Readers undoubtedly were interested to hear the news last Friday that the presiding court had approved the settlement in the long-standing lawsuits against the NCAA regarding student-athlete payment. Among other things, the settlement could usher in a new era that will allow colleges to directly pay their student-athletes. In the following guest post, Sarah Abrams, Head of Claims Baleen Specialty, a division of Bowhead Specialty, takes a look at the settlement and its background, and considers the possible management liability implications for universities. I would like to thank Sarah for allowing me to publish her article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is Sarah’s article.
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On Friday, June 6, 2025, the In Re College Athlete NIL litigation settlement (“House Settlement”) was approved, with Exhibit B, Appendix A providing terms of engagement for universities to directly pay college athletes. While allowing pay-for-play is certainly the headline of the House Settlement, the injunctive relief of the settlement includes guardrails for universities, subject to enforcement by emerging public and private governing bodies. Notably, in May 2025, the President signaled that he wanted to put together a presidential commission on college athletics, and, within hours of the House Settlement approval, the Power Conferences (ACC, Big 12, Big Ten, Pac-12 and SEC) announced the newly established College Sports Commission.
Given the new and involving regulatory framework for oversight of student athlete NIL deals, there may be potential increased management liability exposures for universities, their executive leadership and board, stemming from direct recruiting, marketing, and contract negotiation of financial deals with student athletes. The following discussion includes the brief history of NIL and the In re College Athlete NIL litigation, as well as summarizes various House Settlement provisions and potential unintended legal consequences for universities stemming therefrom.
Name Image Likeness (NIL) refers to a person’s legal right to control how their image is used, including commercially. Student-athletes had long been prohibited from making deals to profit from their NIL.
After the US Supreme Court held in NATIONAL COLLEGIATE ATHLETIC ASSOCIATION v. ALSTON ET AL (“Alston”) that the NCAA could no longer restrict member institutions (universities) from offering education-related compensation and benefits to student-athletes, Collectives, largely created by donors and organized as nonprofits, were quickly created. Either structured as for-profit or non-for profit, Collectives, almost immediately began directly negotiating with and entering into NIL deals with prospects after the Alston was decided because there was no affirmative ruling that universities could directly pay student athletes.
Separately from the Alston, the In Re College Athlete NIL litigation was filed initially as House v. NCAA; a lawsuit brought in the 9th circuit by Arizona State swimmer Grant House and consolidated with two other NIL related cases brought by former student athletes. House sued the NCAA and its largest conferences (ACC, Big Ten, Big 12, Pac-12 and SEC) over refusal to share TV revenue with college athletes, among other issues. The injunctive relief outlined in the House Settlement and the ways in which the settlement could give rise to university management liability issues is discussed here.
As an initial matter, the House Settlement does not contemplate future legal actions involving any “Member Institution” that directly enters into a NIL contract with an athlete. “Member Institution” is defined as any college, school, or university that is a member, in any sport, of NCAA Division I and/or a Conference [Defendant], together with any entity owned, controlled, funded, or operated by said college, school, or university (or any division or department thereof).” Rather, the House Settlement states that Member Institutions may act as the marketing agent for the student-athlete with respect to third-party NIL contracts, with the caveat that a parent, guardian, lawyer, or other competent representative may assist the student-athlete in discussions regarding a NIL deal, unless the student-athlete waives representation in writing. Therefore, the agreement specifically provides that a university can “pay [a student athlete] for [them to] play” for a university athletic team.
One initial concern that a Member Institution may have, especially in the wake of the recent cancellation of federal grants and potential rescission of tax-exempt status by the IRS, is whether universities entering into NIL deals with student athletes may run afoul of their tax-exempt status. Most public and private universities are tax-exempt entities under section 501(c)(3) of the Internal Revenue Code because they operate for an educational purpose or are state governmental entities. To remain tax-exempt, an organization must be organized and operated exclusively for exempt purposes outlined in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. A university directly compensating a student athlete for their NIL on its face appears to run afoul of this requirement. Student athletes are students, not, at least for now, employees of a university.
Taxable income is contemplated in the House Settlement, but not the tax-exempt status of Member Institutions organized under 501(c)(3). There are well-established procedures for revoking federal tax exemption, all involving the IRS. With a few exceptions, those procedures require individual, case-by-case IRS audits of each organization, with ample opportunity for the entity to defend itself and multiple routes of appeal. However, there may be heightened scrutiny on universities engaged in NIL deals with their students, and the potential publicity, time, and money expended to respond to an IRS audit and appeal may be fodder for allegations of university leadership misrepresentation of tax-exempt status by donors and grant funders. In addition, university donors and grant funders that rely on 501(c)(3) tax-deductible donations may bring director and officer claims against leadership for failure to maintain its 501(c)(3) status.
The House Settlement also includes the creation of a “Pool;” participating universities will contribute to the Pool from various revenue sources and take from it to compensate athletes subject to a cap. The Pool available amount for universities is calculated using specific shared revenue categories, including ticket sales and distribution from media rights. The new permissible direct payments to athletes from universities will come from aggregate Division I athletic revenue. Compliance will be subject to the Mandatory Student Athlete and Membership Reporting provisions of the settlement. With Member Institutions required to report to a Designated Reporting Entity, the College Sports Commission, additional exposures relating to regulatory compliance may arise. Liability stemming from a failure to report certain NIL deals or even the deals themselves may form the basis for claims brought by athletes and even fellow member universities.
Take, for example, Nico Iamaleava’s recent, highly publicized dispute with Tennessee’s collective. Iamaleava signed a four-year $8 million contract with Spyre Sports Group, the NIL collective for Tennessee. There were media reports that he then tried to re-negotiate with the collective. There was no resolution between the parties, and Iamaleava did not show up to a Spring practice. He then entered the transfer portal. What if the University of Tennessee had been the party to the NIL contract with Iamaleava? The university could bring a breach of contract action against him after he failed to show up to a Spring practice if attendance was a condition of the parties’ written contract. Importantly, university donors and stakeholders may expect the university to pursue a financial right of recourse when an athlete fails to adhere to the requirements of their NIL deal. Failing to do so may also lead to a claim for breach of fiduciary duty.
What if another Member Institution offers Iamaleava more money from the Pool? Claims for poaching by universities that lose top talent as a result of competing offers may increase. Even with the creation of the Pool, third-party unaffiliated parties are allowed to enter into NIL deals that will not count against a university’s Pool draw. Universities with preexisting brand relationships may face allegations of facilitating third-party NIL deals to circumvent the Pool and attract top talent.
As a final note, directly contracting with athletes, comes with direct company liability exposure. Variance in offer amounts to male and female athletes may run afoul of state pay equity laws. Aside from potential Title IX exposure, which the House Settlement specifically does not address or contemplate, the spotlight on the offers being made to star athletes shines bright. Availability of workers compensation or disability benefits available to athletes who are injured while playing for a university pursuant to a NIL deal may need consideration by university athletic departments. Especially if student athletes essentially become employees through direct contracts with the universities they represent on the field.
Therefore, now that the House Settlement has been approved, athletic programs and their management liability carriers alike should be considering what next steps would best benefit the founding principle of academic institutions: an educational purpose.
The views expressed in this article are exclusively those of the author, and all of the content in this article has been created solely in the author’s individual capacity. This article is not affiliated with her company, colleagues, or clients. The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any subject matter.