On August 8, 2014, a United States District Court Judge, The Honorable Claudia Wilken, issued Findings of Fact and Conclusions of Law that held the NCAA to have illegally restrained “trade in the market for certain educational and athletic opportunities.” The purpose of this article is to provide you, our loyal reader, with a helpful analysis of Judge Wilken’s 99-page Order and give you some understanding as to what the case, Edward O’Bannon, et al. v. National Collegiate Athletic Association, Electronic Arts, Inc. and Collegiate Licensing Company, means to the Notre Dame football program going forward.
But first, allow me a moment of disclaimer: the man behind the avatar writing this article is an attorney. Neither he nor the firm with which he practices had any involvement in the O’Bannon case. Nothing in this article should be construed in any way as legal advice or guidance. Any opinions expressed herein are his alone. Unless otherwise indicated, the quotes are taken from the Court’s Findings of Fact and Conclusions of Law and any emphasis added is this author’s.
While former-UCLA basketball player Ed O’Bannon gets top-billing, the case is actually a “class-action” and it was filed in 2009. A class-action is a procedural device whereby the common claims of a group of similarly-situated individuals, like smokers, or women with defective breast implants, are determined by the trier-of-fact, i.e. the judge or jury. In O’Bannon, the class was defined as “all current and former college student-athletes residing in the United States who compete on or competed on an NCAA Division I college or university’s men’s basketball team or on an NCAA FBS men’s football team and whose images, likenesses and/or names may be, or have been, included or could have been included, by virtue of their appearance in a team roster, in game footage or in video games licensed or sold by Defendants, their co-conspirators, or their licensees.” Ed O’Bannon is the “lead Plaintiff.” A “plaintiff” is someone who asserts a cause of action in a legal proceeding. The Plaintiffs in this case include Notre Dame all current and former football and basketball players who did not choose to be included in the suit.
Judge Wilken, a 65-year old woman, is the Chief Judge for the United States District Court for the Northern District of California, located in San Francisco. She is a 1971 graduate of Stanford and earned her juris doctor degree from The University of California at Berkeley’s Boalt Hall School of Law in 1975. She first served as a federal magistrate judge, handling certain aspects of criminal and civil matters, from 1983 to 1993, at which time then-President Clinton nominated her to become an Article III, of the United States Constitution, judge on October 7, 1993. The U.S. Senate confirmed her on November 20, 1993. The Court maintains a dedicated O’Bannon v. NCAA page that you can access here.
The O’Bannon case was tried to Judge Wilken without a jury, from June 9 to June 27, 2014. At its heart, the case is about competition and how Division I schools compete for the nation’s elite athletic talent, and how those schools, through the NCAA, compete for the dollars generated by television and video game licensing agreements. In the middle are the players, who compete to play in the only arena allowed them by the professional leagues to which they aspire, and who are denied any share of the dollars generated by their performance and likenesses. This gathering of schools and athletes is referred to in the case as the “college education market,” and the Court found that NCAA schools are they only purveyors of this “unique bundle of goods,” i.e. the opportunity to play DI basketball or FBS football and get an education at the same time.
At page twelve of the Findings of Fact and Conclusions of Law, record document number 291, Judge Wilken found “that there are no professional football or basketball leagues capable of supplying a substitute for the bundle of goods and services that FBS football and DI basketball schools provide.” These players do not “typically” pursue alternative routes to professional leagues and the Court found that NFL and NBA rules forbid a high school player to skip college ball. To the nation’s elite football and basketball players, the NCAA is the only game in town.
In analyzing the evidence, Judge Wilken relied on Rivals.com data when considering the issue of whether or not student-athletes had alternatives to the DI/FBS-experience. Interestingly, the Court went out of its way to comment on the reliability of this evidence that comes directly from student-athletes themselves. Rivals.com relies on the athletes themselves to self-report what schools made offers to them during the recruiting cycle. The Court noted that student-athletes have “a strong incentive” to report accurate information, given the ease with which false reports can be outed.
Looking at football recruits from 2007 to 2011, the Court found that zero “five-star” recruits and 0.2% of “four-star” recruits who were offered by FBS schools chose to play at FCS schools. Less than four percent (4%) of “three-star” recruits accepted an offer to play at a non-FBS school in that same time. For basketball players, the numbers were even more heavily in favor of the DI experience: during that same period, ZERO four- or five-star players accepted offers to non-DI schools. Less than one percent (1%) of two- and three-star recruits accepted offers to non-DI schools and only one percent (1%) of zero-star recruits accepted offers outside the DI-system.
There’s good reason for the disparity between FBS/DI and the rest. The “smaller” divisions are made up of smaller programs, that lack the facilities, coaching, and support networks the top-tier programs offer their student-athletes. Those smaller schools, too, lack the cache of the larger schools, thereby commanding fewer dollars for their logs, trademarks, and other intellectual property. It is this market, the market that the Court termed the “group licensing market,” that comprised the second national market touched-upon by the O’Bannon case.
“If it’s in the game, it’s in the game.” EA made money on that promise to the buyers of its hugely-successful series of NCAA-related video games. EA’s evidence at the trial showed that its customers found it “pleasing” “to be able to use the real athletes depicted as realistically as possible and acting as realistically as possible.” At the professional level, EA negotiates with the teams and the players’ associations themselves to use their marks, logos, names, likeliness, etc. and they pay money for this privilege. At the college level, EA did the same, but without any dollars flowing to the stars of the games themselves and the Court found that the NCAA continued to renew its licensing agreement with EA, even as EA violated the NCAA’s prohibition against using players’ likenesses, etc.
And that, the dollars, is what the O’Bannon case is really all about. The Plaintiffs argued that the NCAA’s rules prohibiting players from getting a share of revenue that the member schools get from the licensing agreements violates The Sherman Antitrust Act. The Act basically makes it illegal to contract or conspire to restrain trade. To win, the Plaintiffs had to first show that the NCAA’s restraint on trade “produces significant anti-competitive effects within a relevant market.” If they did, and Judge Wilken found that they did, the NCAA had to prove that its restraint on trade had “procompetitive effects.” If they NCAA met its burden, the ball would pass back to the Plaintiffs, the players, to show that the NCAA’s “legitimate objectives” could be accomplished through less-restrictive measures.
Make no mistake, collegiate athletics are a marketplace in which players compete for coveted scholarships, which the NCAA limits in both number and value. The schools compete for athletes and third-party licensing agreements that generate millions of dollars. In her Conclusions of Law, Judge Wilken relied upon binding precedent from the U.S. Supreme Court that held that “monopsonistic practices” causing harm to suppliers may violate the Sherman Act even if they do not wind up harming consumers. “Monopsony” is the yin to “monopoly’s” yang. The words are the “symmetrical distortion of competition from an economic standpoint. Monopsony, thus, is price-fixing by purchasers.
Judge Wilken ultimately found that the Plaintiffs met their burden of proof and that the NCAA did not. In doing so, she gutted the hoary notions of amatuerism upon which the NCAA has relied. Founded in 1905, the NCAA and its predecessors, the Court found, went to great lengths to keep athletics and academics separated. The League’s 1948 Sanity Code mandated that financial aid to students be awarded without regard to athletic ability. Importantly, Judge Wilken found that “the NCAA’s current restrictions on student-athlete compensation which cap athletics-based financial aid below the cost of attendance, are not justified by the definition of amateurism set forth it its current bylaws.”
The NCAA was hampered in its defense by a number of issues, not the least of which was its own hypocrisy and the testimony of one of its experts in economics, who testified that the NCAA was a cartel. Testimony from the schools themselves “suggested” to the Court “that many current DI schools are committed neither to the current restrictions nor to the idea that all DI schools must award scholarships of the same value.” The permissible “free-spending” of many schools “cancels out” whatever balancing effect the NCAA’s restraints may have.
The Plaintiffs offered two less-restrictive options to the challenged restraints: 1.) a raise in the grant-in-aid limit that would permit schools to award student-athletes money up to the full cost of attendance and derived from specified sources of licensing revenue; and 2.) allow schools to deposit money ($5,000 in 2014 dollars) into a trust fund for athletes for every year they are academically eligible. Student-athletes will not be able to access the money until they graduate or their eligibility expires. The Court rejected the third alternative sought by the Plaintiffs, which was to permit limited compensation to the players from approved third-party endorsements. This, the Court reasoned, would have undermined the NCAA’s goal of protecting players from “commercial exploitation.”
What this means for right now is that NCAA is prohibited from enforcing its ban on player-compensation as it relates to third-party licensing by way of a Permanent Injunction, record document 292. The NCAA has already announced that it will appeal to the United States Ninth Circuit Court of Appeal. Judge Wilken, though, will not stay, or suspend, the effect of her ruling, so that it will take effect in the next recruiting cycle. Nothing, though, has changed insofar as the other rules applicable to recruiting or collegiate athletics in general.
For Notre Dame, the ruling might result in a competitive recruiting advantage if allowing compensation up to the full cost of attendance puts it ahead of lower-cost schools. If not though, the ruling appears to be a symbolically significant win for student-athletes across the DI/FBS spectrum who have been illegally denied a share of the revenues their blood, sweat, and tears generated through television and video game licenses. For the NCAA, the Court’s emphatic rejection of its procompetitive arguments, especially insofar as they touch upon amateurism, the ruling will have lingering effects until the higher Courts or Congress get involved.
The post Understanding O’Bannon appeared first on Her Loyal Sons.