HISTORY100 - Student Athlete Compensation

This blog is about the history of compensating college athletes - allowing them to be able to profit from playing sports, either from their school or a third-party donor.  After almost 70 years of demands and litigation, in 2021, the National Collegiate Athletic Association (NCAA) agreed to so-called NIL compensation, the use of an athlete’s name, image, and likeness, through marketing and promotional endeavors, including autograph signings, product endorsements, social media posts, and more.  And then on May 23, 2024, the NCAA and its five power conferences agreed to allow colleges to directly pay players for the first time in the 100-plus-year history of college sports.  These milestones mark a seismic change to the college sport business, but have left that business in chaos, because of so many unresolved issues.

 

I will start with the beginning of intercollegiate athletics in the United States in the 1850s, before the NCAA.  Next, I will cover the formation of the NCAA in 1906, and its early history and role, including athlete safety, scholarships as the first form of compensation for athletes, and the enormous growth of college sports that spurred demand for additional athlete compensation.  Then I’ll talk about the years of anti-trust lawsuits against the NCAA for NIL compensation for athletes, how NIL compensation was achieved and what it covers, and the recent agreement to directly pay student athletes.  I will finish by reflecting on what I’ve learned.

I will list my sources at the end.

 

Intercollegiate Sports before the NCAA 

Intercollegiate college sports began in 1852 with a Harvard-Yale regatta.  Harvard won, but its success was marred by questions about whether its coxswain was a current student.  Eligibility questions and charges of cheating are as old as college sports itself.

Other sports followed, with Williams versus Amherst in baseball in 1859, and the first track meet in 1873.  Football arguably began with Princeton against Rutgers in 1869, but that game was a hybrid of soccer and football, and is also considered the first college soccer game in America.  Three games were planned between the two New Jersey schools, but the deciding game was canceled over faculty concerns about distraction from academics.

With no consistent regulation, by the turn-of-the-century, football resembled a cross between a street fight and the trench warfare of World War I.  Protective equipment was virtually non-existent; players wore leather caps and almost no padding.  Lasting injuries were commonplace.  Roughnecks were admitted into Ivy League schools as ringers to beat up on the opposition.  Physicians stood ready on the sidelines. Punching, kicking, and choking were common strategies.  Players leaped on downed ball-carriers, and endless pileups featured slugging and eye-gouging.  The in-fashion play call was the “flying wedge,” where players would link arms, form a V and careen downfield, running over their rivals.  In 1905, college football caused 149 serious injuries and 18 deaths.  Many people felt that football should be abolished.

At the start of the 1900s, intercollegiate football was a very dangerous sport.

 

National Collegiate Athletic Association 

In 1905, the deaths and injuries from intercollegiate football caught the attention of President Theodore Roosevelt, who called for national regulation.  As a result, the Intercollegiate Athletic Association of the United States was formed in 1906, and in 1910 changed its name to the National Collegiate Athletic Association (NCAA).

In 1905, President Theodore Roosevelt called for national regulation of intercollegiate sports, leading to the creation of National Collegiate Athletic Association.

The NCAA was formed as a nonprofit organization to regulate student athletics, including guidelines to protect the safety of the athletes, and to organize athletic programs for colleges in the United States.  Early NCAA football guidelines doubled the yardage needed for a first down from five yards to 10, which made plunging down the field like a tank a less successful endeavor; created a neutral zone between the two sides of the line of scrimmage; banned the flying wedge by requiring six men on the line; and established the forward pass to spread the field, a change that gradually revolutionized the game.  The original NCAA constitution limited college athletics to “amateurs,” but without a definition of this crucial term. 

Prior to 1948, there were no real regulations to enforce the "amateurism" of college athletics.  Schools and their boosters offered all sort of benefits to high school stars to convince them to enroll and play football.  At the college level, some players would even receive bonuses for staying in school until their senior year.  All of this was considered acceptable at the time.

But in 1948, the NCAA unanimously passed what was called "the Sanity Code," a dramatic limitation of the benefits that athletes could receive.  The Sanity Code allowed for scholarships, but for tuition only, no room and board or other financial inducements, and called for expulsion of any member school that violated the rules.  There was no Committee on Infractions or other enforcement mechanisms.

Only three years later, however, “sanity” was redefined, after the NCAA proved unwilling to expel seven schools that self-reported violations of the code.  By 1956, full scholarships were allowed - tuition, room and board, books, and a few dollars for incidentals - but nothing more.

The issue of collegiate athlete compensation had been raised in another forum in 1953, in the University of Denver v. Nemeth court case where a University of Denver player got injured playing football and claimed that he was an employee of the university and was entitled to workers compensation.  In response, the NCAA said that college athletes can’t be compensated for such injuries due to the “amateurism” of college athletics.  The NCAA crafted the term “student athlete” to help in its fight against workmen’s compensation insurance claims for injured football players.  The term was meant to conjure the nobility of amateurism, and the precedence of scholarship over athletics.  The Colorado Supreme Court ultimately agreed with the school’s contention that Nemeth was not eligible for benefits, since the college was "not in the football business.”  Using the student athlete defense, colleges compiled a string of victories in liability cases.  By claiming its athletes to be amateurs, colleges avoided state and federal taxes and workers’ compensation payments to injured players.

This insistence on amateurism in intercollegiate sports generated circumvention through under-the-table payments as the sports got more popular and profitable. 

Note:  The Modern Olympic Games, established in 1896, also struggled with amateurism, starting in the 20^th century with a strict policy that all athletes be (unpaid) amateurs.  In 1986, the International Olympic Committee finally adopted rules that permitted professional athletes to compete in the Olympics.   See my April 30, 2024 blog on the history of the Olympic Games at https://bobringreflections.blogspot.com/2024/04/history96-olympic-games.html.

The growth of college sports had been accelerating since the end of World War II, as the GI Bill provided funds for far more Americans to attend college, growing an alumni and fan base.   Even more important, in the decade of the 1950s, the percentage of U.S. households with televisions jumped almost tenfold, from 9% to 86%.  There were only so many people you can fit into a stadium, but with TV, the sky was the limit.

The NCAA negotiated the first national football TV contract on behalf of colleges in 1952.  It was $1.1 million annually, and the price accelerated through the 1960s and 1970s, reaching $31 million annually by 1980 (the equivalent of $150 million in 2023 dollars).  Televised college basketball likewise began small, but experienced exponential growth in the 1970s and 1980s, with TV rights to March Madness growing from $500,000 annually in 1972 to $16 million per year in 1981.    

However, as college sports became more profitable, college officials and others, pointed out the unfairness of schools profiting massively off the accomplishments of athletes who were not allowed to earn a penny from their skills. 

 

The availability of substantial TV money also led to disputes among schools over who got that money.  In the late 1970s, the major football schools objected to the NCAA’s egalitarian approach to television, which limited how often individual teams could appear and required that appearances under the NCAA’s national TV contract be shared among at least 82 teams.

So, it was forced amateurism, contrasted with the vast and growing sums of money flowing to the schools from football and basketball, that generated growing opposition to the NCAA from athletes and the public, and resulted in antitrust law suits.

Antitrust Litigation

Note: The Sherman Antitrust Act, passed more than 125 years ago, prohibits contracts, combinations, and conspiracies that restrain trade, and monopolization.  It creates challenges to many big businesses, but particularly difficult problems for sports leagues, which almost by definition restrain trade - controlling how many games and teams there are, how much money can be paid and to whom (salary caps, rookie scales), and a variety of lesser restraints.

In 1981, 63 colleges with top-level college football programs, seeking to negotiate their own contracts with TV networks to televise football games, filed the first major antitrust suit against the NCAA.  Led by the Oklahoma State Regents, the schools were pressing for less NCAA regulation and more TV games overall, including many more for the most popular teams.

In the NCAA v. Regents of Oklahoma case in 1984, the U.S. Supreme Court found that the NCAA’s TV rules unreasonably restrained trade, and that competition would be better served by letting each school or conference negotiate whatever TV deals it wished.  The NCAA lost control of college football, and the big money earned thereby, and has never gotten it back. (By contrast, the NCAA still controls college basketball, and today runs its entire operations off the profits from March Madness.)

Although the NCAA lost the Regents case, its arguments about collegiate athlete amateurism resulted in an appended Court remark that “college football” was a particular brand in which the players “must not be paid.”  So, the NCAA had reason to believe that it would do better if amateurism itself were at stake.

Not surprisingly, after fans got to see the top teams more often, more total games were broadcast, and total TV money increased spectacularly. 

NIL rights for athletes were still decades away, but players in the 1980s achieved some group privileges, such as separate dormitories for athletes, and amenities like Clemson’s miniature golf course for football players.  Teams began to fly to games via charter planes (a perk that WNBA players have only recently begun to enjoy).  But cash compensation remained verboten, both from the schools and from the likes of Nike or a local business wanting the player to sign some autographs for a few bucks. 

Making an unforced error, and despite ever-increasing TV money, in 1991 the NCAA decided to cap the annual pay of the lowest rank of assistant coaches at $12,000.  The aptly named “Restricted Earning Coaches” rule was challenged in 1994 in a class action by Norman Law, a coach at Pittsburgh, and the NCAA got clobbered, and was forced to pay the qualifying coaches $55 million in damages. 

Importantly for athletes, antitrust law had crept closer to the subject of NCAA amateurism, because although Law’s case wasn’t about athletes’ rights, it involved an illegal “price fix” by the NCAA for people who toiled in college athletics, and bore much more resemblance to players’ financial grievances than the TV-based case.  If assistant coaches had antitrust rights, why not players?

The plot truly thickened in 2009 when former UCLA basketball player Ed O’Bannon saw his image in a video game and filed suit in federal court in Oakland.  His case was combined with other athletes’ suits to challenge two things: their inability to earn NIL money, and the NCAA’s caps on athletic scholarships. 

Claudia Wilken, Federal District Judge for the Northern District of California, presided.  She first brushed off the Supreme Court’s remarks about amateurism in 1981’s Regents, as non-binding background commentary.  Next, she concluded that the scholarship limits were an illegal price-fix.  But Wilken found the NIL issue difficult, and reached a compromise solution, allowing schools to pay their athletes up to $5,000 per year, to be held in trust until they finished school, in lieu of their NIL rights

O’Bannon’s win set an enormous precedent.  First, he convinced a federal court to use antitrust law to overturn, for the first time, the NCAA’s conception of amateurism; second, he won athletes the opportunity for full cost-of-attendance scholarships; and third, he secured athletes an opportunity for compensation for their NIL rights, albeit with a low ceiling.  (He also secured direct compensation for athletes who appeared in the video game, whose publisher, Electronic Arts, paid $40 million in a pretrial settlement.)

 

Former UCLA basketball player Ed O’Bannon paved the way for NIL with a fight in court.

The NCAA appealed.  In October 2015, the Ninth Circuit Court of Appeals affirmed Wilken’s ruling on scholarship coverage, but in a 2-1 vote overturned her NIL compromise.  The appeals court held that the NIL trust funds could not be imposed on the NCAA because the association could reasonably limit athletes’ benefits to those “tethered to education,” and NIL rights were not so tethered.

This “tethering” language was quickly adopted in another antitrust suit against the NCAA filed in 2014 by Shawne Alston, a football running back for the West Virginia Mountaineers, and other athletes.  Alston’s case challenged various aspects of the NCAA’s athletic compensation limitations.  Alston ultimately produced a $200 million settlement in 2017 and an order from the same Judge Wilken in 2019 that the NCAA must permit schools to offer academic-related benefits such as postgrad scholarships.  The NCAA appealed again, seeing this as just another way for schools to recruit athletes with promises of cash, or what it called “improper inducements.”

The NCAA fought long and hard to keep from paying collegiate athletes.

In 2019, California State Senator Nancy Skinner introduced a bill in the California Legislature, which permitted California college athletes to monetize their NIL without penalty from their schools, and threatened to force a showdown with the NCAA, which would otherwise suspend the athletes for amateurism violations.  The NCAA vigorously opposed Skinner’s bill, threatening to bar California schools from its championships. 

Skinner had crafted the bill narrowly to permit only NIL, and not salaries or other university-paid benefits.  Furthermore, the commonsense notion that athletes should be afforded the same economic freedom as artistically or musically gifted students caught on with both the legislature’s Democratic majority and, ultimately, the Republican minority.  Former college athletes testified in favor of the bill.  The bill passed both houses unanimously in September 2019, and Governor Gavin Newsom signed it.

Whether the NCAA would have blocked California schools from NCAA championships was never really tested, as Florida and more than a dozen other states followed up by passing similar NIL laws.

But as the NCAA pondered how to regulate NIL, a bolt of lightning struck from the U.S. Supreme Court.

Simultaneous with action in California, the NCAA had appealed Wilken’s decision in Alston all the way to the U.S. Supreme Court, hoping to stop the onslaught on amateurism.  On June 21, 2021 the Supreme Court unanimously affirmed the Alston decision, concluding that antitrust law required the NCAA to allow the schools to offer postgraduate scholarships, cash academic awards, and other education-related benefits if they wished.  The Court’s opinion began by rejecting the 40-year-old amateurism-friendly comments from Regents as nonbinding, just as Wilken had, and added that when “market realities change, so may the legal analysis.” The justices were talking about television money, and they found that, particularly in this highly profitable market, antitrust law required the NCAA to permit schools to offer their athletes valuable education-related benefits. 

But if the Court’s calm and straightforward main opinion frustrated the NCAA, Justice Brett Kavanaugh’s concurring opinion was its worst nightmare.  He sided with the students, and suggested that although the NCAA’s concerns could not be solved by bending antitrust laws to its purposes, they might be addressed by Congress, which could amend the antitrust laws, or by allowing the athletes to form unions.

The loss in Alston and the threats of more drastic action from Kavanaugh was a bombshell.  The Court’s language was so athlete friendly that the NCAA could foresee losing a challenge to any NIL regulations as a restraint of trade.

 

NIL Deals

Nine days after the Alston decision, on June 30, 2021, the NCAA announced that, as an “interim” policy, athletes in all 50 states could monetize their NIL. 

College athletes across the nation immediately began signing endorsement deals. The world of NIL quickly became chaotic, and the chaos was multiplied by liberalized NCAA player transfer rules that also went into effect in 2021.  Athletes desiring to transfer to another school previously had to sit out a year before playing for a new school, a serious deterrent, but that rule was withdrawn, and the number of players considering transfers boomed.  So many athletes wanted to test the transfer market that an online “transfer portal” was created where coaches could scroll through a compilation of available players on their cell phones.

NIL licensing deals generated several positive effects, as players were earning money commensurate with their market value.  Instead of leaving school early because of fear of injury or to turn pro, some athletes were staying in school longer because NIL money provided them a good living, and thus fans saw more continuity in their teams’ rosters. 

But the boosters, who had begun combining into larger groups called “collectives,” quickly added to the chaos.  The original concept of licensing deals had been known as “third-party NIL,” where athletes made agreements directly with businesses in a free and open market.  Now, boosters and collectives became middlemen to those third-party deals, saying, “Come to our school and get $300,000 per year.”  If the offer was accepted, the boosters would try to find NIL deals to fund it, but failing that, would pay the athletes themselves.  On rare occasions, the boosters have even failed to provide the promised funds.

Boosters and collectives brought many NIL deals in the millions of dollars.  And the lack of any required disclosure of NIL deals meant that the known deals might be just the tip of the iceberg.  It was possible that some other school or its boosters had bought its whole basketball team at inflated prices and just kept quiet about it.  But in this maelstrom, the NCAA remained cautious, issuing non-enforced “guidance” that frowned on university involvement in licensing agreements. 

 

Paying Student Athletes

Meanwhile, during this chaos, another antitrust lawsuit against the NCAA was about to further complicate matters.  Brought by Arizona State swimmer Grant House in 2020, the antitrust lawsuit is a class-action complaint alleging the NCAA and power conferences have conspired to suppress athletes' compensation.

Federal District Judge Wilken, whose previous rulings in NCAA cases paved the way for college athletes to profit from their fame and for schools to direct more money into their hands, again got the case.   A positive Wilken's ruling for the athletes could make more than 14,000 current and former college athletes eligible to claim damages.  Were the NCAA to lose at trial, it could be on the hook for damages as high as $20 billion.  The lingering House v. NCAA lawsuit was scheduled to go to trial in January 2025.

Federal District Judge Claudia Wilken’s rulings in NCAA cases paved the way for college athletes to profit from their fame and for schools to direct more money into their hands.

Note:  The majority of courts use some variation of a random drawing to assign judges.  At times, judges having special expertise can be assigned cases by type, such as complex anti-trust cases.  The benefit of this system is that it takes advantage of the expertise developed by judges in certain areas.  Presumably, this is how District Judge Claudia Wilken has been assigned all the notable NCAA antitrust cases over a period of 30 years.

With House looming in early 2025, the NCAA and its most powerful conferences, the Big Ten and SEC, began working on a settlement to avoid the trial.  The college sports industry wanted to avoid future antitrust lawsuits.

On May 23, 2024, the NCAA and its five power conferences (the SEC, Big Ten, Big 12, ACC, and Pac-12), approved the terms of a multi-billion settlement to resolved the House case and two other antitrust lawsuits, paving the way for the schools to pay athletes directly, marking a seismic change to the college sports business.

Settlement details include $2.77 billion in back-pay damages the NCAA will owe to past and current athletes, paid over ten years, dating back to 2016 for lost NIL earning opportunities.  In exchange, athletes cannot sue the NCAA for other potential antitrust violations and must drop their complaints in House and the other two open cases.

The settlement also includes future revenue sharing between power-conference schools and athletes, allowing each school to share up to roughly $20 million per year with its athletes.  It will be up to each school to decide how to distribute the $20 million.

The settlement terms must be approved by Judge Wilken, who is presiding over all three cases. That process is expected to take several months, and schools likely will begin sharing revenue in fall 2025.

If Judge Wilkens approves, there would be a period of roughly 90 days in which those in the retroactive damages class have an opportunity to opt out (perhaps to sue the NCAA for an even larger payoff), and those in the future revenue-sharing class can object to the terms of the agreement.  That’s followed by a final approving hearing, at which point, if the judge approves, the settlement officially goes into effect.

There are of course many other issues to resolve.  Among these are:

1.       How will NIL deals, “back pay,” and revenue sharing be regulated?

2.       What will be the role of the NCAA in the future?

3.       How will revenue sharing work?  Will all college athletes be paid?

4.       How will Title IX (equal pay for men and woman) be handled?

5.       Will student athletes be employees of the school?  Will/can they unionize?

6.       Will federal legislation be required?

The settlement is just the start.  Stay tuned.

 

Reflections

Here are a few of my thoughts:

Since 1906, the NCAA has been fighting tooth and nail to not pay college athletes, and to maintain their amateur status.  While amateurism may have been appropriate in 1906, it is not realistic in today’s world, where college athletes earn enormous amounts of money for their schools and conferences.  It’s just not fair!  The Olympic Games faced the same issue and resolved it.  It’s about time that the NCAA is being forced to do the right thing!

The chaos surrounding how to equitably regulate NIL deals and pay college athletes is very complex and is unlikely to be resolved completely in the near term.  Of particular note here is how to handle smaller, less-funded schools, and the myriad of scholarship athletes who compete in non-revenue producing sports such as swimming, wrestling, gymnastics, volleyball, and track and field.  The NCAA currently oversees more than 480,000 college student athletes who compete annually in college sports.

College sports will continue to expand and revenues grow, e.g., with women’s sports, international sports, and anytime-anywhere streaming of sporting events.

 

If you're not confused, you're not paying attention.
Tom Peters, Thriving on Chaos: Handbook for a Management Revolution

 

Sources

My principal sources include:  “How College Athletes Finally God Paid,” washingtonmonthly.com; “NIL timeline: How we got here and what’s next,” ajc.com; “Amateurism in the NCAA,” en.wikipedia.org; “History of Student Athlete Compensation and How the Future Will Look,” medium.com; “Friendly Reminder: The NCAA Invented The Term “Student-Athlete” To Get Out Of Paying Worker’s Comp,” insidenu.com; “History: The Sinful Seven,” vuhoops.com; “Everything You Need to Know About NIL,” iconsource.com; “SEC, Big Ten developing plans to share revenue with players in potential landmark change to college athletics,” cbssport.com; “The SEC and Big Ten are teaming up.  What does it mean for college sports?” washingtonpost.com; “What a possible multibillion-dollar NCAA antitrust settlement means for college sports,” “NCAA could face billions in damages with judge’s ruling in case,” and “NCAA, Power 5 agree to deal that will let schools pay players,” espn.com; “The Case Against Paying College Athletes,” aier.org; plus, numerous other online sources.