Editor's note
Zlatka Koleva is a graduate from the Erasmus University Rotterdam and is currently an Intern at the ASSER International Sports Law Centre.
The decision on appeal in the case
of O’Bannon v. NCAA seems,
at first sight, to deliver answers right on time regarding the unpaid use of
names, images and likenesses (NILs) of amateur college athletes, which has been
an ongoing debate in the US after last year’s district court decision that
amateur players in the college games deserve to receive compensation for their
NILs.[1]
The ongoing struggle for compensation in exchange for NILs used in TV
broadcasts and video games in the US has reached a turning point and many have
waited impatiently for the final say of the Court of Appeal for the 9th
circuit. The court’s ruling on appeal for the 9th circuit, however,
raises more legitimate concerns for amateur sports in general than it offers
consolation to unprofessional college sportsmen. While the appellate court
agreed with the district court that NCAA should provide scholarships amounting
to the full cost of college attendance to student athletes, the former rejected
deferred payment to students of up to 5,000 dollars for NILs rights. The
conclusions reached in the case relate to the central antitrust concerns raised
by NCAA, namely the preservation of consumer demand for amateur sports and how
these interests can be best protected under antitrust law.
Facts
and proceedings
The case is brought before the
district court by Ed O’Bannon, a former American basketball player at the University
of California, Los Angeles (UCLA).[2]
In 2008 he visited a friend’s house, where he saw his friend’s son playing a
video game depicting him as a player in a college basketball competition.[3]
The producer, Electronic Arts (EA), based video games on the concept of college
football and men’s basketball.[4]
O’Bannon saw an avatar with a striking resemblance of himself, playing for UCLA
with his jersey number 31. He never consented to the use of his likenesses nor
did he receive any financial remuneration for its usage.[5]
For this reason, O’Bannon filed a lawsuit against the NCAA (National Collegiate
Athletic Association) and the CLC (Collegiate Licensing Company) for using his
NILs for commercial purposes.[6]
The main argument supported by his legal counsel was that the NCAA restrictions
on compensation for student athletes beyond university scholarships impose a
limitation on trade under Section 1 of the Sherman Antitrust Act.[7]
In June 2014 the claims based on antitrust law found a solid ground and the
case was sent to the district court.[8]
The court at first identified two markets where the NCAA rules can have a
significant impact, namely the college education market and the group licensing
market.[9]
Afterwards, it applied the three-step Rule of Reason test in order to determine
whether the NCAA restrictions on compensation for the usage of NILs violate
antitrust laws.[10]
After weighting the anticompetitive and procompetitive purposes of those rules,
the court took the decisive third step in pursuit of less restrictive
alternatives available to the NCAA in the attainment of its final goal –
preserving the nature of amateur college games.[11]
It ruled that there are two alternative routes, which preserve amateurism and,
at the same time, protects the NILs rights of college athletes: stipends to the
full cost of attendance or deferred payments as portions of the license
agreements concluded between third party licensing companies and universities upon
completion of their college education.[12]
The NCAA objected to the district court’s decision on the ground that the court
in the Board of Regents[13]
declared the NCAA rules a matter of law and compensation norms, falling outside
of the scope of a commercial activity, and therefore not covered by the Sherman
Act. Finally, the association claimed that the plaintiffs failed to demonstrate
injury as a result of the restrictions on compensation.[14]
The Court of Appeal for the 9th circuit ruled on the case as follows.
The
judgment of the Court of Appeal for the 9th circuit
Preliminary questions
The court started the legal
discussion by answering to some preliminary legal questions before ruling on
the substance. It rejected the notion that Board
of Regents automatically renders the NCAA’s rules valid as a matter of law.[15]
In fact, “a restraint that serves a procompetitive purpose can still be invalid
under the Rule of Reason”.[16]
Thus, procompetitive rules are not necessarily deemed lawful.[17]
Moreover, rules designed to promote competitiveness “surely affect commerce”
and, therefore, fall under the scope of the Sherman Act, according to the reasoning
of the Court of Appeal in the 9th circuit.[18]
Finally, the court disagreed with NCAA in finding that the plaintiffs have no
standing for failing to demonstrate the injury inflicted by the compensation
rules.[19]
On the contrary, the plaintiffs have shown willingness and readiness by video
game producers to pay for their NILs rights have they possessed these rights,
which means that the requirement of antitrust injury in this case is satisfied.[20]
Rule of Reason test
Judge Bybee then continued with the
application of the Rule of Reason as assessed in relation to the restrictive
measures towards compensation of student athletes.
1. Anticompetitive effect
The court concluded that the NCAA’s
rules have an anticompetitive effect on the college education market and
invalidated the association’s arguments.[21]
It further examined whether the rules produce a procompetitive effect on the
market and concluded that the district court has indeed undermined the
importance the NCAA pays with regard to the preservation of amateurism in
college competitions.[22]
2. Procompetitive purposes
Henceforth, the court outlined two
procompetitive purposes of the NCAA’s restrictions: integrating academia with
athletics and fostering the popularity of NCAA by promoting amateurism.[23]
Nonetheless, it was highlighted that not every restrictive rule preserves the
nature and distinctive character of college amateur sports.[24]
For this reason, it should be examined whether there are any substantially less
restrictive measures available to attain the goals intended by NCAA.[25]
3. Substantially less restrictive alternatives
The appellate court concurred with
the district court on the first alternative, namely the grants-in-aid up to the
full cost of attendance. The court for the 9th circuit stated that “the
district court did not clearly err in its judgment”[26]
and “indicated that raising the grant-in-aid cap to the cost of attendance
would have virtually no impact on amateurism”.[27]
In fact, “there is no evidence that this cap will significantly increase
costs”,[28]
since NCAA already granted permission to schools to fund athletes to the full
cost of attendance.[29]
Nevertheless, the court rejected cash compensation beyond college scholarships
to athletes on the ground that if amateur sportsmen receive a payment, they
lose their amateur status.[30]
The central question which needs closer attention is whether payments to
amateur athletes promote amateurism more than the lack of any such
remuneration.[31]
The court, thus, contended that the comparison between smaller and larger sums
and their respective impact on the market is irrelevant, since this is not a point
of discussion in this analysis: it would not crystalize whether “paying
students small sums is virtually as effective in promoting amateurism as not
paying them”.[32]
It further rejected the analogy with professional baseball and the Olympic
Games, when in 1970s there was a strong opposition against the raising salaries
of baseball players and the Olympic Committee permitted the participation of
professional athletes in the Games.[33]
The court, however, did not agree with this line of reasoning, since the
Olympics have not been so impacted by the introduction of professionalism as
college sports would be.[34]
Finally, the imposition of a 5000-dollar yearly ceiling of deferred payments to
college athletes lacks solid argumentation.[35]
Neal Pilson, a former sports consultant at CBS and an expert witness for the NCAA,
did not opine on how cash compensation relates to the promotion of amateurism
and his ‘offhand comment’ does not grant sufficient support for such a revolutionary
turnover in the NCAA’s practice.[36]
Consequently, the deferred payment alternative failed the Rule of Reason test
and was, thus, rejected.[37]
On these grounds, the court
concluded that a stipend beyond sports scholarships up to the full amount of
college attendance is a substantially less restrictive measure, which
withstands the Rule of Reason test, while the cash compensation argument failed
the assessment.
Commentary
This judgment demonstrates a
remarkable, yet confusing line of reasoning followed by the appellate court. On
the one hand, albeit already affirmed by the NCAA itself, the decision confirms
the right of schools to provide compensation up to the full amount of
attendance to college athletes. On the other hand, however, the court could
have outlined more clearly the instances in which an athlete can qualify for
such full compensation and those cases in which student athletes risk violating
their legal status of amateurs. A clear example of the court’s reluctance to
give more specific guidelines with regard to this subject matter is the rejection
of the argument raised by the district court in relation to the compensation
received by college tennis players. Although they still qualify as amateurs,
tennis competitors earn arguably around 10,000 dollars yearly in prize money.[38]
The court conveniently circumvented this argument without stating opposing
views or contesting the afore-mentioned statement. It directed its full
attention on how the substantially less restrictive measures can contribute to
the promotion of amateur college sports instead. In fine, there are two legal
points that need further examination. Firstly, amateurism is a relevant concept
as long as it relates to consumer demand in antitrust claims.[39]
The question at step 3 should, thus, be reformulated to whether less
restrictive alternatives are virtually effective in preserving consumer
interest in college sports as those prohibiting extra compensation to amateur athletes.[40]
In this respect, popular demand by consumers should be the decisive factor in antitrust
cases within the sports sector. Secondly, what should also be taken into more
careful consideration is that the court on appeal has skipped an essential step
in the Rule of Reason analysis and, thus, arguably misapplied the concept.[41]
Upon identification of less limiting measures for the attainment of the main
goal, one has to balance the harm those alternatives might produce against the
benefits there might be if such measures were not implemented. This final stage
is necessary as to provide an objective cost-benefit analysis of a legal rule,
which in turn determines whether it withstands the reasonableness test. Had the
court applied the Rule of Reason in such a manner, the outcome of the case would
have potentially differed significantly; the court would have weighted the cost
of paying cash compensation to student athletes for their NILs rights against
the lack of such additional educationally unrelated payment in the attainment
of the NCAA’s final aim, namely preserving amateurism in college sports. [42]
Rather, as Chief Judge Thomas stated in
his opinion, it is important to underline that, in the light of US antitrust
rules, it is the preservation of popular
demand for college sports which should be the key factor in the legal
analysis of competition issues in such a scenario.[43]
At the end of the day, the NCAA’s
dilemma is solved by the appellate court by exempting the association from
further financial obligations towards college athletes. Both parties have 90
days after the release of the court’s decision to “weigh their options” for
appeal before the Supreme Court.[44]
[1] Edward
O'Bannon, Jr. v. National Collegiate Athletic Association (the NCAA) and
Electronic Arts, Inc and Collegiate Licensing Company (CLC) 14-16601 (2015) [hereinafter referred to as ‘O’Bannon v NCAA (2015)’]; O’Bannon v.
NCAA 7 F. Supp. 3d 955 (N.D. Cal. 2014)
[hereinafter referred to as ‘O’Bannon v. NCAA (2014)’].
[2] Ibid, p 12.
[3] Ibid.
[4] Ibid.
[5] Ibid.
[6] Ibid.
[7] Section 1 of Sherman Antitrust Act
of 1890 15 U.S.C. states that ‘every contract, combination… in restraint of
trade or commerce’ should be prohibited.
[8] O’Bannon v NCAA (2015) (n 1), p 14.
[9] O’Bannon v. NCAA (2014) (n 1), paras 956-968.
[10] Ibid., paras 984-1009.
[11] Ibid., paras 1005-1006.
[12] Ibid.
[13] NCAA v. Board of Regents of the University of Oklohoma 468 US 85 (1984).
[14] O’ Bannon v. NCAA (2015) (n 1), p
25.
[15] Ibid., p 26.
[16] Ibid., p 31.
[17] Ibid., p 32.
[18] Ibid., p 36: “We simply cannot
understand this logic. Rules that are “anti-commercial and designed to promote and ensure
competitiveness” […] surely affect commerce just as much
as rules promoting commercialism.”
[19] Ibid., pp 37-43.
[20] Ibid., p 43.
[21] Ibid., pp 47-48.
[22] Ibid., pp 48-52.
[23] Ibid., p 51.
[24] Ibid., p 52.
[25] Ibid.
[26] Ibid., pp 54.
[27] Ibid.
[28] Ibid., p 56.
[29] Ibid.
[30] Ibid., p 57: “But 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”.
[31] Ibid., p 56: “The question is whether
the alternative of allowing students to be paid NIL compensation unrelated to
their education expenses, is “virtually as effective” in preserving amateurism
as not allowing compensation.”
[32] Ibid., pp 58-59.
[33] Ibid., p 59.
[34] Ibid.
[35] Ibid., p 60.
[36] Ibid: “But even taking Pilson’s comments at face value, as the dissent
urges, his testimony cannot support the finding that paying student-athletes
small sums will be virtually as effective in preserving amateurism as not
paying them.”
[37] Ibid., p 63 : “The Rule of Reason requires that the NCAA permit
its schools to provide up to the cost of attendance to their student athletes. It
does not require more.”
[38] O’Bannon
v. NCAA (2014) (n 1), para 1000.
[39] Chief Judge Thomas, concurring in
part and dissenting in part, p 68.
[40] Ibid.
[41] Carrier M (2015) How Not to Apply the Rule of Reason: The O’Bannon
Case. Rutgers University School of Law – Camden. http://ssrn.com/abstract=2672256. Accessed 20 October 2015.
[42] O’ Bannon v. NCAA (2015) (n 1), p 59: “The district court adverted to testimony from a
sports management expert, Daniel Rascher, who explained that although opinion
surveys had shown the public was opposed to rising baseball salaries during the
1970s, and to the decision of the International Olympic Committee to allow
professional athletes to compete in the Olympics, the public had continued to
watch baseball and the Olympics at the same rate after those changes”.
[43] Supra n 39, Chief Judge Thomas: “Rather, we must determine whether
allowing student-athletes to be compensated for their NILs is ‘virtually as
effective’ in preserving popular demand
for college sports as not allowing compensation”.
[44] Tracy M and Strauss B, Court Strikes
Down Payments to College Athletes (The New York Times.com, 30 September 2015). http://www.nytimes.com/2015/10/01/sports/obannon-ncaa-case-court-of-appeals-ruling.html?_r=0. Accessed 2 October 2015.