Appeals court rules NCAA violated antitrust laws but strikes down deferred payments

In the contentious and ongoing fight over compensation for college athletes, the NCAA scored a narrow split decision in federal appeals court Wednesday.

The Ninth U.S. Circuit Court of Appeals ruled NCAA schools must compensate student-athletes only for the full cost of attendance, striking down a proposal that would have paid athletes an additional $5,000 per year in deferred compensation for use of their likenesses. The ruling stated that cost of attendance was sufficient.

The decision upheld a federal judge’s ruling from last year, which said the NCAA’s use of college athletes’ names, images and likenesses violated antitrust laws. But the latest outcome in what has become known as the O’Bannon case can be seen as a victory for the college sports establishment and those who seek to protect the amateur model and limit compensation for athletes.

“Today, we reaffirm that NCAA regulations are subject to antitrust scrutiny and must be tested in the crucible of the Rule of Reason,” a three-person appeals panel wrote in the decision.

The panel continued: “In this case, the NCAA’s rules have been more restrictive than necessary to maintain its tradition of amateurism in support of the college sports market. The Rule of Reason requires that the NCAA permit its schools to provide up to the cost of attendance to their student-athletes. It does not require more.”

Immediately following the ruling, NCAA president Mark Emmert said in a release: “We have not completely reviewed the court’s 78-page decision, but we agree with the court that the injunction ‘allowing students to be paid cash compensation of up to $5,000 per year was erroneous.’ Since Aug. 1, the NCAA has allowed member schools to provide up to full cost of attendance; however, we disagree that it should be mandated by the courts.”

The decision comes after years of legal wrangling in the case, O’Bannon v. NCAA. A lawsuit over antitrust laws, the O’Bannon case has come to symbolize the greater fight over increased compensation for student-athletes.

Antitrust experts and legal analysts say the ruling could be considered a win for the status quo in college athletics, but the contents of the ruling could offer future problems for both sides of the fight. According to Joel G. Chefitz, an antitrust lawyer and partner in the law firm McDermott Will & Emery, there is language in the ruling that could be a liability for the NCAA in future lawsuits.

One of those cases is moving through the same U.S. District Court that played host to the O’Bannon lawsuit. Jeffrey Kessler, a high-profile sports labor attorney, is currently leading a lawsuit that presents the most direct challenge yet to the NCAA’s amateurism model. In addition, both the NCAA and O’Bannon’s camp could appeal Wednesday’s ruling.

In a 63-page opinion Wednesday, Judge Jay Bybee affirmed the thrust of U.S. District Court Judge Claudia Wilken’s ruling, agreeing that the NCAA has been violating Section 1 of the Sherman Act for years and that the NCAA’s amateurism rules unlawfully prevent member schools and conferences from competing to compensate star athletes. That could erode the NCAA amateurism model moving forward, Chefitz said.

Yet Bybee still offered support to the NCAA’s amateurism model, striking an injunction that would have forced schools to pay athletes up to $5,000 per year for name, image and likeness rights.

“The difference between offering student-athletes education-related compensation and offering them cash sums untethered to educational expenses is not minor; it is a quantum leap,” Bybee wrote in his opinion. “Once that line is crossed, we see no basis for returning to a rule of amateurism and no defined stopping point.”

The contradictions of the ruling did not escape legal experts.

“It’s a confused opinion,” Chefitz said.

The lawsuit, which began after former UCLA basketball star Ed O’Bannon saw his own likeness used in an NCAA basketball video game, has been a catalyst for change, including greater autonomy for members of the so-called power five conferences. Earlier this year, that autonomy led schools from those conferences, including the Big 12 and Southeastern Conference, to offer full cost of attendance to student athletes, which essentially amounts to an enhanced scholarship in the neighborhood of $2,000 to $5,000 extra per year, depending on the school.

Those payments will continue. But while the NCAA has adopted “cost of attendance” scholarships for some schools, college sports leaders have dug in their heels and fought for every inch in the battle over student-athlete compensation. Among those voices resistant to change: Big 12 commissioner Bob Bowlsby, who has said the loss of the collegiate model could cause irreparable harm. Others have sounded similar warnings.

“I think you’ll see men’s Olympic sports go away as a result of the new funding challenges that are coming down the pipe,” Bowlsby said last year. “I think there may be tension among and between sports on campus and institutions that have different resources. It’s really unknown what the outcomes will be.”

From that viewpoint, experts say, Wednesday’s ruling could save college athletic departments millions in the coming years. But the legal fight over college athlete compensation is just beginning. In a release from a coalition of the 31 largest conferences in college sports, the schools said there were “elements of this decision we agree with and others that leave us disappointed.

“It’s important to remember that we’re talking about students, not employees,” the release continued. “Our goal is for our students to learn teamwork and leadership through sports, and then graduate and be successful. We will review the details of the decision carefully.”

This story was originally published September 30, 2015 at 10:49 AM with the headline "Appeals court rules NCAA violated antitrust laws but strikes down deferred payments."