O’Bannon v. NCAA: Should Student-Athletes Receive Compensation?

November 22, 2016
By Matthew Korenoski
Posted in Litigation

For decades, a bright line has separated professional athletes from amateur athletes. Professional athletes are paid to play. Amateur athletes are not. Rather, the National Collegiate Athletics Association (“NCAA”) maintains that student-athletes are “students” first and “athletes” second. However, as society became more commercialized, the NCAA and the large majority of its member schools began using student-athletes’ names, images, and likenesses (“NILs”) to advertise its two most popular sports: football and basketball. And yet, while the National Football League and National Basketball Association pay its professional athletes for use of their NILs, the NCAA prohibits any NIL compensation to student-athletes, reasoning that protecting the spirit of amateurism mandates student-athletes not be paid.

Recently, however, in O’Bannon v. NCAA, the United States District Court for the Northern District of California struck a major blow to the NCAA. The O’Bannon plaintiffs included Ed O’Bannon, a former Division I UCLA basketball star, and 19 other current or former student-athletes who play or played college football or men’s college basketball between 1956 and the present. In suing the NCAA, the O’Bannon plaintiffs alleged that certain NCAA bylaws violated the Sherman Antitrust Act by prohibiting student-athletes from receiving a revenue share that the NCAA and its member schools earn from licensing student-athletes’ NILs in the media.

The District Court determined that the restraint caused anticompetitive effects in the college education market, identified as a “national market in which NCAA Division I schools compete to sell unique bundles of goods and services to elite football and basketball recruits.” Having found a restraint, the District Court placed the burden on the NCAA to show procompetitive effects of the restraint. While the NCAA offered four procompetitive benefits, the District Court only accepted two of them: (1) preserving amateurism, and (2) promoting the integration of academics and athletics.

Consequently, the burden shifted to the former student athletes to show less restrictive alternatives of accomplishing those procompetitive goals. The former student athletes offered three alternatives, but the District Court only accepted the first two: (1) raising the grant-in-aid limit to allow schools to give student-athletes grants-in-aid that cover the full cost of attendance, and (2) allowing schools to deposit a share of licensing revenue into a trust fund for student-athletes, payable after the student-athletes graduate or leave school for other reasons.

The Northern District of California ultimately ruled that the NCAA’s restrictions unreasonably restrained trade by preventing college football players and men’s college basketball players from sharing in at least some of the revenue generated by NIL use.  As a remedy, the District Court entered an injunction mandating: (1) that the overall compensation from the school that the student-athlete may receive shall not be capped below the cost of attendance;  and (2) that the revenue from NIL licensing of each individual student-athlete could be deposited in a deferred trust at no more than $5,000 for every year the student-athlete remained academically eligible.

On August 8, 2014, the NCAA appealed to the United States Court of Appeals for the Ninth Circuit, primarily arguing the importance of the NCAA’s amateurism concept justifying the NCAA’s compensation rules. In finding that the NCAA’s compensation rules have an anticompetitive effect on the college education market because “they fix the price of one component of the exchange between school and recruit,” which prevents competition among schools, an act constituting illegal price-fixing, the court acknowledged that making the compensation rules less strict might broaden student-athletes’ ability to choose where they attend school.  Ultimately, the Ninth Circuit agreed that the NCAA could not rely upon the argument that the rules had simply been in place for a long time. The Court did, however, acknowledge the NCAA’s compensation rules serve two limited procompetitive benefits: integrating academics with athletics, and promoting the NCAA’s product via amateurism.

Finally, the Ninth Circuit affirmed the District Court’s ruling that student-athletes may now receive grant-in-aid compensation for educational expenses up to the cost of attending their schools. However, the Ninth Circuit diverged sharply from the District Court by ruling that student-athletes may not receive compensation derived from the NCAA’s and their schools’ use of their NILs,, in stating 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.”

The United States Supreme Court then declined to hear the case. As a result, the Ninth Circuit’s order maintains the basic status quo of the NCAA’s compensation rules, but simultaneously casts some doubt about the NCAA’s ability to justify these rules simply with a nod to the “amateurism” principle. Thus, while ultimately the O’Bannon Plaintiffs did not obtain the ideal relief they sought, bringing this issue to light may impact how future student-athletes address and challenge the NCAA’s compensation rules.

For more information about the O’Bannon decision and its effect on student-athletes, please contact Matt N. Korenoski of Strassburger McKenna Gutnick & Gefsky at (412) 281-5423 or mkorenoski@smgglaw.com.