May 22, 2024

Brighton Journal

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Sources: New college athlete compensation model could cost power schools $300 million each over 10 years

Sources: New college athlete compensation model could cost power schools $300 million each over 10 years

SCOTTSDALE, Ariz. — With a bag slung over his shoulder and luggage in hand, Baylor football coach Dave Aranda descended the main staircase at the Hyatt Gainey Ranch after the annual Big 12 Conference meetings.

He dashed down the hall to say a quick hello and then out the door with a destination in mind. “I'm going to see the (Arizona) Cardinals,” he said with a smile. “You have to learn how to do all this!”

A visit by a college coach or official of a professional sports organization is not necessarily groundbreaking. But Aranda's visit — to learn more about roster management and pay scale — is indicative of the times.

The college sports industry is approaching the inevitable: the direct compensation model for athletes.

As industry executives continue to negotiate with plaintiff's attorneys in the House antitrust case, details of the future compensation model continue to emerge — a necessary part of any settlement agreement. Those who shared details were granted anonymity because they are not allowed to talk about the proposed settlement, which is still undergoing changes.

While negotiations have been active and have continued for up to eight months – this is not a new discovery within the industry – concepts for the proposed new model are becoming more formal as leaders work to meet a deadline set by lawyers.

The financial numbers are clear: for those attending power conferences, the price is high.

The 10-year settlement agreement could cost each energy school up to $300 million over the decade, or $30 million annually. This number assumes that the school meets what is believed to be: (1) a maximum revenue distribution for athletes of $17 million to $22 million; (2) At least $2 million of the NCAA's withheld distribution for back damages; and (3) up to $10 million in additional scholarship costs related to expanding sport-specific roster sizes – a concept not previously announced.

The $30 million price tag, a staggering number for an industry that has provided athletes with mostly non-cash resources, represents about 20% of the average athletic department budget for public schools in the ACC, Big Ten, SEC and Big 12.

But as I reported earlier this weekThe revenue-sharing portion of the new model is “permissive,” meaning schools are not required to reach the cap or share revenue at all. Schools will also have discretion to expand scholarships, or not, across the boundaries of the new roster expected to be implemented in all sanctioned sports.

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While the concepts are vague and questions remain, the framework of the new model is becoming clearer and socialized with senior officials across the four power conferences.

Meanwhile, the deadline – within the next 40 days – is fast approaching.

For months, the world of college athletics has prepared, or perhaps prepared, to remove the NCAA's century-old amateurism rules — whether through a hiring ruling, lawsuit settlement or state law change.

But there is still a shock in the numbers slowly seeping out of the negotiations.

Schools will have the opportunity to share millions in revenue with athletes with a spending limit similar to the salary cap of a professional sports team. It is estimated that the amount ranges between $17 and $22 million per program, although the amount may fluctuate. The number was determined by a percentage (about 22%) of the Power Four's athletic departments' average revenue streams, most notably ticket sales, television contracts and sponsorships — not donations.

Separately, the NCAA is responsible for paying about $2.9 billion in back-end damages over 10 years. The money, some of which could be offset by insurance payments, is expected to come from the NCAA's annual distribution to schools, mostly from the NCAA men's basketball tournament (over $700 million annually). Energy Schools expects to see a reduction in distribution of at least $2 million annually, but that number also could fluctuate significantly.

The ultimate financial concept for any new model involves implementing existing boundaries and expanding scholarships across those boundaries. For example, under current rules, the NCAA allows schools to distribute 11.7 scholarships across a 32-player baseball roster.

Under this new model, schools may now choose to offer a scholarship for each position on the roster — but many are tailored to that specific sport. The same applies to other sports, including football, which could see their roster numbers actually decline. The NCAA recently increased the maximum football roster for preseason camp from 110 players to 120 players.

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The cost of increasing scholarships is significant. Two power conference officials told Yahoo Sports they plan to add more than 100 additional scholarships at the expense of $9-10 million annually. A portion of additional grant expenses may count toward the revenue sharing maximum, but this is also a fluctuating number.

There are several major court cases that could radically change the distribution of revenue in college sports.  (C Morgan Engel/Getty Images)

There are several major court cases that could radically change the distribution of revenue in college sports. (C Morgan Engel/Getty Images)

Not every principal or school counselor agrees to settle the lawsuit and adopt a new model for it A variety of reasons are explained in this Yahoo Sports story Published earlier this week.

This topic has generated a lot of spirited discussion during meetings between conference presidents and athletic directors over the past year. Approval of any settlement would likely require a simple majority or supermajority vote of the Conference's Council of University Presidents.

Multiple sources tell Yahoo Sports that the Big Ten is most consistent in its desire to settle the lawsuit. But as one administrator said: “If one league stabilizes, we all stabilize.”

However, some conferences are exploring the possibility of capping their own league-wide revenue sharing at an amount lower than the $17 million to $22 million figure.

Is this a possibility? remains ambiguous.

But it is a stark reminder of the current budget gap between the ACC/Big 12 and the SEC/Big 10, which Future television contracts and College Football Playoff distribution will further increase this financial gap. Should the Big 12 and ACC have lower maximum revenue shares than the richer SEC and Big Ten? It's a question some people ask.

Some schools, even those in powerhouse leagues, may not have the resources to even afford half the maximum revenue shares. In a highly competitive industry, where talent acquisition is rooted in recruiting, offering a limited amount of money could further widen the gaps not only between the four conferences but within them as well.

“Some schools might say: ‘I’m out,’” one industry source said.

But there is new money coming. The CFP recently completed a television extension for ESPN that pays $1.3 billion annually to the conferences — 58% of which is allocated to the SEC and Big Ten (about $20 to $23 million per school annually). The ACC and Big 12 get about 15-17%.

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There are other options as well, such as reducing training and administrative salaries. Salaries and acquisitions account for nearly 40% of FBS athletic department budgets, according to data from the Knight Commission. Another 20% of budgets are related to facility construction, renovation and debt.

Already, schools are preparing to cut salaries. Within the contract of Missouri State's new athletic director, Laird Fitch, will include a “force majeure clause” related to potential changes to the financial model of college sports, according to the Columbia Tribune. The model changes could lead to his deal being renegotiated, according to the outlet.

Such a concept goes beyond the contract of sports managers. At one SEC school, officials at least tried to include a similar clause in hiring contracts for new coaches. The provision would result in a salary reduction if athlete revenue sharing is approved, according to two people familiar with the provision.

As one official quipped: “You can always find money.”

If a settlement is reached — it is not a guarantee — the revenue-sharing model would not begin until the fall of 2025, and could be delayed until 2026.

The timing and settlement depend, in part, on another antitrust case: Fontenot v. NCAA. This case seeks billions of dollars in damages for college athletes from broadcast television.

While the House settlement is expected to consolidate two other antitrust cases — Hubbard and Carter — the Fontenot case is an anomaly. House, Hubbard and Carter share the same legal team in Steve Berman, of Hagens Berman, and Jeffrey Kessler, of Winston & Strawn. Fontenot was brought on by the law firm Korein Tillery.

A hearing in Fontenot's case is scheduled for later this month, an important date in settlement discussions. Consolidating all four cases is ideal to prevent future legal challenges against the NCAA and the power associations.

How does this happen? It's one of many lingering unanswered questions as negotiations continue, as is the uncertainty surrounding Title IX (how will it be enforced?) and the future of NIL pools (will they all be brought in-house?).

What is certain: College athletics is running the clock more seriously than ever before.