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Ninth Circuit Holds NCAA Subject To Antitrust Scrutiny, But Vacates Injunction Allowing Up To $5,000 Per Year Deferred Compensation To College Athletes

The U.S. Ninth Circuit Court of Appeals has affirmed in part and reversed in part District Court Judge Claudia Wilken’s August 2014 decision in the O’Bannon v. NCAA. No. 14-16601 (9th Cir. Sept. 30, 2015). The Appeals Court found the NCAA’s compensation rules restricting payment to collegiate athletes violated antitrust laws, but found Judge Wilken decision erroneously allowed college athletes to be paid up to $5,000 per year in deferred compensation.

The Ninth Circuit’s decision will have a significant impact on the NCAA, the O’Bannon plaintiffs, related lawsuits and the future of collegiate athletics.

The opinion, written by Judge Jay Bybee, found that the NCAA is not exempt from antitrust scrutiny and that a rule of reason analysis must be utilized on a case-by-case basis to evaluate the impact of the alleged restraint at issue. This aspect of the holding will significantly affect the NCAA. There is now Ninth Circuit precedent that the NCAA’s compensation rules are a restraint of trade and the NCAA will have to re-evaluate its rules and policies.

In evaluating the pro-competitive purposes of the NCAA’s compensation rules, the Appeals Court found the district court “underestimated the NCAA’s commitment to amateurism” and concluded the compensation rules serve two pro-competitive purposes identified by the district court: (1) integrating academics with athletics; and (2) preserving the popularity of the NCAA’s product by promoting its current understanding of amateurism. The issue then became whether the cost-of-attendance-stipends or deferred-compensation model constituted appropriate alternatives.

The Court found the NCAA must permit its member schools to provide up to the cost of attendance to student athletes, but it noted that the rule of reason analysis “does not require more.” In January, the five major conferences adopted a rule allowing cost of attendance stipends.

On the other hand, the Court found Judge Wilken erred in allowing college athletes to be paid up to $5,000 in deferred compensation and vacated the ordered injunction and giving the NCAA a significant victory.

The deferred compensation model was not a reasonable alternative in light of the pro-competitive purposes of the compensation rules.

The decision noted the $5,000-limit was an “offhand comment” by an NCAA witness (that the amount would trouble him less than a million dollars) and constituted the “sole support” for the figure. The Court found Judge Wilken “clearly erred” in finding the deferred compensation model to be a viable alternative.

The opinion included support of the NCAA’s principles of amateurism. For example, Judge Bybee noted that the “district court ignored that not paying student-athletes is precisely what makes them amateurs.” Judge Bybee also distinguished the cost of attendance ruling and the deferred compensation ruling:

“The difference between offering student-athletes education related compensation and offering them cash sums untethered to education expenses is not minor; it is a quantum leap.”

According to Judge Bybee, crossing such a line would effectively eliminate amateurism because future plaintiffs would challenge the arbitrary limits until they have the full value of their names, images and likenesses.

The Court was careful to emphasize the limited scope of its decision. The NCAA remains subject to antitrust scrutiny. Regardless, the decision will undoubtedly have an impact on related litigation and the NCAA generally. The most significant case, Jenkins v. NCAA, is pending before Judge Wilken. Jenkins seeks a free market for college football and men’s basketball players to be paid. The plaintiffs’ attorneys even filed an amicus brief in the O’Bannon appeal. Originally emboldened by the district court’s August 2014 decision, the Jenkins plaintiffs will now have to address the Ninth Circuit’s holdings and dicta related to amateurism and the payment of sums “untethered to education expenses.” Alternatively, the Jenkins plaintiffs can use the new Ninth Circuit precedent that the NCAA is subject to antitrust scrutiny and argue that their efforts to obtain a free market by injunction is a distinguishable and appropriate alternative to the NCAA’s compensation rules. The Jenkins parties are set to appear for a class certification hearing.

The mixed nature of the decision may cause both the O’Bannon plaintiffs and the NCAA to appeal the decision, even to the Supreme Court. The NCAA will likely be compelled to appeal the holding that its compensation rules constitute a restraint a trade because of its position on amateurism and pending lawsuits throughout the country. The O’Bannon plaintiffs will have to evaluate whether they are satisfied with the cost-of-attendance ruling or if they take issue with the holding on the deferred-compensation model. Either way, the Ninth Circuit’s decision is significant, provides some clarity, but we are far from finding the appropriate balance between amateurism and the NCAA’s compensation rules.

Jackson Lewis P.C. © 2021National Law Review, Volume V, Number 274

About this Author

Benjamin A. Tulis, Employment, Benefits, Litigation Attorney, Jackson Lewis Law Firm

Benjamin Tulis is an Associate in the Los Angeles, California, office of Jackson Lewis P.C. His practice focuses on employment litigation, benefits litigation, transactions, and advice and counsel within the labor and employment law sector.

Mr. Tulis represents employers and individual defendants in a wide range of employment and labor matters, including wrongful termination, matters arising under ERISA, administrative matters, wage and hour class actions, and matters involving competition and restrictive covenants.

Gregg E. Clifton, Collegiate Sports Attorney, Jackson Lewis, disciplinary hearings Lawyer
Office Managing Principal

Gregg E. Clifton is Office Managing Principal of the Phoenix, Arizona, office of Jackson Lewis P.C. He is Co-Leader of the Collegiate and Professional Sports Practice Group and serves as one of the editors of the firm’s sports law blog.

Mr. Clifton has extensive experience in the collegiate and professional sports world. He has advised numerous professional franchises on general labor and employment issues, including Title III ADA regulatory compliance and wage and hour issues. He serves as lead counsel for several Major...

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