What Athletes Need to Know About the House Settlement

Last Updated on May 30, 2024

Disclaimer: This information is made available for educational purposes.  It provides general information and is not intended to provide specific legal advice. This information should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.

The NCAA and Power Five conferences have approved a settlement in the House case, but what does that really mean for current and former athletes?

Below I’m addressing some of the top questions from athletes on the House settlement.

Who is Getting Money from the House Settlement?

Both former and current athletes in Division I will be eligible to receive money as a result of the House settlement.

Former athletes: athletes who played from June 15, 2016 and November 3, 2023 are part of this settlement (if you played prior to that, you are not included but can bring your own action). They will split $2.8 billion (less 25-35% for attorneys fees) over 10 years. We’re hearing some of that will be divided equally, but the rest of it will be determined using a formula from a sports economist that takes into account the athlete’s market value.

Current athletes: it will be up to your schools to decide who is getting money and how much. Schools will be able to share up to $21-22 million per year, to begin (there are escalators after that to increase it alongside revenues). However, they can choose a lower amount or no amount at all. They can also choose who gets the money and how much, so it will vary from school to school.

What if you started playing after November 3, 2023 and are done before revenue sharing begins? I asked Steve Berman, who represented the athletes in this case, and it sounds like you might be left out.

How do Former Athletes Get the Money?

Before the judge finalizes the settlement, there will be a hearing where people will have the opportunity to raise any concerns before the court. If she then approves it, athletes can either opt into the settlement and accept the terms (which will foreclose them from bringing a case on the same issues) or they can opt out and preserve their ability to pursue claims on their own.

Athletes can sign up to receive updates from Hagens Berman (who represent the athletes in the case) on their site.

When Will Athletes Get the Money?

For former athletes, there will be an opportunity to opt in or out of the class after the judge has approved it. Right now, it sounds like a hearing on the settlement may not happen until early 2025. Once it’s approved and athletes opt in or out, payments will be made over a 10-year period.

For current athletes, we believe the earliest revenue sharing will begin is Fall 2025. The settlement has to be approved first, and schools have to determine who, among current athletes, they’ll pay and how they’ll calculate those payments.

Also, there may be some requirements you must meet to receive your payments. According to a report on the settlement, there will be a reporting requirement for third-party NIL deals you may be required to make before you’re eligible to receive your payout. There will also be a definition of “True NIL,” which will be based on a to-be-developed calculation of fair market value.

Will Schools Have to Pay Male and Female Athletes the Same?

Unfortunately, experts disagree on whether Title IX applies to the revenue sharing created under this settlement for current student athletes. You can read some of the detailed arguments here: 10 Questions Answered About the House Settlement.

You might think schools should just pay one flat fee to every student athlete, but (without getting into too many legal details) that could raise both issues with antitrust law and the IRS. If you’re really interested, my other piece on the House settlement is more detailed on this.

What Taxes Will Athletes Owe?

Yes, both former and current athletes will be taxed on the money received under this settlement.

“Athletes receiving NIL payments as broadcast royalties via 1099 will face self-employment taxes, plus federal and state income taxes,” said Katie Davis, a CPA at James Moore & Co. “Advance payments and potential refunds if they transfer add complexity.”

What about state taxes? Many have asked if the “jock tax” will apply as athletes travel to play in other states.

“State taxes will apply, though the extent is not yet known. At a minimum, taxes will be owed in the athlete’s home state and the state they attend school, if different,” said Davis.

Davis says states could decide to classify revenue sharing payments as pay-for-play or as otherwise earned within their borders as athletes travel to play in their state, the same way they do for professional athletes. The state where the broadcast origins from could also potentially have a tax claim.

“The NCAA could potentially implement guardrails to clarify that broadcast rights are not pay-for-play, and universities could lobby their state to protect their athletes from additional tax burdens. However, it would ultimately depend on each state’s fiscal policies and interpretations of tax law, and each state is different,” said Davis.

So, another item for which we need to all stay tuned. 

Do Athletes Need to Form LLCs?

For high earners, athletes might consider forming an LLC to help reduce tax liability.

“Forming an LLC might help, but a single-member LLC won’t change self-employment tax obligations,” Davis cautions.

“Electing S corporation status could reduce these taxes by allowing reasonable salaries and taking the remainder as distributions. Still, it might not be worth the hassle for everyone. If forming an LLC, athletes need to transfer their NIL rights to it to be able to receive NIL payments through it. Athletes should consult a tax professional to find the best strategy.”

Can International Athletes Get Money Under This Settlement?

I chatted with immigration attorney Ksenia Maiorova about how this settlement impacts international athletes. She said former athletes will be free to receive funds from the settlement. However, it’s more complicated for current athletes.

She says there’s one argument that there’s quid pro quo because the athlete is receiving a revenue share because they’re playing. She says this makes it “work” that requires employment authorization, meaning it wouldn’t be allowed under student visa rules.

However, there’s another argument that athletes are not doing anything they weren’t doing before this decision, they’re just making money for it now. Maiorova isn’t sure that can be a successful argument though, because the athlete is getting money while regular students are not.

Without federal guidance, we have no way of knowing which argument is correct right now. We also don’t know if or when that guidance is ever coming.

Will NIL Collectives Still Exist?

Athletes are still free to do the types of NIL deals they’ve been doing, and most believe collectives will continue to exist. This case was only about what the school owes you because of the revenue they make from broadcast rights, video games, etc. and the NIL money you were denied before the rule changes.

What’s Happening with Scholarship Limits?

Another interesting outcome of this case is that scholarship limits are being removed. The NCAA will set new roster limits, but schools will be free to offer full scholarships to every member of the roster. That will obviously play out differently from one school to the next.

Are Athletes Employees Now?

No, although there are other cases going on right now about whether college athletes are employees, this case didn’t address that issue. The payments under this are for the use of athlete NIL in broadcasts, video games, etc.

What Does All of This Really Mean for Female Athletes?

This is the top question I’ve received from parents of high school and college athletes over in my Facebook group for parents. I wish I had an answer.

As I noted above, even legal experts are divided on whether Title IX applies to revenue sharing. So, we have no idea if it will be implemented equally across male and female athletes. It won’t apply to the back payments, which are going to be divided partially equally and partially by a formula that takes market value into account.

As for scholarships, there are likely to be some adjustments on both sides of the gender lines. One of the most common comments after the settlement details became available was that baseball would be a key target for scholarship increases. Of course, that means there need to be equitable increases on the female side of the ledger as well.

A recent report showed many schools might already be out of Title IX compliance thanks to growing female enrollment numbers, so I think the removal of scholarship limits may be the prompting athletic departments need to reassess their financial aid allocations. If the report is correct, it may mean some meaningful increases in female scholarships.

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