NCAA Athlete Compensation: The Ninth Circuit Filed its Opinion on Appeal

On September 30, 2015, the U.S. Ninth Circuit Court of Appeals filed its opinion in the appeal of the O’Bannon v. NCAA antitrust lawsuit.  At the federal trial court level, District Court Judge Claudia Wilken held that the NCAA’s ban on compensating student athletes violates federal antitrust laws.  Judge Wilken concluded that “less restrictive” means were available to preserve student athletes’ amateur status, and therefore, she held that NCAA member universities were permitted to engage in the following acts: (1) universities may grant to student athletes the full cost of attendance; and (2) universities may allow student athletes to receive up to $5,000 per year as compensation for the use of their names and likenesses in markets such as sports video games.

On appeal, the Ninth Circuit affirmed Judge Wilken’s ruling in part and reversed it in part.  The Ninth Circuit’s opinion may be read in full here.

Whether an act violates federal antitrust laws is a complicated matter.  The analysis involves a multi-step test, which can essentially be regarded as one large legal theory diagram—there are many “if yes, then continue” and “if no, then you lose” scenarios.

The first two steps are simple.  The plaintiff must first identify a “market” (or markets).  In O’Bannon, for example, two markets were identified—the college education market and the group licensing market (i.e. T.V. broadcasting and video games).  Secondly, the plaintiff must show that the defendant’s actions restrain, or potentially restrain, the identified market(s).

If the plaintiff met the two steps above, the legality of the defendant’s actions must be analyzed.  In this analysis, the court must choose between two legal standards.  The “per se” test is applied where the defendant’s activity is illegal on its face—meaning, the acts patently violate the antitrust laws (i.e. price-fixing).  Alternatively, the “rule of reason” standard is to be used where the lines of legality are more blurred.  The rule of reason requires the court to take a closer look at the facts and to engage in a balancing test, which uses economic factors to weigh whether the defendant’s actions “unreasonably restrict” trade.  One factor, for instance, is whether the purposes for the defendant’s actions could be achieved by less trade-restrictive means.

While the Ninth Circuit reversed O’Bannon “in part,” the three-judge panel affirmed the majority of the district court decision.  The circuit court agreed with the Judge Wilken that the NCAA’s rules banning student athlete compensation restrained trade in the two aforementioned markets.  For instance, as explained by the panel, athletes would likely receive compensation from video game manufacturers for the use of their names and likenesses in the absence of those rules.  Moreover, the circuit panel further agreed that the rule of reason should be applied to the question of legality because the NCAA’s rules were not “per se” acts.

Finally, the Ninth Circuit agreed with Judge Wilken that, pursuant to the rule of reason, the NCAA rules unnecessarily restrained trade.  This was mostly due to the finding that less restrictive means were available.  In other words, there were valid means of compensation that would not threaten the integrity of the student athletes’ “amateur” status.

The circuit court, however, did not agree with both of the compensation measures Judge Wilken carved out as permissible.  The court affirmed the decision to allow universities to afford athletes with full-cost-of-attendance grants.  But, the panel reversed the second decision, which permitted student athletes to be paid $5,000 per year for the use of their names and likenesses (vacating the NCAA’s ban on compensation for such use).  The court provided the following reasoning for the reversal: “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.”

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