O’Bannon v. NCAA Ruling Could be a Game Changer

On Friday, Federal Judge Claudia Wilken of United States District Court in Oakland California handed down a 99-page ruling that prohibitions of player compensation by the National Collegiate Athletic Association violate Section 1 of the Sherman Antitrust Act. O’Bannon brought forth a class action lawsuit against the NCAA in 2009 to “challenge the association’s rules restricting compensation for elite men’s football and basketball players. In particular, Plaintiffs seek to challenge the set of rules that bar student-athletes from receiving a share of the revenue that the NCAA … earn(s) from the sale of licenses to use the student-athletes’ names, images, and likenesses.”

The Amateurism Fallacy

In the course of the trial, the NCAA argued that it’s restrictions on player compensation established to maintain amateurism in collegiate athletics. In her ruling, Judge Wilken outlines how the bylaws surrounding amateurism and compensation have changed drastically over the NCAA’s 100+ year history. She states, “Indeed, education – which the NCAA now considers the primary motivation for participating in intercollegiate athletics – was not even a recognized motivation for amateur athletes during the years when the NCAA prohibited athletic scholarships.”  She rules that the court finds these restrictions on student-athlete compensation “not justified by the definition of amateurism in its current bylaws” and that the “restrictions on … compensation do not promote competitive balance.”

The NCAA also argued that it does not serve as a monopoly, and therefore was not guilty of enabling price fixing, arguing the plaintiff’s claim that the NCAA was in violation of Section 1 of the Sherman Act.  Wilken sides again with the Plaintiff, citing the Supreme Court when it relies on then Judge Sotomayor’s concurrence with Judge Salvino that “competitors ‘cannot simply get around’ antitrust liability by acting ‘through a third-party intermediary or ‘joint venture.’’” Here she points to the NCAA as establishing Monopsony practices that harm suppliers. She points to Mandeville Island Farms v. Am. Crystal Sugar Co. which provides the precedent “suppliers … are protected by antitrust laws even when the anti-competitive activity does not harm end-users”.

Addressing the issue of using the players’ names, images, and likenesses, the ruling of O’Bannon v. NCAA allows for universities to set up trust funds for players to be drawn from after graduation, or at the end of athletic eligibility. This effectively enables players to be compensated for their part in the multi-billion dollar industry that flourishes off the use of their likeness. This is in addition to annual payments that match the total cost of attending, including the previously capped amount (tuition, fees, room and board, books, certain supplies, tutoring, and academic support) and adding allowances for other incidentals.

Judge Wilken does enable the NCAA to impose limits on these trust fund amounts, however. The court rules that the NCAA cannot prohibit these payments on anything less than $5,000 per year. This total payout of $25,000 is much less than the hundreds of thousands that players were hoping to get, according to ESPN’s Lester Munson.

Other Antitrust Concerns

If the NCAA were truly pro-competition they would remove the limits to eligibility of transfer athletes that require a one year no playing probationary period after switching schools and teams. Further it would allow unbridled compensation for players, which would reduce the incentive for schools to expend resources on lavish facilities, and expensive coaches that currently seduce the college recruits.

Today the top teams in the big market conferences do not compete with Division 1 schools in lesser conferences. The Big 10 is leaps and bounds ahead of its neighboring Mid-American Conference (MAC).  The NCAA pretends to create a fair playing field for all schools across the same divisions through compensation probation, when in reality the schools that would entice players with large salaries, instead build the biggest stadiums, promise national coverage, and buy the best coaches.

This case highlights some of the problems that plague collegiate athletics, but the fact remains that these athletic programs in many markets are not self-sustaining. These programs rely on steep student subsidization which in turn increases the cost of attendance. This tied good (in order to receive the education you must also pay the fee to subsidize the athletic teams) opens even more room for anti-trust scrutiny, but on an institutional level.

NCAA Board Approves Autonomy for ‘Big 5 Conferences’

Other developments challenge the status quo elsewhere in the NCAA. Thursday, August 7th, the NCAA’s Division 1 Board of Directors voted to allow the “Big Five” athletic conferences – Southeastern Conference, ACC, Big 12, Big Ten, and Pacific-12 – autonomy to vote on changes in a vote of 16 to 2. One of the first items on the list of topics addresses a similar issue to what is discussed above, namely the additional benefits for student-athletes in the NCAA’s highest-revenue sports.  The Washington Post reports that this vote “puts an effective end to the suggestion that all 351 Division I programs operate on a level playing field.”

This new set up coupled with the recent ruling of O’Bannon v. NCAA open the door to increased recruiting compensation at these top schools, over the smaller programs. The smaller programs should be advised that to remain competitive with these major market teams is to incur huge costs to the institution. These costs will be transferred onto the students by way of higher fees, further increasing the cost of college.