL payments are made by “Collectives” — independent organizations that fundraise money for the universities. 

Friday’s judicial approval came from Senior Judge Claudia Wilken of the US District for the Northern District of California. Wilken is the same judge who originally heard O’Bannon v. NCAA.

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