Appeals Court: NCAA Rules Go Too Far, But Paying Athletes Is Problematic

The 9th Circuit notes the procompetitive purposes of compensation limits to amateurs.
P Photo/Eric Draper

On Wednesday, the 9th Circuit Court of Appeals told the NCAA that it is not above federal antitrust laws, and that rules prohibiting amateur athletes from licensing their names and images in TV game telecasts and videogames is "more restrictive than necessary." Nevertheless, the NCAA (and its largely supportive broadcasting partners) got a partial victory when the federal appellate court stopped short of ushering in a new era where college athletes will be compensated beyond scholarship money.

The opinion reviewed U.S. District Judge Claudia Wilken's decision in August 2014 that concluded that the NCAA’s compensation rules were an unlawful restraint of trade. With billions of dollars in television and videogame money on the line, the district judge issued an injunction barring the NCAA from prohibiting its member schools from giving student-athletes scholarships up to the full cost of attendance and up to $5,000 per year in deferred compensation.

At the 9th Circuit, Judge Jay Bybee writes for the majority that the trial judge was largely correct, but that cash compensation packages can't be ordered up as a remedy just yet.

"Although we agree with the Supreme Court and our sister circuits that many of the NCAA’s amateurism rules are likely to be procompetitive, we hold that those rules are not exempt from antitrust scrutiny; rather, they must be analyzed under the Rule of Reason," states the opinion. "Applying the Rule of Reason, we conclude that the district court correctly identified one proper alternative to the current NCAA compensation rules — i.e., allowing NCAA members to give scholarships up to the full cost of attendance — but that the district court’s other remedy, allowing students to be paid cash compensation of up to $5,000 per year, was erroneous."

According to Bybee, the NCAA presented two legitimate procompetitive justifications for compensation limits — first, the amateur status of athletes increases consumer demand for college sports, and second, the prospect of compensation threatens to form a "wedge" between athletes and other students.

Thus, it's proper to look at "less restrictive alternatives to the current NCAA rules."

Compensating athletes for the full cost of their attendance — basically, increasing scholarship money — is fine. But the appeals court expresses some trouble at Wilken's $5,000 decision, which Bybee notes seems to have come from a comment that former CBS executive Neal Pilson made on how $5,000 payments to every athlete might not be troubling, but $1 million would be.

Bybee writes, "Instead of asking whether making small payments to student-athletes served the same procompetitive purposes as making no payments, the evidence before the district court went to a different question: Would the collegiate sports market be better off if the NCAA made small payments or big payments?"

The 9th Circuit judge says there is a "quantum leap" in the difference between reimbursing college athletes for education expenses and giving them cash for their names and images.

"Once that line is crossed, we see no basis for returning to a rule of amateurism and no defined stopping point," he writes. "We have little doubt that plaintiffs will continue to challenge the arbitrary limit imposed by the district court until they have captured the full value of their [name and images]. At that point the NCAA will have surrendered its amateurism principles entirely and transitioned from its 'particular brand of football' to minor league status. In light of that, the meager evidence in the record, and the Supreme Court’s admonition that we must afford the NCAA 'ample latitude' to superintend college athletics, we think it is clear the district court erred in concluding that small payments in deferred compensation are a substantially less restrictive alternative restraint."

In the opinion (read here in full), the 9th Circuit dodged a question that would be very important to TV broadcasters — whether the Copyright Act preempts right-of-publicity claims from college athletes. Bybee says that it is "irrelevant to whether the plaintiffs lack standing." In June, a Tennessee federal judge ruled in a proposed class action lawsuit against TV broadcasters that college athletes didn't have publicity rights under state law. That holding could be the next big issue to come to an appeals court on the amateur athlete compensation front.

Unless petitioned to a wider group of judges at the 9th Circuit or up to the U.S. Supreme Court, the lawsuit brought on behalf of former UCLA basketball star Ed O'Bannon and others goes back to the district court. What happens there will be watched closely. In a footnote in today's opinion, it's suggested that the plaintiffs may have succeeded under the Rule of Reason in putting those $5,000 payments on more solid footing had they been able to show such payments wouldn't reduce consumer demand for amateur athletics.

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