The Professionalism of College Sports
Implications of the Recent NCAA Settlement
Discover how the recent NCAA settlement is transforming college athletics, enabling direct payments to athletes and redefining revenue sharing. This historic change promises to revolutionize the financial dynamics of collegiate sports.
The landscape of college athletics has evolved rapidly over the past several years, driven in large part by the adoption of Name, Image, and Likeness (NIL) rulings that have opened up the financial frontiers of college sports. The most recent adaptation in the space comes in the form of a revenue share ruling that is distinct from NIL, although it has some overlapping implications. This month we will look at the state of play for revenue sharing as it stands today and consider some effects this new paradigm could have on the future of collegiate sports — and how the evolving landscape presents new opportunities for venture investments.
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A Historic Settlement
In a groundbreaking move, the NCAA and the Power Five conferences — ACC, SEC, Big Ten, Big 12, and Pac-12 — have approved a settlement for three antitrust lawsuits, most notably House v. NCAA. This decision allows universities and conferences to directly pay players through revenue sharing for the first time in history. If approved, this settlement will effectively mark the end of the era of amateur athletics.
NCAA President Charlie Baker and the Power Five commissioners celebrated this move as a crucial step in the ongoing reform of college sports, aimed at benefiting student-athletes and providing clarity across all divisions for years to come.
Key Components of the Settlement
The settlement includes two major components:
- $2.8 Billion Compensation to Athletes: Over the next ten years, the NCAA and the conferences will distribute approximately $2.8 billion to current and former athletes dating back to 2016. This compensation addresses the athletes’ claims of lost potential NIL (name, image, and likeness) revenue.
- Revenue Sharing Framework: The settlement outlines a structure for conferences and schools to directly pay student-athletes from their athletic department budgets.
Understanding Revenue Sharing vs. NIL
There are two primary ways college athletes can earn money: NIL and revenue sharing. NIL comes from sponsorship deals and endorsements. This settlement focuses on revenue sharing, which involves money generated from conferences and university athletic department budgets.
This landmark settlement will bring college sports into the 21st century, with college athletes finally able to receive a fair share of the billions of dollars of revenue that they generate for their schools.
Legal Claims and Background
The settlement resolves three antitrust cases — House v. NCAA, Hubbard v. NCAA, and Carter v. NCAA. Athletes, including former Duke football captain DeWayne Carter, Stanford soccer player Nya Harrison, and TCU/Oregon basketball player Sedona Prince, claim that the NCAA’s restrictions on NIL and control of TV markets prevent athletes from profiting from their true market value.
Steve Berman, an attorney for the plaintiffs, stated, “This landmark settlement will bring college sports into the 21st century, with college athletes finally able to receive a fair share of the billions of dollars of revenue that they generate for their schools.”
Financial Impact and Distribution
The $2.8 billion will be paid over ten years, with 40% funded by the NCAA’s reserve and the remaining 60% by the conferences. Power-conference schools will bear a significant portion of this cost, with future NCAA tournament participation payments being used to fund athlete payments. This structure may strain smaller conferences, which rely heavily on guaranteed payments from the NCAA tournament.
Sports economists will determine the exact distribution of the $2.8 billion among the approximately 10,000 athletes affected, with a substantial portion expected to go to Power Five men’s basketball and football players.
Future Revenue-Sharing Structure
Starting in the 2025-26 season, schools will cap annual payments to athletes at 22% of their average media rights, ticket sales, and sponsorship revenue — roughly $22 million per power-conference school. This framework allows schools to use conference TV revenue to pay athletes, making lucrative TV deals even more critical.
Title IX and Scholarship Implications
The new system raises questions about Title IX compliance, as schools must provide equal treatment and benefits to male and female athletes. The settlement also eliminates scholarship limitations, allowing schools to increase scholarship allocations based on their revenue needs.
Unresolved Questions and Future Considerations
The settlement still requires approval from Judge Claudia Wilken of the U.S. District Court for Northern California, and many details remain uncertain. Schools will need to decide how to allocate payments among athletes, particularly in sports that generate varying levels of revenue.
Additionally, the settlement does not address the potential for athlete employment and unionization, leaving the door open for further changes in the collegiate athletic landscape.
Key Effects of the New Rules
Effectively ending amateurism as we’ve known it invites new opportunities for value creation, making the ground fertile for potential venture investments. Below is a list of three trends we will track as we look for spaces to invest in.
Power Back to the Athletic Department
NIL ushered in the creation of “collectives,” third parties that acted as liaisons between athletic departments and student-athletes. The revenue share model will concentrate operations in athletic departments, as they can directly manage the revenue distribution and have a more stable capital source compared to NIL’s fundraising carousel. From an investment perspective, this will likely result in a set of vertical SaaS solutions that will help operationalize the athletic department.
Comprehensive Athlete Services
As athletic departments are able to distribute capital to athletes more sustainably, we predict that they will also choose to build out a more comprehensive service stack for things like financial management and legal support. Some of this will be done through traditional service providers, while we see an opportunity for athletic departments to adopt tech platforms that can more cheaply and efficiently provide this at scale. An athletic department’s services will become a battlefront for recruiting in the same way that enhanced facilities have.
Financial Market Participation
The revenue share ruling puts college athletics more in the line of sight for private market investors. We have already heard rumblings of private equity-supported athletic departments from the likes of investment firms like Redbird Capital. We expect that athletic departments, if not the athletes themselves, could become financial assets that alternative asset managers leverage to build unique portfolios.
Opportunities & Challenges
An article from The Duke Chronicle provides a comprehensive overview of the current debates and developments surrounding college sports revenue sharing. It highlights both the opportunities and challenges inherent in reshaping how revenues are managed and distributed within the NCAA framework. Moving forward, stakeholders in college athletics will need to navigate these complexities to ensure a fair and sustainable future for student-athletes and institutions alike.
As with any market disruption, this introduces an opportunity to rethink old ways things have been done and establish new areas of value creation. Venture capital investors often stand at the forefront of these shifts, looking for ways to identify and capitalize on new sources of value. Our AV Sports Fund will be actively monitoring these trends. Understanding that it will take time for the market to settle out, there is no doubt that some of the drivers of the future of college athletics will be born in the coming years.
Learn More About the Sports Fund
Investors in the fund will own a diversified portfolio of innovative ventures in sports and gaming
Max Accredited Investor Limit: 249
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