Court Rules NCAA Can Block Colleges from Paying Student-Athletes, But Allows Scholarships for “Full Cost of Attendance”

by Ballard Spahr LLP

In a partial victory for the NCAA, the Ninth Circuit Court of Appeals overturned in part a permanent injunction issued by the District Court for the Northern District of California, which had required the NCAA to allow schools to pay student-athletes up to $5,000 per year in deferred compensation, to be placed in a trust fund until the student leaves school.

The Court, however, reaffirmed that the NCAA’s rules governing collegiate sports are subject to scrutiny under the antitrust laws, rejecting the NCAA’s arguments to the contrary. The appellate court affirmed the portion of the injunction that prohibited the NCAA from banning scholarships for the full cost of attendance, which includes—in addition to tuition, room and board, and required books—other books and supplies, transportation, and other related expenses.

The District Court had issued its ruling in August 2014 in the case, in which former All-American basketball player Ed O’Bannon of UCLA served as named plaintiff in the class action.

The NCAA argued its rules were designed to preserve the element of amateurism in college sports. But the District Court permanently enjoined the NCAA from prohibiting its member schools from compensating Football Bowl Subdivision (FBS) and Division I men’s basketball players for the use of their names, images, and likenesses by awarding them grants-in-aid up to the full cost of attendance (which includes books and supplies, transportation, and other attendance-related expenses); or paying up to $5,000 per year in deferred compensation to FBS football and Division I men’s basketball players through trust funds distributable after they leave school. The decision had significant ramifications for college sports programs at colleges and universities across the country.

The Ninth Circuit held that the district court’s decision was “largely correct,” but did not allow both forms of compensation to stand. Agreeing that the NCAA had a competitive interest in maintaining the amateurism of college sports, the Ninth Circuit emphasized that “not paying student-athletes is precisely what makes them amateurs.” The difference between offering student-athletes education-related compensation and offering them cash sums untethered to educational expenses is not minor, the Ninth Circuit said; rather, “it is a quantum leap.”

After rejecting the NCAA’s arguments that its rules were not subject to the antitrust laws, the Ninth Circuit followed the same three-step rule-of-reason framework as the District Court, assessing plaintiffs’ evidence of anticompetitive effects of the NCAA’s rules, the NCAA’s evidence of procompetitive benefits those rules, and proof that the objectives of the NCAA’s rules could be achieved in a less restrictive manner. The Court found that the NCAA’s rules had anticompetitive effects because forcing athletes to accept grants-in-aid, and no more, in exchange for their athletic performance meant that the NCAA schools have agreed to value the athletes’ names, images, and likeness at zero. However, the NCAA’s rules served two procompetitive purposes identified by the district court: integrating academics with athletics and preserving amateurism.

In the third step of the rule of reason analysis, the Court analyzed whether the procompetitive benefits of amateurism could be preserved through the less restrictive means ordered by the district court: (1) allowing NCAA member schools to pay student-athletes for the full cost of attendance (which exceed the NCAA’s grant-in-aid cap); and (2) permitting deferred cash compensation for use their names, image, and likenesses. The Ninth Circuit found that the former would not undermine amateurism and was less restrictive. The money given to students would cover their “legitimate costs” to attend school—even according to the NCAA’s president. 

The Ninth Circuit, however, found that the district court “clearly erred” in allowing students to receive cash payments—untethered to their education expenses—for their names, images, and likenesses. The Ninth Circuit was emphatic that not paying student athletes was essential to them remaining amateurs. It was implausible, according to the Court, that being a “poorly-paid professional collegiate athlete” is virtually as effective for the NCAA’s market as being an amateur. 

The decision is a victory for the NCAA. Although the Court decided that the NCAA cannot prevent schools from awarding scholarships for the full cost of attendance, the NCAA had already announced in August 2014 that it would allow athletic conferences to authorize their member schools to increase scholarships up to the full cost of attendance. The 80 member schools of the five largest athletic conferences in the country voted in January 2015 to take that step. The Ninth Circuit’s decision essentially prevents the NCAA from undoing the recent actions by its member schools.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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