Proposed $40 Million Video Games Settlement Will Cut Into Collegiate Model

The NCAA Collegiate Model is getting a potential kick in the shins according to a report filed by SB Nation's Chris Fuhrmeister on May 31, 2014. According to Fuhrmeister, 100,000 current and former football players would be paid up to $951 for each year that they were featured in video games as part of a settlement reached between EA Sports. the Collegiate Licensing Company and the class action lawsuit brought against them and the NCAA, known as the O'Bannon case.

The settlement would be an anathema to the NCAA and its efforts to promote the Collegiate Model. The Collegiate Model is based on the platitude that NCAA member resources are devoted to the holistic academic development of student athletes. Even without an admission of wrongdoing by the NCAA, student-athletes will now have received compensation for participating in NCAA sanctioned football and basketball games. The compensation will be coming from a third-party source, in this case EA, but the payments stem from student-athlete participation in collegiate sports where the student-athlete is presumed to be an amatuer. Hence, the payment of video game settlement funds to former student-athletes will strike at the foundation of the Collegiate Model.

The settlement is good news for the student-athletes whose images were used without a master licensing agreement. They will be paid something for the illegal use of their images by EA Sports. However, the proposed compensation to former NCAA student-athletes puts into question the NCAA's ideal that current student-athletes have their best interests served by having resources generated by collegiate athletics directed toward academic accomplishment and matriculation.

There are several questions that remain unresolved assuming that the Court approves the settlement. Obviously, the NCAA is not a party to the settlement. Its rights in the O'Bannon case and the progeny that have resulted from that case remain unresolved. Like most litigation, the filing of the EA case put a chilling effect on legitimate and profitable business activity.

EA Sports announced in September that it would no longer make NCAA Football games. Normally a person wronged by the illegal use of a likeness will seek what is commonly called a cease and desist or what lawyers refer to as a Preliminary Injunctive Order. Such a court order directs the alleged bad guy to stop using a person's likeness without paying for it. If EA has squared its accounts with former student-athletes, discontinuing making profitable video games makes no sense.

What about  the current NCAA student-athletes whose right to receive future income was cut off by EA's departure from the market place? In the end, the settlement, as it is presently configured, cuts off the rights of current student-athletes to receive a stream of royalty payments for years to come. Obviously, a valuable profit center for EA has also been killed due to litigation myopia.

The appointment of a receiver by the Court to be master distributor of royalty and licensing payments might act as a truth serum in this case.  Licensing payments would be made to student-athletes as part of a Court imprimatur. If EA has assurances that by making payments to the receiver it is insulated from further claims, it can go back to making video games in a profitable manner, free from additional strike lawsuits. A precedent would then be set to allow the NCAA to reconfigure its politics relative to compensation of student-athletes for the use of their images in commerce.

The settlement is a win for the NCAA because payments have been made to claimants from someone other than the NCAA. These claimants are not entitled to multiple recoveries for the same alleged wrongdoing, so whatever the amount that the NCAA has to pay its former student-athletes as a result of litigation just got lighter by $40,000,000. The settlement also becomes a stalking horse for direct global settlement discussions between the NCAA and the student-athlete claimants because the masquerade known as the Collegiate Model and the posturing that has come from it by all parties is now coming to an end.

The NCAA franchise is a valuable commodity. The negotiations regarding the EA settlement are going to have an impact on the viability of that franchise for years to come.