The SEC is considering a luxury tax on member schools that spend beyond the revenue-sharing cap for players established under the House v. NCAA settlement. The proposal has been under review by a working group within the conference.

Athletic directors, university presidents and general counsels have spent the past few weeks considering the issue, according to sources. The league may vote in the near future and would like to approve a luxury tax before football’s early signing period from Dec. 2-4.

There is still considerable debate about how such a tax would work. One formula under consideration would gradually tax schools after they exceed the annual revenue-sharing cap, which was $21.3 million for the 2026-2027 academic year and will rise to about $22.2 million in 2027-28 under the settlement’s terms.

Under the example being discussed, a school could face a 1% tax for spending $1 million over the cap and a 3% tax for spending $3 million over it. What happens as spending rises further remains uncertain.

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Sources cautioned that discussions about the specifics are ongoing, with more work required to refine the formula. The broader concept has been well received, but the details have not yet been 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 the approach would discourage schools from going beyond the revenue-sharing cap while producing more transparency about competitor spending. Another goal is to limit or eliminate the use of third parties to “wash” money, described as an expensive and inefficient necessity in 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.”

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A separate question is what the SEC would do with revenue collected through the tax. The destination of that money remains unresolved, and the conference is considering several possibilities.

Some proceeds might have to go to plaintiffs’ attorneys in the House case. The league is also considering using the money to fund the College Sports Commission, which enforces NIL, revenue sharing and roster limits.

Another option would direct the money toward a post graduate medical fund for college athletes. The SEC is not considering an approach like Major League Baseball’s Competitive Balance Tax.

Major League Baseball’s system sends some taxes collected from big spenders back to teams from small markets with lower revenue. That redistribution model is not among the options being considered by the SEC.

The Big Ten announced last month that it was adopting a conference rule limiting school involvement in third-party NIL agreements before the potential congressional passage of the Protect College Sports Act. The proposed law would increase direct player payments by $27.5 million, more than doubling the current $21.5 million spending cap.

When combined with institutional NIL payments allowed by the House settlement, the Big Ten rule would limit institutional involvement in athlete NIL agreements to about $49 million per institution. The conference said violations would bring escalating financial penalties and other disciplinary measures.

Whether Congress will pass the Protect College Sports Act is now unclear after Tuesday’s election results. ESPN’s Jake Trotter contributed to the report.