United States: O’Bannon v. NCAA Case Update: Judge Finds NCAA Policies Violate Antitrust Law

Last Updated: August 12 2014
Article by Jennifer A. Dixon

On Friday, August 8, Judge Claudia Wilken of the Northern District of California issued her much-anticipated findings of fact and conclusions of law in O'Bannon v. NCAA.  (Read our prior coverage of the case here.)  Judge Wilken found that "the challenged NCAA rules unreasonably restrain trade in the market for certain educational and athletic opportunities offered by NCAA Division I schools."  Specifically, the plaintiffs challenged NCAA rules that bar student-athletes from receiving a portion of revenues from the sale of licenses to use player likenesses in videogames, live game telecasts, and other footage like archival telecasts and videos.

The relevant markets in this case were found by the court to be the "college education market" and the "group licensing market."  The "college education market" is the market of goods and services – like scholarships and other academic services – sold by colleges to elite athletic recruits.  The "group licensing market" is the market for sale of group licenses for use of student-athlete names, images, and likenesses in videogames and television footage.

The Court held that plaintiffs failed to show that the NCAA's policy forbidding the sharing of licensing revenues with student-athletes actually caused harm.  With respect to group licenses to use student-athlete names, images, and likenesses in live telecasts, the Court found that plaintiffs failed to present evidence to show that, in the absence of the NCAA's restraints, student-athletes would actually compete against one another to sell group licenses.  Nor did plaintiffs present evidence that absent the challenged restraints, competition would increase among buyers of group licenses – buyers like television networks already compete freely against one another to acquire these rights from sources like schools and conferences.  The Court found that the same was true with respect to competition for videogame and archival footage group licenses.

In the college education market, by contrast, the Judge found that schools with elite athletic programs are the only suppliers in the relevant market, and that they act in concert with the NCAA and its conferences to fix the price of their product.  The restraint at issue was characterized as follows: "They have chosen to exercise this power by forming an agreement to charge every recruit the same price for the bundle of educational and athletic opportunities that they offer: to wit, the recruit's athletic services along with the use of his name, image, and likeness."  O'Bannon at 55.  In the absence of this restraint, the opinion continues, schools would compete against one another for the best recruits, through more attractive scholarships and licensing stipends.

Judge Wilken found that the "procompetitive justifications that the NCAA offers do not justify this restraint and could be achieved through less restrictive means." Judge Wilken found that two of Plaintiffs' proposed "less restrictive means" were legitimate alternatives to the NCAA's current rules – using licensing revenue to provide student athletes with stipends for education or holding licensing revenue in a trust for student athletes upon graduation.  The Court rejected a third proposed alternative – allowing student-athletes to receive direct compensation for endorsements.

The Judge acknowledged that policies restricting athlete compensation may serve some procompetitive purpose, such as integrating student-athletes into the on-campus academic community at their university.  For example, the decision does not foreclose the possibility that the NCAA may cap the amount of student-athlete compensation.  However, that cap may not fall below the cost of school attendance – relevant to those student-athletes who have complained that even "full" college athletic scholarships fall short of covering the full cost of attending college.

The Court issued a permanent injunction to cure the "specific violations" alleged in this case, while suggesting that problems within college sports may be greater and more complicated than the issues upon which she ruled.  Judge Wilken acknowledged that there are other criticisms of the NCAA and college policies, outside of this lawsuit, that cannot be resolved through antitrust causes of action, and found that "the challenged restraints, as well as other perceived inequities in college athletics and higher education generally" may "be better addressed as a policy matter by reforms other than those available as a remedy for the antitrust violation found here. Such reforms and remedies could be undertaken by the NCAA, its member schools and conferences, or Congress."  O'Bannon at 98.  The O'Bannon decision may prove therefore to be only the beginning of a period of change within college sports.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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