Podcast Alert: What Needs to Change in the Protect College Sports Act?

Transcript

+^

Charles Rolston: [00:00:00] Welcome back to Navigating Sports Business. I’m Charles Rolston, joined once again by our founder, AJ Maestas. AJ, great to have you.

AJ Maestas: Thank you for having me.

Charles Rolston: Today, we’re wading into the biggest fight in college sports right now, the Protect College Sports Act, and Congress says that it’s trying to save collegiate athletics.

But what we’re gonna dive in today is whether they’re actually saving the sport or just freezing it in place. And a quick catch-up for all our listeners before we dig in, this bill has been a moving target all week. Lawmakers met with SEC and Big Ten stakeholders last week, said they’d go back to the table, revise the bill with some of their common sense improvements, and now we’re actually getting a first look at what some of those revisions are, and it’s all happening in the most scrutinized part of the act, the realignment restrictions.

And as reported by Ross Dellinger this morning, the latest revisions say that conferences [00:01:00] would be capped at 19 schools. In context for any of our listeners, the Big Ten is currently at 18 institutions and the SEC is at 16 football playing institutions, so there’s almost really no runway left for those two conferences.

And on top of that, any program that wants to jump from one power conference to another would have to sit out five years as an independent before it could join. Now, we’re still in the wake of the latest realignment cycle and how that’s impacted the collegiate athletics ecosystem more broadly. So AJ, let me– let’s dive into this.

What do you think about the realignment provision within the bill generally, and then what are your thoughts about the parameters that lawmakers have put in place as of this morning to, to stifle movement?

AJ Maestas: Well, I understand why they wanna do that. You know, they feel that certain conferences have been left behind or harmed and what have you, and it might seem, you know, chaotic.

But I, I don’t like the idea of freezing it in place as it is now. I think it’s in a significant moment of [00:02:00] evolution, the sport as a whole. I think there’s some things about the geographic sort of footprint and alignment right now that, that time will sort out, but holding onto it or creating major hurdles right now would not be healthy.

So unfair for those schools that want to find themselves there. I, I believe in reasons they would wanna regulate movement, but not eliminate it. You know, I could see transition payments or some sort of fair system of financial implications so it’s not destroying a conference on the way in or out and what have you.

I can see windows, you know, almost like free agency windows. I could see an independent review just to make sure, you know, that some unintended consequence isn’t a major problem. But, but yeah, I wouldn’t eliminate optionality. You know, that’d be like saying, “Boy, we just love the alignment right now, and everything seems sorted out perfectly.”

So I would say Congress should protect competition, but not every competitor. We’re a free market country, right? There are some things that deserve to sort themselves out here. So yeah, guardrails and systems and possible regulation, but [00:03:00] not hard and fast rules like that. Not a fan, and I hope that changes here.

Charles Rolston: And I’ll caveat that this is a fluid document, and we might see changes to this by the end of the afternoon. But when I look at it, the work that we’ve done with various conferences on football scheduling, odd numbers are a no-go zone to begin with. 19 is a difficult number to be able to schedule a fair conference play.

But I think the more surprising thing is the five-year independent runway needed in order to actually transition to a new conference. And I think the only one, Notre Dame is essentially grandfathered into this rule, as we’ve heard through some other reporting. But do you think that any other institution, whether it be Florida State, Miami, North Carolina, ones that have been in the rumor mill as of recent as potentially, you know, looking to leapfrog into the Power Two, this five years of independence is gonna be difficult, not only from a financial standpoint, but from having to schedule all [00:04:00] their Olympic sports.

Do you think that this is something that would be reasonable if it were put into law, that some of these schools would actually say, “Hey, we’re willing to bite the bullet for five years as long as this does secure our future”?

AJ Maestas: It’s tough. It’s not impossible to find schedules and work that out, but that’s putting such a burden on the student athlete.

So we’re gonna punish kids, you know, to sort of prevent the institution from being a place it should be. And you named some of the schools that are obvious targets to move up to a, a stronger conference or what have you, but, but keep in mind things like Cal and Stanford. I mean, it– do we really want to lock them into the West Coast?

They’ve already punished themselves by taking a haircut to be a part of the ACC. Then they would go through another five-year cycle if they suddenly got the chance to be better geographically aligned or something like that. Yeah, I, I don’t like it. I, I understand what they’re trying to do, but I think there’s a better way to go about that.

And if you look at the fluid nature of realignment, each time a television deal comes up, there’s a lot more movement than people realize. It has a cascading [00:05:00] effect. If you look around the world and the number of participants in a given league, it’s pretty clear that this is not a mature state that we’re in in college athletics, nor is there any league, I think, with more than 32 members in it anywhere in the world, and we have over 130 members in at least the top level of football at the moment.

So it’s just not realistic. So I– oof, boy, think of any industry when regulation has come in and put in hard and fast rules. Have they created the right incentives, and have they allowed for growth? Do we think we’ve reached a mature state? I don’t think so. I, I think you gotta leave some room for movement there.

And I’m not even talking about members of some of these conferences that they don’t look like the others on the negative end of the scale. You know, should they really– why is university X in the Big Ten or SEC and university Y prevented from being in there? I think there’s better solutions, and again, you know, some guardrails essentially is what I would personally recommend.

But yeah, naming the number, r-really unfortunate what this would mean for so many schools with these aspirations. Wouldn’t you want to incentivize those? Wouldn’t you want to [00:06:00] reward these schools for investing that see this incredible alignment with college athletics? I really hope this is an element that, that changes.

Yeah

Charles Rolston: I’m really glad that you brought up Cal and Stanford because, you know, they are slighted a few different times in these bills based off their future, uh, in this bill based off future optionality. So assuming that the actual realignment movement aspect of the bill does stifle them from moving into another more geographically fit conference, the, the mechanisms within the media rights pooling actually targets their minimum guarantee to a period of time where they’re receiving discounted payments compared to their peers in the ACC.

For those that don’t know, just a quick primer. Essentially, if there was collective pl- pooling across the FBS, then all schools would essentially be guaranteed the highest media rights distribution between 2001 and 2020– or 2021 and 2025. And for [00:07:00] Stanford, for Cal, for SMU, for a number of other institutions, that’s a period of time where they took in a junior membership payment compared to their peers.

So what do you think Cal and Stanford are thinking about right now? I know they were forced into an extremely tough position during the last realignment cycle, but, you know, seeing some of the, the provisions within this bill, they gotta be pr- pretty upset, don’t you think?

AJ Maestas: Oh, yeah, without question. And honestly, I’d hate for us even to belabor the point because, you know, you, you can never underestimate lawmakers doing something silly for some funny reason.

But the idea that schools would be locked in what they’re earning now, Washington and Oregon are half share in the Big Ten. I think Oklahoma and Texas are still in transition to the SEC. There’d be so many universities where it makes no sense that they’re locked into their current state. So again, there’s plenty of mechanisms to sort of adjust, right?

Or so we’ll see what’s happening, right? Like this negotiation is taking place as we’re talking, so hopefully reasonable minds come to a more reasonable place. But more than just the economics for the [00:08:00] Cal and Stanford situation, or think of all the group of, you know, six universities that aspire to be at that higher level someday and are making investments to do so.

And I would argue the only way you could sustainably finance an athletic department in the future is to play at the highest level that you reasonably can reach. At the lower levels, the economics are even worse, and you don’t get the benefits that accrue to a university from the exposure and the, you know, the visibility and the schedule and what have you.

So look how people are spending their money. They’re making all-out efforts to play at the highest level and, and I agree with that. I think that’s the right playbook. And then to just sort of pull the rug out from underneath them, it– No, I, I, I’m not a fan of that. It, it’s clearly not in a current mature state.

The geographic map is silly in some scenarios. You just have to leave room for some natural evolution here.

Charles Rolston: So let’s take a step back and look at the document as a whole. I mean, obviously this type of bill has been floating around for a number of years, and the real catalyst behind this is the disparity between football roster costs [00:09:00] and NIL.

And you have institutions within the same conference that are spending upwards of $40 million on their football rosters versus ones that are spending, you know, between 10 and 15 million. And most coverage of the Protect College Sports Act are really kinda asking whether this is a good NIL bill, but you think that’s the wrong question, don’t you?

I,

AJ Maestas: I mean, in the pro sports world, collective bargaining has you looking at compensation and the share as a percent of revenue every few years. You know, legislation like this, it could be generational, so very scary to lock it in. The second thing I’d say about that is, yeah, it, it’s not just NIL they’re looking to fix here, but are they even fixing it in the right way?

A, a free and open market, as you see in the pro sports leagues in the US, tends to be about 50 cents on the dollar goes to athletes, and this is about half that. You could argue that the right place to land here is, uh, a cap of 40 million per year, uh, not 20 million as the current NCAA house settlement, you know, settles on.

And what does that lead to when you constrain a natural market? It leads [00:10:00] to black markets. And what black market do we have here? Ridiculous NIL that has nothing to do with endorsements, but is packaged and made to seem as if it is. And look at the numbers. Y- if you look at the ratio of endorsement or NIL deals in college athletics relative to other pro sports, it’s off the charts.

It’s silly. It’s very clearly pay for play. It’s very clearly, uh, circumnavigating, you know, the rules to be competitive with your roster. So I think some honesty and being realistic about that percent share that goes to athletes is appropriate. But, you know, you asked is this more than an NIL bill? Sure, it is.

There are so many things here that people need, right? Some form of antitrust protection or whatever it can then give them some air cover for legal risk. You know, they, they can’t do anything, right? Because they lose every lawsuit that pops up, so there’s gotta be some controls. I mean, you think of free agency windows and NIL and transfer and are these kids even gonna graduate?

And you think there’s, there are plenty of elements of this that are really healthy and really good. I just worry that it may go too far in sort of s- locking in economics and saying, “Okay, now we’ve got it. You know, we’re in a [00:11:00] mature state.” Which we clearly are not. We’re in a very transitional phase.

Charles Rolston: I mean, the intentions are good here, as with most of these bills.

You know, stability over chaos, air cover from future legal risk. I mean, these are things that all of these institutions want, whether you’re in the SEC or the Big Ten or you’re in the Group of Six. But what, what, why do you think that the SEC and the Big Ten are really pushing back so hard on this right now before we might actually see it get voted on?

AJ Maestas: You know, the bundling thing, you know, there, there’s versions of this that kind of indicated, you know, bundling of rights. And as you know, at Navigate, we think those positive outcomes are overstated. Uh, if I’m not mistaken, the public comments we’ve heard from some of the folks involved with this w- have said, you know, that at the next cycle, a decade from now, there’d be twice as much money from bundling as it would be if they stay this way.

We don’t agree with that. I think that’s significantly overstated. There are benefits to bundling, but, but not at that magnitude. A second reason, and, and to answer your question about the SEC and Big Ten, is that those [00:12:00] benefits would disproportionately accrue to the Big Ten or SEC if they were separate.

You see the blockbuster effect across all of sport and entertainment and business. The money is flowing toward the most prestigious and attractive brands and larger group audiences, and that’s where sponsorships go, and that’s what drives distribution. And by, by any measure, the growth rate would be much higher for the SEC and Big Ten in future television deals than other conferences.

So it looks like a subsidy, and so I’d push against that, right? You know, you see the speed of rules and, and, and governance and what have you. I mean, it’d be much easier to govern yourself as an independent conference, uh, and you’d be this super valuable entity. So yeah, I mean, I think it’s very legitimate.

If I’m sitting in their seats, I’m asking myself why don’t I just go do this on my own versus live under governance that’s pushed down from Congress. Yeah, for sure. It, that would be a really strong thesis of mine is why is this not better? And the only thing I think they can offer them that’s significant benefit-wise is antitrust protection, right?

A, a, a legal [00:13:00] shield. Otherwise, of course, you unquestionably would Yeah, you’d go out on your own

Charles Rolston: Yeah. Well, I mean, we saw Commissioner Sankey, uh, get asked the question about self-governance today, and he says that the presidents and chancellors of the institutions within the SEC are certainly considering that option.

Why wouldn’t they?

AJ Maestas: I do think the conversation is constantly floating toward media and, uh, capturing those media dollars. Not only do we not believe the potential gain is near as much as being stated out there, but that is the bucket of revenue that is closest to optimized. So our math indicates that college athletics captures about 57 cents on the dollar, as would a pro team with the same amount of fans, interest, ratings, loyalty, what have you.

So if you think about that, it’s unfair as a measure because these are not-for-profit institutions with many stakeholders and other, you know, goals and what have you, so they’re not pro sports teams. But, uh, of the buckets, let’s call it sponsorships and ticket revenue and media revenue and licensing and what have you, uh, the closest thing to what we see as fair optimized market value are the television deals.

So the place to go looking is actually those [00:14:00] other buckets. So there’s a lot of places where, you know, universities could look inward to bootstrap their way to greater revenue. And again, I don’t know if freezing some of these sort of systems in place actually helps, you know, the universities do that.

Charles Rolston: You know, one thing that hasn’t been talked about too much, and I think it’s kind of funny, that when Trump had this meeting with various collegiate athletic stakeholders months and months ago, I don’t think that there was any real representative for the players and the student athletes. Now, do you think that this bill is actually a win for the student athletes?

I know what you mentioned about collec- collective bargaining at the pro level. They would probably be earning twice as much if they were able to do that. But as it’s written right now, I’m not sure I’ve seen that much coverage saying that this would be a win for student athletes. Would love to get your two cents on that.

AJ Maestas: There, there’s some real positives in there. Of course, you have to say wh-which athletes. We still have not collectively as an industry answered the question of Olympic sports Title IX, how do Olympic sports survive, right? Currently, they virtually all of them run in the red, and that wouldn’t [00:15:00] be any normal business, but we believe in that mission, right, as universities.

And how do we cover for it? We cross-subsidize, right, with essentially the football players and basketball players and, and the revenue and profit that those sports generate. So I’m generalizing, but you get the gist. So, you know, who’s it fair for? And total net athletes who get to be under a scholarship and, you know, play college athletics and with what resources and what ways do they travel.

I believe the NCAA president recently came out and talked about, you know, regionalizing Olympic sports makes a ton of sense. It, it just, you know, you’re already losing money. Why on earth are we flying across the country, you know, to play volleyball and soccer matches and what have you? But, but, you know, they, it, they don’t have a seat at the table.

The athletes do not appear to have a seat at the table. What would happen if they did? I don’t think it’d be disastrous. I think people worry about things that look like collective bargaining destroying the sport. Most of those things are being given anyway, but I do think there’d be a higher percent of share for athletes in football and basketball in particular, as you and I just discussed.

It’d probably be closer to 40 million than 20 million for the larger universities. I think there’d be guaranteed [00:16:00] contracts. I think they’d have some medical protection. There might even be some lifelong benefits, whether it’s retirement-like things or medical. I think they would probably fight for and get some of the freedoms of transfer and multiple transfers and what have you that are gonna be curbed by this bill.

But those aren’t crazy things. Those aren’t crazy gifts. I think that it could be done in a way that is reasonably close to what collective bargaining would produce, and at the same time, you could cap some of these forms of compensation that are under the table, right? These fake endorsement deals and what’s happening in the NIL marketplace, which is clearly the real marketplace just speaking, right?

People are willing to part with money to pay these kids, so let’s just get it in a regulated format. Let’s get reasonable contracts. Let’s get these rogue agents out of there, right? There should be agent registration and some of the things that happen in all the typical pro sports leagues. I have some stories that I won’t bore the audience with in this conversation, but some of the transactions, the percent that’s going, agents are getting 10% to 20% on a lot of these transactions.

The NFL regulated number is 3.5%, [00:17:00] so they’re taking giant percent o-of these deals. These are very young people. These are often agents that aren’t trained, aren’t attorneys, aren’t labor attorneys, you know, haven’t registered, you know, so forth and so on. So yeah. The, the- there’s some real benefits to athletes in this, and there’s just a few more that I, other than the economic one that I keep mentioning, most of these aren’t that hard of a give.

So I think there’s more there. But yeah, w-what do you think? I mean, when you look at the compensation, what would your point of view be?

Charles Rolston: I think it’s gonna be really hard to put the toothpaste back in the tube in this situation, to be honest. I mean, we’ve already seen what the free and open market essentially, even though there were, there were harsh restrictions around it, you know, were able to command with the, with the advent of this gray market.

But if the bill actually does put some teeth on what the CSC is able to do to reduce this gray market, I just think that’s gonna create future lawsuits in the future. You have athletes with an expectation that a football roster at a top institution in the country is gonna command around $40 to [00:18:00] $45 million, or close to it.

Now we are obviously trying to reduce expenses and costs across the board because there’s only a few institutions that are able to actually keep up with the inflation of this player market. Are we really gonna see those institutions go back to 20 to 25 million? I, I just don’t see it. I, I… And that’s kind of one of the biggest issues that I have with this, is that the players don’t really have a voice.

But because it’s really focused on reducing the growth of, of NIL costs, is that the players are the ones who are almost gonna be most affected by it negatively. It, one of the toughest situation is what you mentioned. I mean, may- maybe not all 130-plus in athletics departments and programs can be saved.

And, and that’s the thing. You, you know, we always compare the collegiate athletics to professional sports world, but it’s four, four and a half times bigger than what the NFL is. And, you know, they, they only have to support 30 some odd- 65, yeah … uh, 30, 30 some [00:19:00] odd football teams whereas we’re doing 100, 130 plus.

And so maybe there is a way to bifurcate the competitive level in order to ensure that still playing for championships, we’re still playing relative at the highest competitive level that our budgets can actually afford. But if we’re saying that, you know, this bill is gonna save all FBS playing institutions and give them a path and a chance to win national championships, you know, that’s just a fool’s errand.

But I think we belabor the point. I think we’ve hit the high notes on what is most important and on people’s mind. But AJ, is there anything else, you know, what’s one question that listeners should leave with after listening to us talk about this today?

AJ Maestas: Yeah. I, I would ask can you indefinitely run a professional business inside an amateur governance model?

I think the answer is no, right? So let’s have room for this to sunset or let’s create flexibility. Are you creating a situation that creates more value? Is there– Are athletes being treated more fairly? Is, is there an incentive and encouragement for innovation and [00:20:00] change? Uh, I think there’s very much a way to preserve what college athletics is and what makes it special, but to create the proper incentives and space for it to evolve and grow.

So can this be something better than it is today? I think the answer is yes. But I would not freeze 2026 college athletics into federal law. That, I think, hopefully most people would agree with that. You’d say, “Oh, no. This thing is in, uh, transition right now.” Obviously not. If, if they try to, we’ll just be back in Washington having the same conversation in a few years, and schools will breathe this sigh of relief and think, “Okay.

Well, we now have these new rules we’re operating under. We’re good now like this.” And then chaos again.

Charles Rolston: Well, I think we should probably end this with a prediction. I think that’s what a lot of people are potentially looking for. I listened to a podcast this morning with Ross De-Dellinger and John Canzano, and Ross mentioned that the bill is still technically early.

He put it at step three of 10 into becoming law. But then also mentioned that, you know, it’s probably a 50/50 shot that it actually [00:21:00] does pass Congress. And maybe he knows a little bit more about some of the latest revisions and how that might appease SEC and Big Ten stakeholders. But realistically, there’s a critical deadline coming up.

It’s the August Senate recess. And he mentioned if it doesn’t pass the Senate before then, then the chances of it becoming law during this Congress in fall, it– Or, sorry, this Congress, that it actually falls significantly. And so we might just kick the can down the road another year. Now, do you think that lawmakers and politicians are incentivized enough to find something that makes all of the FBS institutions happy enough for this to actually get put into law before this August?

AJ Maestas: Okay. Well, I think the answer is yes because they don’t have to live with it. You know, it’s not their problem once it’s set in law. They’re just worried about votes, right? And what keeps them in office and making sure their constituency is happy. So Yeah, I think so, especially because I feel like a lot of people out there believe the bundling of these [00:22:00] rights will bring all this new media money, again, which we’re, we’re skeptical of.

And you know why we’re skeptical, right? There’s only so many time slots on a Saturday. We have talked with media executives, you know, the leaders of these key, uh, media companies that don’t see value in that. So if they continue to believe there’s 2X media value by doing this, and so not only can they bring rules and regulation, but it’ll also pay for itself, yeah, that’ll pass.

And maybe I’m wrong, or maybe we’re wrong, right? And, and the money is there from the media side. So yeah, I’m gonna guess that it passes ’cause it’s getting so much time and attention, and you do the best you can. They’re not gonna reach perfection. I hope they make a lot of the changes that we discussed today.

But I’ll say, yeah, it gets across the finish line ’cause everyone recognizes it’s a big problem and it’s bipartisan, right? So I’d say a lot of changes, it passes

Charles Rolston: I’m gonna take the other side of this. Oh,

AJ Maestas: good.

Charles Rolston: Good. And, and, and the main- Go ahead … the main reason, the main reason for that is because we heard about these productive meetings with the SEC and Big Ten last week, and [00:23:00] then what do we see on Monday?

We see a revision to the realignment provision, which is obviously one of the most contested provisions within the bill that says that conferences are capped at 19, and any school that wants to move from one power conference to the other needs to be an independent for five years. I just think that when, you know, the SEC and Big Ten stakeholders saw that, they said, “Well, these guys didn’t listen to us at all.”

So I think unless that leaked for a certain reason to influence certain people, you know, that I can’t foresee right now, I th- I think that we’re still pretty far away from getting SEC and Big Ten support on this, and I don’t think that this is even gonna be brought into session without them supporting the bill pretty consistently.

So I think we’re taking two opposite ends of this pr- prediction. I feel bad about it because I feel like we’re just gonna be talking about this again next year, or we could be talking about SEC and Big Ten self-governance, which will be an interesting podcast in itself. But I think that’s enough [00:24:00] for today.

This was supposed to be a quick take, and it ended up running even longer than we thought because there’s just so much to talk about, but it’s fluid. It’s changing every day. As new revelations do come to light, you know, we’ll be sure to talk about it and keep you up to date as much as possible. But thanks again for listening to Navigating Sports Business, and we will see you next time.