NCAA on the hook after Indiana courts say insurers don't need to cover $208M settlement

March brought a financial boost to the NCAA after the pandemic ended any chance of its flagship basketball tournament in 2020. Skipping the men’s games last year cost the organization more than $800 million, and by year’s end they reported a loss of $55 million.

But a week before the tournament took over Indianapolis, the Indiana Supreme Court delivered a hit to the NCAA's finances.

The state's highest court declined March 11 to hear a lawsuit that the NCAA lost in Marion County Court over whether its insurance companies would have to cover payouts for lawsuits challenging its business practices around student athletes. Now the NCAA can't be reimbursed for the $208 million it divided among 53,000 student athletes as part of a series of court cases starting in 2014 that altered how it restricts financial benefits for players.

Lawyers representing the NCAA and lawyers representing the insurance companies declined to comment for this article. The NCAA did not respond to a request for comment.

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So what does this mean for the college sports giant? Indiana University professor Nathaniel Grow said it could open the door for more athletes to come forward with legal challenges, which is likely.

"The broad implication is that anytime the NCAA gets sued over this bylaw restricting athletes’ benefits and compensation, that is now something that they're on the hook for," he told IndyStar.

'Dilemma' for courts

The Indiana Supreme Court order stems from a class action lawsuit by student athletes who wanted school benefits beyond just the scholarships for tuition, lodging, and books awarded by their colleges. It was one of multiple suits since 2006 challenging NCAA bylaws that said athletes were ineligible to play if they received cash for more than the base cost of attendance.

In one case, lawyers for the students argued that the NCAA and its affiliates "earn billions of dollars in revenues each year through the hard work, sweat and sometimes broken bodies of top-tier college football and men’s basketball athletes," and described its financial restrictions as "cartel agreements," according to court documents.

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A judge in the Ninth Circuit Court of Appeals finalized in 2019 a $208.6 million settlement between the athletes and the NCAA. California courts ruled that NCAA members should at the very least pay for athletes' health insurance and cover the real cost of attendance, which comes out to more than tuition, books, meals and lodging. They were also ordered to pay plaintiff’s legal fees, adding $41.7 million.

That case only targeted NCAA restrictions on education-related benefits. It didn't address whether the NCAA should allow students to make money off their name, image, and likeliness.

"It may be a dilemma for courts as they balance the interest and rights of educational institutions who don't want to have paid athletes per se versus the market and the opportunities that a lot of these students can have," said Marion County Judge David Dreyer, who judged the court battle between NCAA and insurers.

In the trial court case he oversaw, Dreyer decided that insurers didn't have to cover settlements related to antitrust accusations. The companies successfully argued that because their policies covered the payout of a previous class action suit by NCAA athletes from 2008, the NCAA had already hit the limit on their coverage.

The NCAA challenged Dreyer's decision, but the Indiana Court of Appeals upheld it in July. The Indiana Supreme Court transfer denial from March 11 put an end to the lawsuit unless the NCAA tries to take it up with the U.S. Supreme Court.

What's next for the NCAA

The only thing that would change how insurance payouts happen, said Grow, is if the NCAA bought new policies. But it’s unknown what insurance companies would charge after some athlete compensation bylaws have been picked apart in court in recent decades.

Either way, the pressure is building for the NCAA to change — or to change the laws they can't seem to escape.

"Whether that means that they go out and loosen up the rules to allow players to receive more compensation in ways that they hope will then alleviate these antitrust cases. Or, the other 500-pound gorilla in the room is, do they go and successfully lobby Congress to get a statutory exemption from the antitrust laws?" he said.

The NCAA is concerned that court rulings that challenge its financial restrictions could become a slippery slope to more money demands from students and turn college sports into a "pay-to-play" business. Could a student argue that a car, for example, is an educational expense? It does help them get to class.

That remuneration would lead to the loss of amateurism, says the NCAA. The organization has hinted that it is opening up its bylaws, but it is also battling in the U.S. Supreme Court to challenge the Ninth Circuit's decision around this very issue. Oral arguments in that case will begin this week.

To outside viewers the NCAA has been downplaying worries about what court battles mean for its financial standing. In a 2020 annual report the organization wrote that court cases likely will not “result in material losses or have a material adverse effect on the consolidated financial position, change in net assets, or cash flows of the NCAA."

Baruch College sports law professor Marc Edelman, a vocal NCAA critic, said the solution is straightforward. “All the association needs to do is reform certain bylaws and grant certain rights to college athletes to bring themselves far more likely in compliance with antitrust laws.”

Until then, said Edelman, “the NCAA is its own worst enemy.”

Call IndyStar courts reporter Johnny Magdaleno at 317-273-3188 or email him at jmagdaleno@gannett.com. Follow him on Twitter @IndyStarJohnny

This article originally appeared on Indianapolis Star: NCAA on the hook after Indiana courts say insurers don't need to cover $208M settlement

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