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Pay for play is dead, but the NCAA may die as well: U.S. Supreme Court declines to hear NCAA antitrust, O’Bannon appeals

The NCAA wanted a complete victory. Instead it largely preserved the status quo.

U.S. Supreme Court Prepares For New Term Photo by Alex Wong/Getty Images

The pay-for-play stalking horse known as the O’Bannon litigation has finally come to a close as the Supreme Court denied certiorari in two separate appeals arising from that case. This means that the Court has declined to review the ruling of the 9th Circuit Court of Appeals. That 2015 lower court ruling is now the law of the land.

Let’s rewind.

O’Bannon Trial

In August 2014, Judge Claudia Wilkins heard O’Bannon’s antitrust case against the NCAA concerning compensation for the use of his and other collegiate athletes’ likeness in a series of video games. However, the case became a morass as the plaintiffs’ class action lawyers almost immediately jumped to presently-enrolled athletes and greatly expanded the breadth of the case. Instead of the dispute being about jerseys, promotional materials, broadcast images, video game likenesses etc, O’Bannon’s counsel introduced evidence of the NCAA’s revenue and the uncompensated nature of non-employee student athletes. The NCAA was in essence put on trial for being wealthy, with the rhetoric couched in terms of alleged equity. Those brute-force revenue numbers were crudely presented, but readily accepted.

To her discredit, Judge Wilkins completely bought the bait-and-switch and her ruling focused much more on crafting a system of pay-for-play rather than on compensation for a group of former athletes whose likenesses had been previously used without payment by the NCAA and its licensees (including gaming juggernaut, Electronic Arts.)

Judge Wilkins ruled that those actions by the NCAA and its licensees did violate antitrust laws and constituted a restraint of trade. In so concluding, the remedy she carved out not only touched upon O’Bannon’s original claims, but made present and future student athletes eligible for a cash payment of up to $5,000, on top of full cost of attendance. Further, it granted present and future student athletes rights of personality, meaning that they could be compensated as universities, gaming companies, jersey manufacturers and others were profiting off of their likenesses.

Northwestern Petition

Losing the O’Bannon trial was a potentially mortal blow to the NCAA and its long-standing, long-stated (and oft-criticized) mission of amateurism. Compounding the legal woes for the NCAA, a case earlier that year before the Chicago National Labor Relations Board overturned decades of precedent. In a stunningly incompetent decision, the Chicago NLRB gift-wrapped a legally-dubious victory for the group of Northwestern student-athlete petitioners. In its ruling, the local board essentially declared student-athletes to be employees and thus eligible to form trade unions and collectively bargain. This decision ran counter to decades of well-established legal precedent that students are not employees.

With its back to the wall, the NCAA appealed the regional Chicago NLRB ruling to the parent governing body, the NLRB’s national council in Washington. While that appeal was pending, the NCAA was also appealing O’Bannon to the Ninth Circuit Court of Appeals, seeking a reversal of both Judge Wilkins’ legal conclusions and the remedies she crafted. To boil down very complex law, the NCAA wanted future and present pay-for-play et al eliminated, as well as a reversal of O’Bannon’s central legal conclusion: that the NCAA restrains interstate commerce and trade in violation of federal law.

NLRB Northwestern Appeal

2015 was a much better year for the NCAA. First, the NLRB unanimously reversed the Chicago decision with a nifty sleight of hand. Rather than no-dog the regional office and actually reach the merits of the Northwestern petition, the NLRB instead held that it did not have jurisdiction to make the ruling that Chicago’s director had issued. In so doing, the NLRB noted that 108 of the NCAA division one programs are public institutions. The NLRB has no jurisdiction over those state institutions, and collective bargaining/unionization is governed by state law instead. The NLRB next turned its focus on those institutions it could assert jurisdiction over, private schools like the petitioners at Northwestern. However with so few programs potentially under NLRB jurisdiction, the board easily decided that asserting jurisdiction in this case to permit unionization/collective bargaining did not at all advance stability of labor relations. In fact, it would have the very opposite effect.

Without NLRB jurisdiction then, federal precedent on this issue remains the controlling law: Students (including grad students and student-athletes) are not employees. However, we now have an added concept to go with that case law: students and their labor relationships, even if they were employees, are in a highly orchestrated relationship with, and under the control of, the NCAA. Further, those complex relationships would, in most cases, be bound up in applicable state law, even if students were permitted to unionize.

In essence, the NLRB’s ruling results in a three-tiered system of redundancies that now protect the NCAA: a petitioner cannot even reach the issue of governing state law because a student-athlete class of petitioners is not, and have has been, recognized as being employees. And, it would be difficult to even reach those two non-starters for student-athletes because even if student-athletes were employees, the labor relationship is a complex one already heavily governed by the NCAA.

With respect to unions at least, the NCAA has an ironclad, Mortal Kombat kind of fatality it can inflict at-will on student-athletes seeking union protections and collective bargaining.

O’Bannon Appeals

As good as 2015 had been to the NCAA, it got even better over the summer. Not only did the NLRB decline to exercise jurisdiction in the Chicago case, but a significant victory was had during its appeal of the O’Bannon ruling.

A three-judge panel of the Ninth Circuit Court of Appeals heard the NCAA’s argument, one given short shrift by Judge Wilkins, the central theme of which was that payment to players above and beyond actual cost of attendance stripped away the distinction of amateurism and was counter to the educational mission of its member institutions. Further, as a display of good faith, the NCAA argued that member institutions were already permitted to give actual cost of attendance aid. Unfortunately for the NCAA, it was never able to adequately rebut the fairly clear finding that its rules to protect amateurism restrains trade and constitutes a monopoly.

The court gave the NCAA a tremendous victory when the opinion was finally released. The Ninth found that the NCAA did violate federal antitrust law, but it completely gutted the rest of the trial court’s ruling. Specifically, the court determined that: 1. amateurism is central to the NCAA and to its rules and regulations, although, as practiced by the NCAA, those protective rules violate antitrust laws 2. member institutions, themselves part of the monopoly, are obligated to provide more than they do at present, and strongly poked the NCAA into full cost of attendance (An open question is whether schools are to provide other amenities and perks above and beyond the “cap” of full cost of attendance. That case is in litigation now,) 3. invalidated the $5,000 cash giveaway for athletic performances, 4. invalidated the scheme proposed by the plaintiffs seeking compensation for student athletes’ names, likenesses, and personalities.

In short, aside from the core holding that the NCAA is a monopoly, and with a slight wrist-slap in the form of being prodded into granting full cost of attendance scholarships, the Ninth Circuit’s order could have very well been written by President Mark Emmert. Here is the money shot, so to speak:

“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,” the opinion stated. “Once that line is crossed, we see no basis for returning to a rule of amateurism and no defined stopping point; we have 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). At that point the NCAA will have surrendered its amateurism principles entirely and transitioned from its 'particular brand of football' to minor league status.”

The opinion also stressed “we wish to emphasize the limited scope of the decision that we have reached,” meaning invalidating Wilken’s plan to allow NCAA schools to pay athletes up to $5,000. The panel wrote that “in finding that paying students cash compensation would promote amateurism as effectively as not paying them, the district court ignored that not paying student-athletes is precisely what makes them amateurs.”

It was a bloody rout for the NCAA, with Ed O’Bannon playing the role of Custer and the 7th Cavalry.

Supreme Court and Beyond

Both parties, naturally unhappy with adverse rulings in the Court of Appeals, filed a certiorari petition to the Supreme Court. (A “cert petition” is simply where a party asks the Supreme Court to review a lower court decision. The Supreme Court does not have to take every case that crosses its bench, and, in fact, SCOTUS denies the overwhelming majority of these cert petitions.)

The NCAA, though largely prevailing in the Court of Appeals, still wanted to remove its last source of liability, that of an illegal trust/monopoly in restraint of trade. Meanwhile, O’Bannon’s attorneys, having been pummeled by the appellate court, appealed on the grounds that names, images and likenesses should be compensated — the last real source of potential income left for present and future athletes after the amateurism principle had been affirmed in principle by the Ninth Circuit.

The build-up and novel legal questions we thought we’d see play out in the highest court was for naught, however, as the Supreme Court denied both parties’ certiorari petitions yesterday and refused to review the cases. The effect of denying certiorari is to uphold the Ninth Circuit’s ruling.

But, what practical effect does that have? Well, the NCAA’s chief counsel summarized it perfectly yesterday:

“While we would have liked the Supreme Court’s review, we remain pleased with our trial victory and the 9th Circuit’s decision upholding the finding that the NCAA violated the antitrust laws and affirming a permanent injunction to remedy that violation, which enables NCAA member schools to offer college athletes significant additional funds toward the cost of attendance,” Michael Hausfeld, lead attorney in the O’Bannon case, said in a statement.

The NCAA already has addressed one aspect of Wilken’s ruling by increasing the amount of aid schools may provide athletes. In 2015, the NCAA passed legislation allowing schools to increase the value of an athletic scholarship to include each institution’s federally regulated cost of attendance figures. The cost of attendance includes estimated values for things such as travel between campus and home, and clothing and food.

So, what’s left?

The amateurism model as practiced by the NCAA is not sacrosanct. In fact, even while affirming that amateurism is a protectable and legitimate business aim, the Ninth Circuit plainly spelled out that even though rules can be in place to protect amateurism, as presently promulgated by the NCAA, they represent an antitrust violation. The NCAA is left then with two choices: lobby Congress to grant it an antitrust exemption, much like baseball has; or, the NCAA can slowly and methodically tailor rules that permit it to meet the sweet spot of compensation for student-athletes while still not paying for athletic performances.

Does the scalpel approach take time? Certainly. But time is decidedly on the side of the NCAA now. More importantly, at least as far as the core mission of the NCAA is concerned, the law is on their side — federal courts do not seem willing to turn America’s universities into minor league farm systems with student-athletes receiving compensation unrelated to their education.

For now, and for the foreseeable future, we can at last say with clarity and the weight of federal law that pay-for-play is dead. Then again, the NCAA may very well die itself, as it tries to carve out nigh impossible rules that simultaneously protect amateurism without running afoul of federal law.

Reading Room:

Washington Post

CBS Sports

NLRB ruling

NY Times

NY Times (O’Bannon appeal)

NY Times (O’Bannon op ed)

Daily Northwesterner

Time (intersection of union and antitrust litigation)