NCAA proposing new college athletics subdivision rooted in direct athlete compensation

Of the many recent changes in college athletics, the most transformative — and revolutionary — may be on the way.

NCAA president Charlie Baker is planning to introduce this week a proposal to create a new subdivision within Division I that grants certain schools more autonomy around policy-making and permits them to compensate athletes in a new and profound way.

In a letter sent to Division I members, and obtained by Yahoo Sports, Baker outlines a groundbreaking and radical change to the NCAA Division I athletics model, describing it as a “new forward-looking framework.”

According to Baker’s proposal, schools that choose to be part of the new subdivision — they can opt in or out — are required to meet a strict minimum standard rooted in athlete investment.

Members of the new subdivision will be permitted to strike name, image and likeness (NIL) deals with their own athletes — a significant move away from the current NIL structure.

However, the most impactful benefit of this new model is a framework in which schools can directly compensate athletes through a trust fund. Schools within the new subdivision will be required to distribute to athletes thousands of dollars in additional educationally related funds without limitation.

There is no cap on the amount of funds that a program can provide an athlete.

It is perhaps the single-most revolutionary concept introduced by a sitting NCAA leader in college athletics history.

“It kick-starts a long-overdue conversation among the membership that focuses on the differences that exist between schools, conferences and divisions and how to create more permissive and flexible rules across the NCAA that put student-athletes first,” Baker writes in the letter. “Colleges and universities need to be more flexible, and the NCAA needs to be more flexible, too.”

How it will work

The proposal is a culmination of a months-long review that Baker and staff conducted — one of his top priorities after taking over for Mark Emmert in March. Several high-ranking athletic administrators were previously briefed on the model but were not provided specifics until the letter arrived.

Entry into the subdivision requires a school to invest, at minimum, $30,000 per year per athlete into what is termed an “enhanced educational trust fund” for at least half of a school’s countable athletes. Schools would determine when athletes receive the amount, which, for four-year athletes, will total at least $120,000. Schools must continue to abide by the framework of Title IX, assuring that 50 percent of the investment be directed toward women athletes.

The new subdivision will remain under the umbrella of the NCAA, and its members will continue to compete for NCAA championships with others in Division I. Under the proposal, the NCAA maintains oversight of the existing national championship model across all Division I sports, except FBS football, which continues to operate under the rubric of the College Football Playoff, Baker writes in the letter.

Schools in the new subdivision would also gain control of decision-making around scholarship limits and countable coaches, the NCAA's way of handing major conference programs the freedom to increase the limits or do away with them altogether.

The model “gives the educational institutions with the most visibility, the most financial resources and the biggest brands an opportunity to choose to operate with a different set of rules that more accurately reflect their scale and their operating model,” he writes.

Why is this needed?

Baker’s model is an anticipated step toward the long-ballyhooed separation of the NCAA’s high-revenue producing athletic departments from their lower-resourced brethren. While all schools are eligible to join the subdivision, the proposal would likely force a formal split within the Football Bowl Subdivision of the Power Five, soon-to-be Power Four, conferences: the SEC, Big Ten, ACC and Big 12.

The proposal is not meant as a final product ready for legislative approval but is more of a conversation-starter to an end product that could look vastly different. The proposal is expected to be a leading topic at a gathering of athletic administrators in Las Vegas this week as well as at the NCAA convention in mid-January. Baker himself is scheduled to speak in Las Vegas on Wednesday as part of the Sports Business Journal’s annual summit.

“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 writes. “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.”

Baker’s model addresses and identifies the continuously growing schism between the major conference schools, a gap that has further widened with new billion-dollar television deals. In many ways, the model is tethered to the evolving situation with NIL, a concept birthed from state lawmakers frustrated that athletes were missing out on the fruits of a multi-billion dollar industry.

The new subdivision provides schools a pathway to an alternative to compensation from the current NIL structure, which is built around third-party booster-led collectives distributing millions to athletes under the guise of endorsement and commercial deals. While the NCAA will still deem “pay-for-play” impermissible, the proposal gives programs more control, lifting the restrictions placed on a school’s involvement with NIL and allowing them to bring NIL within their jurisdiction.

The proposal is short on details and specifics on the NIL concept, only saying “rules should change for any Division I school, at their choice, to enter into name, image and likeness licensing opportunities with their student-athletes.”

What does this mean?

In a sense, this would allow institutions to purchase the NIL rights of their athletes — a concept suggested by athletic administrators over the last several years.

The trust fund is an entirely separate concept.

It would be extraordinarily costly for college athletics departments and feels like a step toward what many believe to be an inevitably — revenue sharing with college athletes. The numbers could be stunningly high.

The NCAA does not describe the model as revenue sharing and does not support that concept.

There are 133 FBS programs and 69 in the Power Five. Schools sponsor different numbers of sports, some as few as 18 and others as many as 35. Athlete populations range greatly by institution, but a sensible average is around 350-400 athletes on some portion of a scholarship.

A school depositing the minimum of $30,000 each year per athlete for half of their athletes would spend about $6 million a year. Schools would not be required to deposit the same amount for each athlete. The model leaves that to the discretion of the institution.

The model is introduced as the NCAA and major conference schools are in the midst of settlement negotiations over what could be one of the most costly and impactful antitrust cases in college sports history. House v. NCAA, seeking as much as $3 billion in retroactive NIL and broadcasting revenue payments, is the latest lawsuit expected to chip away at the NCAA’s bedrock of amateurism.

The case will, undoubtedly, force the organization to distribute more revenues to athletes like those legal losses before it (cost of attendance payments in 2015 and Alston academic-related stipends in 2021). However, the House case is much more significant, as it opens the door for direct pay to athletes by seeking the elimination of the NCAA’s NIL rules.

Baker’s new model provides a pathway to prevent such legal challenges down the road and appeases congressional lawmakers amid the NCAA’s lobbying efforts on Capitol Hill.

NCAA and conference leaders have spent four years lobbying Congress to create uniform federal legislation to govern NIL in an effort to combat the current state-by-state approach. But that lobbying effort has evolved over time, as leaders have recently shifted their focus to a more pressing issue: athlete employment. They’ve asked lawmakers to both prevent college athletes from being deemed employees and grant the association a narrow legal protection so it can create more structure around NIL.

Discussions with lawmakers on Capitol Hill have resulted in some of the NCAA’s most significant changes to its amateurism model, including post-graduate athlete scholarships and long-term healthcare, as well as lifting strict transfer and NIL rules. However, many lawmakers are pushing the organization to provide more direct pay to athletes.

College athletics' ongoing financial battle

Even within Baker’s new model, congressional action is likely necessary, sports law experts told Yahoo Sports. A congressional bill that addresses employment is paramount to college leaders.

Several different avenues put college athletes on a path to be ruled as employees. A case in Pennsylvania (Johnson v. NCAA), currently in an appeals process, could grant college athletes the ability to earn minimum wage. There are also two employment complaints that have been made to the National Labor Relations Board.

“The contextual environment is equally challenging, as the courts and other public entities continue to debate reform measures that in many cases would seriously damage parts or all of college athletics,” Baker writes in the letter.

College athletics’ current fight is a complicated one.

The battle is rooted in the millions of dollars of revenue flowing, mostly, to the major conference programs from television contracts, ticket sales and booster donations. The stream of cash has led to excessive coaching and administrative salaries, gaudy athletic facilities and cross-country conference realignment moves.

On one side, many NCAA, conference and school administrators are arguing to preserve the broad-based, amateurism aspects of a unique system in which higher education is tethered to college sports. Opposite them are many congressional lawmakers, state legislatures, athletes-rights advocates and former players, or players themselves, who believe they deserve a share of the revenue.

Even coaches have become public about direct pay.

“It's the players,” Michigan coach Jim Harbaugh recently said in an interview. “Don't forget to give them a share of the revenue."

While exterior — and internal — forces urge college leaders to disseminate cash directly to athletes, it’s not so simple.

The NCAA is vast, with three divisions, 97 conferences and more than 1,000 schools. Yet, the association presides over this mass of disparate institutions. In Division I alone, there are more than 300 schools and 32 leagues — many of them separated by differing resource levels, athletic and educational missions and cultural divides.

Even within the FBS, there are vast differences among athletic departments. For example, Ohio State reported an athletic budget of $251 million this year. Ohio University’s athletic budget is $29 million.

Since taking over as NCAA president in March, Baker has noted the variance of his schools and conferences, describing traditional, education-driven universities as the “95 percent” while the other 5 percent (those in FBS and/or Power Five) as revenue-producing, football-geared giants.

However, even within those athletic departments, there is a degree of context necessary to understand the inner-workings. At the Power Five level, revenue from football mostly subsidizes the rest of their athletic teams, many of which lose millions per year. In fact, many Group of Five athletic departments often rely on state or school funding to stay afloat.

All the while, athletic departments must juggle compliance with Title IX by retaining women's athletic teams that generate very little revenue and often lose as much as $4 million a year.

But detractors point to the way in which the high-revenue producing schools have spent their dough. They’re unable to directly pay athletes and schools have poured the revenue into, most notably, coaching salaries.

By 2032, the Knight Commission estimates that the 54 public Power Five schools will spend nearly as much on football coaching salaries ($1.363 billion) as they do on all athletic scholarships ($1.372 billion).

Baker, the former Massachusetts governor, has spent his first eight months on the job meeting with officials from all of the NCAA’s 97 conferences, helping develop his proposal for the future of the industry. In the letter, he notes that his review of the model has produced “financial and operational differences” across all three divisions and even within Division I. They are “significant and poised to grow,” he writes.

The figures include the following:

• 59 DI schools spend more than $100 million on athletics; another 32 DI schools spend over $50 million; and a whopping 259 spend less than $50 million, with half of those spending less than $25 million.

• On average, 1.8 percent of Power Five athletic budgets are subsidized by student fees while about 15 percent of budgets in the rest of the DI schools are funded by student fees.

• 98 percent of DII and DIII schools spend less than $20 million annually on their athletic programs.

“No one could possibly conclude that most of these schools make money on college athletics,” Baker writes.

The NCAA president's proposal has been something bandied about for years.

The organization has been moving toward such a concept. In fact, last year, members of the NCAA’s constitution and transformation committees seriously discussed permitting programs to provide more compensation to athletes but smaller programs stymied such movement — another frustration point for those at the power conference level.

A vast majority of those within the NCAA — the 95 percent, perhaps — have begun to publicly and privately encourage the high-revenue producing athletic departments to distance themselves from the rest of the pack.

However, that too is complicated. Revenue generated from the elite programs in college sports — from the CFP, NCAA men’s basketball tournament, etc. — is disseminated to other schools in Division I, Division II and Division III. It makes any complete separation or split complex.

That said, many college leaders have anticipated a Power Five split for years, if not even decades. Major conference programs often feel handcuffed to spend their wealth through cost-containment measures supported by the other 95 percent. The NCAA has historically attempted to legislate competitive equity. That concept has shown to be problematic, only angering those revenue-producing blue bloods of college football and basketball who believe they don't have enough control of their own cash.

Baker’s new model feels like the final move to end such a fruitless fight, opening the doors for greater independence among college football’s powers — and additional cash to athletes directly from schools.