Ed Barton, LLM, CPA, CFA

O’Bannon v. NCAA

O’Bannon v. NCAA, 802 F.3d 1049 (2015)

Facts

O’Bannon brought a suit against the NCAA alleging violations of the Sherman Antitrust Act. O’Bannon claimed that the scholarship restriction limiting the college athlete from receiving payments in addition to the scholarship is an illegal restraint of trade. Additionally, O’Bannon argued that the student-athlete should be compensated for the continued use of their likeness for commercial purposes after graduation. The NCAA claimed that the rule was necessary to preserve college athletics’ amateur nature, maintain competitive balance, and integrate academics and athletics. O’Bannon prevailed in U.S. District Court, and the NCAA appealed to the Ninth Circuit. (The United States Supreme Court denied certiorari in 2016)

Issues

Are the NCAA’s compensation rules an unlawful restraint of trade under the Sherman Antitrust Act?

Held

In a 3-judge panel, the Ninth Circuit affirmed in part. It reversed in part the judgment of the U.S. District Court that the NCAA violated antitrust laws and allowed colleges to offer full cost of attendance scholarships to students. Separate defendant EA Sports settled with the class action plaintiffs for $40 million.

Reasoning

While the NCAA rules were designed to promote amateurism and competition among student-athletes, they were not automatically immune from antitrust scrutiny. The court found that limiting the scholarships to tuition fixed the price that recruits pay to attend college. By allowing colleges to use the full cost of attendance as a measure for scholarships, it allowed athletes to choose colleges and get compensated partially in cash for the cost of attendance as defined by the college – and this was a less restrictive measure to achieve the competitive and academic goals of the NCAA.

Opinion and Comments

The court found that the NCAA restrained trade in two areas – the college education market and the group licensing market. The court then analyzed these two markets considering the Rule of Reason as required by NCAA v. Board of Regents of the University of Oklahoma, 468 US 85 (1984) and found that while the limitations on licensing were not anti-competitive, the NCAA’s rules on the college education market were anti-competitive in nature. The Court reasoned that limiting the scholarships to just the cost of tuition kept colleges from offering more compensation to student-athletes and was thus a price-fixing agreement – as the value of the education was effectively priced at zero for all student-athletes.

Ultimately, the Court was looking for a way to maintain the tenets of aneurism and competitive balance argued by the NCAA with the need for student-athletes to be effective “sellers” of their athletic services. The ability to award cash stipends up to the total cost of attendance was determined by the Court to be a fair remedy.  An alternative remedy of an additional $5,000 annually in cash, to be held in trust until the student left school, was overturned by the Ninth Circuit. The result was that the rules that restrained trade and prohibit athletes from being paid were merely loosened but not swept away. The amateurism goals of the NCAA were held as part of the Rule of Reason to be critical, so only minor changes – the ability to pay a cash stipend to top up the total cost of attendance, was granted by the Ninth Circuit.

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