by Michelle Ferber and Ben McDonald
The National Collegiate Athletic Association (NCAA) has long had a ban on compensating student-athletes for the uses of their names and likenesses, citing the organization’s dedication to amateurism. This sounds plausible but inconsistent with the millions of dollars being derived from the entertainment value of those athletes. Capitalizing on this issue, student-athletes Ed O’Bannon and Sam Keller filed a federal lawsuit against the NCAA, video game producer Electronic Arts Inc., and Collegiate Licensing Co. over the use of their likenesses. While the companies settled with the athletes regarding the use of their names, images, and likenesses for a collective sum of roughly $60 million, the issue of whether the NCAA can prohibit the compensation of athletes for competing continued in federal court.
Framed as an anti-trust issue, the student-athletes argued that the NCAA’s policy has anticompetitive effects within the college education market because colleges cannot compete to attract young athletes with compensation. According to their argument, allowing for competition in this form would drive down the price the student-athlete would pay for school. Therefore, the policy of prohibiting compensation to student-athletes has the effect of ‘fixing’ the price of school paid by a student-athlete recruit at a higher rate than a free market would produce. Moreover, if student-athlete recruits are considered ‘sellers’ (as in selling their athletic services) in the college education market rather than ‘buyers’ (as in buying an education from the school), NCAA’s policy has an effect of leaving the student-athletes in a market where they can sell their athletic talent to only one buyer who refuses to pay them for it.
While the NCAA demonstrated ‘procompetitive’ purposes of the policy, such as encouraging consumer demand for college sports and preserving unity among students and student-athletes, in 2014 the district court held that there were less restrictive options to preserving those legitimate objectives than an all-out ban on compensation for student-athletes. The district court ruled that student-athletes could receive licensing payments from schools for the use of their name, image, or likeness which would be capped not lower than $5,000 per year and held in trust accounts for the athletes until graduation or the expiration of eligibility. The district court also ruled that caps on scholarships could be increased to cover the entire cost of the student-athlete’s education. The NCAA appealed the decision to the 9th Circuit Court of Appeals.
On September 30, 2015, the 9th Circuit ruled that while NCAA’s policy must be “analyzed under the rule of reason” in relation to whether its policy violates anti-trust laws, the NCAA had demonstrated its legitimate commitment to amateurism and integrating academics and athletics and that the policy of not paying student-athletes is “precisely what makes them amateurs.” Direct payment to student-athletes would turn college sports into junior professional leagues which would drift further and further from both amateurism and any semblance of a connection to academics. However, the 9th Circuit upheld the district court’s scholarship cap increase as a means of balancing the anti-competitive nature of a ban on paying student-athletes.
As it stands at this moment, colleges cannot directly pay student-athletes for playing sports, but they can provide scholarships that entirely encompass the costs of attending their school. This is a subtle but substantial difference in the amount of scholarship money that is now available for each individual student-athlete. While this outcome appears to preserve the institution of collegiate athletics and its professed dedication to academics, there continues to be millions and millions of dollars at stake in regard to the commercialization of collegiate athletics. As such, this issue is surely far from settled.
DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.