The NCAA is Anti-Competitive: The Ruling Heard Round the College Sports World

By: Brian J. Meli

I’ve been following the O’Bannon v. NCAA trial with great interest since it began. Not just because of its growing status as a landmark antitrust case, its roots in intellectual property, or its potential to dramatically shift the balance of power in college sports; but also because it was Ed O’Bannon’s championship UCLA team in the mid-nineties (specifically his pint-sized point guard Tyus Edny’s last minute, coast-to-coast game winning buzzer beater) that cemented my passion for the spring sporting ritual that is March Madness. Back then, who could imagine Ed O’Bannon would wind up being the lead plaintiff in a case that could alter the landscape of collegiate sports forever. And yet, that’s exactly where we are.

Last week Chief Judge Claudia Wilken, presiding over the case in the Northern District of California, ruled in favor of O’Bannon and his class of plaintiffs, finding that the National Collegiate Athletic Association is violating federal antitrust law by preventing college athletes from profiting from their rights to their names, images and likenesses (NIL rights). As a result, she issued an injunction ordering an end to the NCAA’s restriction on student athlete compensation beyond the value of their scholarships, setting the 100 year-old organization back on its heels and threatening the amateurism model that serves as the bedrock for modern college sports.

The case has certainly had its share of twists turns, but it began, innocuously enough, five years ago, when Ed O’Bannon, who was long retired from basketball, saw his nephew playing a video game that he appeared in. The game didn’t identify O’Bannon by name, but used just about every other method possible to portray him: from his height, weight, skin tone and facial features, to his college and jersey number. That game was EA Sports NCAA Basketball, and it got O’Bannon wondering: How could his image be used without his permission in a popular video game that Electronic Arts, the game’s creator, was surely profiting handsomely from? After all, the right of publicity–to profit from one’s celebrity–is an established common law and statutory right.

The answer O’Bannon received, was Form 083A, an agreement that every athlete accepting a Division I collegiate scholarship must sign prior to competing, which essentially states that the student athlete authorizes the NCAA to use the athlete’s name and picture to promote the NCAA. Okay fine, O’Bannon reasoned, that might have been a fair tradeoff for his scholarship when he was in school, but he hadn’t suited up for the Bruins since 1995, and here it was now 2009. Not only was O’Bannon no longer a collegiate athlete, but he had long since retired from professional sports as well. Surely Form 083A didn’t grant rights to an athlete’s likenesses in perpetuity. So just how long could the NCAA and their licensees profit from his image without compensating him? The answer, it seemed, was forever and a day. And that didn’t sit well with the former college standout. (Reportedly the NCAA changed the wording of Form 083A last month, just as the trial was concluding).

So Ed O’Bannon sued. He sued the NCAA, Electronic Arts and the Collegiate Licensing Company (CLC), a third-party broker of collegiate trademarks. And he didn’t do so alone, he sought class certification to sue on behalf of all Division I football and men’s basketball players, past and present, who’s likenesses had been used for commercial purposes without their permission. In the process, he picked up some heavyweight co-plaintiffs, including basketball luminaries Oscar Robertson and Bill Russell. And while the court denied the class’s ability to seek redress for past financial damages, it did grant it certification to challenge the NCAA restrictions on student compensation going forward. And challenge them it did.

Electronic Arts and the CLC eventually settled with O’Bannon over the claims that they violated his and other players’ rights of publicity. That settlement, involving all players appearing in EA Sports basketball and football video games produced since 2003 (amounting to about 100,000 players) was approximately 40 million dollars; enough to pay an estimated $4,000 to each athlete used without express permission. A nice payout for sure, but a pittance in comparison to the type of money the O’Bannon team knew the NCAA and its member schools were raking in every year through television contracts and merchandising rights. As a result of the lawsuit, Electronic Arts also decided to discontinue its popular line of college sports games entirely—a decision the game maker may now reconsider given the court’s decision.

Once the NCAA became the sole defendant in the case, it transitioned from an intellectual property dispute into a pure antitrust claim. O’Bannon’s position was that the NCAA, along with its conferences and member schools, colludes to prevent current and former college athletes from entering into their own NIL licensing deals. In other words, they argued the NCAA was engaging in price-fixing. They claimed that in markets where participants are Division I college athletes, the collegiate governing body uses its market power to restrict participant choice and profit opportunity, amounting to an unreasonable restraint on trade that limits competition and leads to higher prices. Accordingly, they sought an injunction declaring these restrictions illegal.

Team O’Bannon didn’t limit their argument to athlete eligibility for NIL revenue to just video games, either. They cast a wide net that included sales from merchandising of team gear, apparel, trading cards and stock footage that used athlete’s personas. And most significantly they sought a share of licensing fees for live television broadcasts and rebroadcasts of games—the real revenue engine of college sports. This was an unprecedented move that meant, if they were successful, college players would be entitled to a share of the proceeds from the television deals the conferences and the NCAA strike with broadcasters like ESPN, CBS, FOX, et al. Clearly, for better or worse, this would represent a tectonic shift away from the way college sports has operated for over a century, by fundamentally rewriting the definition of amateurism.

So the O’Bannon team, in effect, went all in. And in failing to present an acceptable settlement offer, so did the NCAA.

Judge Wilken’s ruling was surprisingly harsh in it’s admonishment of NCAA amateurism rules, finding most of the NCAA’s counter-arguments unpersuasive and imposing a sweeping injunction on NCAA rules prohibiting athlete NIL compensation. Many thought she might issue a limited injunction, only abolishing restrictions on pay for video game and merchandising, while preserving the existing broadcast rights model. But that wasn’t the case, and the plaintiffs got the broad injunction they were hoping for. Her ruling also stipulated that it could not be stayed on appeal until after it goes into effect in 2016

The ruling wasn’t without its limitations. It stopped short of granting student’s the right to sign individual endorsement deals, it imposed a cap of $5,000 per athlete for every year of eligibility, and it allowed the NCAA to limit total compensation to cost of attendance. It also stipulated (as O’Bannon had proposed) that all NIL funds be directed to a trust account, from which athlete’s would not be eligible to receive payments while enrolled in school. But these limits did not detract meaningfully from the impact of the ruling.

While this is a major setback to the NCAA, it’s a virtual certainty the ruling will be stayed pending an appeal to the Ninth Circuit. The only question, given Judge Wilken’s stipulation, is when? But no matter what, since the injunction does not go into effect for two more years, it will be a while before student-athletes can expect checks in the mail. Clearly though, this ruling has gotten the attention of the Indianapolis-based organization, which, sensing change on the horizon, has already begun instituting voluntary modifications to its policies in what some say is a losing effort in its ongoing public relations battle. So even though this ruling could be overturned at the appellate level, it’s safe to say the winds of change are gusting in college sports, and it’s unlikely going to be business as usual for much longer.

The content of this blog is intended for informational purposes only. The information provided in this blog is not intended to and does not constitute legal advice, and your use of this blog does not create an attorney-client relationship between you and The Law Firm of Brian J. Meli. Under the rules of certain jurisdictions, the material included in this blog may constitute attorney advertising. Prior results do not guarantee a similar outcome. Every case is different and the results obtained in your case may be different. 

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