Another NCAA Upset: Rethinking the Playbook for Compensating Student-Athletes

By: Stanton McManus, Volume 103 Staff Member

March introduced a new kind of madness into collegiate athletics this year. Just as the regular basketball season came to a close and players geared up for the annual all-around tournaments,[i]a ruling issued from the Northern District of California that further blurred the line between amateur and professional sports. In re Nat’l Collegiate Athletic Ass’n Athletic Grant-in-Aid Cap Antitrust Litig.found that the National Collegiate Athletic Association (“NCAA”) violated antitrust law.[ii]Namely, the court held that the NCAA restrained trade because its limits on student-athlete compensation produced significant anticompetitive effects, thus it was ordered to devise an alternative scheme in order to provide more compensation to student-athletes.[iii]

Yet, the court did not permit cash compensation for these athletes either, so a central question persists: If certain college sports are not so different from professional ones in terms of generating staggering revenues—in particular, college basketball and football bring in enormous sums[iv]—then why are college athletes not compensated like professionals, especially when others like coaches are?[v]Allowing such a question to remain unresolved continues to produce devastating collateral effects, such as illegal payments to college athletes.[vi]The NCAA will also likely continue to be critiqued for reaping enormous profits, of which the majority comes from the men’s basketball tournament,[vii]though it only passes down minimal benefits to student-athletes.[viii]  As such, the recent California ruling does not offer much in the way of an ultimate solution, but it does push the pay-for-play issue further down the road towards a final reckoning.

I. The First Step Taken

Judge Claudia Wilken, who decided In re Nat’l Collegiate Athletic Ass’n,, is the same judge who first held that the NCAA needed to rework its student-athlete compensatory scheme. O’Bannon v. Nat’l Collegiate Athletic Ass’nfound that NCAA grants-in-aid (i.e., athletic scholarships) were insufficient, for the actual cost of attendance is often a few thousand dollars more than the allowed grant-in-aid.[ix]Furthermore, the shared agreement between Division I schools to offer the same grant-in-aid package was a violation of antitrust law, for schools could not offer more aid in order to compete for the best athletes. Recruits, thus, could not seek out offers to lower the total amount that they would ultimately end up paying for their education.[x]

As a result of O’Bannon, student-athletes could now seek out and receive offers for the full cost of attendance, but they were still denied compensation for the use of their names, images, or likenesses—which was the surface issue litigated in O’Bannon—and the prohibition against product endorsements by students was upheld as well.[xi]

II. Where Student-Athletes Currently Stand

WhileO’Bannondid not bring about systematic or significant change, it did at least call attention to the fact that “amateurism”—which the NCAA touted as the ultimate reason it did not share proceeds derived from athletes’ names, images, or likenesses—played a minimal role in consumer demand for college sports.[xii]What really brought viewers and spectators to the most profitable NCAA sports, men’s football and basketball, was the fact that viewers wanted to watch particular players who had nowhere else to go.[xiii]For example, the National Football League requires draftees to be three years out of high school and have used up all college eligibility;[xiv]similarly, the National Basketball Association requires draftees to be nineteen years old (though it has recently proposed to lower the age requirement to eighteen for the 2022 draft).[xv]Judge Wilken attempted to acknowledge this reality by requiring the NCAA to pay up to $5000 per year in differed compensation, per student, because student-athletes were neither professionals nor amateurs; the Ninth Circuit, however, vacated this part of the judgment.[xvi]

In re Nat’l Collegiate Athletic Ass’n can be interpreted as a response to the Ninth Circuit’s limitation of O’Bannon’s reach, for its newly crafted compensatory scheme manages not to violate the appellate court’s prohibition against offering cash or its equivalent as compensation.[xvii]Instead, the most recent injunction requires the NCAA to offer aid packages that go beyond the total cost of attendance so long as any surplus amount is “paid” in non-cash education-related benefits and academic rewards, such as:

computers, science equipment, musical instruments and other tangible items not included in the cost of attendance calculation but nonetheless related to the pursuit of academic studies. . . [as well as] post-eligibility scholarships to complete undergraduate or graduate degrees at any school; scholarships to attend vocational school; tutoring; expenses related to studying abroad that are not included in the cost of attendance calculation; and paid post-eligibility internships.[xviii]

 

Judge Wilken envisioned that such a remedy would further competition amongst men’s football and basketball programs and, in some measure, provide more financial benefit to student-athletes.[xix]

Yet, the order did not require that colleges and universities offer compensatory packages surpassing the total cost of attendance—rather, it simply allowed that such packages could be offered, which would most likely only be done so by the most powerful conferences and only to the most coveted athletes.[xx]Additionally, NCAA attorneys argued that education-related benefits and academic rewards could mean a whole host of things, which could include attending class, doing homework, completing a course, maintaining a minimum grade point average, or graduating—all of which were often requirements for students regardless of athletic status.[xxi]In short, the court’s concern of avoiding cash payments to student-athletes—which the plaintiffs had argued for[xxii]—forced it to fashion a less than ideal solution.[xxiii]

III. Possible Paths in the Future

As Judge Wilken noted in O’Bannon, “perceived inequities in college athletics and higher education generally, could be better addressed as a policy matter by reforms other than those available as a remedy for the antitrust violation found here. Such reforms and remedies could be undertaken by the NCAA, its member schools and conferences, or Congress.”[xxiv]Relying on the NCAA to correct its broken system might be asking too much; legislative steps, however, might offer a better solution than injunctions.

Recently, a Washington state representative introduced a bill that would allow any state student-athlete to earn compensation for his or her services, and to be paid for the use of his or her name, image or likeness.[xxv]If passed, the enforcement of any contrary NCAA rules would also constitute a violation of state consumer protection laws.[xxvi]

Similarly, a bill being considered in the California Senate would prohibit state educational institutions, athletic associations, conferences, or other groups with authority over intercollegiate athletics from preventing a student to earn compensation from his or her name, image, or likeness or from hiring on legal representation.[xxvii]Furthermore, educational institutions would be able to provide students with a stipend or other form of monetary compensation.[xxviii]

Finally, a member of the Republican Study Group, the largest Republican caucus in the U.S. House of Representatives,[xxix]plans to introduce a bill that would amend the definition of a qualified amateur sports organization in the tax code, which would then remove the restriction on student-athletes being compensated for their name, image and likeness.[xxx]The member’s rationale: “This is an earning opportunity for 99 percent of these student athletes who will never have another access to do something like this. It’s in that moment that your earning opportunity is prime.”[xxxi]This is not inconsequential, for as the above California bill noted, the ten NCAA football players with the highest estimated fair market values had “values that ranged from $345,000 to $514,000. . . [yet] [a]ll of these players were living below the federal poverty line with an average scholarship shortfall of $2,841. . . [even though] their head coaches were paid an average of over $3,500,000 each, excluding bonuses.”[xxxii]

If the goal is furthering equity between institutions, coaches, and student-laborers,[xxxiii]then these legislative maneuvers could lead to more substantial shifts towards more fairly distributing the enormous revenues generated by college athletics. In contrast, the injunctions from the Northern District of California seem to adhere more closely to the fiction of being able to bridge the inequitable divide without involving cash or cash equivalents—a fiction still bound up with an outdated conception of student-athletes as amateurs,[xxxiv]pure and untainted by market forces, but which is an anachronistic understanding of today’s NCAA’s business model to harness student-athletes revenue-producing potential and not offer them a share.[xxxv]

[i]There are now a host of minor tournaments for colleges and universities to participate in after the regular basketball season has concluded in March. However, the most significant one is the sixty-eight team NCAA Division I tournament, termed “March Madness,” and the most prestigious conciliation tournament is still the thirty-two team National Invitation Tournament, which used to be thetournament to play in before being gradually eclipsed by March Madness.

[ii]No. 4:14-MD-02541-CW, at 2 (N.D. Cal. Mar. 8, 2019) (Bloomberg Law).

[iii]Id. at 2–3.

[iv]See Pamela A. Maclean & Eben Novy-Williams, NCAA Loses Critical U.S. Court Ruling on Athlete Compensation, Bloomberg (last updated Mar. 8, 2019, 10:09 PM), https://www.bloomberg.com/news/articles/2019-03-09/ncaa-loses-critical-u-s-court-ruling-on-pay-for-play (“[T]he richest programs in college football and college basketball continue to reap record revenue from broadcast rights, ticket sales and donations. There were 28 athletic departments that made more than $100 million in revenue in 2015-16. . . .”).

[v]See id. (“Alabama football coach Nick Saban was paid more than $11 million dollars in the 2017 season and has three assistants paid more than the university president.”).

[vi]See, e.g., United States v. Gatto, No. 17-CR-0686, 2019 WL 266944, at *1 (S.D.N.Y. Jan. 17, 2019) (“This case is about corruption in [NCAA] Division I college basketball”).

[vii]Darren Rovell, NCAA Tops $1 Billion in Revenue During 2016-17 School Year, ESPN (Mar. 7, 2018), http://www.espn.com/college-sports/story/_/id/22678988/ncaa-tops-1-billion-revenue-first (“The NCAA pulled in $761 million [of the $1.06 billion total] from the 2017 NCAA tournament.”).

[viii]See Gatto, 2019 WL 266944, at *1 (“[T]he student-athletes who actually play on these NCAA Division I men’s basketball teams receive—or at least are supposed to receive—almost no financial benefits. They fundamentally are entitled to no more than the athletic scholarships they receive from these colleges and universities. At the root of this situation is the NCAA’s principle of amateurism.”).

[ix]7 F. Supp. 3d 955, 971–72 (N.D. Cal. 2014), aff’d in part, vacated in part, 802 F.3d 1049 (9th Cir. 2015).  The Ninth Circuit upheld the lower court’s demand that the NCAA provide up to the cost of full attendance to student-athletes, but it vacated the lower court’s call for the NCAA to pay up to $5000 per year, per student, in deferred compensation. O’Bannon, 802 F.3d at 1079.

[x]Id. at 972.

[xi]Michael McCann, What the Appeals Court Ruling Means for O’Bannon’s Ongoing NCAA Lawsuit, Sports Illustrated(Sept. 30, 2015), https://www.si.com/college-basketball/2015/09/30/ed-obannon-ncaa-lawsuit-appeals-court-ruling.

[xii]See Kelly Charles Crabb, The Amateurism Myth: A Case for A New Tradition, 28 Stan. L. & Pol’y Rev. 181, 197 (2017).

[xiii]O’Bannon, 7 F. Supp. 3d at 966–67 (“The only potential substitutes that the NCAA has identified are the opportunities offered by schools in other divisions, collegiate athletics associations, or minor and foreign professional sports leagues. None of these other divisions, associations, or professional leagues, however, provides the same combination of goods and services offered by FBS football and Division I basketball schools.”).

[xiv]The Rules of the Draft, NFL, https://operations.nfl.com/the-players/the-nfl-draft/the-rules-of-the-draft/ (last visited Mar. 30, 2019) (discussing these requirements under “Player Eligibility”).

[xv]Jeff Zillgitt, NBA Officially Proposes Lowering Draft Age from 19 to 18, USA Today(last updated Feb. 22, 2019, 5:10 PM), https://www.usatoday.com/story/sports/nba/2019/02/21/nba-draft-eligible-age-limit-proposal-18-years-old/2942228002/.

[xvi]O’Bannon v. Nat’l Collegiate Athletic Ass’n, 802 F.3d 1049, 1079 (9th Cir. 2015).

[xvii]See McCann,supra note 11.

[xviii]In re Nat’l Collegiate Athletic Ass’n Athletic Grant-in-Aid Cap Antitrust Litig., No. 4:14-MD-02541-CW, at 56 (N.D. Cal. Mar. 8, 2019) (Bloomberg Law).

[xix]Id.at 103–04.

[xx]Michael McCann, Why the NCAA Lost Its Latest Landmark Case in the Battle Over What Schools Can Offer Athletes, Sports Illustrated(Mar. 8, 2019), https://www.si.com/college-football/2019/03/08/ncaa-antitrust-lawsuit-claudia-wilken-alston-jenkins.

[xxi]Michael McCann, How the Players’ Antitrust Lawsuit Victory Impacts Schools, Conferences and the NCAA, Sports Illustrated(Mar. 8, 2019), https://www.si.com/college-football/2019/03/08/ncaa-amateurism-antitrust-case-ruling-conference-scholarships.

[xxii]Doug Lederman, Another Ruling Chips Away at NCAA Limits for Athletes, Inside Higher Ed (Mar. 11, 2019), https://www.insidehighered.com/news/2019/03/11/another-federal-court-ruling-chips-away-ncaa-limits-support-athletes.

[xxiii]See Michael McCann, Examining the Broader Fallout After the Historic Grant-in-Aid Cap Ruling Against the NCAA, Sports Illustrated(Mar. 8, 2019), https://www.si.com/college-football/2019/03/08/fallout-grant-aid-cap-ncaa-litigation-title-ix-sports-betting-law (noting that the ruling might impact applications of Title IX, tax law, immigration law, and sports betting law).

[xxiv]O’Bannon v. Nat’l Collegiate Athletic Ass’n, 7 F. Supp. 3d 955, 1009 (N.D. Cal. 2014), aff’d in part, vacated in part, 802 F.3d 1049 (9th Cir. 2015).

[xxv]Gregg E. Clifton, New Legislation Proposed In The State of Washington Pushes For Student-Athlete Compensation In Defiance of NCAA Bylaws, Nat’l L. Rev. (Jan. 10, 2019), https://www.natlawreview.com/article/new-legislation-proposed-state-washington-pushes-student-athlete-compensation.

[xxvi]Id.

[xxvii]S. 206, 2019-2020 Leg. Reg. Sess. (Cal. 2019), https://legiscan.com/CA/text/SB206/id/1972267.

[xxviii]Id.

[xxix]Brian Murphy, Allow College Athletes to Make Money Off Their Names or Face Legislation, NC Republican Warns NCAA, The News & Observer(last updated Mar. 11, 2018, 7:36 PM), https://www.newsobserver.com/news/politics-government/article210862184.html.

[xxx]Brian Murphy, NCAA Must Allow Players to Profit from Name and Image, NC Republican’s New Bill Says, The News & Observer(last updated Mar. 7, 2019, 3:45 PM), https://www.newsobserver.com/sports/article227181209.html.

[xxxi]Id.

[xxxii]Cal. S. 206.

[xxxiii]Maryland is considering a bill to grant student-athletes the right to collectively bargain, thus recognizing that they are laborers as much as students. See Rick Maese, Proposed Legislation Would Give Maryland College Athletes the Right to Unionize, The Wash. Post (Feb. 8, 2019),

https://www.washingtonpost.com/sports/colleges/proposed-legislation-would-give-maryland-college-athletes-the-right-to-unionize/2019/02/07/d3f80368-2b0c-11e9-984d-9b8fba003e81_story.html?utm_term=.6e401aabd394

[xxxiv]See, e.g., Nat’l Collegiate Athletic Ass’n v. Bd. of Regents of Univ. of Okla., 468 U.S. 85, 120 (1984) (“The NCAA plays a critical role in the maintenance of a revered tradition of amateurism in college sports.”). Of course, the Court’s conception of the NCAA and amateurism is from a bygone era; much has changed in the business of college sports over the last thirty-five years.

[xxxv]But cf.Crabb, supranote 12, at 204–05 (“Olympic athletes are allowed to be compensated—through the legitimate and organized exploitation of their publicity rights. In this connection, the NCAA can replicate established rules and parameters like those employed by the [International Olympics Committee] and the United States Olympic Committee. . . .”).