Friday, Judge Claudia Wilken, a federal judge in California, approved the multibillion-dollar class-action legal settlement known as House v. NCAA, opening the door to a new era for college sports. College athletes will now be directly paid by their universities, and the term amateur related to these student-athletes will fail to exist.

This settlement resolves three separate antitrust cases against the NCAA and its power conferences. Starting July 1, it establishes a 10-year revenue-sharing model with college athletic departments sharing approximately $20.5 million in name, image, and likeness (NIL) revenue in year one. An additional $2.8 is reserved as back-pay damages dating back to 2016 for athletes who did not have an opportunity to receive revenue for their NIL.

History Behind the Settlement

College athletics has always been governed by the principle of maintaining amateur status, which is regulated by the NCAA and forbids schools from compensating student-athletes. Their scholarships have covered tuition and other related costs of attending the institution.

However, the big-time college sports scene has exploded, with athletic departments generating hundreds of millions of dollars from broadcast deals, ticket sales, donations, and licensing agreements. The system was also fraught with abuse as several universities have been sanctioned over the years for violating the NCAA compensation policy.

The bubble started to burst on the system when Wilken ruled against the NCAA in a lawsuit brought by former U.C.L.A. basketball player Ed O’Bannon, who complained about the university’s use of his image in a video game without his permission. This led to colleges offering a cost-of-attendance stipend to their athletes.

Next, individual states started passing laws allowing NIL payments to their school’s student-athletes. This led to the current system where collectives have been established at various colleges to funnel booster’s money to the athletes.

How Will This Work for Colleges and Athletes

Roughly half of the NCAA’s 365 Division I schools are expected to adopt the new framework, either because their conferences, the SEC, ACC, Big Ten, Big 12, and PAC-12, are named as defendants in the settlement and thus are required to comply or because they will choose to opt into its terms, according to court documents filed by lawyers negotiating the settlement.

Many schools, especially those in the lower football subdivision or those without football teams, will opt out of the settlement and continue to compensate athletes with scholarships for tuition and other costs of attendance only.

Another key aspect of the settlement is the clause that addresses supersized NIL deals by establishing a third-party clearinghouse to review licensing agreements for “fair market value.” Also, scholarship limits will be replaced by roster limits. Schools can allocate scholarship funds, whether partial or full, as they see fit, which could enable colleges to fund more scholarships than before.

Any athlete who is in danger of losing a roster spot because of this rule change can receive legacied status, allowing them to retain their spot and remain exempt from roster limits, whether at their current school or a new institution.

Questions and What’s Missing

However, the settlement does not solve what many perceive as the most significant issue in college athletics: the lack of transfer portal restrictions, which has led to a system of unrestricted free agency. Litigation brought by several attorneys general in 2023 compelled the NCAA to eliminate all limits on athlete transfers, allowing athletes to transfer as many times as they desire without penalty, provided they retain some eligibility. Some of these rules are the subject of current court cases, however.

It also sets aside the question of whether athletes should be considered employees and whether they should be allowed to unionize and collectively bargain. Judge Wilken might have come up with the ultimate answer to what ails college sports when, at the hearing, she suggested that collective bargaining could be the best solution to address the major issues in college sports.