A California federal judge issues an injunction against the NCAA from enforcing rules against recruits being offered a limited share of licensing revenue and trust money.
In a ruling that figures to change the face of the multi-billion dollar business that is college athletics, a federal judge has ruled in favor of NCAA athletes including former UCLA basketball star Ed O’Bannon in allegations that the NCAA unlawfully restrains them from licensing their names and images in TV game telecasts and videogames. As a result of injunctions now issued, college athletes could be on the path towards being compensated for use of their likenesses.
U.S. District Judge Claudia Wilken presided over trial in June.
“After considering all of the testimony, documentary evidence, and arguments of counsel presented during and after trial, the Court finds that the challenged NCAA rules unreasonably restrain trade in the market for certain educational and athletic opportunities offered by NCAA Division I schools,” she writes in an opinion. “The procompetitive justifications that the NCAA offers do not justify this restraint and could be achieved through less restrictive means.”
The ruling upsets “amateurism” policies put in place more than a century ago and could indirectly impact TV broadcasters such as CBS, Fox and NBC Universal paying for college football and basketball rights. It also comes just a day after the NCAA voted to give its largest conferences more power and autonomy to make its own rules.
In the case, the plaintiffs pointed to waivers they were forced to sign as a condition for athletic participation. They said the NCAA then sold group licenses to use their names, images and likenesses to video game publishers and broadcasters. Judge Wilken points to the deals with television companies and notes that those contracts evidence the healthy demand.
“Accordingly, the Court finds that, absent the challenged NCAA rules, teams of FBS football and Division I basketball players would be able to create and sell group licenses for the use of their names, images, and likenesses in live game telecasts,” she writes.
The same is true for video games and archival footage.
The NCAA had justification for its amateurism rules including the promotion of competitive balance. The judge looks at a variety of evidence offered by the defendant including a survey concerning whether people would be more or less likely to watch college football and basketball games if student-athletes were paid. (Thirty-eight percent in one survey said they’d be less likely if athletes made more than $20,000 per year.)
But Judge Wilken shrugs off much of the NCAA’s testimony supporting restrictions as irrelevant, not credible, contrary to other evidence or unpersuasive. She finds that it doesn’t promote competitive balance nor foster academics.
As for alternatives to restraint, the judge examines three scenarios: (1) licensing-derived stipends for the cost of attendance, (2) setting up a trust fund so that athletes can get a share of licensing income after they graduate, or (3) allowing athletes to make paid endorsements. She likes the first two as limiting the anticompetitive effects of the NCAA’s restraints, but not the last.
“The popularity of college sports would not suffer if current and future student-athletes were given the opportunity to receive compensation from their schools after they leave college,” she writes.
On the other hand, she later adds, “Allowing student-athletes to endorse commercial products would undermine the efforts of both the NCAA and its member schools to protect against the ‘commercial exploitation’ of student-athletes.”
The ruling isn’t a complete win for the athletes. The plaintiffs failed in some of their arguments. For example, the judge notes that while the athletes were successful in showing they’ve been deprived of compensation, they came up short on showing how the rules hinder competition among the buyers, i.e. the television networks, of group licenses.
“The fact that the networks do not compete to purchase these rights directly from the student-athletes is due to the assurances by the schools, conferences, and NCAA that they have the authority to grant these rights,” says the judge. “Such assurances might constitute conversion by the schools of the student-athletes’ rights, or otherwise be unlawful, but they are not anticompetitive because they do not inhibit any form of competition that would otherwise exist. Allowing student-athletes to seek compensation for group licenses would not increase the number of television networks in the market or otherwise enhance competition among them.”
Nevertheless, she concludes that the NCAA’s rules violate section 1 of the Sherman Act and says she “will enter an injunction to remove any unreasonable elements of the restraint found in this case.”
Most importantly, she enjoins the NCAA from enforcing any rule that would prohibit any school or conference from offering recruits a limited share of the revenues generated from the use of their names, images, and likenesses. She also opens the door to money being placed in a trust. In essence, the ruling ushers in compensation, although the NCAA will still be able to impose some restrictions on the pay. She also won’t stay the injunction pending an appeal.