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O'Bannon Made Simple

By, Justin P. Sievert

O'Bannon made simple (as simple as possible). Let's get right down to business.

1: The Appeal: The NCAA appealed the ruling, and the injunction imposed by Judge Claudia Wilken (Chief Federal Judge on the United States District Court for the Northern District of California) to the 9th U.S. Circuit Court of Appeals, and oral arguments are scheduled to begin on March 17th.

2: The Law: The Sherman Antitrust Act (the Sherman Act) essentially prevents business activities deemed to be anti-competitive. Section 1 of the Sherman Act, which prohibits unreasonable restraints on trade, requires plaintiffs to demonstrate that there was (1) an agreement (2) which unreasonably restrained competition (3) which affects interstate commerce. Here we are going to focus on the second element, which was the element at issue when we finally arrived at trial.

In order to demonstrate an unreasonable restraint on competition, the 9th Circuit stated that a restraint is unreasonable if its harm to competition outweighs its pro-competitive effects under a "burden-shifting framework". What is a "burden-shifting framework?" Basically, one party is first required to prove something and then the burden shifts to the other party to prove something, so on, and so forth. Here, the plaintiffs first have to prove that the restraints (NCAA legislation) produced significant anti-competitive effects within a relevant market. If demonstrated, the burden would then shift to the NCAA to show sufficient evidence of pro-competitive benefits (how the NCAA legislation actually promotes competition). If the NCAA met this burden, the burden would then shift back to the plaintiffs to show there was a less restrictive alternative available for the NCAA to achieve its objective.

3: The Ruling: Fast-forwarding to trial, and here is how the court analyzed the issues we began to discuss above. The 9th Circuit ruled for the plaintiffs and decided that the NCAA legislation unreasonably restrained trade in the market for certain educational and athletics opportunities. It also held that the NCAA's pro-competitive justifications did not justify its legislative restraints, and that these restraints could have been justified through less restrictive means. Here is an explanation of the ruling:

Plaintiff's Burden (Anticompetitive Restraints in Relevant Markets): First, as stated above, the plaintiffs first needed to demonstrate that NCAA legislation had significant anti-competitive effects on relevant markets. The court concluded that the plaintiffs presented evidence that demonstrated NCAA legislation restricting student athlete pay produced significant anti-competitive effects in two markets; the market where schools compete for football, and men's basketball student athletes, by offering reduced-cost education (athletics scholarships) and the market where colleges compete for the football and men's basketball student athletes' agreement to allow their names, images and likenesses (NILs) to be used by third parties. These markets come together because, essentially,the student athletes are granting the use of their NILs for the athletic scholarships. The court determined that without NCAA legislation, football and men's basketball student athletes would be able to sell their services without a market restraint (i.e., scholarship cap at tuition, room, board and required textbooks and not being able to receive compensation for NILs).

Defendant's Burden (Pro-competitive Effects): Once the plaintiffs met the above burden, the NCAA needed to show that its legislation offered pro-competitive benefits within that same market. The NCAA offered five such benefits, two of which were immediately rejected. The 9th Circuit did, however, take a close look at two of the NCAA's proposals. Basically, the NCAA could prevail if it could factually prove that maintaining amateurism increased overall consumer demand for college sports (amateurism defense) or that NCAA legislation restricting payment promoted the integration of education and athletics and enhanced the student athletes' educational experience (student athlete educational experience defense). Regarding the amateurism defense, the 9th Circuit essentially stated, "hey we see what you are saying, but we don't necessarily buy it" (i.e., this is limited at best, and it may justify restricting a ton of compensation, but we don't necessarily see a problem with some compensation). Regarding the student athlete experience defense, the 9th Circuit bought this argument to an extent. It could see how a cap on compensation would allow student athletes to be more integrated into the general student population, and how that enhances the student athlete experience. However, the court went on to say that this doesn't mean that a total prohibition is the best idea (or least restrictive alternative...foreshadowing!). The end result, yes we have some pro-competitive goals, but they aren't necessarily the best ways to do it.

Plaintiff's Burden (Less Restrictive Alternatives): So we know that the 9th Circuit seems to be teetering on the brink towards changing the game. The plaintiffs proposed three less restrictive alternatives: (1) raising the permissible grant in aid limit that schools can award; (2) allowing institutions to hold in trust for their student athletes a limited and equal share of licensing revenues; and (3) permitting student athletes to receive compensation from third-party endorsements. The 9th Circuit found the first option doable, because capping scholarships at cost of attendance doesn't hurt amateurism (all the money is still for education or things that a normal student would be doing) and there was no evidence that this cap would hurt customer demand (sidebar: do a lot of people subscribe to this notion? I mean, many seem fine watching pro sports, even though the athletes make a ton of money, and people support a university team because they went there, live close to the institution, or for some familial affiliation, among other reasons). The 9th Circuit also found the second option doable because the NCAA didn't provide much evidence that a limited amount, spread equally, would limit consumer demand. The court further found holding this amount in trust until the student athletes graduated or their eligibility expired would not create any issues with academic integration. The court didn't buy the third option. Why? It did not because the belief that this could cause the commercial exploitation of a kid isn't quite dead yet (insert everyone who hates on the NCAA's (no matter what they do, right or wrong) argument here..."the NCAA exploits these kids worse than anyone").

4: The Outcome: So what's the result of those findings? No more unreasonable restraints limiting pay in NCAA legislation. Well, what does that mean? It basically means that NCAA Division I football and men's basketball recruits can receive full gift in aid, and there can't be legislation that says they can't receive a limited share of NIL revenues. The injunction did, however, allow the NCAA to cap grant in aid at full cost of attendance and allowed the NCAA to offer the limited share of NIL revenues in a trust rather than immediate payment. The 9th Circuit also allowed this limited share to be capped by institutions at $5,000 and allowed institutions to create legislation that would disallow disproportionate NIL amounts to different student athletes (i.e., an institution cannot give the star football player the $5,000 while giving a third-string scholarship student athlete nothing).

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This page contains a single entry from the blog posted on March 15, 2015 6:00 PM.

The previous post in this blog was Week in Review.

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