Antitrust Loss for NCAA

Federal judge finds that ban on sharing revenue with football and basketball players violates the law.

August 11, 2014

Some National Collegiate Athletic Association rules violate federal antitrust law, a federal judge ruled Friday. Judge Claudia Wilken issued an injunction blocking those rules, which bar the sharing of revenue with athletes, including football and basketball players at the focus of the suit.

The ruling is a major blow for the NCAA, which has argued that any deviation from its interpretations of amateurism could be destructive to intercollegiate athletics.

While the judge said that the NCAA presented some valid evidence of problems that could be raised by dropping all rules, Wilken said that there were legal ways the NCAA could limit payments -- and avoid the problems the association claimed could arise from a pure free market.

In this regard, the NCAA could have fared much worse. Wilken's ruling does not require revenue sharing; it just allows institutions to pay athletes above the full cost of attendance if they wish to do so. Those payments are capped at $5,000 per year, and would be held in a trust fund until the students have completed their athletic eligibility.

Wilken also rejected the idea that athletes should be allowed to make paid endorsements.

"Allowing student-athletes to endorse commercial products would undermine the efforts of both the NCAA and its member schools to protect against the 'commercial exploitation' of student-athletes," she wrote in her decision.

The judge did not stay the ruling, but said that the injunction would not take effect until the start of the next Football Bowl Subdivision and Division I basketball recruiting cycle.

In a statement Friday, Donald Remy, the NCAA's chief legal officer, said that the association disagreed with the court's conclusion that the NCAA rules violate federal antitrust laws.

"We note that the court's decision sets limits on compensation, but are reviewing the full decision and will provide further comment later," Remy said. "As evidenced by yesterday’s Board of Directors action, the NCAA is committed to fully supporting student-athletes."

The NCAA Division I Board of Directors voted on Thursday to restructure how the division is governed, granting a greater level of autonomy to the five wealthiest conferences, which have vowed to increase financial and other benefits for players. The restructuring also gives athletes a louder, but still limited, voice in the division's legislative bodies. Even now, only one of the 24 members of the Board of Directors will be a college athlete.

As widely expected, the NCAA announced Sunday that it will appeal Wilken's ruling.

"We remain confident that the NCAA has not violated the antitrust laws and intend to appeal," Remy, the NCAA's chief legal officer, said in a statement. "We will also be seeking clarity from the District Court on some details of its ruling. It should be noted that the Court supported several of the NCAA’s positions, and we share a commitment to better support student-athletes. For more than three years, we’ve been working to improve the college experience for the more than 460,000 student-athletes across all three divisions."

The NCAA has previously said it would take the matter to the Supreme Court if necessary.

Nearly 5 Years in Court

The lawsuit lasted nearly five years, culminating in the 15-day trial this summer. Observers had predicted that it could be a game-changer with the potential to significantly alter how college sports are run. At the lawsuit's core: the NCAA's "bedrock principle" of amateurism.

That principle didn't sit well with Edward O'Bannon, who was on the University of California at Los Angeles men's basketball team that won the NCAA's Division I title in 1995. As a college basketball player, he, like many NCAA athletes, signed a "Student-Athlete Statement" that waived his rights to receive compensation for the use of his likeness. The NCAA contends that students are not required to sign that specific part of the agreement, but that if they do the agreement extends beyond graduation. O'Bannon's lawsuit argued that students are pressured into signing it, but that it should end when a student leaves college.

O'Bannon alleged that the NCAA operates a cartel that bars athletes from benefiting financially from the use of their names and images in television broadcasts, archival game footage, and video games.

When the lawsuit was announced in 2009, it quickly became -- and continues to be -- a cause célèbre for college athlete rights, due to both the broad scope of the class action and the star power of the plaintiff. While O'Bannon spent most of his post-college career playing on teams in Europe, he first played two seasons in the National Basketball Association with the New Jersey Nets, and his title-winning season is fondly remembered by college basketball fans.

“In the past, players who none of us knew who they were, not to undercut their legal claims, brought forth cases," Michael McCann, professor at Vermont Law School and a legal expert for Sports Illustrated, said in 2009. "To have Ed O’Bannon – a guy of this magnitude who is not controversial, well-liked, and will have access to the media to keep this in the public forum – is important.”

While the highest-profile case of its kind, the O'Bannon lawsuit is not the only legal battle the NCAA has fought concerning athlete compensation in recent years.

The same year that O'Bannon filed his class action, Ryan Hart, a former starting quarterback at Rutgers University, filed a similar complaint. In May of that year, Sam Keller, a former starting quarterback at the University of Nebraska at Lincoln, also filed a class action about the NCAA profiting off athletes' likenesses. Keller's lawsuit was limited to just a series of video games created by the company Electronic Arts.

The same day that O'Bannon's lawsuit finally went to trial, the NCAA settled its case with Keller, thus avoiding a trial that was set for March. As part of the settlement, the NCAA agreed to make $20 million available to Division I football and men's basketball players at certain colleges whose teams were in the EA video games. A week earlier, EA Sports agreed to pay $40 million in a separate settlement with O'Bannon.

In July, as both sides of the lawsuit waited on Judge Wilken to make her decision, the NCAA quietly removed the likeness release from the student-athlete statement.

'Right a Wrong'

Writing for Sports Illustrated, Michael McCann, founding director of the Sports and Entertainment Law Institute at the University of New Hampshire, said Wilken's language was more sweeping than the actual injunction. McCann questioned whether the capped $5,000 amount could significantly improve an athlete's quality of life. 

Offering players a fixed amount of money that is only payable to them after they are no longer college athletes is not the "all-encompassing change" some of the NCAA's critics had hoped for, he said. 

"The thrust of Wilken’s critique would lead one to believe her injunction would compel the NCAA to accept sweeping, radical change," McCann wrote. "Instead, her actual injunction of NCAA rules and policies seemed almost tepid by comparison."

Richard Southall, director of the University of South Carolina's College Sports Research Institute, said the ruling could at least serve as an invitation for athletes to "come to the adult table." While the NCAA argues that its new governance structure already provides that invitation, critics have characterized the representation as superficial.

In the moments after the ruling was announced, Southall said, a number of athletes texted him saying that Wilken's decision convinced them that they "actually can stand up" to the NCAA.

"There's so much that's done within college sports that the players are not a part of," Southall said. "It's a very paternalistic system. To me, that's the most important part of this. The psychological message it's sending to athletes, that they can actually effect change."

Michael LeRoy, a professor of labor and employment relations at the University of Illinois at Urbana-Champaign, said the ruling could have wide-ranging implications for the NCAA but that it reads more like a piece of legislation than a court decision. He said the fact that the ruling does not go into effect for a year is "quite unusual for a judicial remedy" and leaves the decision vulnerable to a successful appeal.

"It is a ruling that major schools can live with, it's fair, and just makes sense," LeRoy said. "It's very pragmatic, but, ironically, because it is pragmatic, it may be overturned."

O'Bannon, who will not receive any damages due to a pre-trial arrangement he agreed to in order get the case in front of a judge, said he was pleased with the ruling.

''I just wanted to right a wrong,'' O'Bannon said in a statement. 'It is only fair that your own name, image and likeness belong to you, regardless of your definition of amateurism.''

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