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Wednesday, October 05, 2016
O’Bannon Case Reaches End of Road
The Supreme Court recently refused to hear Ed O’Bannon’s case challenging NCAA limits on payment from the use of players’ names, images, and likenesses (NILs) in videogames and game footage. This non-decision offers something for both sides, but raises questions for antitrust fans.
First, it offers a win for the NCAA, which gets to keep its Ninth Circuit ruling that rejected a deferred NIL payment of up to $5,000. That court concluded that the district court had erred in upholding such a payment since “paying students cash compensation” would not “promote amateurism as effectively as not paying them.” The Court’s refusal to hear the case means that (at least in the 9 states and 2 Pacific Island jurisdictions that make up the Ninth Circuit), Division I men’s basketball and football players will not be paid for the use of their names, images, and likenesses.
Second, it offers a win for the players in the undermining of the NCAA’s prized amateurism defense. For decades, the NCAA has claimed that all sorts of anticompetitive restrictions are justified because of amateurism. Now it will not be so easy.
In a full trial consisting of 24 witnesses, 15 days, and thousands of pages of testimony, the district court considered the amateurism defense more thoroughly than any previous court. And the more it looked under the hood, the worse amateurism appeared: football players “accept[ing] Pell grants in excess of their cost of attendance”; tennis recruits earning “$10,000 per year in prize money”; and shifting definitions of the term, with “significant and contradictory” revisions of “malleable” compensation rules.
In addition to amateurism skepticism, the plaintiffs won because they get to keep “cost of attendance” awards, which are higher than “grant in aid” stipends since they include nonrequired books and supplies, transportation, and other expenses. Almost certainly because of the case, schools including the Power 5 conferences have adopted a similar rule.
Third, though perhaps less exciting, it offers a loss for antitrust fans. For most business arrangements, courts apply a test known as the “Rule of Reason.” Under this analysis, courts consider the pros and cons (in antitrust parlance, the procompetitive and anticompetitive effects) of the conduct.
Unfortunately, the Ninth Circuit forgot this, punishing O’Bannon for not offering a “less restrictive alternative” to the $5,000 NIL payment. As I have explained elsewhere, if the court insisted on rejecting this alternative, it should have proceeded to balancing, on which O’Bannon was likely to emerge victorious given the strong anticompetitive effects of a “price-fixing agreement” that “value[d] the athletes’ NILs at zero” and weakened amateurism justifications. Adding insult to injury, the Ninth Circuit substituted its version of amateurism (one in which student-athletes could not be paid any cash at all) for the one adopted by the district court (in which NIL payments were acceptable since they did not affect demand for college sports).
My antitrust disappointment aside, on balance the plaintiffs came out ahead in the O’Bannon case. While the NIL payment was struck down, the skeptical treatment of amateurism will have effects for years to come. For example, the ongoing Jenkins case, which takes even more direct aim at the college model by striking down all limits on payment, can now point to the bloodied amateurism defense not as an automatic savior but rather as a hobbled justification. If Jenkins or another case topples the NCAA’s system, the O’Bannon case will have played a crucial role.