What is next for NCAA student-athletes? From O'Bannon onto Jenkins

Published 21 October 2016 | Authored by: Michael Rueda

On October 3, 2016, the Supreme Court of the United States declined to review the "O'Bannon" case.1 It left in place a September 2015 ruling by the United States Ninth Circuit Court of Appeals,2 which held that the National Collegiate Athletic Association (NCAA) and its amateurism rules are subject to U.S. antitrust laws. Specifically, the Ninth Circuit held that the NCAA is not prohibited from awarding athletic scholarships with a value of a school's federally regulated cost-of-attendance; but cash payments to student-athletes in excess of such amount, which are untethered to a student's education expenses, are not required.

The excess cash compensation under consideration by the Ninth Circuit was a payment of $5,000 per student-athlete per season for the use of the student's name, image and likeness (NIL). The decision was not a complete victory for either side and, after years of litigation, there is no significant practical change to the position immediately prior to the Ninth Circuit's ruling. Yet, the high profile nature of O'Bannon has provided heightened awareness and sensitivity to the concerns of student-athletes and prompted unilateral review and change by the NCAA. 

This article examines the practical implications of the O'Bannon decision and discusses the relevant related case of Jenkins, and a case that was recently merged with it, Alston. It also addresses certain steps taken by the NCAA in response to O'Bannon to preempt future litigation in response to certain concerns raised by student-athletes.

Specifically it looks at:

  • O’Bannon: case review and practical results of the Supreme Court's decision

  • It’s not over: further litigation relating to student-athlete benefits
    • Jenkins v NCAA
    • Alston v NCAA (now merged with Jenkins)

  • Author’s comment where amateurism in the NCAA now stands

 

O'Bannon

In 2009, former UCLA basketball player Ed O'Bannon, on behalf of the NCAA's Division I football and men's basketball players, brought a class action lawsuit in the United States District Court for the Northern District of California against the NCAA challenging its amateurism rules.3 The amateurism rules barred student-athletes from receiving a share of the revenue that the NCAA and its member schools earn from the sale of licenses to use the student-athletes' NILs in videogames, live game telecasts, and other footage. In particular, the NCAA prohibited any student-athlete from receiving financial aid based on athletic ability that exceeded the value of a full "grant-in-aid."4 Traditionally, the value of an athletic scholarship was capped at an amount known as full "grant-in-aid," which was limited to costs of tuition and fees, room and board, and required course-related books.

O'Bannon's counsel contended that these rules violated U.S. antitrust laws. The NCAA denied the charge and asserted that its amateurism rules were necessary to uphold the NCAA's educational mission and to protect the popularity of college sports. The District Court held that the NCAA’s amateurism rules were an unlawful restraint of trade in violation of U.S. antitrust laws. The District Court enjoined (prevented) the NCAA from prohibiting its member schools from giving student-athletes scholarships up to the federally regulated full "cost-of-attendance" at their respective schools. A school's full "cost-of-attendance" increased the value of an athletic scholarship to include the estimated value for things such as travel between campus and the student's home, clothing and food.

The District Court also enjoined the NCAA from prohibiting its member schools from giving a student-athlete up to $5,000 per year in deferred compensation for the use of the student-athlete's NIL, to be held in trust for the student-athlete until after they leave college.

Upon review, the Ninth Circuit held that the NCAA's amateurism rules are subject to antitrust scrutiny. However, the Ninth Circuit also held that the amateurism rules serve pro-competitive purposes – "integrating academics and athletics and preserving the popularity of the NCAA's product by promoting its current understanding of amateurism."5

But the Ninth Circuit determined that the rules were more restrictive than necessary to serve those purposes and that the NCAA could achieve its purposes in a less restrictive manner (i.e., providing athletic scholarships with a value of a school's federally regulated "cost-of-attendance" versus full "grant-in-aid"). However, this portion of the Ninth Circuit's decision had little practical impact. Prior to the decision, the NCAA had already passed legislation6 allowing schools to increase the value of an athletic scholarship to include each institution's federally regulated "cost-of-attendance." Although the Ninth Circuit's decision directly prompted no change with respect to increasing the value of an athletic scholarship, the determination secured a student-athlete's right to the increased value.

For the plaintiffs (claimants), the unfavorable portion of the Ninth Circuit's decision dealt with the court's denial of the request for the rule permitting schools to pay student-athletes for the use of student-athlete NILs. Plaintiffs' counsel persuaded the District Court to authorize payments of $5,000 per student-athlete per season. But the Ninth Circuit reversed the decision, concluding that to allow student-athletes to receive NIL cash payments untethered to their education expenses was not as effective as the NCAA's amateurism rules (which prohibited paying NIL compensation to student-athletes) in promoting the NCAA's pro-competitive purposes.7 The Ninth Circuit specifically stated that

"having found that amateurism is integral to the NCAA's market, the district court cannot plausibly conclude that being a poorly-paid professional collegiate athlete is "virtually as effective" for that market as being as amateur."8

The Ninth Circuit stressed that not paying students-athletes is precisely what makes them amateurs and that the difference between offering student-athletes education-related compensation and offering them cash sums untethered to educational expenses is not a minor difference but "a quantum leap"9. The Ninth Circuit further noted that once that line is crossed, there is no basis for the NCAA to retain its amateurism rules and that future plaintiffs would continue seeking methods to monetize their NILs until the full value is received.

The most significant practical result of the Supreme Court's decision not to review O'Bannon was that the NCAA was deemed subject to U.S. antitrust laws and an antitrust violator, therefore leaving its amateurism rules open for future antitrust scrutiny. This is important, as there are two cases currently also before the United States District Court for the Northern District of California that may soon contribute to the NCAA amateurism-rules conversation.

 

It's Not Over: Further Litigation

Jenkins v NCAA10

The plaintiffs in Jenkins are student-athletes who played Division I FBS football and men's and women's basketball. The defendants are the NCAA and a group of Division I conferences. The plaintiffs allege that the NCAA and its member schools violated U.S. antitrust laws by conspiring to impose the cap on the amount of monetary and in-kind compensation a school may provide a student-athlete. The plaintiffs assert that, without the NCAA's cap on compensation, schools would compete in recruiting student-athletes by providing more generous compensation. 

The defendants sought a judgment on the pleadings in light of the Ninth Circuit O'Bannon ruling on cash compensation.11 However, while the O'Bannon decision was binding on the District Court, the District Court denied the judgment noting that O'Bannon simply foreclosed a type of relief (i.e., cash compensation untethered to educational expenses).12 This result leaves the opportunity for plaintiffs' counsel to identify non-cash benefits that schools could and should provide student-athletes.

Examples of in-kind benefits may include additional graduate scholarships, better health care, family accompaniment on recruiting trips, and bonuses for graduating or staying in school. The NCAA again proactively decided to provide some of these benefits. In August 2016, for example, the NCAA implemented a rule13 allowing schools to pay for actual round-trip costs and meals for a prospective student-athlete's parents or legal guardians that accompany the prospect on an official visit to the university.

Despite the availability and legitimacy of these additional benefits, Jenkins seems like a challenging case to win. Counsel must identify non-cash benefits, not already provided by the NCAA, that are tethered to education expenses. In addition, it must convince the District Court that providing these additional benefits, which in the aggregate will exceed the cost-of-attendance, promotes the NCAA's pro-competitive purpose in a less restrictive manner than the NCAA's current amateurism rules. In essence, counsel must seek to increase legitimate benefits for student-athletes but not provide so many benefits that the amateurism principle is lost. 

The Ninth Circuit clearly valued amateurism as an essential component of the NCAA's purpose and noted that the difference between offering student-athletes education-related compensation and providing sums untethered to educational expenses is great. It also understood that crossing the untethered education-compensation line would create a slippery slope, from which there would be no return. Any decision in Jenkins must keep these parameters in mind or NCAA sports changes forever. 

Alston v NCAA14 

Alston is a class action lawsuit filed in March 2014 seeking hundreds of millions of dollars in damages from the NCAA and certain of its conferences. The plaintiffs in Alston are Division I FBS football players who received athletic scholarships at the former "grant-in-aid" value. The defendants are the NCAA and the top five athletic conferences (SEC, Pac 12, Big 10, ACC and Big 12). 

Alston alleges that the defendants, in violation of U.S. antitrust laws, colluded to prevent student-athletes from receiving cost-of-attendance based scholarships. As discussed earlier, "grant-in-aid" scholarships were limited to costs of tuition and fees, room and board, and required course-related books. "Cost-of-attendance" based scholarships also include the estimated value of things such as travel between campus and the student's home, clothing and food. Had cost-of-attendance based scholarships been in place years ago, the plaintiffs argue that they would have received more valuable scholarships, therefore entitling the plaintiffs to damages. 

Alston originally sought to prohibit the NCAA and the conferences from limiting the value of athletic scholarships to full "grant-in-aid" but the demand became moot once the NCAA passed legislation to increase the value of scholarships to full "cost-of-attendance." Alston also sought an award for damages for the difference between the full "cost of-attendance" and full "grant-in-aid." Damages may exceed $250 million based upon the differential in value and the period covered by the lawsuit. In addition, U.S. antitrust laws also permit the tripling of plaintiff awards. 

The NCAA argues that the basic legal criteria for a class action are not met – namely, having questions of law or facts that are common to the class.15 This is because financial aid packages at each university differ, are individualized and scholarship awards to potential class members are not governed by a simple set of uniform, mechanically applied practices.16 Instead, defendants argue that individual determinations must be made regarding each student-athlete to determine whether the student-athlete is actually a member of the class, was actually injured and, if so, to what extent.17 Those individual determinations make class litigation impractical according to the defendants. The Alston case has since been consolidated with Jenkins. Alston is no longer involved as named plaintiff and the number of NCAA conferences named as defendants has expanded.

Ultimately, if the plaintiffs prevail the result could be very costly to the NCAA; but a prevailing decision for the plaintiffs in Jenkins could potentially have greater structural impact. A damages award would take a toll but would likely not begin a descent down the slippery slope of student-athlete compensation. 

 

Comment

Until all legal maneuvers are exhausted in Jenkins and Alston, the NCAA amateurism status quo will remain virtually unchanged. The NCAA will likely (and should) continue to proactively identify ways to improve the benefits student-athletes receive while working within their own framework and understanding of amateurism to preserve its purpose and product. 

The NCAA by legislation has already increased the value of athletic scholarships, approved unlimited meals and other well-being rules in conjunction with athletic participation,18 and permitted schools to pay for actual round-trip costs and meals for a prospective student-athlete's family on official recruiting visits.19 The legislation is an effort by the NCAA to preempt future litigation, prompted not only by the cases discussed herein but other case law and legal threats to the NCAA's amateurism rules. 

Whatever the reasoning behind them, the improvements are necessary to preserve the nature of NCAA sports as we know and love them today and to improve the student-athlete experience going forward. 

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About the Author

Michael Rueda

Michael Rueda

Michael Rueda is the US Head of Sports and Entertainment at Withers.. Michael advises athletes, coaches, agents and companies on playing contracts, coaching contracts, and international player transfers; and sponsorship, endorsement, licensing and merchandising contracts. Michael was a member of the University of Connecticut 2000 National Championship Men's soccer team and continues to play soccer and compete in triathlons.

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