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O’Bannon v. NCAA: Ninth Circuit Decision Affirming in Part and Vacating in Part

After six years of litigation, the Ninth Circuit issued its opinion affirming in part and vacating in part the District Court’s decision in O’Bannon v. NCAA. The long-awaited decision likely puts an end to the most volatile litigation in the history of the NCAA and allows for the current structure of the NCAA to stay largely intact. Yet, the decision also allows future plaintiffs some opening and arguments against the NCAA’s revered notions of amateurism.

By in large, the Ninth Circuit agreed with the decision of the District Court. The Ninth Circuit acknowledged that many of the NCAA’s amateurism rules are likely to be procompetitive, but indicated those rules are not exempt from antitrust scrutiny; rather, they must be analyzed under the rule of reason. Applying the rule of reason, the Ninth Circuit concluded that the district court correctly identified one proper alternative to the current NCAA compensation rules (i.e., allowing for cost of attendance). It is worth noting that the NCAA, as of August 1, 2015, permits member institutions to provide scholarships up to the cost of attendance. However, the Ninth Circuit found the District Court’s remedy of allowing student-athletes to receive cash compensation up to $5,000.00 annually was erroneous. Accordingly, the Ninth Circuit affirmed in part and vacated in part.

On appeal, the NCAA contends the plaintiffs’ Sherman Act claim fails on the merits, but it also argues that the Ninth Circuit is precluded altogether from reaching the merits for three independent reasons: 1) the United States Supreme Court held in NCAA v. Board of Regents of the University of Oklahoma that the NCAA’s amateurism rules are valid as a matter of law; 2) the compensation rules at issue are not covered by the Sherman Act at all because they do not regulate commercial activity; and 3) the plaintiff have no standing to sue under the Sherman Act because they have not suffered antitrust injury. The Ninth Circuit found none of these arguments persuasive.

First, the Ninth Circuit concluded Board of Regents did not declare the NCAA’s amateurism rules valid as a matter of law. In Board of Regents, the United States Supreme Court discussed the NCAA’s amateurism rules at great length, but it did not do so in order to pass upon the rules’ merits, given that they were not before the Supreme Court. Rather, the Supreme Court discussed the amateurism rules for a different and particular purpose: to explain why NCAA rules should be analyzed under the rule of reason, rather than held to be illegal per se. Board of Regents did not approve of the NCAA’s amateurism rules as categorically consistent with the Sherman Act. Rather, it held that, because many NCAA rules are part of the character and quality of the NCAA’s product, no NCAA rule should be invalidated without rule of reason analysis. In sum, the Ninth Circuit accepted Board of Regents’ guidance as informative with respect to the procompetitive purposes served by the NCAA amateurism rules, but stated the amateurism rules’ validity must be proved, not presumed.

Second, the Ninth Circuit concluded the NCAA’s compensation rules are within the ambit of the Sherman Act. The modern legal understanding of commerce is broad including almost every activity from which the actor anticipates economic gain. The Ninth Circuit stated the definition surely encompasses the transaction in which an athletic recruit exchanges his labor and name, image, and likeness rights for a scholarship at a NCAA Division I institution because it is undeniable that both parties to that exchange anticipate economic gain from it. Further, the mere fact that a rule can be characterized as an eligibility rule does not mean the rule is not a restraint on trade. If the law stated otherwise, the NCAA could insulate its member schools’ relationships with student-athletes from antitrust scrutiny by renaming every rule governing student-athletes an eligibility rule. The Ninth Circuit concluded the substance of the compensation rules matters far more than how they are styled and, thus, found NCAA compensation rules are subject to antitrust review.

Third, the Ninth Circuit concluded the plaintiffs showed they were injured in fact as a result of the NCAA’s rules having foreclosed the market for their names, images, and likenesses in video games. The NCAA did not contend the plaintiffs’ injuries were not of the type the antitrust laws were intended to prevent. Rather, the NCAA made a garden-variety standing argument. Because the plaintiffs showed that absent the NCAA’s compensation rules, video game makers would likely pay them for the right to use their names, images, and likenesses in college sports video games, the plaintiffs have satisfied the requirement of injury in fact and, by extension, the requirement of antitrust injury.

After disposing of the NCAA’s arguments, the Ninth Circuit addressed the market, procompetitive justifications, and less restrictive alternatives. By in large, the Ninth Circuit adopted the findings of the District Court and indicated the District Court did not err in its findings. In addressing the less restrictive alternatives, the Ninth Circuit concluded the District Court did not clearly err in finding that allowing NCAA member schools to award grants-in-aid up to their full cost of attendance would be a substantially less restrictive alternative to the current compensation rules. All of the evidence before the District Court indicated that raising the grant-in-aid cap to the cost of attendance would have virtually no impact on amateurism. The Ninth Circuit further stated nothing in the record suggested that consumers of college sports would become less interested in those sports if student-athletes’ scholarships covered their full cost of attendance, or that an increase in the grant-in-aid cap would impede the integration of student-athletes into their academic communities.

The Ninth Circuit, then, turned to the District Court’s conclusion that student-athletes should be permitted to receive cash compensation up to $5,000.00 annually. The Ninth Circuit stated it cannot agree that a rule permitting schools to pay student-athletes pure cash compensation and a rule forbidding them from paying compensation for use of student-athletes’ names, images, and likenesses are both equally effective in promoting amateurism and preserving consumer demand. Further, 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 an amateur. The difference between offering student-athletes education-related compensation and offering them cash sums untethered to educational expenses is not minor; it is a “quantum leap.” Moreover, the Ninth Circuit stated once that line is crossed, there would be no basis for returning to a rule of amateurism and no defined stopping point and the court had little doubt that plaintiffs will continue to challenge the arbitrary limit imposed by the District Court until they have captured the full value of their names, images, and likenesses. The Ninth Circuit concluded that the District Court clearly erred in finding a viable alternative to allow student-athletes to receive cash payments for their names, images, and likenesses untethered to their education expenses and, therefore, vacated the portion of the District Court’s decision and injunction that calls for NCAA member schools to pay student-athletes deferred compensation.

In sum, the Ninth Circuit reaffirmed that NCAA regulations are subject to antitrust scrutiny and must be tested in the crucible of rule of reason analysis. When NCAA regulations truly serve procompetitive purposes, then courts should not hesitate to uphold them. The NCAA, however, is not above antitrust laws and courts must not shy away from requiring the NCAA to play by the Sherman Act’s rules. Here, the NCAA amateurism rules are more restrictive than necessary to maintain its tradition of amateurism in support of the college sports market. The Sherman Act under rule of reason analysis requires the NCAA to permit its member institutions to provide scholarships up to the cost of attendance to student-athletes, but does not require more.

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