Editor's note
Zlatka Koleva is a graduate from the Erasmus University Rotterdam and is currently an Intern at the ASSER International Sports Law Centre.

The decision on appeal in the case of O’Bannon v. NCAA seems, at first sight, to deliver answers right on time regarding the unpaid use of names, images and likenesses (NILs) of amateur college athletes, which has been an ongoing debate in the US after last year’s district court decision that amateur players in the college games deserve to receive compensation for their NILs.[1] The ongoing struggle for compensation in exchange for NILs used in TV broadcasts and video games in the US has reached a turning point and many have waited impatiently for the final say of the Court of Appeal for the 9^th circuit. The court’s ruling on appeal for the 9^th circuit, however, raises more legitimate concerns for amateur sports in general than it offers consolation to unprofessional college sportsmen. While the appellate court agreed with the district court that NCAA should provide scholarships amounting to the full cost of college attendance to student athletes, the former rejected deferred payment to students of up to 5,000 dollars for NILs rights. The conclusions reached in the case relate to the central antitrust concerns raised by NCAA, namely the preservation of consumer demand for amateur sports and how these interests can be best protected under antitrust law.

Facts and proceedings 

The case is brought before the district court by Ed O’Bannon, a former American basketball player at the University of California, Los Angeles (UCLA).[2] In 2008 he visited a friend’s house, where he saw his friend’s son playing a video game depicting him as a player in a college basketball competition.[3] The producer, Electronic Arts (EA), based video games on the concept of college football and men’s basketball.[4] O’Bannon saw an avatar with a striking resemblance of himself, playing for UCLA with his jersey number 31. He never consented to the use of his likenesses nor did he receive any financial remuneration for its usage.[5] For this reason, O’Bannon filed a lawsuit against the NCAA (National Collegiate Athletic Association) and the CLC (Collegiate Licensing Company) for using his NILs for commercial purposes.[6] The main argument supported by his legal counsel was that the NCAA restrictions on compensation for student athletes beyond university scholarships impose a limitation on trade under Section 1 of the Sherman Antitrust Act.[7] In June 2014 the claims based on antitrust law found a solid ground and the case was sent to the district court.[8] The court at first identified two markets where the NCAA rules can have a significant impact, namely the college education market and the group licensing market.[9] Afterwards, it applied the three-step Rule of Reason test in order to determine whether the NCAA restrictions on compensation for the usage of NILs violate antitrust laws.[10] After weighting the anticompetitive and procompetitive purposes of those rules, the court took the decisive third step in pursuit of less restrictive alternatives available to the NCAA in the attainment of its final goal – preserving the nature of amateur college games.[11] It ruled that there are two alternative routes, which preserve amateurism and, at the same time, protects the NILs rights of college athletes: stipends to the full cost of attendance or deferred payments as portions of the license agreements concluded between third party licensing companies and universities upon completion of their college education.[12] The NCAA objected to the district court’s decision on the ground that the court in the Board of Regents[13] declared the NCAA rules a matter of law and compensation norms, falling outside of the scope of a commercial activity, and therefore not covered by the Sherman Act. Finally, the association claimed that the plaintiffs failed to demonstrate injury as a result of the restrictions on compensation.[14] The Court of Appeal for the 9^th circuit ruled on the case as follows.

The judgment of the Court of Appeal for the 9^th circuit

Preliminary questions

The court started the legal discussion by answering to some preliminary legal questions before ruling on the substance. It rejected the notion that Board of Regents automatically renders the NCAA’s rules valid as a matter of law.[15] In fact, “a restraint that serves a procompetitive purpose can still be invalid under the Rule of Reason”.[16] Thus, procompetitive rules are not necessarily deemed lawful.[17] Moreover, rules designed to promote competitiveness “surely affect commerce” and, therefore, fall under the scope of the Sherman Act, according to the reasoning of the Court of Appeal in the 9^th circuit.[18] Finally, the court disagreed with NCAA in finding that the plaintiffs have no standing for failing to demonstrate the injury inflicted by the compensation rules.[19] On the contrary, the plaintiffs have shown willingness and readiness by video game producers to pay for their NILs rights have they possessed these rights, which means that the requirement of antitrust injury in this case is satisfied.[20]

Rule of Reason test

Judge Bybee then continued with the application of the Rule of Reason as assessed in relation to the restrictive measures towards compensation of student athletes.

1. Anticompetitive effect

The court concluded that the NCAA’s rules have an anticompetitive effect on the college education market and invalidated the association’s arguments.[21] It further examined whether the rules produce a procompetitive effect on the market and concluded that the district court has indeed undermined the importance the NCAA pays with regard to the preservation of amateurism in college competitions.[22]

2. Procompetitive purposes

Henceforth, the court outlined two procompetitive purposes of the NCAA’s restrictions: integrating academia with athletics and fostering the popularity of NCAA by promoting amateurism.[23] Nonetheless, it was highlighted that not every restrictive rule preserves the nature and distinctive character of college amateur sports.[24] For this reason, it should be examined whether there are any substantially less restrictive measures available to attain the goals intended by NCAA.[25]

3. Substantially less restrictive alternatives

The appellate court concurred with the district court on the first alternative, namely the grants-in-aid up to the full cost of attendance. The court for the 9^th circuit stated that “the district court did not clearly err in its judgment”[26] and “indicated that raising the grant-in-aid cap to the cost of attendance would have virtually no impact on amateurism”.[27] In fact, “there is no evidence that this cap will significantly increase costs”,[28] since NCAA already granted permission to schools to fund athletes to the full cost of attendance.[29] Nevertheless, the court rejected cash compensation beyond college scholarships to athletes on the ground that if amateur sportsmen receive a payment, they lose their amateur status.[30] The central question which needs closer attention is whether payments to amateur athletes promote amateurism more than the lack of any such remuneration.[31] The court, thus, contended that the comparison between smaller and larger sums and their respective impact on the market is irrelevant, since this is not a point of discussion in this analysis: it would not crystalize whether “paying students small sums is virtually as effective in promoting amateurism as not paying them”.[32] It further rejected the analogy with professional baseball and the Olympic Games, when in 1970s there was a strong opposition against the raising salaries of baseball players and the Olympic Committee permitted the participation of professional athletes in the Games.[33] The court, however, did not agree with this line of reasoning, since the Olympics have not been so impacted by the introduction of professionalism as college sports would be.[34] Finally, the imposition of a 5000-dollar yearly ceiling of deferred payments to college athletes lacks solid argumentation.[35] Neal Pilson, a former sports consultant at CBS and an expert witness for the NCAA, did not opine on how cash compensation relates to the promotion of amateurism and his ‘offhand comment’ does not grant sufficient support for such a revolutionary turnover in the NCAA’s practice.[36] Consequently, the deferred payment alternative failed the Rule of Reason test and was, thus, rejected.[37]

On these grounds, the court concluded that a stipend beyond sports scholarships up to the full amount of college attendance is a substantially less restrictive measure, which withstands the Rule of Reason test, while the cash compensation argument failed the assessment. 

Commentary

This judgment demonstrates a remarkable, yet confusing line of reasoning followed by the appellate court. On the one hand, albeit already affirmed by the NCAA itself, the decision confirms the right of schools to provide compensation up to the full amount of attendance to college athletes. On the other hand, however, the court could have outlined more clearly the instances in which an athlete can qualify for such full compensation and those cases in which student athletes risk violating their legal status of amateurs. A clear example of the court’s reluctance to give more specific guidelines with regard to this subject matter is the rejection of the argument raised by the district court in relation to the compensation received by college tennis players. Although they still qualify as amateurs, tennis competitors earn arguably around 10,000 dollars yearly in prize money.[38] The court conveniently circumvented this argument without stating opposing views or contesting the afore-mentioned statement. It directed its full attention on how the substantially less restrictive measures can contribute to the promotion of amateur college sports instead. In fine, there are two legal points that need further examination. Firstly, amateurism is a relevant concept as long as it relates to consumer demand in antitrust claims.[39] The question at step 3 should, thus, be reformulated to whether less restrictive alternatives are virtually effective in preserving consumer interest in college sports as those prohibiting extra compensation to amateur athletes.[40] In this respect, popular demand by consumers should be the decisive factor in antitrust cases within the sports sector. Secondly, what should also be taken into more careful consideration is that the court on appeal has skipped an essential step in the Rule of Reason analysis and, thus, arguably misapplied the concept.[41] Upon identification of less limiting measures for the attainment of the main goal, one has to balance the harm those alternatives might produce against the benefits there might be if such measures were not implemented. This final stage is necessary as to provide an objective cost-benefit analysis of a legal rule, which in turn determines whether it withstands the reasonableness test. Had the court applied the Rule of Reason in such a manner, the outcome of the case would have potentially differed significantly; the court would have weighted the cost of paying cash compensation to student athletes for their NILs rights against the lack of such additional educationally unrelated payment in the attainment of the NCAA’s final aim, namely preserving amateurism in college sports. [42]  Rather, as Chief Judge Thomas stated in his opinion, it is important to underline that, in the light of US antitrust rules, it is the preservation of popular demand for college sports which should be the key factor in the legal analysis of competition issues in such a scenario.[43]

At the end of the day, the NCAA’s dilemma is solved by the appellate court by exempting the association from further financial obligations towards college athletes. Both parties have 90 days after the release of the court’s decision to “weigh their options” for appeal before the Supreme Court.[44]

[1] Edward O'Bannon, Jr. v. National Collegiate Athletic Association (the NCAA) and Electronic Arts, Inc and Collegiate Licensing Company (CLC) 14-16601 (2015) [hereinafter referred to as ‘O’Bannon v NCAA (2015)’]; O’Bannon v. NCAA 7 F. Supp. 3d 955 (N.D. Cal. 2014) [hereinafter referred to as ‘O’Bannon v. NCAA (2014)’].

[2] Ibid, p 12.

[3] Ibid.

[4] Ibid.

[5] Ibid.

[6] Ibid.

[7] Section 1 of Sherman Antitrust Act of 1890 15 U.S.C. states that ‘every contract, combination… in restraint of trade or commerce’ should be prohibited.

[8] O’Bannon v NCAA (2015) (n 1), p 14.

[9] O’Bannon v. NCAA (2014) (n 1), paras 956-968.

[10] Ibid., paras 984-1009.

[11] Ibid., paras 1005-1006.

[12] Ibid.

[13] NCAA v. Board of Regents of the University of Oklohoma 468 US 85 (1984).

[14] O’ Bannon v. NCAA (2015) (n 1), p 25.

[15] Ibid., p 26.

[16] Ibid., p 31.

[17] Ibid., p 32.

[18] Ibid., p 36: “We simply cannot understand this logic. Rules that are “anti-commercial and designed to promote and ensure competitiveness” […] surely affect commerce just as much as rules promoting commercialism.”

[19] Ibid., pp 37-43.

[20] Ibid., p 43.

[21] Ibid., pp 47-48.

[22] Ibid., pp 48-52.

[23] Ibid., p 51.

[24] Ibid., p 52.

[25] Ibid.

[26] Ibid., pp 54.

[27] Ibid.

[28] Ibid., p 56.

[29] Ibid.

[30] Ibid., p 57: “But in finding that paying students cash compensation would promote amateurism as effectively as not paying them, the district court ignored that not paying student-athletes is precisely what makes them amateurs”.

[31] Ibid., p 56: “The question is whether the alternative of allowing students to be paid NIL compensation unrelated to their education expenses, is “virtually as effective” in preserving amateurism as not allowing compensation.”

[32] Ibid., pp 58-59.

[33] Ibid., p 59.

[34] Ibid.

[35] Ibid., p 60.

[36] Ibid: “But even taking Pilson’s comments at face value, as the dissent urges, his testimony cannot support the finding that paying student-athletes small sums will be virtually as effective in preserving amateurism as not paying them.”

[37] Ibid., p 63 : “The Rule of Reason requires that the NCAA permit its schools to provide up to the cost of attendance to their student athletes. It does not require more.”

[38] O’Bannon v. NCAA (2014) (n 1), para 1000.

[39] Chief Judge Thomas, concurring in part and dissenting in part, p 68.

[40] Ibid.

[41] Carrier M (2015) How Not to Apply the Rule of Reason: The O’Bannon Case. Rutgers University School of Law – Camden. http://ssrn.com/abstract=2672256. Accessed 20 October 2015.

[42] O’ Bannon v. NCAA (2015) (n 1), p 59: “The district court adverted to testimony from a sports management expert, Daniel Rascher, who explained that although opinion surveys had shown the public was opposed to rising baseball salaries during the 1970s, and to the decision of the International Olympic Committee to allow professional athletes to compete in the Olympics, the public had continued to watch baseball and the Olympics at the same rate after those changes”.

[43] Supra n 39, Chief Judge Thomas: “Rather, we must determine whether allowing student-athletes to be compensated for their NILs is ‘virtually as effective’ in preserving popular demand for college sports as not allowing compensation”.

[44] Tracy M and Strauss B, Court Strikes Down Payments to College Athletes (The New York Times.com, 30 September 2015). http://www.nytimes.com/2015/10/01/sports/obannon-ncaa-case-court-of-appeals-ruling.html?_r=0. Accessed 2 October 2015.