JRN 589 - The Triumph of NIL / The NCAA Strikes Back

Critical Issues in Sports
JRN 589
The Triumph of NIL / The NCAA Strikes Back
Prof. Hanley

In 2009, UCLA men’s basketball
player Ed O’Bannon filed a federal
lawsuit against the NCAA for use
of his name, image and likeness
for a video game without
compensation.
That lawsuit would eventually lead
to the end of the fiction of
amateurism in the NCAA.

O’Bannon was a star collegiate
player, winning the 1995 NCAA
Tournament in men’s basketball as
UCLA defeated Arkansas.
O’Bannon scored 30 points and
accumulated 17 rebounds in the
game, and he went on to play two
years in the NBA and eight in
Europe.

O’Bannon was already a widely
known collegiate star when UCLA
won the championship.
Electronic Arts, a video game
company, depicted O’Bannon in
its collegiate basketball video
game in 2008.

EA had been depicting the names,
images and likenesses of
collegiate football players and
men’s basketball players
beginning the late 1990s.
It paid the Collegiate Licensing
Company (CLC), for
commercial use of players
images, and CLC passed
along a cut to the NCAA.

O’Bannon sued the CLC and NCAA
in 2009, asserting that the NCAA’s
amateurism rules amounted to an
illegal restraint of trade because
they precluded student-athletes
from being paid for use of their
names, images, and likenesses
That was a violation of the
Sherman Anti-Trust Act.

Meanwhile, a former starting
quarterback for the Arizona State
University, Sam Keller, and the
University of Nebraska football
team separately sued the NCAA,
CLC and EA.

O'Bannon’s case focused on
NCAA/CLC's sale and distribution
of commemorative DVDs
containing footage of UCLA's 1995
championship win. Keller,
challenged the NCAA/CLC's
authorization of players'
likenesses used in NCAA-licensed
football and basketball games.

O’Bannon and Keller argued that
the NCAA unfairly profited at the
expense of them and other
college athletes.
They asked the court for relief
from what they characterized as
“unjust enrichment” by creating
trusts from which college athletes
could receive after leaving school
to preserve the rules of
amateurism.

That means O’Bannon and Keller
weren’t seeking to “upend the
entire tradition of amateurism on
which the NCAA's mission is
founded and from which it derives
value, as the Supreme Court held
in Board of Regents of the
University of Oklahoma (a case
over TV broadcasts),” wrote
scholar Julia Brighton.

Instead, “a trust solution would
allow the NCAA to continue to
operate under the ideal of
amateurism, and its relationship
with member schools could
remain intact,” wrote Brighton in
the 2011 Communications &
Entertainment Law Journal article.

“This is a minimally invasive
solution that preserves the
overall structure of the
organization and would allow
the NCAA to remain true to its
ideals while still sharing its
profits with the student-
athletes who help to generate
them,” she concluded.

Brighten’s proposal mirrored that
of the U.S. Olympic Committee’s
structure that sidestepped rules of
amateurism by paying participants
in international competitions
through trusts, which disbursed
cash for training, and which
distributed the full value of
sponsorship deals when the
athletes’ careers ended.

Before the trial, EA settled the
class-action lawsuit against it.
EA paid a total of about $40
million to more than 29,000
current and former players who
were part of our class action.
Some players got checks worth up
to $7,200. The average landed on
$1,200.

“EA settled in part because it
didn’t care about protecting
amateurism—it cared about
publishing video games—and in
part because it knew that it had
used players’ images and
likenesses without their
permission,” wrote O’Bannon and
his attorney Michael McCann in a
book about the case.

“First off, as the evidence showed,
Electronic Arts wanted to pay for
the right to use complete player
identities. It wanted every college
roster and every roster of top
teams from the past. It wanted
every college player’s name. It
wanted a license to publish
everything about the players and
their identities within college
hoops.

“EA didn’t care if it had to pay the
NCAA, the schools, the players,
the former players, or some
combination of them for that
right,” O’Bannon and McCann
wrote.

They added: “This isn’t surprising
at all if you think about it. EA is in
the business of making video
games. It’s not in the business of
propping up amateurism. It
doesn’t care about amateurism.
Never has. Never will.”

The NCAA stopped licensing its
intellectual property to EA, which
decided to end its production of
college sports video games.
Without access to recognizable
players, EA believed it could not
market the games.

The two cases against the NCAA
were consolidated in a federal
district court in San Francisco, and
Judge Claudia Wilken ruled that the
NCAA's compensation rules were an
unlawful restraint of trade.
The judge ordered the NCAA to stop
barring member schools from giving
student-athletes scholarships up to
the full cost of attendance at their
respective schools.

But Judge Wilken did state in her
decision that she rejected one of
O’Bannon’s proposed alternatives
– unlimited compensation for
commercial products – as it would
“undermine the efforts of both
the NCAA and its members
schools to protect against
‘commercial exploitation’ of
student athletes.

The NCAA appealed, and in 2015
the U.S. Court of Appeals for the
Ninth Circuit ruled in favor of
O’Bannon, finding that certain
NCAA amateurism rules violated
federal antitrust law.

The Court of Appeals ruling
rejected what most previous
courts had accepted as fact: that
the NCAA’s definition of
amateurism would be presumed
under the law to be the prevailing
standard. (A 2009 case, Oliver v.
the NCAA, had earlier rejected the
organization’s prevailing definition
in a case involving a scholarship_

The NCAA appealed to the
Supreme Court, which refused to
hear the case.
Interestingly, O’Bannon wanted
the Supreme Court to rule on the
case to establish precedent that
would guide future decisions on
proper compensation for student-
athletes.

In short, the courts had
determined that the NCAA’s
amateurism rules constituted an
anti-competitive conspiracy of its
1,200 member institutions,
conferences and related
organizations.

The purpose of the conspiracy was
clear to the courts: to deny men’s
basketball and football players of
the monetary value of their
names, images, and likenesses
when used for commercial
purposes.

The rulings showed that since
intercollegiate sports emerged in
the late 19th century, student-
athletes had been used as
moneymaking instruments for the
schools. The flood of TV money
beginning in the 1950s directly
went to the member institutions
who deepened their commercial
bounty by licensing products
associated with their teams and
athletes.

The O’Bannon case eliminated the
fiction of amateurism in college
sports and paved the way for state
legislation across the U.S. that
required schools to pay for the
names, likenesses, and images of
the players.
But it, like many cases, had
unintended consequences.

In a 2016 article published in the
Iowa Law Review, Dillon J. Besser
wrote that non-revenue sports
would be placed at risk by NCAA
policies that would lead to pay-
for-play in football and men’s
basketball, the two sports that
generate most of the money for
the organization and its member
institutions.

As Besser points out in the article,
the O’Bannon case excluded non-
revenue sports.

“The real end game for legal
battles like O’Bannon is not
whether schools will have to share
revenues with FBS football
players, but ‘football players
deciding whether they should
continue to allow gymnasts,
swimmers, wrestlers and the like
to share in their money,’” wrote
Besser, quoting Dan Wetzel of
Yahoo! Sports.

Sports economist Andy Schwartz
agreed, as quoted in Besser’s
piece:
“And so if those programs are of
so little value to the campus
community as a whole, that with
the reduction of the subsidy from
football and basketball, no one
values them enough to pay for
them if the subsidy is reduced,
they will probably go away.”

Besser discussed scenarios if the
NCAA goes all-in on the pay for
play model.
Bear in mind that Besser wrote his
piece before the NCAA permitted
NIL income in 2021.

1. The laissez-faire “anything
goes” model.
2. The government intervention
model (the government is
already intervening)
3. Continued NCAA Governance
under 21st century reforms.

“All it takes is a 21st century
approach by the governing voices
that can step forward with a real
economic and legislative reform
plan that suits all interests,
including those ‘other’ sports,”
Besson wrote.

“Non-revenue sports’ athletes
need not have doubts about their
future because of the O’Bannon
decision or any other student-
athlete compensation litigation.
Intercollegiate sports are entering
a new era, and all the sports are
coming right along for the next
chapter,” Besson concluded.

And that next chapter begins with
NIL legislation that permits
athletes to earn money – as much
as they can – off the playing field
by securing sponsorship details.

On June 21, 2021, the U.S.
Supreme Court unanimously
rejected the NCAA’s definition of
amateurism, one that had
changed over more than 100
years of overseeing men’s college
football and other sports.

The decision did not directly
address the name, image and
likeness as the case focused on
benefits related to education, but
the NCAA quickly decided to
abandon any efforts to ban
student-athletes from earning
money from sponsorship deals.

Yet what could cause lasting
changes to collegiate sports
oversight is evident in the
concurring opinion of Associate
Justice Brett Kavanaugh filed with
the opinion by Associate Justice
Neil Gorsuch supporting the
unanimous decision.
A concurring opinion is a view
offered by a justice in support of
the majority decision.

Kavanaugh pulled no punches and
argued relentlessly that the NCAA
had been acting as a lawless
organization under the cover of a
misguided concept of
amateurism.
His withering criticism sent the
NCAA running for cover from
Congress to keep it alive.

“The NCAA has long restricted the
compensation and benefits that
student athletes may receive. And
with surprising success, the NCAA
has long shielded its
compensation rules from ordinary
antitrust scrutiny. Today, however,
the Court holds that the NCAA has
violated the antitrust laws,”
Kavanaugh wrote in his opening.

“The Court’s decision marks an
important and overdue course
correction, and I join the Court’s
excellent opinion in full,”
Kavanaugh added.
Then he stared down the NCAA
and its inglorious history of
manipulating the concept of
amateurism for the benefit of its
member institutions, not student-
athletes.

Kavanaugh went on to state in
effect that the court’s unanimous
decision didn’t go far enough. He
wrote that the decision focused
on “only a narrow subset of the
NCAA’s compensation rules—
namely, the rules restricting the
education-related benefits that
student athletes may receive, such
as post-eligibility scholarships at
graduate or vocational schools.”

He pointed out that other NCAA
compensation rules remain in
effect and that those “restrict
student athletes from receiving
compensation or benefits from
their colleges for playing sports.
And those rules have also
historically restricted student
athletes from receiving money
from endorsement deals and the
like.”

Kavanaugh proceeds to effectively
extend the court’s ruling to cover
benefits not associated with
education in his concurring
opinion.

“I add this concurring opinion to
underscore that the NCAA’s
remaining compensation rules
also raise serious questions under
the antitrust laws,” he wrote
before launching into a legal
argument as to why the NCAA’s
compensation limits suggest it
thinks it operates above the law.

That marks the first time that a
federal government entity – the
judiciary branch of government in
this case – essentially concluded
that the NCAA was operating an
illegal operation in its exploitation
of student-athletes.
It’s important to note that
concurring opinions are not taken
likely and are cited in court
opinions in related cases.

Kavanaugh points to the fact the
NCAA v. Alston decision did not
“address the legality of the NCAA’s
remaining compensation rules.”
Those rules, he wrote, must be
subjected to the rule of reason, a
judicial doctrine that states
“antitrust law needs to be applied
only to the unreasonable
restraints of trade,” according to
Black’s Law Dictionary

Kavanaugh wrote: “The NCAA’s
remaining compensation rules
should be subject to ordinary rule
of reason scrutiny.”
In other words, if the court found
that the NCAA violated the rule of
reason in restricting
compensation to education-
related benefits, it’s violating the
rule in other compensation limits.

“Under the rule of reason, the
NCAA must supply a legally valid
procompetitive justification for its
remaining compensation rules. As
I see it, however, the NCAA may
lack such a justification,” wrote
Kavanaugh.

The interpretation of that? The
NCAA can’t restrict any
compensation the student-athlete
seeks, which means the definition
of amateurism is dead as the
organization can’t restrict
compensation of any kind.
Thus names, images and
likenesses compensation should
not be perceived under the law as
the only benefit.

“The NCAA acknowledges that it
controls the market for college
athletes. The NCAA concedes that
its compensation rules set the
price of student athlete labor at a
below-market rate. And the NCAA
recognizes that student athletes
currently have no meaningful
ability to negotiate with the NCAA
over the compensation rules,”
Kavanaugh wrote.

The NCAA’s defense that its
product is amateur sports, and
this it must control the definition
of that to protect its business is
absurd, according to Kavanaugh’s
thesis.

“The NCAA nonetheless asserts
that its compensation rules are
procompetitive because those
rules help define the product of
college sports. Specifically, the
NCAA says that colleges may
decline to pay student athletes
because the defining feature of
college sports, according to the
NCAA, is that the student athletes
are not paid,” Kavanaugh wrote.

After questioning the NCAA’s
business model on that point,
Kavanaugh eviscerates the
organization, showing the
absurdity of its model of
amateurism.

“The NCAA couches its arguments
for not paying student athletes in
innocuous labels,” Kavanaugh
wrote. “But the labels cannot
disguise the reality: The NCAA’s
business model would be flatly
illegal in almost any other industry
in America.”

In short, the NCAA has been
operating an illegal enterprise
since 1906, effectively practicing
what amounts to wage theft
under the camouflage of
amateurism.
[It would not be surprising to see
hundreds of thousands of former
NCAA athletes asking a federal
court for compensation from the
NCAA at some point soon]

Kavanaugh then lists other
industries where the NCAA’s
practice would be illegal.

“All of the restaurants in a region
cannot come together to cut
cooks’ wages on the theory that
“customers prefer” to eat food
from low-paid cooks,” Kavanaugh
wrote.

“Law firms cannot conspire to
cabin lawyers’ salaries in the
name of providing legal services
out of a ‘love of the law.’ ,”
Kavanaugh added.

“Hospitals cannot agree to cap
nurses’ income in order to create
a “purer” form of helping the
sick,” Kavanaugh continued.

“News organizations cannot join
forces to curtail pay to reporters
to preserve a “tradition” of public-
minded journalism,” Kavanaugh
pointed out.

“Movie studios cannot collude to
slash benefits to camera crews to
kindle a ‘spirit of amateurism’ in
Hollywood,” Kavanaugh wrote in
the final example of his pointed
critique of the NCAA’s attitude
toward student-athletes, making
sure to cite “amateurism” in that
context.

Kavanaugh concluded that
segment of his argument with
what he interpreted as an obvious
situation:
“Price-fixing labor is price-fixing
labor. And price-fixing labor is
ordinarily a textbook antitrust
problem because it extinguishes
the free market in which
individuals can otherwise obtain
fair compensation for their work.”

Driven by the momentum of his
argument, Kavanaugh lashes out
at the NCAA, its member
institutions and academic and
athletic administrators who
permitted the wage theft to
happen.

“The bottom line is that the NCAA
and its member colleges are
suppressing the pay of student
athletes who collectively generate
billions of dollars in revenues for
colleges every year,” he wrote.
“Those enormous sums of money
flow to seemingly everyone except
the student athletes.”

Kavanaugh, who sides with the
conservative majority in most
cases, implied that the NCAA’s
compensation structure may, in
fact, be somewhat racist as it
disproportionally hurts Black
athletes who otherwise would
earn generational wealth for their
families as well as harmful to all
student-athletes from low-income
households.

“College presidents, athletic
directors, coaches, conference
commissioners, and NCAA
executives take in six- and seven-
figure salaries. Colleges build
lavish new facilities. But the
student athletes who generate the
revenues, many of whom are
African American and from lower-
income backgrounds end up with
little or nothing,” he wrote.

Kavanaugh returns to his opening
segment about the implications
for the NCAA under antitrust
provisions.
“Everyone agrees that the NCAA
can require student athletes to be
enrolled students in good
standing,” he wrote.

“But the NCAA’s business model
of using unpaid student athletes
to generate billions of dollars in
revenue for the colleges raises
serious questions under the
antitrust laws,” he wrote.

Kavanaugh then deploys
impeccable logic to attack current
NCAA compensation rules:

“In particular, it is highly
questionable whether the NCAA
and its member colleges can
justify not paying student athletes
a fair share of the revenues on the
circular theory that the defining
characteristic of college sports is
that the colleges do not pay
student athletes …

“And if that asserted justification
is unavailing, it is not clear how
the NCAA can legally defend its
remaining compensation rules,”
he concluded in yet another blow
he struck against the NCAA’s
concept of amateurism.

Kavanaugh expressed sympathy
with student-athletes
participating in non-revenue
sports, and he raised questions on
that score on how they could
share in any fair compensation
system.

“Of course, those difficult
questions could be resolved in
ways other than litigation.
Legislation would be one option,”
he suggested.

“Or colleges and student athletes
could potentially engage in
collective bargaining (or seek
some other negotiated
agreement) to provide student
athletes a fairer share of the
revenues that they generate for
their colleges” in a structure like
pro sports that share revenue, he
wrote.

Kavanaugh pointed to the
traditions that college athletics
maintain but said these are not
enough to justify the NCAA’s
“massive money-raising
enterprise” built on the “backs of
student athletes who are not fairly
compensated.”

“Nowhere else in America can
businesses get away with agreeing
not to pay their workers a fair
market rate on the theory that
their product is defined by not
paying their workers a fair market
rate,” he wrote in yet another
attack on the concept of
amateurism.

Kavanaugh drops the mic with his
closing sentence:
“The NCAA is not above the law,”
he wrote.
And the question now is how can
the NCAA exist within the law and
survive within the reality of the
death of amateurism?

In January 2023, at its annual
convention in San Antonio, Texas,
the NCAA struck back by seeking
to envelop itself in the law by
asking Congress to grant it an anti-
trust exemption to protect its
interpretation of student-athletes
as non-employees.

At issue is a case before The
National Labor Relations Board
that is investigating an unfair
labor practice charge filed
against USC, the Pac-12 and
the NCAA in an push to
categorize athletes as
employees.
The NCAA wants protection
from that.

“Several states are right now
considering legislation that
would mandate a vastly
changed relationship between
school and its students,” said
NCAA Board of Governors
chair and Baylor President
Linda Livingstone.

“Congress is really the only
entity that can affirm student-
athletes’ unique status. We
have to ensure that Congress
understands what’s at stake
and motivate them to act.
Second, we need a safe harbor
for a certain degree of antitrust
complaints,” she added.

Concluded Livingstone: “We’re
not looking for nor do we
actually need broad antitrust
exemption; we do need the
ability to make common-sense
rules without limitless threats of
litigation.”

For the first time since the June
2021 Supreme Court decision,
the NCAA is mounting multiple
NIL investigations.
The NCAA is using interim NIL
guidelines to police donor
collectives and other groups
and individuals.

“The guidelines most notably
prohibit pay-for-play and
recruiting inducements.
Investigators can now presume
a violation without obtaining
documented, on-record
assistance from witnesses,”
Sports Illustrated reported in
late January.

JRN 589 - The Triumph of NIL / The NCAA Strikes Back

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