By Jeffrey Birren
In 2009, Ed O’Bannon and other former college football and basketball athletes filed a class action lawsuit against the NCAA on the grounds that the NCAA violated several Federal antitrust laws. The plaintiffs believed that they should be entitled to adequate compensation for the NCAA’s use of their respective names, images and likenesses (“NILs”) that were used for commercial purposes, including without limitation, live broadcasts, television commercials and video games. The case was assigned to Claudia Wilken, Chief Judge of the United States District Court for the Northern District of California.
The NCAA denied that such NIL rights existed. Although the Big 10 Conference required all athletes to sign away all of their rights to the use of their NILs to the Conference (Trial Tr. 2108:4-7), Big 10 Commissioner Jim Delaney testified that this was merely “boilerplate” (Id. at 2103:8-11).
Neil Pilson, former president of CBS Sports, testified as a television expert for the NCAA, stating that broadcasters merely acquired exclusive access to the venue, and not the use of the athletes” NILs (Trial Tr. 719:3-9). Perhaps Mr. Pilson could watch a broadcast shorn of the NILs of the participants. No one else would.
Prior to trial, the plaintiffs amended their complaint naming current college athletes as plaintiffs. They also dismissed their damages claim, leaving the issues of liability and injunctive relief solely to Judge Wilken. A 15-day trial in June 2014 resulted in a very limited decision in favor of the Plaintiffs. Judge Wilken issued a prospective injunction that will prohibit the NCAA from enforcing rules that restrict schools from paying student-athletes “a limited share of revenues generated by the use of their NILs in addition to a full grant-in-aid.” However, the NCAA may cap that compensation, but not at a number below the actual cost of attendance at the school. 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 and Division I basketball recruits, payable when they leave school or their eligibility expires,” though the NCAA may cap that amount at $5,000 a year. Ed O’Bannon v NCAA, U.S. Dist. Ct. Nor Cal. 4:09-cv-03329-CW, Findings of Fact and Conclusions of Law, (Findings) August 8, 2014, at 96. The NCAA filed a notice of appeal, and years of billing lie ahead.
There is much to be said about the case, but this article will only focus on a single item: the NCAA’s reliance on NCAA v Board of Regents, 468 U.S. 85 (1984). In Board of Regents, the universities of Georgia and Oklahoma sued the NCAA, claiming that the rules that restricted television appearances for schools violated Section 1 of the Sherman Act. Section 1 decades illegal “{E}very contract, combination or in the form of trust or otherwise, in restraint of trade or commerce among the several states, or with foreign nations, is hereby declared illegal” (15 U.S.C. 1). The District Court found the NCAA’s controls were those of a “classic cartel” and ruled against the NCAA (468 U.S. at 96-97). The Tenth Circuit affirmed, as did the Supreme Court.
In O’Bannon, the NCAA argued that the following language from the Board of Regents case made their practices with respect to NILs per se legal:
Moreover, the NCAA seeks to market a particular brand of football—college football. The identification of this “product” with an academic tradition differentiates college football from and makes it more popular than professional sports to which it might otherwise be comparable, such as, for example, minor league baseball. In order to preserve the character and quality of the “product”, athletes must not be paid, must be required to attend class, and the like (Board of Regents, 468 U.S. at 102/103).
The impact of this language on college athletes has been devastating. Courts in multiple jurisdictions used that language to grant the NCAA judicial immunity from athlete antitrust cases. The Seventh Circuit recently opined that this language meant that the NCAA’s rules have “been blessed by the Supreme Court, making them presumptively precompetitive” (Agnew v NCAA, 683 F.3d 328, 341 (7th Cir. 2012)).
The Board of Regents quote is not remotely dispositive of the O’Bannon case. First, it is simply dicta. Board of Regents case dealt with the NCAA rules restricting television broadcasts. NCAA rules directed at athletes were not at issue in the case. No court made any factual findings concerning the plight of the athletes. There were no legal issues concerning the status of the athletes pending at any time in the case. All of the parties to that case would have agreed that the “athletes must not be paid,” but that is not a judicial mandate as it was irrelevant to the actual case.
The dicta also conflicted with reality. While Board of Regents was working its way through the courts, Stanford’s star quarterback, John Elway, signed a minor league contract with the New York Yankees. This “amateur” athlete was paid $140,000 by the Yankees and played minor league baseball for the team in the summer of 1982 (ESPN “Remembering John Elway’s Summer of Baseball,” Doug Williams 9 6/12). Elway returned to play “amateur” college football for Stanford in the fall of 1982. He was a consensus All-American and the Heisman trophy finalist.
The O’Bannon Order also noted that during oral arguments in Board of Regents, defense counsel asserted that the NCAA might have more viewers if they were semi-professional and not amateur, thus acknowledging that the NCAA members could in fact pay its athletes if the rules so permitted (O’Bannon Order at 79/80). Only self-interest prevented the NCAA from allowing compensation to athletes.
Second, Board of Regents held that the NCAA television broadcast restraints violated the Sherman Act. The NCAA, consequently, has no statutory or judicial immunity from the antitrust laws. The NCAA is a private, not public, entity (NCAA v Tarkanian, 488 U.S. 179, 182 Fn 5. (1988)). As a private market participant, NCAA is subject to the antitrust laws as is every other cartel or joint venture.
Furthermore, even then it was a highly debatable whether the NCAA was a non-profit enterprise, as the Court noted that the District Court “found that the NCAA and its members are in fact organized to maximize revenues…” (Board of Regents 468 U.S. at 100, Fn, 22). Yet if the NCAA could be construed as a nonprofit entity, the Court was clear: “There is no doubt that the sweeping language of § 1 applies to nonprofit entities…” (citations omitted.) Id.
Third, even if keeping college athletes in a state of poverty is a laudable goal, the Court noted: “it is well settled that good motives will not validate an otherwise anticompetitive practice” (468 U.S. at 103, Fn 23).
Fourth, the quote came in the context of a discussion about the “product.” The NCAA’s rules reflected its choice as to how it would compete, and were thus designed to give the product market differentiation, “and as a result enables a product to be marketed which otherwise might be unavailable” (Board of Regents 468 U.S. at 103). Consequently, the NCAA actively marketed itself as the entity with impoverished athletes in order to gain more profit for itself.
While discussing the product market, the Court also found “there can be no doubt that college football constitutes a separate market for which there is no reasonable substitute” (468 U.S. at 113, Fn 9). As a result, since “broadcasting rights to college football is a unique product for which there is no ready substitute, there is no need for collective action in order to enable the product to compete against its nonexistent competitors (468 U.S. at 115).” This finding foreclosed various potential defenses based on the need for certain types of collective action by the NCAA to compete with other forms of entertainment (Id., at 115, Fn. 55).
This marketing strategy has worked well. At the time of Board of Regents, the NCAA had 850 member institutions (468 U.S. at 90). Four years later, it had 960 member institutions (Tarkanian, 488 at 184). Currently, the NCAA has “roughly 1,100 member schools…” (O’Bannon v NCAA, Order at 2).
It is also highly profitable. One NCAA economist, Dr. Daniel Rubinfeld, admitted his textbook has stated for over 25 years that college “athletics is a big and an extremely profitable industry” (Tr. 3035:19-25). Current NCAA President Mark Emmert was paid $1.6M in 2010 (Trial Tr. 1882-1883:20-1).
Without judicial immunity from the Board of Regents dicta, the highly paid and highly profitable NCAA’s defenses were unavailing in O’Bannon. Perhaps this was a predictable outcome, as two original co-defendants, Electronic Arts and the Collegiate Licensing Company, abandoned the case in 2011 and settled with the plaintiffs for $40 million.
Birren worked for the LA/Oakland Raiders for 34 seasons and was the general counsel for much of that time. He also taught sports law at Southwestern University School of Law for three years. He can be reached at jebirren@comcast.net
