O'Bannon judge rules NCAA violates antitrust law
Judge allows for trust funds to be established to share in licensing revenue
A federal judge ruled Friday that the NCAA's rules prohibiting athletes from being paid for use of their names, images and likeness violate antitrust law because they "unreasonably restrain trade." The ruling in the five-year case of the Ed O'Bannon lawsuit allows for trust funds to be established for athletes to share in licensing revenue.
In a 99-page opinion, U.S. District Judge Claudia Wilken issued an injunction that will prevent the NCAA "from enforcing any rules or bylaws that would prohibit its member schools and conferences from offering their FBS football or Division I basketball recruits a limited share of the revenues generated from the use of their names, images and likenesses in addition to a full grant-in-aid." Wilken said the injunction will not prevent the NCAA from implementing rules capping the amount of money that may be paid to college athletes while they are enrolled in school, but the NCAA will not be allowed to set the cap below the cost of attendance.
The injunction will also prohibit the NCAA from "enforcing any rules to prevent its member schools and conferences from offering to deposit a limited share of licensing revenue in trust for their FBS football and Division I basketball recruits, payable when they leave school or their eligibility expires," Wilken wrote. Her injunction will prohibit the NCAA from setting a trust-fund cap of less than $5,000 in 2014 dollars for every year an athlete remains academically eligible to compete. The money would be payable to athletes upon expiration of their athletic eligibility or graduation, whichever comes first. She ruled schools could offer lower amounts of compensation if they want, but they can't "unlawfully conspire with each other in setting these amounts."
Wilken stopped short of allowing athletes to receive money for endorsements, which was one of the proposals by the O'Bannon plaintiffs. "Allowing student-athletes to endorse commercial products would undermine the efforts of both the NCAA and its member schools to protect against the 'commercial exploitation' of student-athletes," Wilken wrote.
Also, Wilken did not prevent the NCAA from creating rules that prohibit athletes from selling their name, image and likeness rights individually. "The NCAA has produced sufficient evidence to support an inference that some circumscribed restrictions on student-athlete compensation may yield pro-competitive benefits," she wrote.
Wilken said the injunction will not be stayed pending any appeal of her order, but won't take effect until the start of the next football and basketball recruiting cycles. She said the injunction will not affect any recruit who will enroll in college before July 1, 2016. Both sides previously said they expected Wilken's decision to be appealed no matter how she ruled.
Lawyers for the plaintiffs and one outside legal expert described Friday's outcome as a significant defeat for the NCAA, which said it disagreed with Wilken's ruling.
"We note that the Court's decision sets limits on compensation, but are reviewing the full decision and will provide further comment later," NCAA chief legal officer Donald Remy said in a statement. "As evidenced by yesterday's Board of Directors action, the NCAA is committed to fully supporting student-athletes."
On Thursday, the NCAA Division I Board of Directors passed a new model that will allow the five major conferences to create their own legislation to benefit athletes, such as a cost-of-attendance stipend above their current scholarship amount.
Bill Isaacson, a lead attorney for the O'Bannon plaintiffs, said the ruling is a “major step towards decency for college athletes.” The decision will allow conferences and schools, if they choose to do so, to compete for recruits by providing up to a full cost of attendance plus up to $5,000 in licensing revenue, Issacson said.
"That's reasonable but significant sharing for athletes given the billions in revenues that schools earn from their football and basketball players," Isaacson said. "Now, what's the full cost of attendance and why is the NCAA fighting at this point? When college football and basketball fans pick up the paper and it says athletes can share in revenue for the full cost of education and a trust fund, why would anybody be bothered by that?"
The plaintiffs are allowed to recover their costs from the NCAA. A previous document in a related case listed those costs at exceeding $30 million. Isaacson would only say legal costs for the plaintiffs are in the "millions."
Sonny Vaccaro, the former shoe marketer and longtime NCAA critic who spearheaded the O'Bannon lawsuit, said he's so happy by the ruling that he's "incoherent."
"I'm never at a loss of words, but I just can't explain it to you," Vaccaro said of his emotions. "It's like that impossible dream thing. Don Quixote finally got it. (Wilken) took out the word amateurism for the NCAA. To me, the ones who are going to benefit are the ones who don't even know we won today, the kids of the future. I feel very good about that."
O'Bannon, the former UCLA basketball star who became the face of the case, said he is happy there's finally a resolution and that players can use their likeness to be paid.
"I think the players will have a little more control over what goes on," O'Bannon said. "To me, it boggles the mind that billions of dollars are made and the players -- the people that are actually doing a lot of the work to make these billions of dollars -- don’t see any of it."
Judge: Market exists for players' NILs on live TV
In a key part of the opinion, Wilken ruled that a group market exists in live television broadcasts for college athletes' names, images and likenesses (NILs). But she determined that while some actions may be unlawful related to live TV broadcasts, there is no evidence they violate antitrust law.
"The court finds that a submarket exists in which television networks seek to acquire group licenses to use FBS football and Division I basketball players' names, images and likenesses in live game telecasts," Wilken wrote. "Television networks frequently enter into licensing agreements to use the intellectual property of schools, conferences and event organizers -- such as the NCAA or a bowl committee -- in live telecasts of football and basketball games. In these agreements, the network often seeks to acquire the rights to use the names, images and likenesses of the participating student-athletes during the telecast."
In ruling that a group market exists for live TV broadcasts, Wilken cited television contracts produced by the plaintiffs, such as old NCAA tournament contracts with CBS and an old BCS deal with Fox. She said testimony by former CBS Sports president Neal Pilson that networks enter into agreements with event organizers for access to facilities is "not convincing."
Wilken noted that Pilson, an expert witness for the NCAA, admitted that "broadcasters must acquire certain rights even from visiting teams who do not control access to the event facility. ... He also acknowledged that broadcasting agreements ... sometimes refer expressly to name, image and likeness 'rights.'"
However, Wilken ruled that although the O'Bannon plaintiffs showed that the NCAA's rules harm players by depriving them of money, they did not prove this harm results from a restraint in the group licensing market from TV broadcasts. Wilken does not believe that, if the NCAA rules were not in place, teams of athletes would compete against each other to sell their group licenses.
"In fact, the evidence in the record strongly suggests that such competition would not occur," Wilken wrote. "This is because any network that seeks to telecast a particular athletic event would have to obtain a group license from every team that could potentially participate in that event."
Wilken also concluded that the plaintiffs failed to identify any situation in which buyers of group licenses in live television might compete against each other. For instance, Wilken said television networks already "compete freely against one another" for the rights to use athletes' names, images and likenessses in live broadcasts by acquiring those rights from other sourches, such as conferences and schools.
"The fact that the networks do not compete to purchase these rights directly from the student-athletes is due to the assurances by the schools, conferences and NCAA that they have the authority to grant these rights," Wilken wrote. "Such assurances might constitute conversion by the schools of the student-athletes' rights, or otherwise be unlawful, but they are not anticompetitive because they do not inhibit any form of competition that would otherwise exist."
The NCAA has previously argued that the First Amendment and certain state laws prevent college athletes from asserting any rights of publicity in the use of their names, images and likenesses on live TV. Wilken rejected that argument in April, and on Friday she added, "even if some television networks believed that student-athletes lacked publicity rights in the use of their names, images and likenesses, they may have still sought to acquire these rights as a precautionary measure."
"It's an open field right now because of the antitrust violation," Hausfeld said. "We're going to have to take a look at what our next letter might be to ESPN or CBS or Turner. We've been looking at it. For example, maybe we don't go to the larger networks, but go right to the Big Ten Network or Pac-12 Network. Here you have a conference with a most direct relationship to an athlete. They're clearly using the name, image and likeness."
In determining that the NCAA violates antitrust law, Wilken cited the plaintiffs' economic expert, Roger Noll, 30 times in the ruling and overwhelmingly agreed with his antitrust analysis. She also noted damaging testimony from one of the NCAA's own economic experts, Daniel Rubinfeld.
"Although he opined that this restraint was lawful because it serves procompetitive purposes, he never denied that the NCAA restricts competition among its members for recruits," Wilken wrote. "In fact, his own economics textbook specifically refers to the NCAA as a 'cartel,' which he defined during his testimony as a 'group of firms that impose a restraint.'"
Wilken wrote that she "rejects" the theories of another NCAA economic expert, Lauren Stiroh, who testified that the plaintiffs did not prove that college athletes were being harmed by the restraints. Evidence in the case demonstrates that athletes "are harmed by the price-fixing agreement" by the schools, Wilken wrote.
When a recruit decides to play at a school, the school provides tuition, room and board, fees and book expenses that often are little or no cost to the school, Wilken wrote. In return, she said, the recruit provides his athletic performance and the use of his name, image and likeness.
"However, the schools agree to value the latter at zero by agreeing not to compete with each other to credit any other value to the recruit in the exchange," Wilken wrote. "This is an anticompetitive effect."
Wilken's decision on what athletes receive in exchange for their services may impact other antitrust lawsuits that are before her. The NCAA's financial limits on scholarships being challenged in a scholarship case, where the damages could be worth hundreds of millions of dollars if those sets of plaintiffs win. The NCAA and many Division I conferences, who are also being sued, must respond to Wilken by Aug. 20 in the scholarship case.
Hausfeld said Wilken's ruling solves the antitrust scholarship lawsuits with one exception: "Now they can go back and collect damages." Hausfeld said the NCAA is in a difficult spot about appealing the O'Bannon ruling.
"What are they going to appeal?" Hausfeld said. "This is what at least the major conferences professed they want to do (pay players cost of attendance) and they can't because of the cartel. The judge just said not only am I letting you five do it, I'm telling everybody it's an open field. You've got no cover not to do this."
There's a perception by some in the public since the ruling that the NCAA got off easy with Wilken's injunction prohibiting a cap of less than $5,000 per year on licensing revenue per player. Wilken said she came to the number because "the NCAA's witnesses stated their concerns about student-athlete compensation would be minimized or negated if compensation was capped at a few thousand dollars per year. This is also comparable to the amount of money that the NCAA permits student-athletes to receive if they qualify for a Pell grant and the amount that tennis players may receive prior to enrollment."
Said Hausfeld on the $5,000 number: "The problem with some lawyers is they're not satisfied with what they get. Could it have been more? Possibly. Is it enough? When you add that amount per year per athlete for all of the schools, you're talking $300 to $500 million, if not more. That's not a bad chunk."
'Big loss' for NCAA moving forward
Wilken struck down the NCAA's justifications for preventing college athletes from being paid, including amateurism, competitive balance and the integration of athletics and academics. Amateurism has been the NCAA's frequent defense of why college sports is popular and thus why the association can legally avoid allowing players to be paid.
"This evidence demonstrates that the NCAA's restrictions on student-athlete pay is not the driving force behind consumer interest in FBS football and Division I basketball," Wilken wrote. "Thus, while consumer preferences might justify certain limited restraints on student-athlete compensation, they do not justify the rigid restrictions challenged in this case."
Wilken wrote that the NCAA's current rules demonstrate "the NCAA does not consistently adhere to a single definition of amateurism."
She noted that under NCAA rules, a tennis recruit can preserve amateur status by accepting tens of thousands of dollars in prize money before enrolling in college, yet a track and field recruit would forfeit his eligibility if he or she did the same. Also, Wilken said, a football player is deemed an amateur by accepting a Pell grant that exceeds his total financial aid package above the cost of attendance, yet he would not be an amateur if he instead received the same amount of money for use of his name, image and likeness in live broadcasts.
"Such inconsistencies are not indicative of 'core principles,'" Wilken wrote.
In disagreeing with the NCAA's argument that competitive balance justifies not paying players, Wilken noted the average salary for a head football coach exceeds $1.5 million. She also cited testimony by NCAA president Mark Emmert in which he said it's not the NCAA's mission to take away advantages universities have made in building up their facilities.
"The fact that high-revenue schools are able to spend freely in these other areas cancels out whatever leveling effect the restrictions on student-athlete pay might otherwise have," Wilken wrote. "The NCAA does not do anything to rein in spending by the high-revenue schools or minimize existing disparities in revenue and recruiting."
When addressing the NCAA's defense about the integration of academics and athletics, Wilken wrote it's not clear "why paying student-athletes would be any more problematic for campus relations than paying other students who provide services to the university, such as members of the student government or school newspaper."
Wilken added that "certain limited restrictions on student-athlete compensation may help to integrate student-athletes into the academic communities of their schools, which may in turn improve the schools' college education product."
Wilken determined it's "not credible" schools would leave FBS and Division I for financial reasons if players could be paid, another frequent defense brought by the NCAA. Wilken cited testimony by some of the NCAA's own witnesses, such as from South Carolina president Harris Pastides and Conference USA commissioner Britton Banowsky, who expressed skepticism that universities would leave Division I if the restrictions were removed.
Rutgers law professor Michael Carrier, who has closely followed the O'Bannon case, said the ruling is a "big loss" for the NCAA.
"All of the defenses about amateurism and competitive balance the NCAA had been boasting about for years, if not decades, have been washed away in this incredibly thorough opinion," Carrier said. "There is lots of litigation going on and this is something plaintiffs can use in every case now. You have a comprehensive opinion that thoroughly looks at the justifications and thoroughly strikes them down. The NCAA may disagree, but the default position now is the NCAA does not have its amateurism defense position to stand behind."
Said Isaacson, a lawyer for the O'Bannon plaintiffs: "There will be a lot of lawyers reading this opinion moving forward."
Near the end of the O'Bannon ruling, Wilken acknowledged the "conflicting opinions" about the best policies to apply in regulating college sports and described avenues for course corrections.
"To the extent other criticisms have been levied against the NCAA and college policies and practices, those are not raised and cannot be remedied on the antitrust causes of action in this lawsuit," Wilken wrote. "It is likely that the challenged restraints, as well as other perceived inequities in college athletics and higher education generally, could be better addressed as a remedy for the antitrust violations found here. Such reforms and remedies could be undertaken by the NCAA, its member schools and conferences, or Congress."
But that wasn't Wilken's task in this case. Pending appeals, it's now up to others to sort through the ramifications of Wilken's landmark decision.
"The NCAA will hopefully never be the same," Hausfeld said. "It's going to go through a metamorphosis and if it approaches it wisely, it should sit down and discuss with all the interested entities how best to form a new way going forward."
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