What O’Bannon Means For NCAA's Next Round Of Litigation

by Zelle LLP

After a three-week trial and five years of litigation, the “[m]ost important trial in sports history”[1] — O’Bannon v. National Collegiate Athletic Association[2] — concluded last month, culminating in what some have said is the most important victory in the history of college sports. As important as the ruling is, however, the immediate relief it provides is not as significant as the groundwork it lays for future challenges against the NCAA — including one that may permanently change our view of the NCAA and the amateur athlete.

In a 99-page ruling, Chief Judge Claudia Wilken of the U.S. District Court for the Northern District of California accepted the argument that the NCAA violated antitrust laws by conspiring with others to deny compensation to college football (Football Bowl Subdivision “FBS”) and men’s basketball players for use of their names, images and likenesses.

Consequently, Judge Wilken issued an injunction preventing “the NCAA from enforcing any rules or bylaws that would prohibit its member schools and conferences from offering their football or 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.”[3]

What this means in practice is that in the short term, the NCAA cannot impose rules that prevent its member institutions from paying FBS football players and men’s basketball players $5,000 each per year via a trust for using their names, images, and likenesses. The NCAA also cannot impose rules that prevent colleges from giving FBS football players and men’s basketball players scholarships equal to the full cost of attendance. (Currently, “full” scholarships must be capped at a grant-in-aid amount that includes only tuition, certain books and fees, and certain meals. This amount falls at least $2,000-$5,000 short of the actual cost of attendance.) Schools also cannot collude to set limits on compensation or scholarships for FBS football players and men’s basketball players, i.e., schools must compete for players.

In other words, the ruling does not require schools to pay athletes anything other than what they are paying right now. However, if the free market and the thirst for college sports tells us anything, colleges will undoubtedly compete for top players through full scholarships plus trust payments.

In the long term (assuming Judge Wilken’s decision is not overturned), this means that the NCAA can no longer stand behind its long-trumpeted amateurism defense as a basis for refusing to pay athletes — men or women. Additionally, the NCAA cannot use the same pro-competitive justifications it asserted in the O’Bannon trial.

The court stated: “As with the NCAA’s amateurism justification, however, the NCAA may not use this goal to justify its sweeping prohibition on any student-athlete compensation, paid now or in the future, from licensing revenue generated from the use of student-athletes’ names, images, and likenesses.”[4]

As the Washington Post reported:

I think this ruling means the days of the NCAA hiding behind its amateurism defense are over,” said Michael Carrier, a Rutgers law school professor who specializes in antitrust matters. “The NCAA has relied on this defense for years. It has used it to have all sorts of restraints on players. In this incredibly thorough opinion, the judge takes apart all of those arguments.”[5]

An analogy can be made to a ruling that many consider to be the most pivotal and game-changing event in the tobacco litigation. For decades, tobacco companies consistently defeated lawsuits against them that were related to claims that smoking was addictive and caused cancer. The tobacco companies were able to claim attorney-client privilege over a number of damaging documents that would have effectively “handed the case to the plaintiffs.”

The turning point came in 1997 when a Minnesota judge rejected the defendants’ broad privilege claims. While the ruling itself did not provide the plaintiffs with the ultimate victory, it changed the landscape and ultimately led to a master settlement between the defendants and most states. The O’Bannon decision is similarly a game-changer.

What’s Next

Currently there are several antitrust cases consolidated in the Northern District of California entitled In re: NCAA Grant-in-Aid Cap Antitrust Litigation that represent an antitrust attack on the NCAA’s rules capping scholarship amounts. The cases are filed by 11 former NCAA football players, two current football players, three men’s basketball players and three women’s basketball players. The most prominent plaintiff is Shariff Floyd, a 2013 first-round draft choice of the Minnesota Vikings. There are two types/groups of cases pending:

One group of cases was filed by Jeffrey Kessler, counsel for the National Football League Players Association and a lawyer who became well known for litigating the case that brought free agency to the NFL. The Kessler case seeks an injunction removing all scholarship limitations imposed by the NCAA and aims to bring a free market to college football players and men’s basketball players playing in the five major conferences.

The other group of cases were filed by several lawyers, including lawyers who litigated the O’Bannon case — Hausfeld LLP and Zelle Hofmann Voelbel & Mason. These cases all contain a variety of claims related to scholarship limitations, but the broadest case, filed by the Hausfeld/Zelle lawyers, seeks an injunction removing all scholarship limitations — including grant-in-aid caps — and also asks for individual and class-wide damages. The case is also filed on behalf of football players, men’s and women’s basketball players, and is filed against the NCAA and 11 major conferences.

These cases assumedly will use the 99-page ruling in O’Bannon to attack the NCAA’s rules on scholarship limitations.

As Jon Solomon stated in USA Today: “Wilken’s language about amateurism, competitive balance, the integration of academics and athletics, and output reduction could have created obstacles for Kessler. It likely did the complete opposite while offering Kessler’s case a playbook on how to defeat the NCAA.”[6]

What could happen is anyone’s guess, but what is certain is that the major defense that the NCAA has been relying on for more than a century will no longer be available. Which means big trouble for the NCAA and more control and potentially more money in the pockets of NCAA players.

Disclaimer: Zelle Hofmann is counsel for plaintiffs in O’Bannon v. NCAA and Floyd v. NCAA (a/k/a In re: NCAA Grant-in-Aid Cap Antitrust Litigation).

[1] Brent Axe, Ed O’Bannon vs. NCAA: Primer for the ‘Most Important Trial in Sports History’, June 9, 2014, http://www.syracuse.com/axeman/index.ssf/2014/06/ed_obannon_vs_ncaa_primer_for_the_most_important_trial_in_sports_history.html

[2] No. 09-3329 CW (N.D. Cal. 2009).

[3] O’Bannon v. Nat’l Collegiate Athletic Ass’n, *36 (N.D. Cal. Aug. 8, 2014).

[4] Id. at *33.

[5] Rick Maese, O’Bannon v. NCAA Ruling Could Set Up Larger Arguments Over College Sports, Experts Say, Aug. 9, 2014, http://www.washingtonpost.com/sports/colleges/obannon-v-ncaa-ruling-could-set-up-larger-arguments-over-college-sports-experts-say/2014/08/09/5338ae4c-1fe2-11e4-9b6c-12e30cbe86a3_story.html

[6] Jon Solomon, Q&A: What the O’Bannon Ruling Means for NCAA, Schools and Athletes, Aug. 9, 2014, http://www.cbssports.com/collegefootball/writer/jon-solomon/24654805/qa-what-the-obannon-ruling-means-for-the-ncaa-schools-and-athletes.

Competition Law360
September 3, 2014

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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