Landmark $2.78 billion settlement with NCAA over student-athletes payments hits potential snag

A federal judge on Thursday probed the terms of a proposed $2.78 billion settlement of antitrust lawsuits against the NCAA and major conferences and revealed a potential snag in the deal, questioning whether payments to college athletes from booster-funded organizations should be restricted.

"I'm quite concerned about those," U.S. District Judge Claudia Wilken said during a preliminary approval hearing that was the first step of a lengthy court process that could lead to college athletes getting a cut of the billions in television revenue that flows to their schools.

Attorneys representing plaintiffs, the NCAA and parties challenging the settlement appeared via video conference in front of Wilken, who was presiding from the court in Oakland, California.

The NCAA and the power conferences agreed in May to settle House v. NCAA and two similar case cases that challenged compensation rules for college athletes.

The deal calls for the NCAA to foot the bill for nearly $3 billion in damages paid to former and current college athletes who were denied the right to earn money off their name, image and likeness, dating to 2016.

As part of the settlement, the conferences agreed to a revenue-sharing plan that would allow each school to direct about $21 million annually to athletes for use of their names, images and likenesses, starting as soon as next season - if the settlement receives final approval.

Wilken didn't rule on the request to grant preliminary approval of the deal. She told the NCAA and planitiffs to "go back to the drawing board" to address issues she raised in an addendum to the settlement agreement and report back to her in three weeks. An exact date for another hearing and for her to make a ruling wasn't set.

The deal also takes aim at reining in so-called NIL collectives that have sprung up around major college sports, paying millions to athletes, since the NCAA lifted its ban on athletes being paid for sponsorship and endorsement deals.

The settlement allows for enforcement of current NCAA rules banning third-party pay-for-play to athletes and payments being used as recruiting inducements, though under the terms outside arbitrators would determine if rules were violated.

"Our position is that pay-for-play is prohibited," NCAA attorney Rakesh Kilaru said.

"Well, but in this House settlement, if it is approved, you will be explicitly paying for play or allowing schools to pay for play. So that no pay-for-play thing is kind of not going to be there anymore, is it?" Wilken asked.

Kilaru responded: "There's still going to be a prohibition on pay-for-play, and there's discretion for schools to make payments as they see fit under the new regime."

"And that won't be pay-for-play?" Wilken inquired, incredulously.

NCAA rules do define who would be a booster and try to distinguish real business deals from NIL payments that are just a stand-in for a salary, but Wilken questioned whether it was possible to draw distinctions while still allowing athletes to cash in on their fame.

"Is having your team win a valid business purpose?" she asked.

Plaintiffs' attorney Jeffrey Kessler said they didn't expect third-party payments from NIL collectives to decrease because of the settlement. "If anything, we think they are going to increase," he said.

Kilaru insisted the ability to regulate boosters and collectives was essential to the settlement. "Based on your comments today, we have to talk about whether we have a deal," he told Wilken.

Wilken raised other questions regarding notification to the former and current college athletes who can claim damages and who would represent athletes who want to challenge terms of the settlement and the restrictions.

She mostly dismissed lawyers challenging the settlement on the basis that it did not provide enough damages. "Everybody thinks they can get a better deal," she said.

She also seemed unswayed by objections raised by a group of female former Division I athletes who claim they won't receive a fair amount of the damages, which will mostly go to football and men's basketball players.

Wilken said that was a sexual discrimination issue covered by Title IX but not applicable to an antitrust case.

Preliminary approval from the judge would allow the plaintiffs as soon as two weeks later to begin notifying thousands of former and current college athletes that they are eligible to claim damages or object to the terms.

The NCAA and college sports leaders are already working on how to implement the revenue-sharing plan - including bringing in a third-party to manage enforcement of some terms. Preliminary approval creates a modicum of certainty, but the work of implementation will still have to be done while waiting for final approval from Wilken.

The NCAA announced Thursday as the hearing was going on that the Division I Council had discussed making changes to eligibility rules, expanding athletes' access to agents and no longer having athletes sign a National Letter of Intent when they officially commit to a school.

But the NCAA needs the settlement to be approved to implement these changes and the soonest final approval could happen is 150 days after notices go out to members of the class.

"It's seems to me likely enough that there will be a settlement, even if there's some changes to what's been agreed to so far," Wilken said.

CBSSports.com's Dennis Dodd wrote earlier this week about speculation that the proposed deal could lead to a major shakeup in the governance of college sports.

"The 'big breakaway' now seems to be right around the corner," he said. "It's been hinted at, speculated and discussed for years: a growing possibility of some combination of the power conferences detaching themselves from the current NCAA structure. The concept has never been more likely."

He went on to explain that it would be because terms of the pact could simply put needed funding out of reach of many schools.