On 8 August, U.S. District
Judge Claudia Wilken ruled in favour of former UCLA
basketball player O'Bannon and 19 others, declaring that NCAA's longstanding refusal
to compensate athletes for the use of their name, image and likenesses (NILs) violates
US antitrust laws. In particular, the long-held amateurism
justification promoted by the NCAA was deemed unconvincing.
On
14 November, the NCAA has appealed the judgment, claiming that federal judge erred in law by
not applying a 1984 Supreme Court ruling. One
week later, the NCAA received support from leading antitrust professors who are challenging the
Judge Wilken’s reasoning in an amicus curiae. They are concerned that the judgment may jeopardize
the proper regulation of college athletics. The professors argued that if
Wilken’s judgment is upheld, it
“would substantially expand the power of the federal courts to alter
organizational rules that serve important social and academic interests…This
approach expands the ‘less restrictive alternative prong’ of the antitrust rule
of reason well beyond any appropriate boundaries and would install the
judiciary as a regulatory agency for collegiate athletics”.
Background
The plaintiff, Edward O’Bannon, competed for the University of California, Los Angeles
(UCLA) during the 1991-1995 seasons. In the 1994-95 season, O’Bannon
was elected MVP of the UCLA national championship basketball team and also received the John R.
Wooden award as the nation’s most outstanding men’s basketball player.
In 2009, O’Bannon saw his likeness in a video game authorized by the NCAA for
which he provided
no consent and received no compensation. In July 2009, he filed a class action
lawsuit on behalf of current and former NCAA student-athletes against the NCAA,
alleging that college football and men's basketball players should be allowed
to sell their NIL to the NCAA.
The defendant, the NCAA, is an unincorporated organization consisting of
colleges, universities, and conferences. The NCAA rules impose strict limits on
the amount of compensation that cannot exceed the value of a full
“grant-in-aid” consisting of tuition and fees, room and board and required
books.[1]
As such, the NCAA prohibits current student-athletes from receiving any
compensation from their schools for the use of their NIL, suggesting that the whole college
sport relies upon “amateurism”. To participate in NCAA athletics, however, the
NCAA requires each student-athlete to sign Student-Athlete Statement (Form 08-3a), which grants the NCAA the
right to use the athlete’s NIL to “promote NCAA championships or other NCAA
events, activities or programs.”
Arguments of the
parties
Plaintiff
O’Bannon’s complaint alleged that the
NCAA’s college sports amateurism rules harmed student-athletes
as it constituted a price-fixing agreement among FBS football and Division I basketball schools. Under antitrust
law[1], O’Bannon
asserted that the violation unreasonably
restrains trade in the market by foreclosing current and former NCAA men’s basketball and
Division I-A football (FBS) players from receiving
compensation for the use of NIL. The NCAA accomplishes this unreasonable restraint of trade in part
by requiring all student-athletes to sign Form 08-3a. Mr O’Bannon
asserts that the Form 08-3a is used by the NCAA to mislead and compel uninformed student-athletes to forfeit
their rights not to be compensated for their NIL.
Claimant
The NCAA put forth a number of procompetitive
justifications for amateurism:
compensating athletes would negatively impact competitive balance among FBS football and Division I basketball teams;
paying players would adversely affect the integration of academics
and athletics on campuses. In practice, athletes would spend more time doing sports than studying;
preservation of amateurism is essential to its core identity, as it
protect the popularity of sport. The claimant cites the example of the Olympics,
which are deemed popular because athletes are not compensated.
The decision
On 8 August 2014, the Court found that the NCAA is a cartel that exercises market power,
fixes prices, and restrains competition. The NCAA,
therefore, must allow schools to redistribute to athletes some of the money it
generates by licensing an athlete’s name, image and
likeness to companies. In her injunction, Judge Wilken issued that the NCAA is restrained
from prohibiting an athlete from getting deferred compensation of $5,000 or
less per student-athlete per year. The money is to be paid
in a trust fund that could be tapped after college. Furthermore, the NCAA
cannot cap the value of a scholarship below the full cost of attending
college (which is few thousands more than the current scholarship).[2]
The Court rejected
each of the NCAA’s pro-competitive justifications to defend amateurism. Wilken
ruled that the NCAA failed to consistently adhere to a single definition of amateurism. In short, Judge Wilken put the
longstanding model of amateurism (the core principle of college sport since
1906) at risk in a few sentences:
“The historical record that the NCAA cites as
evidence of its longstanding commitment to amateurism is unpersuasive. This
record reveals that the NCAA has revised its rules governing student-athlete
compensation numerous times over the years, sometimes in significant and
contradictory ways. Rather than evincing the association’s adherence to a set
of core principles, this history documents how malleable the NCAA’s definition
of amateurism has been since its founding.”
Additionally, the Court
also held that people would not stop watching college sports if players are
paid.[3]
The fans care about watching football, but not whether athletes are paid
or not.
Analysis
This ruling is a
“game-changer” because the Court jeopardizes the long-standing fundamental principle
of amateurism on which the whole economic and social system of the NCAA lies.
Wilken had no use for the amateurism defence to justify the restraints on
paying players. It is particularly ironic that the NCAA seems to be a victim of
its own success. No one would have imagined at the time when the NCAA came to
existence in 1906, that college sport would grow into such a big business.
Ironically, again, the NCAA
was also a victim of its own witness. Daniel Rubinfeld, a prominent antitrust
expert, claimed
that NCAA operates as a “joint venture which imposes
restraints” on trade. This confession is definitely reflected in the Court’s
subsequent finding, suggesting that Mr Rubinfeld never denied
that the NCAA restricts competition among its members for recruitment.[4] To make matters even more
complicated, Mr
Rubinfeld had called the NCAA a “cartel” in a prior microeconomics
textbook: “The NCAA restricts competition in a number of important ways. To reduce
bargaining power by student-athletes, the NCAA creates and enforces rules
regarding eligibility and terms of compensation.” Nevertheless, he still considered
that the anti-competitive restraint was lawful because it serves
procompetitive purposes.
Despite the appearances,
however, the situation is not as bad as it looks for the NCAA. It
is true that student-athletes
will probably be compensated in some form or another. Nevertheless, the cap of $5000 to the compensation could
have been higher and it is to be paid to a trust fund. Furthermore, the NCAA can
continue preventing student-athletes from endorsing commercial products or
selling their NIL rights individually, as the NCAA and
its schools have the right to protect them against “commercial exploitation”. Hence,
it is likely that Judge Wilken did not intend to blow up the entire NCAA’s
system, but to change it gradually. From the point of view of the NCAA, it
would have been way worse if the Court had issued an injunction to enter in a
collective bargaining agreements with student-athletes.[5]
Nevertheless, the ruling opens a space for broader pervasive changes
to college athletics in the future.
Appeal
On
14 November, the NCAA appealed the judgment. The NCAA argues that a federal judge erred in
law by not applying a 1984 Supreme Court ruling that the NCAA believes protects
amateurism in college sports. The Supreme Court held that “athletes must not be paid” in
order to preserve the character and quality of the product. Furthermore, the
NCAA argued that other lower district courts have upheld the 1984 ruling.
In support
of the NCAA’s appeal, fifteen antitrust-law professors filed an amicus brief. They
argue that U.S.
District Judge Claudia Wilken “misapplied” the “less restrictive alternative
prong” of the rule of reason when she found that the NCAA violated antitrust
law. The professors added that precedents show that the Court overstepped its
bounds. Furthermore, allowing antitrust courts to “impose their own views”
could leave other organizations open to suit. They also argued that following
Judge Wilkin’s reasoning in the O’Bannon case, a court could even “require
compensation for Little League baseball players” at whatever level that seems
‘fair’ by a district judge.
What’s next?
If
the NCAA loses the appeal, the injunction will take effect the next recruiting
cycle; it will affect athletes entering school after 1 July
2016. In such scenario, the ruling will open more space for competition between the
schools, in the form of the design of compensation packages. It
seems that the volcano did not erupt yet. However, the volcano might
finally and irremediably erupt if the next legal battle against the NCAA is
successful: the Jeffrey Kessler case. He seeks to remove all
scholarship limitations imposed by the NCAA and not only be tied to the NIL. Kessler aims to introduce a free market in
college sport with players receiving salaries in addition to scholarships. In short,
he wants to turn recruits into free agents. An
outcome in his favour would change US College Sport forever. I will keep
you posted!
[1] O’Bannon v NCAA, No. 09-3329 CW, at 19 (N.D. Cal. Aug. 8, 2014)
[2] Sherman Antitrust Act, 15 U.S.C.A. §1 (2011): “Every contract, combination in the
form of trust or otherwise, or conspiracy, in restraint of trade or commerce
among the several States, or with foreign nations, is declared to be illegal.”
[3] Cost of Attendance at Buffalo, for example, is
$36,483 while Athletic Scholarship
is $33,566. See http://www.ubbullrun.com/2014/6/25/5840110/full-cost-of-attendance-scholarships-what-does-it-mean-at-buffalo
[4] O’Bannon v NCAA, at 28-30.
[5] O’Bannon v NCAA, at 22.
[6] For example, in NBA collective bargaining
agreement is the contract between
the NBA (the commissioner and the 30 team owners) and the NBA Players Association that dictates the rules of player contracts,
trades, revenue distribution, the NBA Draft, and the salary cap, among other things.