In our recent webinar, we explored the major changes impacting college sports due to the House Settlement. ESPN writer Dan Murphy shared insights on the financial challenges and new opportunities for universities, focusing on how schools are adapting to the new landscape. We discussed the differences between Power Five and Group of Five schools, the potential role of private equity, and the future of conference realignment.
The Future of NIL- 4:00
Some hypotheticals discussed over the past few years are now becoming a reality. Schools now have the authority to make NIL decisions, significantly impacting the economy of NIL and the recruitment of talented players. The House Settlement introduces a spending cap on athletes at $22 million. It’s still uncertain whether this will be a strict cap or a flexible one, potentially serving as a minimum threshold for wealthier schools and power conferences.
In the next 30-40 days, the fine print of the House decision will be released, providing clarity on the agreement’s details. A crucial upcoming discussion will center on whether NIL money will be split 50-50 between men’s and women’s sports, or if the majority will go towards football. If it’s a 50-50 split, the impact on football funding will be less significant compared to if the money remains within the collective. The football players may opt to remain in the collective and create some sort of bargaining agreement. Additionally, Murphy noted we must watch to see if the settlement faces any challenges in the next 4-5 months.
Decisions and Divisions- 8:45
Most northern schools are advocating for a 50-50 split between men’s and women’s sports, while southern schools favor directing the majority of NIL funds towards football and men’s and women’s basketball, with the remaining funds allocated to other sports. These decisions appear to be regionally influenced and shaped by the respective conferences.
Looking ahead, it’s possible that a conference or multiple conferences might collaborate to determine a unified approach. However, according to Dan, there is currently less communication within and between conferences than in the past. Conferences seem less inclined to come together to devise a future plan.
Compensation and Collective Bargaining- 10:50
The most effective approach would be a collective bargaining agreement. However, implementing this in college sports is challenging due to the disparity among football players in each conference, who have diverse interests and market values. Murphy notes that the creators of the House Settlement essentially established a collective bargaining framework without actual collective bargaining. They hope the settlement funds will be sufficient to deter athletes from participating in class action lawsuits.
When considering the class action figures, along with scholarships, stipends, and other funds, the total compensation athletes receive is comparable to what professional athletes earn—about 20% from revenue sharing and 20% from additional benefits.
Models and Liabilities- 13:00
The House Settlement will create a clear distinction between Power Five and Group of Five schools, as the latter may struggle to pay the settlement amounts due to their lower revenue. Most Power Five conferences will likely find ways to meet or exceed the $20 million figure, but there is significant disparity even within these conferences in terms of revenue and expenses.
As universities begin to operationalize these changes, Murphy predicts we will see a variety of approaches. Some may adopt an agency model, while others may opt for direct payments to athletes. Murphy believes it makes sense to keep third-party collectives involved, functioning as payroll managers. Functional collectives can aid in the recruiting arms race by acting as deal finders, securing local partnerships. Consequently, schools with more resources may benefit from these arrangements.
Murphy thinks it makes sense to keep third parties operating with collectives serving as payroll managers. He also thinks that having a functional collective helps with the arms race of recruiting by finding local partnerships. Schools with more resources will likely benefit more from these models.
New Trends- 27:00
While Murphy believes it’s too early to identify clear trends, he notes that schools are still grappling with the challenge of securing an additional $20 million. This funding may come from budget cuts or new revenue streams. People are more inclined to discuss facility upgrades than improvements to roster management tools. Moving forward, contract structures for each athlete will be reevaluated.
The NCAA is avoiding more antitrust suits by allowing decisions to be made at the campus level, fostering an open and competitive market for universities. However, some smaller conferences and schools are objecting to the terms of the settlement. The immediate need for funds may pave the way for private equity to enter college sports. Finding new revenue often involves attracting investors, making private equity a viable solution.
Murphy predicts that the next wave of conference realignment will involve conference consolidation, influenced by TV contracts. However, he believes the biggest challenge for college sports will be addressing employment issues. He thinks the NCAA is looking to Congress for a resolution on the employment front.
As we look ahead, universities must navigate these financial and regulatory changes carefully. Murphy emphasized the need for innovative revenue strategies and the possible involvement of private equity. The next few months will be critical as the details of the House Settlement are finalized and schools implement their plans. We will continue to provide updates on revenue sharing and in house models in our workshop with Kristi Dosh.