Ramstad: This could be the week the NCAA becomes a professional league

So much is going on with the president, investment markets, Minnesota’s Legislature and the Timberwolves’ playoff run, you can be forgiven if you haven‘t heard a monumental change is about to happen in college sports.

A federal judge this week is expected to ratify a legal settlement that will lead NCAA Division I universities to pay athletes from athletic department revenue. Four years after the Supreme Court said student-athletes could market themselves in name-image-likeness (NIL) deals, now they will get a cut of their teams’ overall revenue.

“This is the last point that really solidifies [the NCAA] as a professional league,” said Patrick Campion, co-founder of Fame Sport, a new sports marketing firm in Minneapolis. He is a former marketing chief at Sleep Number and managed its NFL sponsorship for eight years.

The settlement inaugurates an enormous change for the athletes, universities and the business of sports in America.

“We’re living through a transformation in college sports that rivals the creation of the NCAA itself,” said Chris Pham, a sports attorney at Fredrikson, a Minneapolis law firm. “Between NIL, athlete empowerment and revenue sharing, we’re seeing the traditional amateur model give way to this new economic reality.”

This step is happening because of a class action lawsuit brought against the NCAA in 2020 on behalf of former athletes who missed out on the chance to make NIL money. Before then, the NCAA prohibited athletes from any compensation beyond their college scholarship and room and board.

The settlement — often called the House settlement for Grant House, a former collegiate swimmer whose name leads the list of litigants in the suit — requires the NCAA to pay past athletes from a nearly $3 billion fund. It also requires Division I schools, like the University of Minnesota and University of St. Thomas, to make direct payments to athletes moving forward.

Athletics departments will have to share 22% of their revenue, or up to about $20 million a year. That will blow a hole in spending and force them to cut costs and perhaps some sports.

“The traditional model of using high-revenue sports like football to subsidize other non-revenue sports may not be sustainable,” Pham said. “What I anticipate is more schools are going to explore private fundraising partnerships and creative revenue models. Some schools may ultimately cut programs, but others may be inclined to become more innovative.”

The payout formula puts football and men’s basketball players above other college athletes. I wouldn’t be surprised to see second- and third-string football players making tens of thousands of dollars, while top athletes in other sports get hundreds or a few thousand.

I reached out to the University of Minnesota a few weeks ago to get a feel for their planning. A spokesman said they would know more after the House settlement was finalized in court. Details were still being negotiated late last week.

Meanwhile, since far more money will be available to college athletes, the stakes will rise on athletes in junior highs and high schools to perform well and qualify for top-level university programs.

“You do fear that kids and parents are going to have a false hope of the money that will be there, and they will lose perspective that the benefit of sports is about playing the sport,” Campion said.

Two forces lie underneath all this. The first is that sports represent the last way for advertisers to reach mass audiences. All forms of entertainment, including sports, have exploded in variety and means to reach people. In that growth, however, they have become more diffuse, reaching fewer people. However, the most popular sports attract the largest audiences on a relative basis.

The second force is earnings potential in sports doesn’t last long, confined in most cases to a decade or so from the late teens to late 20s. Earnings growth in other careers lasts into a person’s 40s and 50s.

“NIL is turning college athletes into entrepreneurs earlier than ever,” Pham said. Since 2022, he has taught a course on NIL deals at the University of Minnesota Law School. Along with his students, Pham offered a pro bono clinic for athletes, social media influencers and others who need help with marketing contracts.

Already, distortions are evident. The NFL draft last month showed how some football players have made more money in college than they will, at least at the start, as a pro.

One example is Quinn Ewers, a quarterback from the University of Texas who still had a year of college eligibility left and likely would have made millions had he played it out. Instead, he entered the draft and landed with the Miami Dolphins in the seventh round, where his beginning salary will be $827,000.

“That dynamic is something we’ve never seen before,” Campion said. “We’ve only had a few years where that might have been possible.”

Final approval of the House settlement was held up in recent weeks by a disagreement over limits on team rosters. Football teams, for instance, that at some schools have around 150 players will be capped at 105. Around the country this spring, student-athletes who have been told they won‘t make the cut began seeking transfers to schools where they may be able to play.

One problem I see with the House settlement is that it replaces a closed market with one that, because of limits on participation and the amount of revenue that can be shared, is only partly open. In a completely free market, fair compensation is always subject to competition.

The NCAA is already asking Congress for a bill that protects it from further athlete-pay disputes. Sen. Ted Cruz, R-Texas and chair of the Senate Commerce Committee, earlier this year said regulating athlete payments is a “major priority.”

“Once you acknowledge that athletes are entitled to a revenue, a share of revenue, the legal pressure will continue,” Pham said. “The floodgates are going to open. Regardless of what happens with the House settlement, it’s just the beginning.”

I believe eventually some universities will exit Division I sports. Perhaps the NFL, NBA and WNBA will create their own minor leagues, muscling colleges aside altogether.