Friday, August 24, 2018

NCAA Business Model Under Fire

The NCAA should be scared. For its business model is in jeopardy. Yes, the “March Madness” model, with a billiondollars flowing to the NCAA and millionsto elite coaches, with little left for the student-athletes who make it all possible.
The threat comes from antitrust litigation. The lawsuit led by former Clemson football player Martin Jenkins on behalf of men’s football and men’s and women’s basketball student-athletes was just cleared for trial. The student-athletes claimthat the NCAA and 11 conferences violated antitrust law by “conspiring to impose an artificial ceiling” on the scholarships and benefits they can receive.
First, a bit of history. In the first trial taking direct aim at the NCAA’s amateurism defense, former college basketball star Ed O’Bannon challenged rules preventing student-athletes from being paid when their name, image, or likeness (NIL) appeared in videogames, live game telecasts, and other television footage.
The NCAA’s long-avowed defense based on amateurism—that its rules prohibiting payment to players are essential for college sports to exist—was revealed in the O’Bannon case to have significant holes. Judge Claudia Wilken found that the rules had significant anticompetitive effects in preventing the student-athletes from receiving NIL payments. And while the amateurism defense was weaker than alleged, it was sufficient to allow the court to reach the question of whether there were less restrictive alternatives to the NIL rules.
The court found two such alternatives: (1) increasing payment from the “grant in aid” (GIA) (covering tuition and fees, room and board, and required books) to the “cost of attendance” (COA) (which also includes supplies and transportation) and (2) allowing players to receive $5,000 NIL payments held in trust until they graduated. (The Ninth Circuit, applying an aggressive standard of review, rejected the second.)
In a nutshell, O’Bannon opened the door to scrutiny of the NCAA’s amateurism defense with the relatively limited goal of obtaining NIL payments.
In contrast, the Jenkins case aims for the whole enchilada. The plaintiffs already settledwith the NCAA on their damages claim, obtaining the $200-million difference between the GIA and COA. In the proceedings headed to trial, they seek an injunction, forcing the NCAA to change the way it does business.
In its March 28 ruling, the court first found that plaintiffs’ case was not barred by the O’Bannon case. The court explained that—because of new plaintiffs and different challenges—this case can go forward.
The court then found that the student-athletes satisfied their burden of showing an anticompetitive effect because they would have obtained greater compensation and benefits absent the NCAA’s restrictions on payment.
The court next accepted the NCAA’s justifications recognized in O’Bannon of amateurism and integrating the student-athletes into the schools’ communities. But it made clear that it would not presume the justifications but that defendants had to prove them at trial.
Finally, and most notably, the court explained that the stage of less restrictive alternatives would be applied differently in this case than it was in O’Bannon. For instead of being restricted to the limited remedy of NIL payments, the student-athletes’ more ambitious challenge here is accompanied by more far-reaching remedies: (1) allowing conferences to set their own rules and (2) blocking NCAA rules limiting payments and benefits linked to educational benefits and incidental expenses.
At the end of the day, the court made clear that NCAA regulations are subject to antitrust scrutiny. And amidst the bright lights and rich rewards of March Madness, the NCAA will be challenged like never before to defend rules that seem arbitrary and inconsistent to the student athletes who are at the heart of big-time college sports but who are left on the outside when the money comes rolling in.
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