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Will Division II and III Athletic Programs Survive the New Era of College Athletics?

Client Alert
July 26, 2024

The potential classification of student-athletes as employees poses significant challenges for Division II and III sports programs. While the focus of this debate has largely centered on high-profile Division I programs, the ramifications could permanently alter the smaller divisions.

The Alston case, formally known as NCAA v. Alston, was a landmark U.S. Supreme Court decision in 2021 that significantly impacted collegiate athletics. The Court unanimously ruled that the NCAA's restrictions on education-related benefits for student-athletes violated antitrust laws. Although the case didn't directly address name, image, and likeness (NIL) rights, it opened the door for broader changes in college sports compensation. The decision allowed schools to provide student-athletes with additional education-related benefits such as computers, internships, and other academic tools.

The ruling's impact went beyond its narrow focus on education-related benefits. It signaled a shift in the legal landscape surrounding college athletics, challenging the NCAA's long-standing model of amateurism. Justice Kavanaugh's concurring opinion suggested that the NCAA's remaining compensation rules might not withstand antitrust scrutiny.

While the Alston case didn't directly establish NIL rights, it contributed to the momentum for change in college athletics. Shortly after the decision, the NCAA adopted an interim policy allowing athletes to profit from their name, image, and likeness, marking a significant shift in the collegiate sports landscape.

In addition, in Johnson v. NCAA, a pivotal decision on July 11, 2024, by the U.S. Court of Appeals for the Third Circuit ruled that college athletes are not barred from being considered employees under the Fair Labor Standards Act (FLSA). The court rejected the NCAA's motion to dismiss the lawsuit, which argued that Division I student-athletes should be recognized as employees deserving of compensation for their athletic contributions. The Third Circuit established a new test to determine employee status, focusing on whether athletes perform services for another party, primarily benefit that party, are under that party's control, and receive compensation or in-kind benefits. This decision challenges the NCAA's long-standing amateurism model.

Division II and III schools operate on much tighter budgets compared to their Division I counterparts. These institutions often rely heavily on tuition revenue and do not generate substantial income from their athletic programs. If student-athletes were to be classified as employees, it would likely create an unsustainable financial burden for many of these schools. NCAA President Charlie Baker has warned that without congressional action, athletic programs at Division II and III schools may cease to exist altogether.

One of the primary concerns is the potential elimination of smaller, non-revenue-generating sports. Many Division II and III schools offer a wide range of athletic opportunities, including less popular sports that rarely generate significant income. If forced to pay athletes as employees, these institutions may be compelled to cut numerous programs to remain financially viable. The impact on Division III schools could be particularly severe. Unlike Division I and II, Division III institutions do not offer athletic scholarships. Instead, they attract student-athletes by providing a balance between academics and athletics. If these schools were required to treat athletes as employees, it would fundamentally alter their operating model and potentially lead to the dissolution of entire athletic departments.

To survive in this new landscape, Division II and III programs may need to explore creative solutions. Athletic departments will need to function as much as agencies as traditional sports programs, finding innovative ways to monetize each sport and drive revenue.

The potential reclassification of student-athletes as employees presents a complex challenge for Division II and III sports programs. While the outcome remains uncertain, it's clear that these institutions will need to be proactive and adaptable to ensure their survival in a rapidly changing collegiate athletic landscape. The preservation of these programs is crucial not only for the schools themselves but also for the thousands of student-athletes who benefit from the unique experiences and opportunities they provide.

For further questions or to receive additional guidance, please contact BMD Esports, Media & Entertainment Member Scott A. Norcross at sanorcross@bmdllc.com or BMD Partner Paige M. Rabatin at pmrabatin@bmdllc.com.

College AthleticsNCAAStudent-AthletesScott NorcrossPaige Rabatin
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