NCAA paves way for direct athlete payment
The NCAA breaks their silence on NIL, recommending a new subdivision
NCAA President Charlie Baker sent a letter to the NCAA member schools on Tuesday proposing the creation of a new subdivision of Division I that would allow schools to directly compensate their players, according to The Athletic’s Nicole Aurebach.
This letter from Baker is the first attempt at regulating Name, Image and Likeness (NIL) by the NCAA. Previously, they had been lobbying Congress to make a ruling to govern the practice across the sport, but have now taken matters into their own hands.
Understandably, this is a huge step for the NCAA and college athletics as a whole. Student-athletes have been clamoring for NIL payments for years, dating back further than the landmark O’Bannon v. NCAA (2015) Supreme Court decision and the more recent ruling in Alston v. NCAA (2021), which paved the way for NIL legalization.
What did Baker propose?
Baker’s proposal, which he calls a “forward-thinking framework” for NIL at the Division I level, has four recommendations:
The formation of a new subdivision of schools that will directly compensate student-athletes through an “enhanced educational trust fund.” This fund requires schools to commit $30,000 annually to half of the school’s eligible athletes, and is on an opt-in basis. The fund would fall under Title IX, meaning that monetary opportunities will be equally available to male and female student-athletes.
Members of the new subdivision will have autonomy on creating rules relating to scholarship limits, roster size, transfers, and NIL.
Any Division I school, not just the members of the new subdivision, will be able to directly enter into an NIL deal with their athletes.
Any Division I school would be able to give uncapped funding to student-athletes relating to educational benefits.
Baker also ended his letter with a request for feedback from the Division I member schools, so this is in no way the final product of the transformation committee or the NCAA. It is the NCAA’s first proposal on the topic, and a dramatic shift from where they were under Mark Emmert’s regime.
How would a new subdivision work?
We can assume that the new subdivision would go one of two ways: 1) like the Power Five and Group of Five split, or 2) like the FBS-FCS split.
FCS-FBS Model
The FBS-FCS split is the easiest to follow, so let’s start there. Division I football, but not any other sport, split down the middle into two subdivisions in 1978: Division I-A and Division I-AA. With the advent of the BCS, the two subdivisions took their current names in 2006: the Football Bowl Subdivision (FBS) and the Football Championship Subdivision (FCS).
Most everyone is familiar with FBS football. That’s the one that has all the big schools: Ohio State, Alabama, USC, Texas, Michigan, Florida State. You get the point. They have the College Football Playoff to determine their championship. The FCS is a tier below that and is ruled by mid-major schools like Montana, North Dakota State, Sacramento State, and includes most HBCUs like Jackson State, Florida A&M, and more.
The two divisions split on a similar line as this would: because of resources. Many smaller schools can’t keep up financially with the Alabamas and Georgias of the world, and they couldn’t then. So, the NCAA split the divisions and imposed requirements for placing a football program in each one, just like schools have to meet certain requirements to be in their division. To enter the FCS, schools have the following restrictions:
A maximum of 63 full scholarships
Pretty easy, right? Now, let’s get to the FBS, the one you all know. FBS entry has the following requirements:
A maximum of 85 full scholarships to the football program
90% of those 85 scholarships must be provided over a two-year rolling period
15,000 home attendance over a continuous two-year period
16 athletic programs
$4 million or 200 total scholarships provided to athletes.
That’s a lot more stringent, but the bigger schools can afford to pay it.
Now, in practice, the two subdivisions are essentially separate entities. They have their own postseasons. They play a bit, but they largely keep to themselves. Just this year, there were 118 games played between FCS and FBS teams. For reference, there are 133 FBS programs.
But, Baker’s proposal says that the new subdivision will compete with the remaining DI schools for Division I championships, so this split isn’t likely. But if that’s not the route the NCAA wants to go, what is?
The “Autonomous Five” Model
The other, muddier, less known subdivision is actually pretty well-known. You just know the split by a different name than “Autonomous Five.” Maybe Power Five or Group of Five rings a bell?
That’s right, there is an actual division between the Power Five and Group of Five, and it’s not just some quasi-split to justify watching Iowa-Nebraska over a great G5 game because “I only care about the good football.” It’s actually an NCAA-designated division. Crazy, right?
In 2015, the NCAA held their annual convention. What’s usually not a big deal generated massive headlines when the organization granted autonomy to the biggest conferences: the ACC, Big Ten, Big 12, PAC-12, and SEC. That ruling essentially gave the Power Five, or “Autonomous Five” as defined by the NCAA at that meeting, the ability to make decisions autonomously and without consideration from other conferences.
We haven’t seen too many rule changes come out of this, outside of a transfer-related rule change the Autonomous Conferences made in 2018. This rule change allowed the Autonomous Five to cancel a student’s scholarship when they notify the school of an impending transfer. This was in the wake of the NCAA’s rule change to allow student-athletes to transfer out of a program without asking permission from their current school, which began the portal era we’re currently in.
But let’s focus on the field. Not much has changed, right? Cincinnati still made the playoff in 2020. Power Five and Group of Five games are just as common as they were before. The bowl system is intact as we’ve seen it. For all intents and purposes of most college football fans, everything is playing out according to the status quo.
I believe that the new subdivision will increase the divide between the Group of Five and Autonomous Four, now that the PAC-12 doesn’t exist, but it doesn’t necessarily lead to a clean break away that many anticipated. Instead, we’ll just see more of the high-level talent choose to go to the Autonomous Four schools in the new subdivision. And that’s something we already see a ton of.
How do the payments work?
That’s something we don’t have a lot of details on, especially since Baker’s letter was only a proposal or “framework,” as he called it. But, we can lean on what he said in the letter and how that applies to what we have now.
The easiest one to look into is the uncapped educational benefits allowed to students. Educational benefits have always been afforded to student-athletes, but the Alston v. NCAA (2021) decision increased the spending cap for universities up to $5,980 per athlete, in line with on-field bonuses athletes can earn.
Another easy one is the autonomy clause added. We can assume that this will supersede the Autonomy Clause voted upon in 2014, and will work much the same way. So, not much change there.
That leaves us with the two big ones: direct payments to athletes and direct NIL deals with student-athletes.
Let’s start with the latter. Currently, schools are not able to engage in NIL deals with their student-athletes, or even broker them. This is circumvented a lot of times by having knowledgeable boosters broker the deals, or more popularly, having an official collective that will set up the deals, much like we saw with Hail! Impact in the story linked above.
Collectives already rake in the donations, but an IRS decision in June ruled that most were not tax deductible. Baker supported the decision, which effectively hamstrung the fundraising powers of these collectives. You know what is tax deductible, though? Donations to a schools athletic endowment fund.
With schools able to directly enter into NIL deals with athletes, I believe a lot of these collectives will start to fall into a downturn. They’re not needed, and donations to them have taxes. Instead, we could see something similar pop-up in athletic departments across Division I, not just in the schools moving to the new subdivision.
With that settled, we can move to the biggest, most newsworthy point here: that schools can directly pay their athletes. But first, let’s break down what this means further:
Payment comes from an “enhanced educational trust fund.”
Schools must commit at least $30,000 per athlete for half of their student-athletes in the fund.
The fund—and payments—would be regulated by Title IX
The big question that I have from this is where does the money for this “enhanced educational trust fund” come from? We’ve already discussed that most athletic departments lose money in the below article relating to the death of the PAC-12 and how it affected the leftover schools financially.
If we take that $30,000 number and apply it to, say Michigan, which has “over 900 student-athletes” on campus. $30,000 committed to half of those athletes (450+) comes out to an annual expenditure in excess of $13.5 million. Michigan projected a $0.2 million revenue surplus in the 2023-24 fiscal year. Where does this money come from? If a school with as much perceived money as Michigan doesn’t have the space in the budget to pay their student-athletes $13.5 million annually, where does it come from?
The answer comes from an earlier point: collectives. Collectives serve no purpose, but the athletic department can fundraise in a tax deductible manner to reclaim that $13.5 million.
With schools able to directly enter into NIL deals with athletes, I believe a lot of these collectives will start to fall into a downturn. They’re not needed, and donations to them have taxes. Instead, we could see something similar pop-up in athletic departments across Division I, not just in the schools moving to the new subdivision.
General understanding seems this decision revolves around payments in two sports: football and men’s basketball. Those athletes drive the most revenue, so they get paid right? Not so fast my friend!
Baker was careful to mention that these payments would be governed by Title IX, ensuring that the direct school-to-athlete payments have to be equitable across genders.
In order to stay in compliance under Title IX, schools have to provide equal opportunity regardless of sex. This includes:
Benefits, opportunities and treatment of men’s and women’s teams
How a school awards scholarships and financial assistance
How a school meets the athletes’ interests and abilities
We can assume that the payments would fall under the second point. That means that for every dollar committed to, say, a football player, another dollar has to be committed to a female athlete.
So no, this won’t be just a football and men’s basketball issue. This is far-reaching, encompassing all of college sports.
So what’s next?
The next steps are really just one: work through the kinks of the proposal.
That’s what this really is at the end of the day. A proposal. All the Division I schools have a chance to offer feedback on Baker’s proposal now. I’m sure that once everyone says it’s a decent start, it’ll get sent to some subcommittee for fine-tuning.
NCAA regulations take time. They don’t just appear overnight. But this is a big step. One that shows the organization is finally ready to broach the topic of paying athletes. Which is the right step.
A new subdivision sounds scary. It conjures up images of super conferences, developmental leagues, and the end of amateurism. In reality, it’s not much of a difference than what we have now.
Isn’t it better that NIL is regulated by the schools instead of third-party collectives? Isn’t it better that the funds to pay student-athletes are handled by universities?
But, we still have to consider other impacts it will have on student-athletes. $30,000 a year is a big amount. Big enough to impact a student’s financial aid. How do these payments work in relation to scholarships? In just football, we have a lot of student-athletes come from disenfranchised situations. They require financial aid. Does an extra $30,000 on top of their family’s income move them up to the next financial aid bracket? If they lose out on some financial aid, can they even afford to get into school?
There’s a lot that needs to be ironed out to make sure that these new rules don’t negatively impact student-athletes. Baker’s proposal is a good framework, but there’s still a lot of work to do. The schools will iron out what they feel is acceptable. Remember, the NCAA is made up of member schools. If Baker feels like he can propose this, he assumes his members will accept it. There’s enough movement within the schools to move towards direct payment to athletes. It’s coming, and the NCAA needs to make sure it’s implemented correctly. Otherwise, student-athletes are going to suffer.