{"id":1354414,"date":"2025-07-14T12:16:58","date_gmt":"2025-07-14T17:16:58","guid":{"rendered":"https:\/\/plusweb.org\/?p=1354414"},"modified":"2025-07-14T12:16:58","modified_gmt":"2025-07-14T17:16:58","slug":"what-does-the-house-settlement-mean-for-university-liability","status":"publish","type":"post","link":"https:\/\/plusweb.org\/news\/what-does-the-house-settlement-mean-for-university-liability\/","title":{"rendered":"What Does the House Settlement Mean for University Liability?"},"content":{"rendered":"

On Friday, June 6, 2025, the\u00a0In Re College Athlete NIL litigation\u00a0settlement<\/a>\u00a0(\u201cHouse Settlement\u201d) was approved, with\u00a0Exhibit B, Appendix A<\/a>\u00a0providing terms of engagement for\u00a0universities to directly pay college athletes<\/a>.\u00a0 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.\u00a0 Notably, in May 2025, the President signaled that he wanted to put together\u00a0a presidential commission on college athletics<\/a>,\u00a0and, within hours of the House Settlement approval, the Power Conferences (ACC, Big 12, Big Ten, Pac-12 and SEC) announced the newly established\u00a0College Sports Commission<\/a>.<\/p>\n

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.\u00a0 The following discussion includes the brief history of NIL and the\u00a0In re College Athlete NIL\u00a0<\/em>litigation, as well as summarizes various House Settlement provisions and potential unintended legal consequences for universities stemming therefrom.<\/p>\n

Name Image Likeness (NIL) refers to a person\u2019s legal right to control how their image is used, including commercially.\u00a0 Student-athletes had long been prohibited from making deals to profit from their NIL.<\/p>\n

After the US Supreme Court held in\u00a0NATIONAL COLLEGIATE ATHLETIC ASSOCIATION v. ALSTON ET AL<\/em>\u00a0(\u201cAlston<\/a>\u201d) 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.\u00a0 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.<\/p>\n

Separately from the Alston, the\u00a0In Re College Athlete NIL<\/em> litigation\u00a0was filed initially as\u00a0House v. NCAA<\/em><\/a>; a lawsuit brought in the 9th\u00a0circuit by Arizona State swimmer Grant House and consolidated with two other NIL related cases brought by former student athletes.\u00a0 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.\u00a0 The injunctive relief outlined in the\u00a0House Settlement<\/a>\u00a0and the ways in which the settlement could give rise to university management liability issues is discussed here.<\/p>\n

As an initial matter, the House Settlement does not contemplate future legal actions involving any \u201cMember Institution\u201d that directly enters into a NIL contract with an athlete.\u00a0 \u201cMember Institution\u201d 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).\u201d\u00a0 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\u00a0assist the student-athlete in discussions regarding a NIL deal, unless the student-athlete waives representation in writing.\u00a0 Therefore, the agreement specifically provides that a university can \u201cpay [a student athlete] for [them to] play\u201d for a university athletic team.<\/p>\n

One initial concern that a Member Institution may have, especially in the wake of the recent\u00a0cancellation of federal grants<\/a>\u00a0and\u00a0potential rescission of tax-exempt status<\/a>\u00a0by the IRS, is whether universities entering into NIL deals with student athletes may run afoul of their tax-exempt status.\u00a0 Most public and private universities are\u00a0tax-exempt entities under section\u00a0501(c)(3) of the Internal Revenue Code<\/a>\u00a0because they operate for an educational purpose or are state governmental entities. To remain tax-exempt, an organization must be\u00a0organized\u00a0and\u00a0operated\u00a0exclusively for\u00a0exempt purposes\u00a0outlined in section 501(c)(3), and none of its earnings may\u00a0inure\u00a0to any private shareholder or individual.\u00a0 A university directly compensating a student athlete for their NIL on its face appears to run afoul of this requirement.\u00a0 Student athletes are students, not, at least for now, employees of a university.<\/p>\n

Taxable income is contemplated in the House Settlement, but not the tax-exempt status of Member Institutions organized under 501(c)(3).\u00a0 There are well-established procedures for revoking federal tax exemption, all involving the IRS.\u00a0 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.\u00a0 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.\u00a0 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.<\/p>\n

The House Settlement also includes the creation of a \u201cPool;\u201d participating universities will contribute to the Pool from various revenue sources and take from it to compensate athletes subject to a cap.\u00a0 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.\u00a0 With Member Institutions required to report to a Designated Reporting Entity, the College Sports Commission, additional exposures relating to regulatory compliance may arise.\u00a0 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.<\/p>\n

Take, for example,\u00a0Nico Iamaleava\u2019s<\/a>\u00a0recent, highly publicized dispute with Tennessee\u2019s collective.\u00a0 Iamaleava signed a four-year $8 million contract with Spyre Sports Group, the NIL collective for Tennessee.\u00a0 There were media reports that he then tried to re-negotiate with the collective.\u00a0 There was no resolution between the parties, and\u00a0 Iamaleava did not show up to a Spring practice.\u00a0 He then entered the transfer portal.\u00a0 What if the University of Tennessee had been the party to the NIL contract with Iamaleava?\u00a0 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\u2019 written contract.\u00a0 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.\u00a0 Failing to do so may also lead to a claim for breach of fiduciary duty.<\/p>\n

What if another Member Institution offers Iamaleava more money from the Pool?\u00a0 Claims for poaching by universities that lose top talent as a result of competing offers may increase.\u00a0 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\u2019s Pool draw.\u00a0 Universities with preexisting brand relationships may face allegations of facilitating third-party NIL deals to circumvent the Pool and attract top talent.<\/p>\n

As a final note, directly contracting with athletes, comes with direct company liability exposure.\u00a0 Variance in offer amounts to male and female athletes may run afoul of state pay equity laws.\u00a0 Aside from potential\u00a0Title IX<\/a>\u00a0exposure, which the House Settlement specifically does not address or contemplate, the spotlight on the offers being made to star athletes shines bright.\u00a0 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.\u00a0 Especially if student athletes essentially become employees through direct contracts with the universities they represent on the field.<\/p>\n

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.<\/p>\n

This piece was originally released on The D&O Diary<\/a>.\u00a0<\/em><\/p>\n

To learn more about this topic, check out Sarah’s other PLUS content:<\/p>\n

Insuring NIL Collectives Video Blog<\/a><\/p>\n

Challenges Of Insuring An NIL Collective<\/a><\/p>\n

See Sarah Abrams at the 2025 PLUS Conference as she interviews the 2025 PLUS Conference headliner, Nick Saban<\/a> during the opening general session.<\/p>\n

Learn more and register below:<\/p>\n

2025 PLUS Conference<\/a><\/p>\n

Meet the Author<\/strong><\/p>\n

\"Headshot<\/strong>Sarah Abrams<\/strong>, Head of Claims<\/p>\n

Baleen Specialty, a division of Bowhead Specialty<\/p>\n

Sarah Abrams is the Head of Claims at Baleen Specialty, a division of Bowhead Specialty.\u00a0 She built the Baleen Claims department and in her previously role as Head of Professional Liability Claims at Bowhead Specialty she oversaw the professional liability claims department handling of Director and Officer, Management Liability and Errors and Omissions claims. Sarah practiced law in Chicago, representing carriers, before moving in house.\u00a0 She has authored numerous articles and is a regular speaker at insurance and legal industry events.<\/p>\n","protected":false},"excerpt":{"rendered":"

On Friday, June 6, 2025, the\u00a0In Re College Athlete NIL litigation\u00a0settlement\u00a0(\u201cHouse Settlement\u201d)…<\/p>\n","protected":false},"author":4082,"featured_media":1354505,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_seopress_robots_primary_cat":"none","_seopress_titles_title":"","_seopress_titles_desc":"","_seopress_robots_index":"","footnotes":""},"categories":[97,112,1374],"tags":[1375],"business-line":[1434],"post-type":[49],"topic":[],"class_list":{"0":"post-1354414","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","6":"hentry","7":"category-plus","8":"category-guest-blog","9":"category-professional-liability-insurance","10":"tag-professional-liability-insurance","11":"business-line-professional-liability","12":"post-type-plus-blog","16":"post_tag-professional-liability-insurance"},"acf":[],"_links":{"self":[{"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/posts\/1354414","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/users\/4082"}],"replies":[{"embeddable":true,"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/comments?post=1354414"}],"version-history":[{"count":3,"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/posts\/1354414\/revisions"}],"predecessor-version":[{"id":1354507,"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/posts\/1354414\/revisions\/1354507"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/media\/1354505"}],"wp:attachment":[{"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/media?parent=1354414"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/categories?post=1354414"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/tags?post=1354414"},{"taxonomy":"business-line","embeddable":true,"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/business-line?post=1354414"},{"taxonomy":"post-type","embeddable":true,"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/post-type?post=1354414"},{"taxonomy":"topic","embeddable":true,"href":"https:\/\/plusweb.org\/wp-json\/wp\/v2\/topic?post=1354414"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}