NCCA Gains Ground Against Student-Athletes In Appeal Of O’Bannon Case

By David Scupp

Last week, the United States Court of Appeals for the Ninth Circuit ruled that the NCAA may restrict colleges from compensating student-athletes beyond the cost of attendance, handing the NCAA a partial victory in its continuing courtroom fight against athletes’ rights.

The Ninth Circuit affirmed in part and vacated in part Judge Claudia Wilken’s landmark holding in O’Bannon v. National Collegiate Athletic Association, et al., an antitrust class action brought by former All-American UCLA basketball player Ed O’Bannon, challenging the NCAA’s restrictions on compensation to Division I basketball and FBS football players for use of their name, image, and likeness (“NIL”).

After a bench trial, Judge Wilken analyzed the legality of the NCAA’s restrictions under the rule of reason, and permanently enjoined the NCAA from enforcing its blanket restriction on FBS football and Division I basketball collegiate athletes receiving any portion of the licensing revenue generated from the use of the players’ NILs.  Specifically, Judge Wilken identified two less-restrictive alternatives to achieve the limited pro-competitive benefits of the current NCAA restrictions: (1) allowing schools to award stipends to athletes up to the full cost of attendance, thereby making up for any shortfall in their grants-in-aid, and (2) permitting schools to hold a portion of their licensing revenues in trust, up to $5,000 per year, to be distributed to athletes in equal shares after they leave college.  Our analysis of the district court’s opinion can be found here.

The Ninth Circuit concluded that the district court’s decision was “largely correct.”  Specifically, the court upheld the district court’s findings that the NCAA’s “amateurism” rules are not exempt from antitrust scrutiny, must be analyzed under the Rule of Reason, and that allowing schools to give scholarships to athletes up to the full cost of attendance was “one proper alternative” to the NCAA’s compensation restrictions.

The court held, however, that the district court erred by finding that schools must be allowed to pay cash compensation to students of up to $5,000 per year.  The court held that “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.”

Judge Thomas partially dissented, disagreeing with the majority’s holding that Judge Wilken clearly erred in ordering the NCAA to permit up to $5,000 in deferred compensation above athletes’ full cost of attendance.  Judge Thomas criticized the majority for “misstat[ing] our inquiry” as one of whether the less-restrictive alternative is “‘virtually as effective’ in preserving amateurism as not allowing compensation.”  The proper inquiry, Judge Thomas argued, was “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.”  According to Judge Thomas, “[i]n terms of antitrust analysis, the concept of amateurism is relevant only insofar as it relates to consumer interest.”  Judge Thomas would have affirmed Judge Wilken’s finding that payment of $5,000 in deferred compensation would not significantly reduce consumer demand for college sports, and therefore such a rule would be “virtually as effective” at preserving the pro-competitive benefits of the current NCAA rule.

In rendering its decision, the Ninth Circuit truly “split the baby.”  On the one hand, the decision was a victory for those who believe the NCAA’s restrictions on compensation should be subject to antitrust scrutiny.  The court rejected the NCAA’s argument that the Supreme Court’s decision in NCAA v. Board of Regents of the University of Oklahoma held that the NCAA’s amateurism rules are valid as a matter of law.  This is a significant holding.  For decades, Board of Regents has been the biggest legal hurdle for plaintiffs challenging the NCAA’s “amateurism” rules.  The Ninth Circuit’s decision, however, relegated the “amateurism” discussion in Board of Regents to mere dicta.

On the other hand, the court’s acceptance of the NCAA’s definition of “amateurism” (that college athletes are amateurs because they do not get paid), and the acceptance of the NCAA’s argument that preserving amateurism for amateurism’s sake is a pro-competitive goal, will disappoint those who believe that the NCAA’s definition of “amateurism” is self-serving and that big time college athletes – the centerpieces of a multi-billion-dollar-a-year, highly-corporatized enterprise – are anything but “amateurs.”  Those people will read the Ninth Circuit’s decision and find much to be desired.

– Edited by Gary J. Malone