JURIST guest columnist Daniel Crane of the University of Michigan School of Law discusses the rulings surrounding NCAA athlete amateurism…

On September 30, 2015, a divided panel of the US Court of Appeals for the Ninth Circuit weighed in on the growing controversy regarding the National Collegiate Athletic Association’s (NCAA) rules limiting compensation of student athletes. While affirming aspects of the district court opinion finding the NCAA’s rules anticompetitive, the court stopped short of opening the doors to market-based player compensation. Indeed although the newspaper headlines declared victory for the players’ class action, the majority opinion rejected the principal thrust of the players’ claim—that schools should be free to compensate players based on their economic value to the schools. And the Ninth Circuit opinion is unlikely to be the last word on the matter.

Since 1948, the NCAA has adhered to a “Sanity Code” that has effectively prohibited member colleges and universities from compensating student athletes for their athletic services. The NCAA has significantly revised the code on several occasions, increasingly to permit scholarships designed to help athletes cover their costs of attending college. Most recently, in 2014, the NCAA amended [PDF] the code to permit full “grant-in-aid” scholarships, defined as the total cost of tuition and fees, room and board and course-related books. But the prohibition on compensating athletes based on athletic contribution has remained.

In recent years there has been a growing perception that NCAA schools are exploiting their star athletes by earning millions of dollars in revenues on the backs of athletes who work grueling hours, run the gauntlet of serious injury and sometimes fail to receive an adequate education. Political and legal pressures have been mounting. Bills have been introduced in Congress to regulate the NCAA athletic scholarship process. And the NCAA recently dodged a bullet when, on August 17, 2015, the National Labor Relations Board overturned a Regional Director’s determination that Northwestern University football players who receive grant-in-aid scholarships are employees for purposes of the National Labor Relations Act.

The most immediate threat to the NCAA has been the antitrust laws, particularly Section 1 of the Sherman Act. Since the NCAA is essentially a horizontal agreement among competitive schools, it has frequently been the target of antitrust assault. In its landmark 1984 decision in NCAA v. Board of Regents, the Supreme Court struck down an NCAA rule limiting commercial broadcasting of television games. Nonetheless Board of Regents also provided an apparent firewall against student attacks on the NCAA’s player compensation rules. In passing the Supreme Court remarked that “in order to protect the character and quality of” college football, “athletes must not be paid.” Several lower courts have interpreted this dicta as a complete answer to any claim that it is anticompetitive for the NCAA to prohibit player compensation.

In 2009, Ed O’Bannon, a former all-american basketball player at UCLA initiated a class action lawsuit against the NCAA on behalf all current and former student athletes whose image or likeness had been included in video game images licensed by the NCAA or its member schools. The class alleged that it was anticompetitive for the NCAA to prohibit member schools from compensating student athletes for the use of their image or likeness. Predictably the NCAA responded that Board of Regents had settled the question of whether the antitrust laws prohibited restrictions on player compensation.

After certifying the class and rejecting the NCAA’s efforts to have the case dismissed, Federal District Judge Claudia Wilken (ND Cal) held a fourteen day bench trial in 2014. Judge Wilken found [PDF] an appropriate relevant market for college education in which NCAA member schools competed, that the flat prohibition on compensating students for use of their image or likeness created anticompetitive effects in that relevant market (either by inflating the educational fees students pay as purchasers of education or by deflating the fees they earn as providers of services) and that the restriction could not be fully justified by the NCAA’s interests in preserving amateurism, maintaining competitive balance, integrating academics and athletics or increasing the available opportunities for students at schools with fewer resources.

However Wilken also found that some limits on player compensation were justified by increasing consumer demand for amateur athletics and preventing the formation of a “wedge” between student athletes and other students. Employing a “less restrictive alternatives” analysis, Wilken entered an injunction requiring the NCAA to loosen its player compensation restrictions as to image and likeness claims in two ways: (1) by allowing compensation up to the full cost of college attendance (i.e., covering any shortfall created by the 2014 rules); and (2) permitting schools to hold a percentage of their licensing fees–not to exceed $5,000 per student per year—in trust until after the students leave college.

On appeal the Ninth Circuit endorsed much of the district court’s analysis. It agreed that the NCAA’s effort to use the Board of Regents dicta as a complete foil to attacks on player compensation rules was overbroad. The court held that amateurism might be a legitimate goal of the NCAA’s rules, but claims about amateurism cannot afford carte blanche immunity against rule of reason analysis under Section 1 of the Sherman Act.

The court then wrestled with several thorny issues regarding whether the student compensation rules relate to “commercial activity” and hence fall within the coverage of the antitrust laws (yes), whether the class demonstrated injury in fact because they were deprived of compensation for image and likeness they might otherwise receive (yes) and whether the copyright act might preempt the players’ claims (irrelevant).

Having cleared the brush, the court got down to the heart of the case—whether the player compensation rules produced significant anticompetitive effects, whether those effects were offset by procompetitive effects and whether any procompetitive effects could be advanced through substantially less anticompetitive means. Consistent with the district court’s ruling, the court of appeals held that the player compensation rules had an anticompetitive effect akin to price fixing, that some restrictions on player compensation advanced the procompetitive interest in preserving amateurism and that the restrictions were overbroad—that they were not the least restrictive means of promoting the procompetitive goals of amateurism.

The court split 2-1 on the scope of remedy. Writing for himself and Judge Quist, Judge Bybee found that the compensation prohibition was overbroad to the extent it prohibited schools from compensating athletes for use of their image or likeness up to the full cost of attendance. Hence that much of the district court order was affirmed. However the majority also found that district court’s creative injunction allowing colleges to set aside $5,000 per player per year in escrow was in error. The majority found insufficient the evidentiary support for the $5,000 figure—an offhand comment at trial by one of the NCAA’s marketing experts—and also found the line between “offering student-athletes education-related compensation and offering cash sums untethered to education expenses” to be a “quantum leap.” By contrast Chief Judge Thomas dissented from that portion of the majority opinion and would have affirmed the $5,000 deferred compensation portion of the injunction.

There is a very good chance that the Supreme Court will agree to hear the case. The issues are of significant national importance, the panel decision called into question the precedential effect of portions of the Board of Regents decision, the panel decision explicitly rejected precedents from at least two other circuits and a judge dissented from the panel decision. Unless the parties decide to settle short of seeking certiorari, the likelihood of Supreme Court decision is high. Should the court take the case, several interesting doctrinal questions of broader relevance than just college athletics could be implicated. One issue is whether educational or other non-profit institutions must justify restraints on competition with reference to the commercial appeal of their products or services. The panel decision assumes that amateurism is only a valid justification for the challenged restraints to the extent that it stimulates demand for college sports—basically, to the extent that amateurism is an aspect of the brand favored by consumers. Under an alternative view one might say that the NCAA and other non-profit groups should be able to articulate and pursue ideals whether or not such action translates into a product or service favored by consumers.

The implications of this question for educational institutions and other non-profit groups are large. For example should schools be able to band together to set financial aid policies in order to increase student diversity, whether or not that results in a “product” that consumers like better? The Supreme Court has not spoken directly to that question and might provide some guidance on appeal from the Ninth Circuit.

Another question of some importance to antitrust law is the tightness of means-ends fit in less restrictive alternative analysis. Once a restraint on competition has some anticompetitive effect but also advances some procompetitive objective, how searching is the inquiry into whether the procompetitive effect could have been achieved in a manner less restrictive of competition? This is a frequent question across many domains of law, with the tightness of means-ends fit ranging from extremely tight in areas like racial classifications to extremely loose in the domain of “rational basis” review under the equal protection clause. There is no authoritative answer to this question in antitrust law. The panel decision acknowledged concerns about courts using “antitrust law to make marginal adjustments to broadly reasonable market restraints,” but found the restriction on grant-in-aid up to the full cost of education completely unrelated to the procompetitive objective of promoting amateurism.

In the event that the Ninth Circuit’s decision stands, the consequences for collegiate athletics should be relatively modest—certainly far less disruptive than having to engage in collective bargaining with student athletes or providing full market compensation. One senses however, that this decision will be just one small point in a much broader reappraisal of the business of intercollegiate athletics.

Daniel Crane is the associate dean for faculty and research at the University of Michigan School of Law. He teaches contracts, antitrust, antitrust and intellectual property and legislation and regulation.

Suggested citation: Daniel Crane, The NCAA and College Athlete Amateurism , JURIST – Academic Commentary, November 4, 2015, http://jurist.org/forum/2015/11/daniel-crane-ncaa-athlete.php.