O’Bannon Is A Tie But Weighs Against NCAA In The Long Run as published in Law 360

In O’Bannon v. National Collegiate Athletic Association, 14-16601 (Sept. 30, 2015), an appellate panel of the Ninth Circuit Court of Appeals ruled on (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 intellectual property, are valid alternative means of promoting NCAA amateurism versus the Association’s bylaws. As even the most casual consumer of college sports understands, and the Ninth Circuit articulated: “There 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 U.S. Supreme Court to grant certiorari. Scholars of both antitrust and sports law should follow suit.

The Ninth Circuit begins by retracing the steps taken by Judge Claudia Wilken from the Northern District of California, addressing arguments made by both sides and the district court’s handling of the same, before the panel delves into its own detailed rule-of-reason analysis of the matter.

As has been the case with many sports organizations, including recently with the NFL in American Needle v. NFL, 560 U.S. 183 (2010), the NCAA sought to persuade the Ninth Circuit that it was somehow exempt from antitrust scrutiny. To be sure, the NCAA has enjoyed great deference on amateurism issues from federal courts since the Supreme Court’s decision in NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. 85 (1984). The Ninth Circuit, however, found that the Supreme Court did not accord the NCAA immunity from such antitrust scrutiny. Rather, the Supreme Court was simply discussing the NCAA’s amateurism principles and the application of the same in dicta in Board of Regents; something to be accorded deference by lower courts, but not binding on federal circuit or district courts to find any issues relating to amateurism valid as a matter of law. “The [Supreme] Court’s long encomium to amateurism, though impressive-sounding, was … dicta.” O’Bannon at 30.

To be sure, the NCAA’s amateurism principles related to athlete compensation, their application through the NCAA bylaws, and enforcement of the same are a restraint of trade. The NCAA attempted to make a distinction that its compensation rules are eligibility rules, but this was disregarded as a matter of semantics since, substantively, the bylaws certainly regulate the commercial transactions between NCAA schools and their respective athletic recruits because a school is limited in the amount of scholarship monies it can provide to a recruit, and if the dollar line is crossed, the recruit would lose eligibility and thus the transaction would be terminated. “[T]he labor of student-athletes is an integral and essential component of the NCAA’s ‘product,’ and a rule setting the price of that labor goes to the heart of the NCAA’s business.” O’Bannon at 36. The reasoning, however good-natured behind the amateurism rules, restricts the consideration to be provided to a labor force that produces an economic product, which is certainly a commercial transaction. In antitrust speak, that restriction on a commercial transaction is clearly a restraint on trade.

While these restraints may serve a pro-competitive purpose, that does not mean that these restraints are valid if a substantially less restrictive rule or bylaw would equally further the NCAA’s objectives. The good intentions versus unreasonable restraint is actually articulated in a note by the Supreme Court in Board of Regents, and reiterated in O’Bannon: “[w]hile as the guardian of an important American tradition, the NCAA’s motives must be accorded a respectful presumption of validity, it is nevertheless well settled that good motives will not invalidate an otherwise uncompetitive practice.” Id. at 31.

Having determined that a restraint has taken place, the Ninth Circuit then looked to whether there was an antitrust injury. First, the court decided that an injury had occurred since, but for the NCAA’s amateurism rules restricting athlete compensation, video game makers such as EA Sports would directly negotiate with NCAA athletes for the license to use athlete names, images and likenesses (NILs). As was discussed before Judge Wilken at the district court level, video game makers sell more games and can charge more money for said games the more realistic the game appears. While the NCAA’s current moratorium on licensing athletes’ NILs to video game companies may limit current damages in some way, the current ban was not persuasive to the court on dismissing the injury prong. Further, the court was unpersuaded by the NCAA’s arguments that either the Copyright Act or First Amendment preempted or precluded right-of-publicity claims. Ruling that an injury in fact (and, by extension, an antitrust injury) took place with the restriction on the athletes’ ability to enjoy the video game market for NILs, the Ninth Circuit did not delve further into the injury question on other fronts such as live broadcast coverage of games.

After determining that the NCAA could be scrutinized for antitrust violations and offering a preview of its own final decision, the Ninth Circuit applied the rule-of-reason analysis to determine whether the NCAA’s bylaws relative to its athletes’ "compensation" was valid. To do that, the Ninth Circuit followed the same test utilized at the district level: (1) the athletes must first show that the restraint produces significant anti-competitive 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.

As to the first prong of the test, the Ninth Circuit agreed with Judge Wilken that colleges compete for the services of NCAA recruits 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 ban or limit athlete compensation, colleges would pay recruits 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 Ninth Circuit took the NCAA’s lead and focused simply on the idea of amateurism. While the NCAA is correct that restrictions which also broaden choices can be pro-competitive, the Ninth 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. Addressing the issue of incomplete educations of those athletes who go right to the professional leagues or those who leave college early to make money, 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. Further, the Ninth Circuit affirmed the idea that consumers supported the NCAA product due, in part, to the amateur quality of the athlete experience.

Having established that NCAA bylaws on athlete compensation restrict competition in the college education market, and that there are pro-competitive effects of this restraint (amateurism promotes athletes seeking a higher education and popularity for a consumer product distinct from professional), the Ninth 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 the full cost of attendance issue is now moot since the NCAA internally lifted this restriction, but the court found this unpersuasive since the NCAA could always reverse this decision to amend. The Ninth 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 as a scholarship diminishes the appetite of college athletics consumers.

The second measure suggested by the plaintiff athletes and affirmed by Judge Wilken as a less restrictive means than current bylaws related to athlete compensation is that the NCAA could allow schools to distribute deferred cash compensation for use of athlete NILs. On this point, the Ninth 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 Judge Wilken’s arbitrary $5,000 mark for NILs until a true market value is received, the Ninth 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 the NCAA’s current definition of amateurism. With the plaintiff athletes not meeting their burden to show that such payments will not necessarily reduce consumer demand in the NCAA product, the second alternative of individual cash payments to athletes for use of their NILs was denied.

At this stage, while the $5,000 payment in trust was found to be invalid, the NCAA certainly has an interest in preserving the deference that courts have long accorded to the NCAA’s amateurism principle and its application. If plaintiffs in antitrust litigation against the NCAA no longer have a drawn-out 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 pocket book 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’ attorneys fees in the millions of dollars), that victory should be tempered by both the Ninth Circuit’s refusal to give any level of immunity from antitrust scrutiny to the NCAA, along with the possibility of loss on appeal in either an en banc hearing in the Ninth Circuit or in petition to the Supreme Court. Expect this legal “tie” to go to overtime on further appeal.

—By Timothy L. Epstein


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