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Asser International Sports Law Blog | The O’Bannon Case: The end of the US college sport’s amateurism model? By Zygimantas Juska

Asser International Sports Law Blog

Our International Sports Law Diary
The Asser International Sports Law Centre is part of the T.M.C. Asser Instituut

The O’Bannon Case: The end of the US college sport’s amateurism model? By Zygimantas Juska

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;

  • restricting compensation increases output of its product and if lifted, schools might disregard Division I;

  • 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.

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