July 22, 2024

How NCAA, schools may navigate latest financial hit in college sports post-House v. NCAA settlement


LAS VEGAS — In times of financial strife, the NCAA and its schools have always found a way to navigate murky waters. 

In 1978, schools voted to split Division I into I-A and I-AA, consolidating power into the hands of legacy programs with the most brand value and TV juice. We know the two divisions today as FBS and FCS, respectively. 

Around that same time, the College Football Association formed. The CFA represented what essentially was the modern-day Power Five in TV negotiations. Value in individual conferences was found, which led to TV executives falling over themselves to secure broadcasting rights.

When money became scarce in 2006, schools voted to add a 12th regular-season game, basically another windfall of revenue for an extra home tilt. 

The BCS created a lucrative entity upon its inception in 1998 that carries through to today’s College Football Playoff system: an on-field championship for which networks are happy to pay top dollar. 

The enterprise now faces what may be the biggest financial crisis in its history, however. Division I is on the hook for the House vs. NCAA settlement that tip toes right up to the edge of the cliff as it pertains to athletes becoming employees. Players have enjoyed name, image and likeness income for the past few years, but the House settlement allows revenue sharing for the first time. 

Only a handful of athletic departments make money, and now the Power Four is about to be hit with approximately $22 million in revenue annually to be shared with athletes. 

“We’ve lost our voice of what college athletics is about,” Texas athletic director Chris Del Conte said recently. “No one wants to hear that, but only 2% of our student-athletes are going to go pro. The rest of them are going to be doctors, lawyers and great productive citizens.”

Disclaimer: Texas is possibly the richest player in that space. Del Conte can afford to write an eight-figure check back to the university each year. It can also afford every athlete benefit allowed by the House settlement. 

Everybody else is sort of getting by using creative manners. The collegiate model dictates that schools spend as much as they make. That’s why that money has to go somewhere, and usually it goes to coaches’ salaries and facilities. 

That’s about to radically change.  

“NIL, we should have been doing in the ’90s,” outgoing Ohio State AD Gene Smith said. “It took us seven years [of discussion] just to add cost of attendance. The revenue share we should have been doing for a long time.”

Money not only has be to raised post-House, it has to be reallocated to athletes like never before. CBS Sports spent last week taking the temperature of a transitioning collegiate model at the National Association of Collegiate Directors of Athletics (NACDA) convention.

The nation’s top ADs, administrators and thought leaders were in Las Vegas at a crucial time. They had many questions but few answers. A vision of the future began to emerge, though. These are unprecedented times for athletic departments to be facing that financial strife. That shouldn’t be viewed as a negative, however, because athletes have long been underserved. 

The future will be all about them gaining traction, power and money. The system is transitioning from being a paternal one overseeing those athletes to partnering with them. 

Here’s a peek at how that future is beginning to look. 

Gene Smith, set to exit his post as Ohio State AD, has been a crucial figure in the college sports landscape. 
Getty Images

The Ohio State plan: At age 68, Smith is days away from retirement. However, his counsel is still sought. Smith didn’t get to the point of running a football powerhouse and the largest athletic department in the country sponsoring 36 sports without having his own vision.

At Ohio State, that includes “stratification” of sports in the future. The term is also known as “tiering,” where the future reallocation of funds will cause some sports to be deemphasized. 

At the bottom end, some Ohio State sports will be non-scholarship, which means no financial aid. 

” … No summer school aid, no Alston aid, low salaries for coaches,” Smith told CBS Sports. “You change your expectations [because] you’re not going to pay the same. It’s a whole series of different things to save dollars.”

Those deemphasized sports will play more regionally, likely traveling by bus instead of flying. 

After that, the middle tier will be a mix of scholarship and non-scholarship sports. Currently, the NCAA allows full roster scholarships in only five sports: football, men’s and women’s basketball, women’s volleyball and women’s tennis. The rest are so-called “equivalency sports” where scholarships can be shared across a spectrum.

With the House settlement, schools will have the option of fully funding sports like baseball that previously had to spread 11.7 scholarships over a roster of 35.

The top tier will be fully funded, of course, starting with football, basketball and whatever the third-most popular sport is in any given conference. 

“Then you have to pick what you’re good at historically,” Smith said. “[In evaluating how to prioritize sports], you start with how many schools in your state sponsor that sport. How many Big Ten schools sponsor that sport? How many NCAA teams are there?”

After the 2029 fiscal year, Ohio State is estimated to save $8 million per year with those moves. (The savings won’t hit until 2029 because current scholarships will have to run their course.) The money could be rolled over into paying for some of the revenue sharing payouts. 

Ohio State will not be alone in stratification. It has been talked about in college sports for a while. Smith said there is no plan to cut sports at Ohio State, but other schools will have to make their own decisions. Those that have recently cut sports have faced legal challenges and moral outrage from parents, supporters, etc.

“You may have some schools where they can drop sports, but we’re going to have to stratify,” Smith said. “Then you’re going to have to change expectations … Philosophically, every sport is chasing championships.”

Perhaps not anymore. 

End of the sports sponsorship minimum: As a result of financial pressures, next up on the chopping block may be the NCAA mandate that schools sponsor a minimum of 16 sports. That number was inserted years ago in part to address gender equity; a certain percentage of those sports must be offered for women. But the number increasingly looks arbitrary, especially as the NCAA’s power continues to diminish and schools get more autonomy on balancing the books. 

The thinking goes: As long as schools can adhere to Title IX, then they should be able to sponsor as many, or as few, as they feel appropriate. Word circulated at NACDA that the NCAA Council — the association’s chief day-to-day administrative body — may have considered at least reducing the sports sponsorship minimum.

“The NCAA minimum is probably going to change,” Smith said. “It’s probably going to go lower. You’re probably going to see some conferences have to decide, ‘Are we going to keep this many championships?'”

Coaches have lost credibility: Roster caps as a money-saving fix are all the rage post-House. They’re being considered in place of scholarship limits to reduce costs in a climate where some schools have rosters approaching 150. Roster caps would essentially end the concept of walk-on, non-scholarship players who frequently are practice fodder. Coaches argue that walk-ons are needed to help develop players. 

They have not backed up their argument. The first scholarship limitations (105) were implemented in 1973.

“Joe Paterno and Tom Osborne got up [then] and talked about how football was going to die,” Smith said.

In 1994, the limit was reduced to 95. A few years later, it dropped to 85, where it stands today. 

“The game is still great,” Smith noted.

A quick canvas of Power Four conferences over the past three weeks revealed they are considering anywhere from 85-120 for their roster caps. The irony (outrage?) is that the sport that funds those aggrieved minor sports listed above is being asked to cut back. Stay tuned. 

Private equity workaround: The Big 12 rocked the college sports world last week as CBS Sports reported the league was considering a private equity play. Such a move would push the Big 12 closer to the SEC and Big Ten in terms of revenue. So much so that it conceivably might interest the likes of Florida State, Clemson and others if they are able to extricate themselves from the ACC. 

But what if the Big 12 — or other conferences — were able to pull off a bolder move? What if they were to funnel some of that private equity money through the conference itself as a way to avoid Title IX gender equity laws. As it applies in this case, schools must provide scholarships that reflect the rate of participation in an athletic department.

Example: If women make up 54% of a school’s sports participants, between 53-55% of the scholarship money must go to women.

Skirting Title IX would conceivably be a tremendous recruiting advantage. A school could theoretically award an overwhelming share of that revenue money to football and basketball players without Title IX consequence. 

“I’m not confident that approach will generate the most goodwill,” said Alexis Trumble, a Title IX gender equity attorney based in Atlanta. “It’s certainly not in the spirit of equity, but there are certainly some schools that are going to try it.

“I don’t have a problem with private equity,” she added. “I have a problem with people trying to skirt federal law.” 

Big 12 commissioner Brett Yormark may use private equity to keep his conference near the top tier in this new era. 
Getty Images

No light at the end of the legal tunnel: Few are acknowledging the possibility of Judge Claudia Wilken not approving the forward-looking piece of the House settlement, perhaps as early as next month. Len Simon is, though. 

The veteran litigator of over 100 antitrust cases says Wilken’s approval “is not a foregone conclusion.” The part of the settlement to which he’s referring covers the revenue sharing aspect where the Power Four schools each fund up to $22 million per year for the next 10 years to pay players. The problem already noticed by many is the cap on the amount, which is on its face seems to be more antitrust.

“It’s a new price fix at different level,” said Simon, a Southern California-based attorney who has been working class-action cases since 1974. “I think you see what my frustration with it is. It’s not a union, it’s not Congress. It’s not anything that’s been anointed to meet with the NCAA, which has the interests of the schools at heart, and be across the table on the other side and have the interests of the athletes at heart.” 

This is a criticism that has emerged in the House settlement. No actual athletes had a voice in the final settlement, a decision that will affect them for at least the next decade. 

“You usually don’t rejigger an industry [with such a decision],” said one veteran antitrust attorney who preferred to remain anonymous. “Who is protecting athletes in the ninth grade? Nobody.”

Lead House attorney Jeffrey Kessler told CBS Sports last month the settlement “should resolve all the antitrust issues. There are non-antitrust issues.”

Several, actually. There are two National Labor Relations Board on the West Coast that seek to recognize athletes as employees. In Pennsylvania, Johnson vs. NCAA seeks much the same thing. In March, a North Carolina tennis player sued the NCAA over prize money restrictions. 

Last week, the national championship-winning 1983 NC State basketball team sued over backpay for NIL benefits. What’s to keep any championship team of note in any year from doing the same? CBS Sports surveyed a few attorneys on the subject. Their conclusion was another Pandora’s Box opened up with similar lawsuits was certainly possible but those type of lawsuits weren’t necessarily winnable.

But as we’ve learned through all this, that’s not necessarily the point. The NCAA is like a battleship riddled with shells right now. Simply suing the entity could sink it. 

Remember, some of that settlement money will be taken out of the NCAA Tournament distributions to schools. Group of Five administrators who spoke to CBS Sports were upset they were included in the House settlement. But they were “guilty” by association just being an NCAA member. The House plaintiffs sued the Power Five and the NCAA. 

“There is a lot of consternation from the Group of Five institutions who did not have a seat at the table,” Trumble said. “You are now on the hook for industry changes that you were not necessarily given an opportunity to weigh in on.” 

Those 62 schools are now liable for paying some undetermined amount of money in the settlement. The average Power Five school had a $98 million budget in 2022 compared to $33 million for the Group of Five. 

This week, Les Miles sued the NCAA, LSU and National Football Foundation claiming vacated wins from 2012-15 have eliminated his chance for a College Football Hall of Fame induction. The suit, however, contains a couple of inaccuracies.

But as we’ve learned in the world of dueling lawsuits, that’s not the point. Someone, somewhere is going to have to defend that suit. Meanwhile, schools continue to find a way to navigate the financial windfalls.

“It’s going to be a really interesting next few years as we try to shake out what this means on the ground,” Trumble said. “Because right now it’s a fabulous law school hypothetical. But we are not playing with Monopoly money. We are not playing with Lincoln Logs. We do not have machine-generated employees.”





Source