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Sports and the Law: Should College Athletes Be Paid?

July 2019

An Article by:
Lionel J. Frank

           Most observers of college sports realize the amount of time players devote to training, practice and competing in games.  And it has escaped no one’s notice how many millions of dollars top athletic schools receive for television rights and the licensing of team logos on apparel and in sports video games.  But how do college athletes benefit from any of this and should they receive a part of the revenue stream flowing from their athletic efforts?

            In 2008, Ed O’Bannon, a former All-American basketball player at UCLA, learned that he was depicted in a college basketball video game produced by Electronic Arts (“EA”), a software company that manufactured video games based on top college football and men’s basketball teams.  O’Bannon’s consent was never obtained, nor did he receive any compensation for the use of his likeness in the video game.

            Based upon the unauthorized use of his likeness – “a virtual player who visually resembled O’Bannon, played for UCLA, and wore O’Bannon’s jersey number” – O’Bannon filed a class action lawsuit against the NCAA, the College Licensing Company (“CLC”) (the entity which is authorized to license trademarks for the NCAA), and EA in federal court.[1]  The lawsuit alleged that the NCAA’s “amateurism rules” violated the Sherman Antitrust Act by preventing student athletes from receiving compensation for the use of their “name, image and likeness” (“NIL”).

            After a fourteen-day trial, 23 witnesses and 287 exhibits, the trial judge found that the NCAA’s amateurism rules restricting the amount of basketball and football athletic scholarships to no more than tuition and fees, room and board, and books violated Section 1 of the Sherman Antitrust Act because they amounted to an agreement to fix compensation among NCAA member schools.  The judge found that the purpose of the rules to promote amateurism in college sports could be accomplished through less restrictive policies, and it entered an injunction against the NCAA from enforcing its athletic scholarships rule which prohibited member schools from offering full “cost of attendance” scholarships, including money for transportation and other expenses related to attendance.

            Additionally, the trial judge found that student athletes were entitled to be compensated for use of their NIL, and concluded that up to $5,000.00 per year should be set aside as deferred compensation to be paid to student athletes after they left college.  

            Of course, the NCAA appealed such a significant decision, as did the student athletes hoping to receive additional compensation for the use of their NIL.  The Ninth Circuit Court of Appeals reviewed the trial record and applicable antitrust precedent applied by the trial judge in reaching its decision.  (O’Bannon v. NCAA, 802 F.3d 1049 (9th Cir. 2015))  It affirmed the finding that the NCAA’s amateurism rules were not exempt from antitrust scrutiny.    However, it disagreed with the trial judge that there was a sufficient evidential basis for valuing NILS at $5,000.00 per year, writing that such payments “untethered to [student athlete’s] educational expenses” was not a “viable alternative” to remedying the NCAA’s ban on payments for NILs because “not paying student athletes is precisely what makes them amateurs”. 

            To no one’s surprise, both parties appealed the Ninth Circuit’s opinion to the U.S. Supreme Court, which, with only eight Justices then sitting because of the death of Antonin Scalia, denied the appeal.

            So who won and what can we expect going forward? Clearly, the plaintiffs in O’Bannon were successful in obtaining a judgment finding that the amateurism rules in question amounted to unlawful agreements between the NCAA and its 1,200 member colleges which violated the Sherman Antitrust Act.  That decision is a very significant ruling for student athletes in pending cases working their way through other federal courts, and for future cases expected to challenge rules prohibiting payments to student athletes beyond the award of athletic scholarships. 

However, the Ninth Circuit opinion also refused to permit student athletes to be paid for use of their NILs as inconsistent with the legitimate reasons espoused by the NCAA for its amateurism rules. 

At some point, the U.S. Supreme Court may take up the “pay for play” issue, but for now it appears that additional decisions from other circuit courts of appeal around the country will be necessary before it does.


[1] After the trial court certified the class action, a settlement was reached with EA which paid a reported $40 million dollars to resolve NIL video claim complaints, and settled with CLC as well.

 

For more information on intellectual property, please contact Lionel Frank at lfrank@szaferman.com or call (609) 275-0400.

 

 

 

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