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Entertainment, Media & Sports Alert >> Ruling Gives NCAA Victory in "Amateurism" Case, but Legal Battle Doesn’t End Here

October 8, 2015

Last week, the Ninth Circuit Court of Appeals issued its ruling in the milestone O’Bannon v. NCAA case, a class action lawsuit in which the plaintiffs, led by ex-UCLA basketball star Ed O’Bannon, alleged that the NCAA violated antitrust statutes by prohibiting member universities from paying players for the use of their names, images, and likenesses.

Court’s Decision
The court overturned the district court’s determination that the NCAA could not prohibit universities from paying athletes up to $5,000 for the use of their names, images, and likenesses. It reasoned that any compensation “untethered” from the educational expenses incurred by athletes undermined the ideals of amateurism which distinguished collegiate athletics from professional athletics. On its face, this represented a significant victory for the NCAA in preserving its model and mission. But a close look at the decision shows that the NCAA’s battles may be just beginning.

The district court previously held that providing players with scholarships for the full cost of attendance (which includes expenses such as meals and travel to and from campus), and deferred cash payments of up to $5,000 was an appropriate procompetitive alternative to providing only scholarships up to either the “grant in aid” amount which covered tuition, room and board, and course books or the full cost of attendance (which the NCAA adopted in August, 2014).

The Ninth Circuit agreed that the “price-fixing” scheme of compensating student-athletes only for the cost of tuition, and collectively valuing their names, images and likeness at zero, harms student-athletes. In trying to determine a fair alternative price, the Ninth Circuit distinguished between paying players for amounts directly related to their education and anything beyond that. It said that maintaining college sports’ tradition of amateurism was an acceptable reason for engaging in some anti-competitive behavior. Tying compensation to educational costs helps preserve the notions of amateurism which distinguish collegiate athletics from similar professional sports such as minor league baseball.

However, simply by engaging in this analysis, the Ninth Circuit first determined that the district court was correct in ruling that the NCAA’s actions were subject to antitrust analysis. Despite the NCAA’s numerous arguments, the Ninth Circuit agreed with the district court that the NCAA’s concerted actions on student-athlete compensation ”affect commerce” because they “clearly regulate the terms of commercial transactions” between school and student-athlete and therefore fall within the ambit of the antitrust regulations.

Implications
The Ninth Circuit’s affirmation of the district court’s holding could have long-lasting implications. Once a court engages in this analysis, the result may not always be the status quo. In fact, the court expressly stated that “not every rule adopted by the NCAA which restricts the market is necessary to preserving the ‘character’ of college sports.” Though unwilling to overturn the entire foundation of college sports in this ruling, the court did not foreclose all future arguments to the contrary.

Moreover, in applying the Rule of Reason in this case, both the district court and the Ninth Circuit gave great deference to the concept of amateurism and its procompetitive benefit. Yet, even here, the Ninth Circuit echoed the district court’s findings that the NCAA’s concepts of amateurism were malleable, noting how they have changed over the years and allowed concepts of professionalism to creep in. Given the reasoning underlying both decisions and the doubts expressed with that reasoning, it appears that attacking head-on the concept of amateurism, and the benefits the NCAA claims amateurism imputes to college sports, is the strategy most likely to be pursued by plaintiffs in the future. Whether this case is appealed further or plaintiffs in the many other cases currently winding their way through the federal court system take up these arguments, it is clear that this debate is not over, and one of the next moves could be decisive.

Bottom Line

The Ninth Circuit decision rejecting the payment of a $5,000 royalty to student-athletes for the use of their names, images and likenesses is a short-term win for the NCAA. But the decision also provides potential plaintiffs with ammunition to continue their attacks on the NCAA economic model. The sports industry should brace for an increasing wave of challenges to the NCAA amateur rules. Sponsors, advertisers and others who engage with NCAA athletics will need to continue to monitor these developments and evaluate their impact on these valuable relationships.