Amateurism is Dead, Long Live Amateurism?: Splitting the O'Bannon Baby

NCAA2As its college football season is in full swing, National Collegiate Athletic Association ("NCAA") finds itself as both the winner and loser on the questions of its amateurism rules and compensation to student-athletes. The opinion from the U.S. Court of Appeals for the Ninth Circuit in O'Bannon v. NCAA leaves unanswered whether NCAA schools can compensate athletes for use of their names, images, and likenesses ("NILs"), and if so, what form that compensation may take.

The NCAA appealed a judgment from U.S. District Court Judge Claudia Wilken, who last year ruled that the NCAA's bylaws prohibiting member schools from compensating student-athletes for use of their NIL was an unjust restraint of trade. O'Bannon v. Nat'l Coll. Ath. Ass'n, 7 F. Supp. 3d 955 (N.D. Cal. 2014). Judge Wilken concluded that the NCAA's amateurism rules had pro-competitive benefits, and that the Plaintiff class had not shown that negotiating with third parties for compensation from use of their NIL while in school was a substantially less restrictive means for the NCAA to achieve those benefits. Id. at 984, 1004-05. However, Judge Wilken also found that member schools offering to student-athletes grants-in-aid up to the full cost of attendance -- including cash stipends -- and/or deferred compensation of up to $5,000, were less restrictive means of achieving the precompetitive benefits, and enjoined the NCAA from preventing member schools from making such offers. Id. at 1007-08. However, Judge Wilken qualified her judgment further by also holding that the NCAA could enact rules prohibiting schools from offering different amounts of money to different players in the same team's recruiting class. Id. at 1008. The decision, while historic, did not permit a free market for paying student-athletes.

The Ninth Circuit further narrowed Judge Wilken's nuanced decision, leaving both the NCAA and Plaintiff class wondering what, exactly, each side had won or lost. The Court rejected the NCAA's argument that the Supreme Court had held in Nat'l Coll. Ath. Ass'n v. Bd. of Regents of Univ. of Okla., 468 U.S. 85 (1984), that the NCAA's amateurism rules were valid as a matter of law. At most, the Ninth Circuit stated, Bd. of Regents meant that the NCAA's amateurism rules were not per se invalid as an unjust restraint of trade. Slip op. at 30-31. The Court affirmed Judge Wilken's conclusion that the NCAA's outright bar on compensating student athletes "ha[s] a significant anticompetitive effect on the college education market." Id. at 48. The Court also found that the NCAA's its amateurism rules regulated commercial activity and that the Plaintiff class had suffered an "antitrust injury" due to the NCAA's prohibition on compensation. Id. at 33, 38.

However, while all three judges agreed that raising the cap on grants-in-aid to the full cost of attendance was a substantially less restrictive alternative, slip op. at 55-56, the majority found that the "district court clearly erred in finding it a viable alterative [sic] to allow students to receive NIL cash payments untethered to their education expenses." Id. at 56 (citing O'Bannon, 7 F. Supp. 3d at 1005). The majority opinion noted that Judge Wilken, after finding "that the NCAA’s amateurism rule has procompetitive benefits . . . ignored that not paying student-athletes is precisely what makes them amateurs." Id. (emphasis in original). Terming "[t]he difference between offering student-athletes education-related compensation and offering them cash sums untethered to educational expenses . . . a quantum leap," id. at 61, the majority found that offering small direct cash payments was not a substantially less restrictive alternative than the NCAA's amateur rules, and vacated that portion of Judge Wilken's ruling. Id. at 62.

In his dissent, Chief Judge Sidney Thomas noted that the NCAA's expert witness stated that a direct payment of $5,000 per student per year "likely would not have a significant impact on [consumer] demand" for college athletics. Id. at 65. Judge Thomas continued that the only question before the Court 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." Id. at 68 (internal quotation marks omitted). He reasoned that, since there was undisputed evidence supporting Judge Wilken's finding of fact, that portion of her ruling should not have been disturbed. Id. at 71.

How the NCAA and Plaintiff class respond to the appellate court's ruling is unclear. The Plaintiff class may seek en banc review in the hopes that an 11-judge panel finds Chief Judge Thomas's dissent persuasive. However, doing so could delay the removal of the cap on grants-in-aid up to the full cost of attendance -- i.e., allowing the payment of stipends -- which is scheduled to take effect for the 2016-17 school year. Both the NCAA and Plaintiff class may petition the Supreme Court for certiorari, but doing so on a novel question of law carries substantial risk that the parties will lose the limited victories they have already achieved

Even if the parties choose to let the Ninth Circuit's decision stand, the issue of what amateurism is in college athletics -- and to what extent amateurism will be allowed -- is far from settled. While the NCAA may not restrict its member institutions from offering grants-in-aid up to the full cost of attendance, O'Bannon, 7 F. Supp. 3d at 1007-08, neither the District Court nor Ninth Circuit addressed the issue of whether individual conferences could restrain their members from offering such scholarships. Thus, a situation may arise where, e.g., the Atlantic Coast Conference allows its member schools to offer grants-in-aid up to full cost of attendance, but the Big Ten Conference does not. Moreover, the NCAA is defending another antitrust case before Judge Wilken, Jenkins v. Nat'l Coll. Ath. Ass'n, examining whether capping scholarships at, essentially, cost of attendance is itself a Sherman Act violation. Finally, the Ninth Circuit noted that the only market at issue was for NILs in video games, and the case did not address the "thornier questions of whether participants in live TV broadcasts of college sporting events have enforceable rights of publicity or whether the plaintiffs are injured by the NCAA's current licensing arrangement for archival footage." Slip op. at 38. In short, the uncertainty over the NCAA's amateurism rules is still in its infancy, and if the Ninth Circuit's opinion is any indication, that uncertainty will remain and intensify for the foreseeable future.

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Jim Smerbeck |