Hey there,

Of all the radical changes coming to college sports, the NIL clearinghouse has proven to be one of the most controversial. That may sound funny, but it’s true — there’s people and organizations who have a lot to lose from a third-party meddling in their NIL deals.

But who? And why? If the clearinghouse is the first step to a new era for college football and basketball, we need to understand what it’s all about.

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— Cole, Justin and Collin

Let’s talk about this controversial “NIL clearinghouse” idea

Ever since the official House settlement was filed with the court last month, I’ve seen a lot of thoughts about the newly proposed NIL clearinghouse system. LSU gymnast Livvy Dunne’s mother was the first I saw speak out, calling the change “incredibly unfair” on Twitter/X: 

That was followed up by TCA president Russell White’s criticism – which came from the collective side of things:

“All this is doing is giving the NCAA power back over their athletes,” he said to On3, “This will take away opportunities for athletes to earn money off their name, image and likeness, which is the problem that got us to where we are in the first place.” 

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There’s been a lot of confusion about why people are mad about an NIL deal clearinghouse, which is why I thought it’d be helpful to do a deep dive into the issue. What are the arguments for and against the system?

What’s being proposed?

First things first: what is the clearinghouse everyone is referring to?

The House settlement lays out a system where a third-party organization makes sure every NIL deal over $600 is “legitimate.”

That entity would be a clearinghouse, which would essentially approve or disapprove of every deal based on whether it was actually “market value,” or whether someone was paying way above market value for a player’s NIL endorsement.

Why would someone pay above market value for a player?

Maybe… an NIL collective? If you follow NIL at all, you’ll understand what I’m talking about. Collectives sign players to NIL contracts, but they’re more like salary payments than anything else. They very rarely “promote” any product, company, or service as a part of these deals… they’re getting paid to play football!

That’s where some controversy comes in. Should these payments, which are functionally player salaries, be considered “NIL”? The NCAA doesn’t think so.

Why does the NCAA care whether a deal is a market-value deal?

Believe it or not, the NCAA’s business model relies on some semblance of “fairness” – not in terms of NIL deals so much as on-field parity. If a select number of collectives are extremely well funded, they’ll be able to attract better players, creating a talent imbalance across college football.

As well-funded schools poach talent, smaller schools will be squeezed out of the NIL market. If unregulated, this will produce an upper class – the schools with very deep pockets—and a lower class – the ones who don’t.

Think about it like baseball: Big schools are like the Yankees, who have spent over $290 million for their team this year. Smaller schools are like the Oakland Athletics, who spent just over $47 million this year. Guess who’s way better? The team spending nearly six times as much!

Okay… Got it. Why does the NCAA care about parity though? 

Parity is profitable.

In professional leagues, parity means league health. The higher the likelihood that any team can have success, the more invested the entire sports fanbase becomes. That’s another reason college football playoff expansion was a massive hit – the NCAA is selling hope!

I’ll speak as a Baylor fan for a moment: Before playoff expansion, Baylor needed to win basically every game to make the CFP. That’s not necessarily true anymore – the Bears can lose a regular-season game and still potentially become national champions at the end of the year. That keeps me more engaged throughout the season.

Hope drives viewership numbers, ticket sales, and audience excitement way up. In essence, parity creates a larger and more engaged fanbase, which in turn produces more money. But parity can only come with flattening out the talent pool.

Cool, but what does this have to do with NIL collectives again? And the House Settlement’s clearinghouse idea?

Right. So when the NCAA agreed to the House v. NCAA Settlement, they agreed on a $22 million rev-share “salary cap” for each school. Functionally, that was to spread the talent out across the NCAA and create profitable parity. 

But there was one problem: NIL collectives were already paying players, and none of those payments would contribute to the salary cap. In the NCAA’s opinion, collective payments are a way to circumvent the “salary cap” that they’ve set up.

Now we finally get to the clearinghouse and why collectives are so against it: If there was a third-party entity evaluating the legitimacy of each NIL deal over $600, school collectives would immediately lose their ability to pay their players above the cap.

The clearinghouse would block most collective deals because, in the clearinghouse’s mind, the player can only be paid for promotion, not on-field play.

So it’s bad for collectives. Why did Russell White say it’d be bad for athletes too?

Almost by definition, a college sports salary cap artificially restricts the amount of money athletes can earn. If a player could make $2 million extra from Ohio State’s collective, he’ll probably decide to play football there, but without that extra money available, he might go elsewhere.

Legally speaking, White may be right. The NCAA could open itself up to further antitrust lawsuits, because the argument could be made that they’re restricting an athlete’s earnings potential. That’s the line of reasoning that led to transfer portal restrictions being lifted earlier this year.

This seems like a mess.

It is. But did we really think the House settlement would tie everything up in a neat little bow? The legal battles are still coming, and no one will get exactly what they want.

One potential solution could be collective bargaining. In professional leagues, the players' association meets with league officials to form a collective bargaining agreement. That agreement would force the two sides to make concessions before agreeing to a mutually beneficial way to structure a league.

There are a few issues with collective bargaining, however, the most glaring one being that the agreement is formed between employers and employees. As it currently stands, student-athletes are not employees legally, which complicates their ability to create a player’s association, and thus, to collectively bargain.

That could change soon, however. A recent ruling argued that student-athletes may be considered employees under the Fair Labor Standards Act. The NLRB allowed Dartmouth’s basketball team to unionize earlier this year – another sign that the tides may be turning on the question of employment.

Don’t forget about entities like Athletes.org, which bills itself as a players' association for college athletes. There are legal ways to reach collective bargaining, but that’s still a long way away – and that’s assuming that athletes even want it. 

Please just tell me: is this clearinghouse is good or bad? 

Not to evade the question, but it really depends on who you’re talking to, and what your personal desires are for college football.

If you care about parity or are a fan of a smaller school, you’ll probably find yourself siding with the NCAA, as the clearinghouse would limit collective influence and even the playing field. If you support a bigger school, the clearinghouse actively suppresses your funding advantage, which would mitigate your ability to attract top-tier talent.

There’s also a philosophical divide that may split people. Collectives are arguing for a free market approach, whereas the NCAA believes that oversight provides valuable stability. Your beliefs about how an economic system should operate will likely dictate your ideas about the clearinghouse, too.

At the end of the day though, it doesn’t really matter what we think. It’s the court’s job to decide what’s legal and not, and it’s our job to get mad about whatever they end up deciding. That’s what being a college sports fan is all about.

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