O'Bannon v. NCAA: Everything You Need To Know About The Judge's Ruling

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Claudia Wilken, a federal judge in California took 99 pages to explain why college athletes can now get paid. With the expansive and convoluted issues that laced the O’Bannon v. NCAA case, I can understand why it took half of a redwood tree to write her ruling.

The crux of the O’Bannon case involved two concepts: antitrust and amateurism. 

Before discussing antitrust and amateurism, however, it’s important to breakdown two terms used by the judge throughout her ruling: grant-in-aid and cost of attendance.

Grant-in-Aid vs. Cost of Attendance

Grant-in-aid is what you know as a scholarship. The grant-in-aid covers the actual expenses for getting an education but nothing more—no incidental expenses.

The cost of attendance is the full cost of attending a school and is a school-specific figure defined in the NCAA bylaws. 

The judge labeled the cost of attendance as “an amount calculated by [a school]’s financial aid office, using federal regulations, that includes the total cost of tuition and fees, room and board, books and supplies, transportation, and other expenses related to attendance” at that particular school.

Think of cost of attendance as what your parents actually pay for you to attend school. This figure is usually a few thousand dollars more than the value of grant-in-aid scholarships.

The judge’s ruling was largely based on the difference between grant-in-aid and cost of attendance. I’ll circle back to this later.

So what is Antitrust?

I explained what antitrust is here. In short, it has to do with making sure a market for goods or services remains competitive and that no one person or entity has or creates an unfair advantage in the exchange of those goods and/or services.

The student-athlete wants something the school has and the school wants something the student-athlete has.

In exchange for a University’s “bundle of goods and services, football and basketball recruits must provide their schools with their athletic services and acquiesce in the use of their names, images and likenesses for commercial and promotional purposes.  These recruits also agree to pay any costs outside of the scholarship they receive,” Wilken wrote.

In the O’Bannon case, the antitrust issue centers on the fact that the NCAA sets a price of zero dollars on the student-athletes’ services and, in turn, says the student-athletes don’t need to be paid anything beyond what their scholarships provide (which is less than the cost of attending the schools).

OBannon

One of the NCAA’s own experts referred to the NCAA as a “cartel” in his economics textbook. He tried to backpedal his way out of that characterization, but it didn’t work.  

Judge Wilken remarked that “the schools agree to value the student-athlete’s athletic performance, name, image and likeness at zero by agreeing not to compete with each other to credit any other value to the recruit in the exchange.”

That, my friends, is price fixing. It’s illegal. 

Because all of the NCAA schools have agreed to do this (setting the value of the recruits’ and student-athletes’ value at zero), it violates antitrust laws, or at least to this judge it does.

What is Amateurism as Defined by the NCAA?

While the definition of amateurism may seem like a cut-and-dry concept, under the NCAA bylaws through the years, it’s anything but.

The NCAA was started in 1905 (then known as Intercollegiate Athletic Association (IAA)) by the presidents of 62 colleges & universities in order to have uniform rules in football only. The first bylaws were penned in 1906.

The 1906 NCAA bylaws defined amateurism in its purest form: no money or compensation to student-athletes whatsoever. Nothing. Nada. Zilch.

Even the modern-day scholarships players receive today would’ve violated the 1906 bylaw defining amateurism.

Despite the restrictive language in the 1906 bylaws, players still received subsidies.

The IAA’s name changed to NCAA in 1916 and thereafter, the definition of amateur changed several times. Despite the definition of amateur varying through the years, the judge found that the member schools “continued to ignore these rules for the first few decades of the NCAA’s existence.”

In 1948, the NCAA got strict and enacted the “Sanity Code,” which was designed to curb violations of its bylaws. It didn’t work.

The Sanity Code lasted only four years and in 1952, the NCAA created the first enforcement committee.

And in 1956, the NCAA revised its scholarship limits/procedure that started the modern day grant-in-aid scholarships. In 1956, the scholarships (known as full “grant-in-aid”) said student-athletes could only receive financial aid for tuition, fees, room and board, books, and cash for “incidental expenses,” such as laundry. Their words, not mine.

In 1975, the “incidental expenses” clause was removed from the grant-in-aid phrase. 

In 2004, the NCAA amended the grant-in-aid again, allowing student-athletes to accept the full value of a Pell grant if they qualify for it, even if it exceeds the cost of attendance. The full value of the Pell grant is $5,500.

The current amateurism provision in the NCAA’s constitution includes the following language: “...student-athletes should be protected from exploitation by professional and commercial enterprises.” 

Fan with_ticket

The NCAA, itself is a commercial enterprise, with its president, Dr. Mark Emmert pulling in about $1.7 million or so per year. Not to mention other businesses like ESPN, CBS, and many others all vying for the right to use the student-athletes’ names, images and likenesses.

The definition of amateur has evolved and morphed over the decades and was used as a shield by the NCAA in the O’Bannon case, as well as a couple of other cases still pending in the courts. Judge Wilken stripped the NCAA of that shield and used the NCAA’s own witnesses to strike down its rules.

The NCAA, specifically Dr. Emmert, argued that the NCAA has a strong “philosophical commitment to amateurism” and is the reason more schools want to join the NCAA Division I ranks and the reason the athletic programs are successful. 

The judge found this argument “implausible” and “not credible.” She detailed how schools are clawing to join Division I because of the financial benefit, not philosophical beliefs regarding amateurism.

Other NCAA Arguments

Group License

A group license in sports is a license that allows a broadcasting company to use all of the sports’ players’ images, names and likenesses rather than having to enter into licensing agreements with each individual player.

The NCAA argued, through its expert’s testimony, that a group license to use the student-athletes’ names, images and likenesses was not necessary and was primarily entered into “to gain exclusive access to the facility where the event will occur.”

It’s perplexing that the NCAA made this argument, and even harder to believe they did it with a straight face.

If you’re not buying the NCAA’s argument, neither was the judge. Judge Wilken immediately wrote the following: “This testimony is not convincing.” 

Broadcasters have to have the rights to visiting players too, and the license isn’t a ticket to get into a particular venue—it’s secured to do exactly what its intended purpose is: use the student-athletes’ names, images and likenesses.

The NCAA No Longer Licenses Intellectual Property

This is the “I’m taking my ball and going home” defense.

ea cover

The NCAA’s argument was that because it stopped licensing its intellectual property for use in videogames, developers wouldn’t develop a videogame without the use of the student-athletes’ names, images and likenesses.

The judge saw through this “defense,” as well. The judge noted how the NCAA only stopped licensing their intellectual property (student-athletes’ names, images and likenesses) in response to the O’Bannon litigation.

More importantly, the judge explained that just because the NCAA stopped such licensing doesn’t mean it would never renew the license with EA Sports again. Prior to the O’Bannon suit being filed, such licenses were profitable, so the judge reasoned that following the litigation the NCAA would reenter into those licenses.  

What About the Fans?!

The judge rejected the NCAA’s argument that the consumers (those who watch and attend NCAA games) would be harmed if student-athletes were paid.

Oddly enough, the NCAA relied on survey data and lay witness testimony to support their argument that the rules they have restraining athletes getting paid “promote consumer demand for its product by preserving its tradition of amateurism in college sports.” Lay witness testimony? That’s a fan.

I can just picture a guy up on the witness stand in his Ohio State jersey, wearing a beer hat: NCAA Attorney: “Sir, you wouldn’t go to games any longer if we paid the athletes, would you?” Beer Guy: "Uhhh, no."

The judge said such “evidence” was insufficient to justify their argument.

The NCAA surveyed 2,455 people across the U.S. asking them how they feel about college athletes being paid.

Fan Basketball

The judge said the survey was critically flawed.

The NCAA’s survey asked questions that “primed” the people completing the survey to think about student-athletes receiving “illicit payments when answering the...survey questions.”

The NCAA still argued that 69% of people surveyed “expressed opposition to paying student-athletes while only twenty-eight percent favored paying them.” The judge found what fans think irrelevant to the chief issue at hand and said their responses “say little about how consumers would actually behave if the NCAA’s restrictions were lifted.”

Even the NCAA survey expert admitted that the other polls and surveys on the issue of college players getting paid “vary in their quality or their methodology and their implementation.”  That means they may have used a poll on ESPN’s webpage, or at a bar in Tuscaloosa prior to kickoff to support their argument. If you’re thinking this is absurd, you’re correct.

The survey used by the NCAA didn’t even ask the central question of whether people agreed with student-athletes getting a “share of the licensing revenue generated from the use of their own name, image and likeness.” 

And the survey respondents weren’t asked about scholarships actually covering the full cost of attendance rather than just the grant-in-aid fees of attending school.

O'Bannon's Specific Requests

Ultimately, the judge ruled on three requests made by the O’Bannon plaintiffs: 1) stipends for school expenses, 2) actual payments for athletic ability and performance, and 3) payments for endorsements.

1. Stipends for School Expenses.

Going back to the NCAA’s definition of amateurism, the judge found that allowing schools to award stipends to student-athletes would help ease the oppressive effects the NCAA’s have on student-athletes without affecting amateurism as defined by the NCAA.

In other words, student-athletes can still meet the NCAA’s definition of amateur if they receive a stipend from the school.

The judge limited the stipends to the “cost of attendance” as defined by the NCAA’s current bylaws.

The judge specifically mentioned “school supplies” in her ruling. So, with respect to balancing scholarships (or, grants-in-aid) versus actual cost of attendance, the judge just reverted back to the 1975 “laundry and other expenses” clause, nothing more.

Essentially what the judge did was raise the grant-in-aid limit to cover the true cost of student-athletes attending college, which Dr. Emmert and other NCAA witnesses agreed would not violate the NCAA’s amateurism rules.

Simply put, student-athletes have to receive grants-in-aid combined with stipends that at least cover the cost of attendance.

2. Actual Payments for Athletic Ability and Performance

The judge also ruled that schools can “make limited payments to student-athletes above the cost-of-attendance” but only if the student-athletes are not paid based on athletic ability or performance. It has to be the same limited payment for everyone.

So Florida State will pay Jameis Winston the same amount as John Franklin, III, the third-string quarterback.

Jameis Winston

The payments made to student-athletes, which can vary year to year, have to be held in trust. This means the student-athletes can’t touch the money until after they leave school.

The money used to pay the student-athletes will come from the licensing revenue generated from the use of their names, images and likenesses.

The NCAA can set a cap on the deferred compensation, however, but that cap has to be at least $5,000 “for every year that the student-athlete remains academically eligible to compete.”

Also, schools can pay less than $5,000 to student-athletes, but they cannot conspire with one another in setting the payment amount. Something to watch for is schools all paying the same amount of money to student-athletes.

If this happens, the student-athletes will most likely be back in court arguing another price-fixing claim.

So yes, there is a NCAA cap of at least $5,000 that can be paid to student-athletes, but the individual schools are free to pay as little as zero to the student-athletes.

3. Money for Endorsements

The judge rejected the student-athletes’ proposal that they get paid for endorsing commercial products because, the judge reasoned, this would not protect them from “commercial exploitation.” 

The Fallout

The judge expressly stated that more reforms and remedies need to be undertaken by the NCAA, or if not by it, then by the individual schools and conferences; and if they all fail to act, then by Congress.

The judge issued a permanent injunction against the NCAA and its rules prohibiting student-athletes from getting paid. The injunction is an order telling the NCAA it can no longer enforce the restrain on student-athletes receiving financial payments beyond their scholarships.

The NCAA is going to appeal the judge’s ruling.

The strongest claim the NCAA has is that the permanent injunction was not necessary because there is no irreparable injury to the student-athletes. In other words, the litigation can take its course and if the final ruling in the case is that the student-athletes are to be paid, then they can be paid retroactively.

The injury, if there ends up being one, is not permanent so there is no need for the injunction.

Compare the NCAA’s case to the Josh Gordon case: The NFL suspended Gordon for the 2014 NFL season. If the courts don’t issue an injunction against the NFL and allow Gordon to play in the 2014 season, then he will not be able to go back and play in the 2014 season if he wins his case in state court.

The student-athletes will always be able to receive a check at a later date. The only issue is what amount would the school have paid the players if the injunction had stayed in effect. The court would most likely award the $5,000 limit to the student-athletes if the injunction is lifted and retroactive payments had to be made.

The judge’s injunction against the NCAA doesn’t take effect until the next football and basketball recruiting cycle. So if you’re a senior, you’re fresh out. 

Cedric Hopkins

Cedric Hopkins Bio

Cedric Hopkins runs this sports law/fantasy football blog. If you have issues with it, it's all his fault. Cedric was an athlete-student at the University of New Mexico (Basketball - Go Lobos!). He then morphed into a student-athlete when he attended law school in San Diego. Age replaced athleticism and now he writes appellate briefs for criminals (alleged criminals, of course) in state and federal cases, including writing U.S. Supreme Court briefs.

For years Cedric has researched and written about legal issues but maintained a love for sports. With FieldandCourt.com, he's combining his two passions: researching and writing about sports. When he's not in court arguing a case before a judge (or writing about himself in the third person), he'll be doing the same with his articles on FieldandCourt.com. Follow me, er, him on Twitter (opens in a new window).

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Cedric Hopkins

Cedric Hopkins runs this sports law/fantasy football blog. If you have issues with it, it's all his fault. Cedric was an athlete-student at the University of New Mexico (Basketball - Go Lobos!). He then morphed into a student-athlete when he attended law school in San Diego. Age replaced athleticism and now he writes appellate briefs for criminals (alleged criminals, of course) in state and federal cases, including writing U.S. Supreme Court briefs.

For years Cedric has researched and written about legal issues but maintained a love for sports. With FieldandCourt.com, he's combining his two passions: researching and writing about sports. When he's not in court arguing a case before a judge (or writing about himself in the third person), he'll be doing the same with his articles on FieldandCourt.com. Follow me, er, him on Twitter (opens in a new window).