Despite O'Bannon Ruling, Antitrust Debate Won't Go Away

Last Wednesday, the U.S. Court of Appeals for the 9th Circuit ruled in the much publicized O'Bannon case that pitted former NCAA athletes against the association on compensation rules for an athlete's name, image and likeness (NILs).

Specifically, the 9th Circuit had before it two issues: (1) if the NCAA is immune from antitrust scrutiny; and (2) whether increases in monetary benefits to NCAA athletes, both to full cost of attendance limits and cash payments for licensing of athlete NILs, are valid alternative means of promoting NCAA amateurism versus the associations' bylaws.

As even the most casual consumer of college athletics understands, and the 9th Circuit articulated: "[t]here is real money at issue here." O'Bannon at 34. Further, the import of this decision was not lost on the judges in O'Bannon who remark throughout the opinion of the far–reaching impact of their words; a very rare commentary by appellate judges, and a not–so–subtle signal to their fellow circuit judges for en banc consideration or the Supreme Court to grant certiorari.

After determining that the NCAA could be scrutinized for antitrust violations, the 9th Circuit applied the Rule of Reason analysis to determine whether the NCAA's bylaws relative to its athlete's "compensation" was valid.

To do that, the court followed the same test utilized at the district level: (1) the athletes must first show that the restraint produces significant anticompetitive effects in the relevant market; (2) if the athletes meet this initial burden, the NCAA must then show evidence the restraint's pro–competitive effects; and (3) the burden then returns to the athletes to show that any legitimate objectives could be achieved by substantially less restrictive means.

First, the 9th Circuit agreed with U.S. District Judge Claudia Ann Wilken that colleges compete for the services of NCAA athletes by offering scholarships and other amenities like stadiums and weight rooms thereby creating a "college education market."

Further, but for the NCAA's bylaws that limit athlete compensation, colleges would pay athletes for use of their NILs and, therefore, the NCAA has significantly limited competition within the college education market by fixing the price (or an aspect of the price) of an athlete's attendance at NCAA schools.

As to pro–competitive effects, the 9th Circuit took the NCAA's lead and simply focused on the idea of amateurism. The NCAA is correct that restrictions which also broaden choices can be pro–competitive, but the 9th Circuit did not see how the NCAA's bylaws that limit athlete compensation make college sports a more attractive market for athletes; rather, the opportunity for higher education is the primary driver to compete at the college level if an athlete is otherwise able to participate in another market.

To be sure, that opportunity does not disappear if athletes receive some additional compensation beyond grant–in–aid. Further, the court posits that altering or abandoning the NCAA's athlete compensation restrictions may actually encourage athletes to attend college in the first place or complete their degrees who might not otherwise have done so.

As to consumer affect, the 9th Circuit affirmed the idea that fans supported the NCAA product partially due to the amateur quality of the athlete experience.

Having established that NCAA rules regarding athlete compensation restrain competition in the college education market, and that there are pro–competitive effects of this restriction (amateurism promotes athletes seeking a higher education and popularity for a consumer product distinct from professional), the 9th Circuit then explored whether there were substantially less restrictive means for the NCAA to achieve its pro–competitive effects.

First, colleges could give athletes scholarships that covered the full cost of attendance. The NCAA argued that this issue is now moot since the NCAA internally lifted this restriction, but the court was not persuaded since the NCAA could always reverse this decision to amend.

The 9th Circuit's language, despite its location in a footnote in the decision, should not be taken lightly since it affirms that, despite deference given to the NCAA (and other sports leagues) relative to internal rules, courts will have the final say on NCAA bylaws.

By NCAA President Mark Emmert's own testimony and that of every NCAA witness, along with the fact that the NCAA now allows schools to give scholarship monies covering the full cost of attendance: Making this move does not imperil amateurism.

Further, there is no evidence in the record to suggest that allowing athletes to receive the full cost of attendance diminishes the appetite of college sports consumers.

The second measure suggested by the plaintiff athletes and affirmed by Wilken as a less restrictive means than athlete compensation restrictions is that the NCAA could allow schools to distribute deferred cash compensation for use of athlete NILs.

On this point, the 9th Circuit panel, with a notable dissent from Chief Judge Sidney Thomas, agreed with the NCAA that such compensation is not a valid alternative means since such compensation is not "tethered" to educational expenses.

Further, the court found that the jump from education–related compensation to monies untethered to a college education is not a minor move, but a "quantum leap." O'Bannon at 62. Predicting that NCAA athletes will keep pushing compensation beyond the arbitrary $5,000 mark for NILs until a true market value is received, the 9th Circuit would not affirm such cash payments, deferred or not, fearing that such payments would be the death knell of the pro–competitive effects of NCAA amateurism.

Further, the athletes did not meet their burden to show that such payments will not necessarily reduce consumer demand in the NCAA product, and, therefore, the second alternative of individual cash payments to athletes for use of their NILs was denied.

While the $5,000 payment in trust was found to be invalid, the NCAA certainly desires preservation of the deference that courts have long accorded to NCAA amateurism. If plaintiffs in antitrust litigation against the NCAA no longer have to battle over whether the NCAA is even subject to antitrust scrutiny, time and cost of such litigation has been reduced to those plaintiffs' benefit, not to mention such a chink in the NCAA's legal armor will undoubtedly lead to a greater erosion of the NCAA's power and pocketbook due to ongoing substantive vulnerability of how the NCAA operates.

So, in summary, while the NCAA may claim a win over not having to make NILs payments to athletes (and thus possibly reducing plaintiffs' attorney fees in the millions of dollars), that victory should be both tempered with the 9th Circuit's refusal to give any level of antitrust immunity from scrutiny to the NCAA, along with the possibility of loss on appeal in either an en banc hearing in the 9th Circuit or in petition to the Supreme Court.

As former UCLA basketball player Ed O'Bannon himself knows well, ties lead to overtime or further appeal as we can expect here.

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