O’Bannon v. the NCAA
On August 7, U.S. District Judge Claudia Wilken issued her ruling on the O’Bannon v. the NCAA class action lawsuit. While it is sure to please the O’Bannon plaintiffs and future football and men's basketball players in power conferences, it raises many questions about fair competition and the future of college sports. In a 99-page decision, Wilken ruled that the NCAA’s decades-old rule barring payment to players for the use of their names, images and likenesses in video games and television broadcasts (names on their jerseys) was in violation of the Sherman Antitrust Act of 1890. This strikes down NCAA regulations that prohibit athletes from receiving anything other than scholarships and the cost of attending school.
In accordance with the decision, power conference athletes who enroll on or after July 1, 2016 can begin receiving payments in the form of deferred compensation. Television and video game revenues will be put into a trust fund to pay Football Bowl Subdivision and men's Division I basketball players after they leave school. The NCAA, however, will be allowed to set a cap on the money to be paid to athletes, as long as it allows at least $5000 per athlete per year of competition. The ruling does not allow players to endorse products for money.
In accordance with the decision, power conference athletes who enroll on or after July 1, 2016 can begin receiving payments in the form of deferred compensation. Television and video game revenues will be put into a trust fund to pay Football Bowl Subdivision and men's Division I basketball players after they leave school. The NCAA, however, will be allowed to set a cap on the money to be paid to athletes, as long as it allows at least $5000 per athlete per year of competition. The ruling does not allow players to endorse products for money.
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| Ed O'Bannon Likeness in a Video Game |
The most significant aspect of the judge's ruling is that amateurism can longer be used as a justification for business practices that violate U.S. antitrust laws. This has been the bedrock of college athletics for decades. If this decision stands up on appeal, and antitrust protection is similarly dethroned in the more ambitious Alston v. NCAA case, the economic model of big time college sports as we know it will have been effectively neutered.
As specified in the ruling, schools beginning in 2015 will be allowed to recruit players by offering them more than tuition and fees, books, and room-and-board scholarships. The “more” could include trust funds as well as annual cost-of-living stipends that reflect the full cost of attending school. The amounts in the trust funds would be up to the discretion of individual universities, subject to any imposed NCAA cap. The NCAA will undoubtedly immediately seek clarification of a number of points in the judge's ruling, but ultimately will surely appeal. Judge Wilken said the new rules would not be stayed pending appeal.
As specified in the ruling, schools beginning in 2015 will be allowed to recruit players by offering them more than tuition and fees, books, and room-and-board scholarships. The “more” could include trust funds as well as annual cost-of-living stipends that reflect the full cost of attending school. The amounts in the trust funds would be up to the discretion of individual universities, subject to any imposed NCAA cap. The NCAA will undoubtedly immediately seek clarification of a number of points in the judge's ruling, but ultimately will surely appeal. Judge Wilken said the new rules would not be stayed pending appeal.
The NCAA Responds to Its Legal Challenges
I mentioned in my The NCAA under Fire post that the NCAA had proposed to give Power 5 conferences more influence over college rules, which was to be voted on by the full Division I board on August 7. Before that vote, on July 29, the NCAA agreed to a proposed settlement of a class-action lawsuit on athlete head injuries. The settlement calls for the NCAA to toughen rules for returning to play for players who receive blows to the head. It also creates a $70 million fund to pay for current and former players to be tested to determine if they suffered brain trauma while playing football and other contact sports. In addition to football, contact sports would include basketball, soccer, ice hockey, wrestling, field hockey and lacrosse.
There has been much criticism of this proposed settlement, primarily because it does not set aside money to pay players who suffered brain injuries. To win compensation, athletes will have to sue individually. In addition, the NCAA did not have to admit to any wrongdoing, including that it had understated the dangers of concussions, an accusation it has denied. Many people following the case believe the NCAA got off the hook far too easily.
On August 7, the NCAA Division I board of directors announced their decision to grant more autonomy to the 65 colleges in the power conferences. In a 16-2 vote the board empowered the Big 5 conferences to set their own rules, including measures to enhance the value of scholarships, improve health insurance, and allow players to consult agents. (Rules regarding such issues as academic requirements and amateur status will continue to apply uniformly for the 32 Division I conferences.)
The NCAA also restructured its decision-making council by expanding the board from 18 to 24 members, including for the first time an athletic director, an athlete, and a woman senior athletics administrator. The vote must pass a 60-day comment period. If 75 of the 350 institutions in the NCAA’s top division express disapproval, the board will reconsider its decision. If 125 universities object, implementation will be suspended pending that reconsideration.
What Does this all Portend?
I have mixed feelings about the legal developments and proposed NCAA changes. Enhancing the rights and fair financial compensation for college athletes is welcomed, and long overdue, news. The possible, and perhaps likely, creation of a plutocracy in college sports is not.
High-resourced schools will no doubt seize the opportunity to try to separate themselves further from their less well-healed competitors, creating a new tier atop the current NCAA’s structure from which they could set their own rules. Since there is great financial disparity not only between the Power 5 and other conferences, but among Power 5 conference schools as well, it is likely different universities will favor different policies. The Big 5 are expected to submit new rules by October 1 for consideration at the NCAA’s convention to be held in January, 2015. While top priority will likely be given to increasing current scholarships to enable full coverage of the total cost of attending college, there’s a wide variety of views within the Power 5 as to what a “full cost of attendance” stipend should be. Expect rich schools to seek a higher amount than less wealthy universities. Middle tier schools striving to be competitive in the Power 5 arena,
like Boise State, Fresno State and San Diego State, will be particularly hard-pressed.
like Boise State, Fresno State and San Diego State, will be particularly hard-pressed.
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| TV Revenue Already Skewed to the Power 5 Conferences |
In addition to likely expanding the already wide wealth gap in college sports, the new structure does not address other important issues that have also sparked challenges to the NCAA, such as the rights of college athletes as workers (see my previous post: Justice for College Athletes: Northwestern Football Players Take on the System) and the sharing of revenues generated by football, the most lucrative sport. ESPN’s 12-year contract for the College Football Playoff will generate $7.3 billion in revenue, the overwhelming majority of which will go to Big 5 schools.
Achieving justice for college athletes throughout the NCAA system while upholding the sustainability of the college economic model, and not creating a plutocracy, could be realized if revenues from big power football games were more equitably shared. I believe such a system will eventually come about, although not because the NCAA will finally “get it” about what’s in the best interests of the intercollegiate sport system. Rather, such a change will be precipitated by legal challenges and ramped up pressure from lesser Power 5 schools, smaller conferences, and, possibly, Congress. Still it will be an uphill fight since the composition of the new powerful council established by the NCAA to promulgate policies for all of Division I gives additional weight to Power 5 institutions.
Changes to the NCAA economic model brought about by the Power 5 autonomy drive and the O’Bannon decision could not only lead to a wider competitive disparity between Division I schools, they could portend the ultimate professionalization of college sports, a prospect Philip J. Hanlon, president of Ivy League member Dartmouth, warned about in explaining his no vote (one of two) on the NCAA-Big 5 autonomy proposal. His concern is justified. I cringe at the thought of the professionalization of intercollegiate sports. They're already far too commercialized, but professionalized according to free-market principles? Horrors!
I thought the main mission of a university was to educate young minds. What kind of message does it send when sports are prioritized over academics? Money generated by high power football and basketball programs is being used primarily to build lavish facilities and pad the pockets of coaches and athletic administrators, not to improve academic programs, which have been starved for funding by dwindling university budgets. Tom Yeager, the commissioner of the Colonial Athletic Association, aptly captured this paradox: “When you have all of higher education facing all kinds of cutbacks and furloughs and wage freezes and building projects on hold, we have got million-dollar coaches zooming around. We’ve got facilities that are the Taj Mahal.” There’s something wrong with this picture.
I thought the main mission of a university was to educate young minds. What kind of message does it send when sports are prioritized over academics? Money generated by high power football and basketball programs is being used primarily to build lavish facilities and pad the pockets of coaches and athletic administrators, not to improve academic programs, which have been starved for funding by dwindling university budgets. Tom Yeager, the commissioner of the Colonial Athletic Association, aptly captured this paradox: “When you have all of higher education facing all kinds of cutbacks and furloughs and wage freezes and building projects on hold, we have got million-dollar coaches zooming around. We’ve got facilities that are the Taj Mahal.” There’s something wrong with this picture.
The NCAA is receiving much praise for its “bold move,” though most of it is coming from Big 5 schools and their loyal supporters. Middle tier and smaller conference school officials are not so elated, to say the least. And the move really isn’t so bold. The new model represents only an incremental reform most likely designed to thwart more drastic changes that could be brought on by the courts or Congress. Such changes, however, could come sooner than later, depending on the outcome of other current lawsuits against the NCAA, especially the the antitrust lawsuit filed by Jeffrey Kessler on behalf of Shawne Alston (Kessler brought the suit that won free agency for NFL players) . A ruling in favor of the plaintiffs in this case could ultimately lead to the compensation of college athletes according to free-market principles.
Even if developments don't go this far, the era when the NCAA could sustain its lucrative commercial enterprise largely on unpaid labor appears over. While there's good reason to applaud this result, there's equally good reason to tremble at the thought of college recruiting and transferring becoming dominated by bidding wars. It seems to me the only win-win solution possible, if the courts codify the free-market principle, is more equitable revenue sharing of big sport revenue. If the NCAA wants to remain relevant, it should embrace this idea, and soon before it's too late. Stay tuned for the next episode in this ongoing saga.
Even if developments don't go this far, the era when the NCAA could sustain its lucrative commercial enterprise largely on unpaid labor appears over. While there's good reason to applaud this result, there's equally good reason to tremble at the thought of college recruiting and transferring becoming dominated by bidding wars. It seems to me the only win-win solution possible, if the courts codify the free-market principle, is more equitable revenue sharing of big sport revenue. If the NCAA wants to remain relevant, it should embrace this idea, and soon before it's too late. Stay tuned for the next episode in this ongoing saga.
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