Introduction
The Third Circuit’s departure under Johnson’s economic realities test provides a more workable
standard than Glatt’s test for determining a student-athlete’s status under the FLSA but is not the best way
to determine whether athletes should be considered employees under the FLSA. While the Third Circuit's
rationale for the economic realities factor test for student-athlete employment is a positive step towards
judging if an athlete is an employee and therefore qualified for protection under the FLSA, it falls a step
short by not distinguishing between athletes in revenue-generating, and non-revenue-generating sports.
Background
College athletics have existed since the 1850's, following the path of the country, starting on the
East Coast, and eventually traversing the nation spanning from sea to shining sea. As collegiate sports
began to increase in popularity, President Theodore Roosevelt called a meeting in 1906, leading to the
creation of the NCAA, and enacting rules forbidding college athletes from receiving payment or financial
consideration.1 This choice requiring college athletes to maintain their amateur status began a century of
tension, with the NCAA remaining steadfast in requiring athletes to play as amateurs, and athletes
continually pushing for compensation for their performance. There have been numerous scandals around
paying athletes, including SMU football’s “Death Penalty” punishment, and Johnny Manziel’s ability to
capitalize on his Name, Image, and Likeness. Other athletes fought in the courtroom, seeking
compensatory rights for college athletes through the judicial system. O’Bannon v. NCAA from the Ninth
Circuit held that the NCAA was not immune to antitrust scrutiny, a win for some in the athlete
community, but a ruling that stopped short of granting athletes’ access to profiting from their Name,
Image, and Likeness or other forms of compensation.2 Alston v. NCAA would change that. Alston allowed
athletes to be compensated for their Name, Image, and Likeness; a watershed moment in college athletes'
rights as a legal path to compensation now existed.3
Following Alston, the Third Circuit Court of Appeals in Johnson v. NCAA, sought to determine if
college athletes as amateurs, were precluded from bringing claims under the Fair Labor Standards Act
(FLSA).4 The court found that they were not. The athletes brought their case under claims they were not
paid minimum wage under the FLSA. The District Court applied Glatt’s economic factors test, but the
Appeals Court was unsatisfied with this test and instead remanded the case with instructions to retry it
under its new economic realities test “grounded in common law principles.”5
Johnson Test
The Third Circuit developed their economic factors from dissatisfaction with the Glatt test
comparing athletes to unpaid interns.6 Unpaid interns are assumed to benefit from internships as they
enter “the relationship with the expectation of receiving educational or vocational benefits that are not
necessarily expected with all forms of employment”7 Johnson held the test was incomplete when
factoring in the “benefits” cited by the athletes which are more like those in a work environment. Instead
of Glatt’s test, Johnson developed the economic realities factor test to determine if a student-athlete
qualified for coverage under the FLSA. The four factors to consider are whether the athletes perform
services for another party, whether the athlete’s services are necessarily and primarily for the other party’s
benefit, whether the athletes are under the other party’s control or right of control, and whether the
athletes perform their services in return for express or implied compensation or similar benefits.1
Analysis
While the Third Circuit’s rationale for the development of the economic realities factor test was
correct in ruling that collegiate student-athletes were protected by the FLSA, it fell one step short by not
sub-dividing the group into athletes who participate in revenue-generating sports and athletes who do not
participate in revenue-generating sports. This paper defines revenue-generating sports as football and
men’s and women’s basketball. Some schools may have other sports which generate revenue, but those
sports do not produce revenue with the same consistency a football or basketball program may. The
revenue-generating sports are typically the sports that bring in the money for the athletic departments to
operate the rest of the teams. In 2022, the average Division 1 football program brought in almost $32
million, and the average men’s basketball team brought in around $8 million.8 These revenue-generating
athletes have a different set of opportunities than their non-revenue-generating colleagues, and because of
that, separating them into two groups is the more appropriate legal framework.
In general, collegiate student-athletes will meet at least two, often three of the Third Circuit’s
economic realities factor test. Where cases will turn is on the facts. It can often be shown the athletes’
services are necessarily and primarily for the other party’s benefit. The categorization of athletes into
revenue-generating and non-revenue-generating sports is important because of the final factor, where
most cases will be decided, whether the athletes perform their services in return for express or implied
compensation or similar benefits. While NIL compensation is permitted for athletes of all sports, most
funds flow to athletes in revenue-generating sports as schools look to maximize their profiles, businesses
hope to expand their brands, or athletes aim to maximize their value. There are certainly exceptions (the
top NIL earner, Livvy Dunne, an LSU gymnast, participates in a traditional non-revenue-generating
sport), but, in the first year of NIL, 95.7% of NIL funds were distributed to revenue-generating sports.9
This is understandable as research has found a correlation between athletic success and increased interest
in a school, aka, the "Flutie Effect".10 By having such stratification in the groups, splitting the athletes into
separate piles is necessary because their experiences around compensation likely will be so different.
While a revenue-generating athlete might have the opportunity to engage with a collective or different
entity around significant money tied to the athlete’s NIL rights, athletes in non-revenue-generating sports
are much less likely to be afforded these opportunities, and typically the opportunities they do receive
come in at significantly lower dollar amounts. The non-revenue-generating athletes will argue Johnson’s
test in the acquisition of similar benefits or implied compensation, unlike the revenue-generating athletes
who will have a greater likelihood of being able to bring evidence forward of express compensation.
Revenue-generating athletes have access to fans on a much wider scale through television
broadcasts and the media opportunities their sport provides them than non-revenue-generating athletes do.
The television deals signed by football conferences or by the NCAA for their March Madness
tournaments for basketball teams lead to most of the funding classifying these sports as revenue-
generating. Conversely, non-revenue-generating sports are often held on regional sports networks,
streaming services, or are only available behind a paywall, a barrier that limits the access these athletes
could reach as their popularity is already starting with a severe disadvantage when compared to those
athletes with nationally televised games.
This is not to say a non-revenue-generating athlete cannot
overcome this challenge, there are examples of those who have become wildly profitable by capitalizing
on social media popularity, but even then, their athletic abilities are still only available to fans who put in
the extra work to find these athletes and sports in the tucked away places, instead of the more prominently
displayed platforms that the revenue-generating athletes often enjoy.
On top of these classification challenges, courts also must consider policy concerns with applying
the Johnson test, including the optics of schools buying their players through bidding wars. Another
question involves monitoring where this funding comes from. Private equity brings challenges and
questions about the strings attached to the terms of the funding as returns on investments must be met.11
Other schools could opt for the “collective” approach, turning to donor networks to put funds into their
players' pockets, but that blurs the lines between money from the outside and money being paid directly
by the school to players, more like a pay-to-play model.12 Still others have taken on direct involvement
adding a player tax to their tickets so fans can help offset the cost of acquiring top talent.13
Another concern is a sovereign fund looking to continue a sportswashing campaign by turning their attention to an American sports landscape with command over large swaths of the American public.14 These sovereign
funds have deep enough pockets to bankroll any deal needed, but their ulterior motives will remain under
scrutiny. Regardless of where funding comes from, other questions remain around the allocation of funds.
If the football team brings in 95% of the revenue, should they get 95% of the funds, or should there be a
more even distribution amongst the teams? Title IX and similar legislation will influence these decisions,
as collectives push to fairly compensate players without causing more problems. In any instance where
outside funding flows into a school, there will be a distinct advantage for revenue-generating athletes in
receiving the funds, creating a need for splitting the group in two for proper analysis.
Finally, especially in revenue-generating sports where budgets are typically significantly larger,
this influx of money could impact the competitive landscape. There is a possibility of bigger, richer
schools stashing players to keep their rosters deeper to the detriment of schools with smaller budgets,
impacting the parity of college sports. Some courts believe that NIL will have the opposite effect, by
allowing players to profit off their abilities, they will go where they can play and seen, grow their brand,
and financially benefit.15 Ideally, this is correct, philosophically this is likely correct, but when a bigger
school, with deeper pockets or more financial backing targets the same player as their rival, competitive
nature could take over.
There is a real possibility these funds could be used to pay players to remain on
teams they would not otherwise stay with because of the financial resources available, constricting the
competitive parity in college athletics instead of dispersing the talent to more schools. Professional sports
teams engage in bidding wars to drive the price up on their rival or trade for a player to keep that player
from joining another team, thereby strengthening their team, while also weakening another team. Is it
unreasonable to think the same would not occur in college sports? These bidding wars are hypothetical,
and could happen in any sport, but have a higher likelihood of occurring in sports with more money and
funding, the revenue-generating sports, than in non-revenue-generating sports.
Conclusion
The Johnson ruling was an important piece in the discussion around student-athletes as
employees under the FLSA, but without splitting athletes into the subcategories of revenue-generating
sports versus non-revenue-generating sports, the economic factors test will cause further confusion and
prove to be unworkable as the divide between groups continues to widen in college sports.
1 NCAA v. Alston, 594 U.S. 69, 76 (2021).
2 O'Bannon v. NCAA, 802 F.3d 1049 (9th Cir. 2015).
3 NCAA v. Alston, 594 U.S. 69, 107 (2021).
4 Johnson v. NCAA, 108 F.4th 163, 167 (3d Cir. 2024).
5 Id. at 167.
6 Id. at 179, (quoting Glatt v. Fox Searchlight Pictures, Inc., 811 F.3d 528, 535 (2d Cir. 2015)).
7 Glatt v. Fox Searchlight Pictures, Inc., 811 F.3d 528, 535-536 (2d Cir. 2015).
8 George Malone, Which College Sports Make the Most Money?, Yahoo!Finance (March 21, 2022)
9 Margaret Fleming, As NIL Turns Three, Collectives and Football Still Control the Industry, Front Office Sports
(July 1, 2024, 5:31 PM), https://frontofficesports.com/as-nil-turns-three-collectives-and-football-still-control-the-
industry/.
10 Johnson 108 F.4th at 169 (speaking about Professor Doug Chung’s research and findings that athletic programs
are “higher education’s primary form of mass media advertising.”)
11 Eben Novy-Williams, Daniel Libit, FSU’s ‘Project Osceola’ Private Equity Push Began in 2022: Docs, Sportico
(January 30, 2024, 5:13 PM), https://www.sportico.com/leagues/college-sports/2024/fsu-project-osceola-private-
equity-jp-morgan-1234764861/.
12 Pete Nakos, What are NIL Collectives and how do they operate?, On3 (July 6, 2022),
13 Chris Low, Tennessee increases ticket prices by 10% to help pay athletes, ESPN (September 17, 2024, 2:56 PM),
athletes.
14 Jeff Hauser, Jason Jones, Former Colorado coach says he sought NIL funding from Saudi Arabia’s PIF in
unprecedented move, Sports Illustrated (August 26, 2024), https://www.si.com/college/colorado/football/colorado-
sought-nil-funding-from-saudi-arabia-pif-in-unpreceded-move.
15 Ohio v. NCAA, 706 F. Supp. 3d 583, 594 (2023).
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