NCAA proposes creating new subdivision, trust fund to compensate athletes

At a time when nearly everyone associated with college sports believes it’s critical for the NCAA to evolve, the association’s first-year president, Charlie Baker, on Tuesday detailed to his membership in writing a series of landmark, progressive changes that would radically alter the college sports enterprise.

The potential changes include creating a subdivision of Division I that affords them more freedom to craft their own policies and enables them to compensate athletes in innovative and consequential ways, according to the letter obtained by On3.

“It is time for us – the NCAA – to offer our own forward-looking framework,” Baker said in the letter.

The plan includes a potential new FBS subdivision that would include institutions with the highest resources.

Within the framework of Title IX, the letter reads, the plan entails the annual investment of at least $30,000 per athlete into an enhanced educational trust fund for at least half of the institution’s eligible student-athletes. Importantly, athletes could spend the money any way they choose, and there is no limit on how much schools could provide any subset of athletes — as long as schools remain Title IX compliant.

What’s more, schools could work with others within the subdivision to create rules that may differ from the rules in place for the rest of Division I. Those rules could include a wide range of policies, such as scholarship commitment and roster size, recruitment, transfers or NIL.

Also of significance, the plan would allow any Division I school to enter into NIL licensing opportunities with their athletes. That is a dramatic departure from the current model, which heavily relies on third-party entities known as collectives to distribute NIL dollars to athletes through deals.

NCAA proposal is ‘revolutionary’

This signals landmark change that, industry sources say, could have far-reaching intended and unintended consequences.

Mit Winter, a college sports attorney with Kansas City-based Kennyhertz Perry, told On3, “This is definitely the most revolutionary athlete compensation plan the NCAA has ever proposed.”

Winter cautioned that it is still a “half-measure” that would require federal intervention. This plan, Winter added, could placate some federal lawmakers, but it is uncertain whether it would garner enough support for the NCAA to secure a long-sought antitrust exemption. In addition, a federal law “would still need to say college athletes can’t be employees, which is still a big question mark.”

Jim Cavale, founder of Athletes.Org, told On3’s Jeremy Crabtree that the proposal is a step in the right direction because “having a leader at the top of the NCAA acknowledge that there’s a need for a revenue-sharing model with athletes is important.”

Cavale added that the reason why the federal government is not going to provide an antitrust exemption right now is because there is no asset for the NCAA to leverage to get that exemption.

“The asset the NCAA needs for leverage to be able to get the antitrust exemption they desire is to get a deal with the athletes …,” Cavale said. “The NCAA or the conferences are never going to get antitrust protection – protection from further litigation, which is what they want – if they don’t negotiate a deal with the athletes. That’s their asset.”

Tom McMillen, the former U.S. Congressman and current CEO of LEAD1 Association, told On3 that the proposal is a “good step forward. I wish I was back in college for these academic benefits. Have always been personally in favor of bringing NIL back  to the institution.”

Dan Greene, an NIL expert and associate attorney at Newman & Lickstein, told On3: “At the very least it shows that Charlie Baker is at least more forward-thinking than his predecessors on these issues. With this proposal, it appears he understands that the NCAA will have to adapt in order to remain relevant.”

Greene added that the proposal would likely make federal lawmakers who have “wanted the NCAA to provide direct pay to athletes happy. However, this would still leave the employment issue open, which may still need to be addressed by Congress. While some major issues would be addressed by this proposal, the big elephants in the room – employment designation and antitrust exemption – would still remain, so it remains to be seen if the majority of the lawmakers [are] happy. This is definitely the most revolutionary proposal the NCAA has introduced in some time, especially the trust fund concept.”

What about schools outside of FBS?

Sources outside the FBS expressed concern to On3 that this will exacerbate the gap between FBS schools and non-FBS schools and could prompt some to move to Division II or III. Sources said it also further rekindles a question that has grown louder during the industry’s tumult in recent years: Will FBS leagues and schools move to stage their own NCAA tournaments, excluding true mid-majors?

Baker acknowledged the increasing financial gap between schools as one of the catalysts for these changes.

“The growing financial gap between the highest-resourced colleges and universities and other schools in Division I has created a new series of challenges,” Baker said in the letter. “The challenges are competitive as well as financial and are complicated further by the intersection of name, image and likeness opportunities for student-athletes and the arrival of the transfer portal … Rules should change for any Division I school, at their choice, to enter into name, image and likeness licensing opportunities with their student-athletes.”

One prominent college athletics source told On3: “What today represents is the NCAA showing, under new leadership, the ability to transform and make changes to get with the modern times while also showing Congress that they’re willing to do what’s necessary in order to get their olive branch.

“That’s the biggest thing because what today does not do is change any of the issues within the court. It does not change anything within the revenue share and employment battles. This shows a willingness to play ball, which creates more willingness on the side of Congress to save college sports. Because this shit has become such a mess, they do need Congress – there is no saving this on their own.”

Longtime college football reporter Andy Staples of On3 was blunt in his assessment of the situation.

“In all seriousness, this is a stunning amount of common sense from the NCAA on a big-picture issue,” Staples said.

Baker acknowledged the NCAA is ‘slow to change’

Charlie Baker’s plan comes at a time when the NCAA faces an increasing number of significant, potentially even existential threats from the courts and other entities. The NCAA has been the target of increasing criticism among some stakeholders because it has opted against crafting a comprehensive new model for the industry. 

The association acknowledges the outcome of the blockbuster House v. NCAA antitrust case could devastate the collegiate model as we know it. At stake is $4.2 billion in retroactive NIL pay and broadcast revenue that could be owed to thousands of athletes. It could also force the NCAA’s hand to allow schools to compensate athletes for any reason.

Also ongoing are proceedings related to two National Labor Relations Board cases that could ultimately deem at least some athletes employees of their universities. Dartmouth men’s basketball players are seeking to be deemed employees and conduct a union election. And USC, the Pac-12 and the NCAA face unfair labor practice charges stemming from allegedly misclassifying athletes as student-athletes rather than employees.

In addition, plaintiffs in Johnson v. NCAA, former Villanova football player Trey Johnson and other Division I athletes, are asking that athletes be deemed employees subject to the Fair Labor Standards Act.

The employee train will keep roaring ahead. A growing number of leaders, including LEAD1 Association CEO Tom McMillen, believe we are on a slow march toward an employment model for at least some athletes.

What happens with NIL collectives?

One of the many questions triggered by Baker’s proposal is what is the fate of the current system where third-party, school-centric collectives distribute dollars to athletes. Winter said this plan could potentially render collectives obsolete.

“I don’t think the proposal itself mentions eliminating collectives,” Winter said, “but I’m sure that’s part of the intent behind allowing schools to directly pay NIL compensation to athletes. I’m assuming new rules put in place for the new subdivision would address collectives/boosters paying NIL compensation.”

One prominent collective operator told On3 that the proposal, if adopted, will just cause the collective to formally move in-house, a scenario many industry leaders have long endorsed.

“We are already one small step from that anyway,” the collective operator said. “This wouldn’t change much.”

Rob Sine with Blueprint Sports said he was encouraged by the proposed NIL rule change.

“We are excited to further collaborate with our university partners and the NCAA better to understand this proposal’s long-term impact and desired structure,” said Sine, who is a partner with the NIL solutions company that operates collectives in more than 25 markets and with multiple members in The Collective Association.

“From the onset of NIL, I have believed in a model that allowed for the proper structure and professional expertise to blend in with athletic departments to support current and future student-athletes of all levels and sports in NIL.”

The source added that the proposal would adversely affect half of some power leagues but would help schools like Alabama, which has robust operating revenue but weaker donor support.

“They can use their operating revenue to keep up with schools like Texas,” the source said. “This thing would have to come with some kind of revenue-sharing agreement and salary cap to keep it from ruining the whole institution of college football.”

Baker himself has told On3 in recent weeks that the NCAA has been “slow to change” and that he wants the association to be more nimble moving forward, especially on behalf of the interests of student-athletes.

These changes, Baker said in the letter, “will also help level what is fast becoming a very unlevel playing field between men and women student-athletes because schools will be required to abide by existing gender equity regulations as they make investments in their athletics programs.”