The SEC is considering imposing a luxury tax on member schools that spend more on players than the allotted revenue-sharing cap under the House v. NCAA settlement, sources told ESPN on Friday.
A working group of athletic directors, university presidents and general counsels has been considering the issue the past few weeks, and the league might vote on the issue in the near future, sources said.
The SEC would like to approve the luxury tax before the early signing period for football (Dec. 2-4).
Sources told ESPN that there’s still much debate on the issue, but one formula being considered would gradually tax schools once they exceed the annual revenue-sharing cap, which was $21.3 million for the 2026-27 academic year. The cap will increase to about $22.2 million in 2027-28 under the terms of the House settlement.
For instance, a school could be taxed 1% for $1 million it spends over the cap and 3% for $3 million. There’s still work to be done on refining the formula, as sources caution that discussions over specifics are ongoing. The concept has been well received, but the details need to be pinned down.
“Some schools want it to be where the penalty is as low as possible, so it’s cheap enough to where you’re more motivated just to pay it directly and report it, and everybody’s on the same page and people stop playing games,” a source told ESPN.
The SEC hopes a luxury tax will not only discourage schools from exceeding the revenue-sharing cap but also create more transparency so schools know exactly what their competitors are spending. Another goal is to limit or eliminate the need for third parties to “wash” the money, which is an expensive and inefficient necessity of the current system.
“It’s a lot better if we all know what everybody’s doing right now,” a source told ESPN. “We’re living in this world where we have no idea what anybody’s spending. Agents can play you all day long because there is no general database. We’re starting to get some information, but there’s not enough transparency to know what people are really doing.”
The SEC isn’t sure what it would do with the money generated from a luxury tax, as that remains a looming issue. Some of it might have to go to plaintiffs’ attorneys in the House case, and the league is also considering using it to fund the College Sports Commission, which enforces NIL, revenue sharing and roster limits. Another possibility is using the money to fund a post-graduate medical fund for college athletes.
The SEC is not considering mimicking Major League Baseball’s competitive balance tax, which funnels some of the taxes collected from big spenders back to teams from small markets with lower revenue.
Last month, the Big Ten announced it was adopting a conference-level rule limiting its schools’ involvement in third-party NIL agreements ahead of the potential congressional passage of the Protect College Sports Act.
The PCSA would increase the amount of money schools can spend on direct payments to their players by $27.5 million, more than doubling the current $21.5 million spending cap.
Combined with institutional NIL payments permitted by the House settlement, the Big Ten rule would restrict institutional involvement in student-athlete NIL agreements to a total of about $49 million per institution.
The Big Ten said it would impose escalating financial penalties and other disciplinary measures for violations.
It is now unclear whether Congress will pass the PCSA after the results of Tuesday’s elections.
ESPN’s Jake Trotter contributed to this report.