Lawyers for both parties submitted a revised agreement last Thursday to address the concerns Judge Claudia Wilken had about certain aspects of the settlement. The primary issue they needed to address was defining who would be included in the definition of third-party entities when paying college athletes.
The original agreement broadly defined third-party entities to include NIL Collectives, boosters, and virtually any business or individual that sought to compensate an athlete to play for their school. The amended agreement narrows that definition to focus more specifically on entities like NIL collectives and better defines “boosters” as an entity, group, or individual that has donated more than $50,000 throughout their lifetime.
The NCAA is attempting to eliminate the pay-for-play incentives and limit NIL payments for a valid business purpose. That has proven to be challenging after a recent ruling in Tennessee made enforcing any existing pay-for-play unenforceable. This new agreement, if accepted, will create a separate clearing house for all NIL agreements above $600 to be validated and approved. If a deal is determined to be pay-for-play or not for a valid business purpose, the deal could be rejected, and the athlete could be subject to penalties if they ignore the findings.
These new filings make it clear the NCAA wants to crack down on pay-for-play, which will increase the scrutiny on NIL Collectives and other entities that may be trying to game the system in favor of their school or program. It will also greatly impact the marketplace, as the level of reporting and tracking for athletes will be greatly increased.
What is a “Valid Business Purpose”?
If approved the House settlement could go into effect as early as July of 2025. As it stands today, athletes would be required to show they’re NIL activities constitute a “Valid Business Purpose” for the individual or business that pays them.
To paraphrase lawinsider.com, a valid business purpose is the motivation of business activity that, outside of the tax effects, improves the economic position of the tax-paying person or business.
To put it simply, athletes will have to show that they can bring value to the companies that sign them. It will likely be spelled out in the contract when they sign it. When and if the settlement goes into effect, the days of big payouts for very little work may quickly disappear.
It will also ramp up competition for deals at every level, and the athletes who can quantify real results will demand higher dollar deals. It has the potential to begin to level the playing field for more athletes, although the Power Conference programs will still have a massive advantage in resources and support.
What’s Your Value Proposition?
Any successful business has a clearly defined value proposition. It states the value or benefit they promise to deliver to their clients. For some that might seem straightforward - if their product meets a specific need that is easy to quantify - but what if 100 companies make similar products that meet the same need? Not so simple now. As an athlete, your value proposition needs to do two important things:
Be Specific: Tell them why you are better, different, and unique and how these qualities will benefit them.
Define your Why: Why do you do what you do? What motivates you? What values drive you? To quote Simon Sinek, “People don’t buy what you do, they buy why you do it.”
In a couple sentences, tell them specifically what makes you great, and the why behind what drives you.
What to learn more? Get the program here.
The New Definition of Boosters
In the briefs filed last week, individuals affiliated with a NIL collective, involved in the recruitment of athletes, or any other individual, group, or entity that has contributed more than $50,000 to a university’s athletics department will be defined as a “Booster”.
This has the potential to restrict large portions of the alumni base that currently powers the flow of money into NIL. Donors who have donated a couple of thousand dollars a year over the past two decades will fall into the same category as the high-profile retired NFL or NBA player. Since the definition includes your entire family, plus your business, you can see how $50,000 can end up in the rearview mirror pretty fast.
Once categorized as a booster, the NCAA through a third-party clearinghouse will be able to scrutinize NIL payments and determine if they violate restrictions on pay-for-play, something they have been unable to enforce since a Federal judge in Tennessee ruled against them earlier this year.
New Rules, New Paperwork
ADs and Administrators from D1 to D3 are all trying to figure out how to manage the implementation of the House settlement. Here are the key takeaways every program must consider:
NIL Reporting: Athletes must report third-party NIL contracts worth $600 or more through a clearinghouse database
Designated Enforcement Agency: The NCAA and power conferences will for an agency to determine if third-party NIL deals are “true NIL” and provide fair market value.
Pay-for-play: Deals that are considered pay-for-play will be denied or amended, and athletes who ignore these directives will face penalties.
Revenue Sharing: A revenue-sharing model will be established for athletes starting in the 2025-2026 academic year which will include TV contracts, ticket sales, and sponsorships.
Collectives: Collectives will act as marketing arms for the university and student-athletes.
The majority of the revenue sharing will be in the power conference schools, even though all of the requirements listed above will be applied to D1 schools starting in the 2025 academic year. The power conference schools are expected to have more than $20 million to spend on their athletic programs. As for the rest, they will have to figure out how to maximize the resources they have to comply with the new requirements.
For D2, D3, and NAIA programs, the House settlement does not impact them directly, although it may hurt their domestic recruiting, as many D1 schools will have a vastly greater ability to pay their athletes.