Why Electronic Arts Will Finally Pay Current and Former NCAA Football Players

Last Friday, Electronic Arts' (EA +0.03%) Sports and Collegiate Licensing Company announced a settlement resulting from several class action lawsuits that revolve around use of players' likenesses. The reported $40 million settlement could see as many as 200,000 former and current college football and basketball players be compensated for past use of their likenesses in EA Sports college football and basketball video games.

How much will each current and former student athlete receive?

That depends on how many of the current and former student athletes who are eligible file claims, but estimates have it anywhere from as low as $48 for each year an athlete was on the roster to $951 for each year the image of an athlete was used in a game, according to the Star-Telegram. To be eligible to file a claim, the current or former student athlete must believe his likeness, which can be a combination of his physical characteristics and biographical information like his home state, was used in video games created since 2003.

EA Sports has repeatedly defended its position that the physical characteristics of players in the games are not based on current or former student athletes, but evidence in the case, including emails from university presidents, paints a different picture. For example, former Big 12 Commissioner Dan Beebe once penned an email stating the conference's board was "uneasy with the exploitation of players' names and likenesses for commercial purposes."

Even more damning for EA Sports, Tim Tebow's name was found in the 2010 version of NCAA Football.

The class administrator will have the task of determining when a player's likeness was appropriated in the games. EA Sports is disclosing electronic spreadsheets that detail the players from the games, including their uniform number, position, and home state. 

One question that remains is whether current student athletes will be able to file claims and collect their share without losing their NCAA eligibility. Current NCAA rules prohibit student athletes from profiting off their likeness. However, Steve Berman, co-lead counsel for the plaintiffs in the Keller case, says the NCAA has already released statements saying they won't object to current student athletes who are eligible for the settlement filing claims.

Meanwhile, the lead plaintiffs in the three class actions this settlement covers – the Keller, O'Bannon, and Hart cases – will receive anywhere from $2,500 to $15,000 each. And, of course, the lawyers take home a big slice of the pie: $13.2 million, plus up to $2.5 million in legal fees.

What are the future implications of this settlement?

Although the settlement has no precedential value when it comes to the class action suits moving forward with the NCAA as a defendant, those who support the plaintiffs' claims see it as a victory.

Attorney Jeffrey Kessler, who filed an antitrust lawsuit against the NCAA in March claiming player compensation is unlawfully capped, says the settlement is one more step in the right direction.

"[The settlement] has implications as a precedent for the idea that these restrictions that prevent schools from letting the athletes earn any money for their likenesses need to come to an end."

Although the settlement doesn't directly impact the outcome of the O'Bannon case, set to go to trial next week, Kessler says it's consistent with the argument being made by the plaintiffs in that case. U.S. District Court Judge Claudia Wilken, who will preside over the O'Bannon case, has already indicated she will allow discussion about the video games.

How much did schools really make off the EA Sports video games?

I did some research on this last year, and I was shocked by the results. Five school shared with me their revenue numbers for both the football and basketball games produced by EA Sports for 2012-2013:

Although none of the administrators were able to tell me the exact formula used by EA Sports to distribute revenue from the video games, they did tell me a school's ranking in the polls and appearances in either bowl games or March Madness play a role. They also told me the formula is calculated on a multiyear, rolling basis.

At this time, it appears neither schools nor student athletes will be banking cash from EA Sports in the future. The NCAA Basketball game was discontinued in 2010, and EA Sports announced with the recent settlement that it would also be discontinuing NCAA Football.

Taking into account that industry analysts have pegged EA Sports revenue from NCAA Football at $125 million annually (5% of EA Sports' total revenue), it makes sense they would agree to a $40 million settlement to avoid protracted and costly litigation in the three class action suits, which could have ultimately resulted in a far greater liability.