Court Hears NCAA's Bid to Control Athlete Compensation

While 68 Men's Division I basketball teams were battling it out on courts throughout the country in this year's iteration of March Madness, the NCAA was mounting what it hopes will be its own comeback in an entirely different kind of court.

On March 17, the U.S. Court of Appeals for the Ninth Circuit heard oral argument in O'Bannon v. NCAA — a case that could dramatically change the landscape of NCAA Division I college basketball and football. The case challenges the NCAA's rules prohibiting member institutions from compensating athletes beyond the cost of tuition and room and board.

In the trial court, U.S. District Judge Claudia Wilken held that the NCAA violates federal antitrust laws by imposing a restriction preventing its members from compensating Division I men's basketball and football players any more than the current association rules permit.

In accord with that ruling, Wilken enjoined the NCAA from enforcing any rules or bylaws which entirely prohibit its member schools and conferences from offering their players a limited share of the massive television revenues generated by college football and basketball broadcasts.

The judge's ruling would allow member institutions and/or conferences to put funds in trust for players during their college playing careers, which would be available to the student athletes at the end of their college careers. Wilken permitted the NCAA to cap the amount paid to players but directed that the cap had to be $5,000 or more per year.

In short, the highly publicized decision permits Division I football and basketball players to be "paid to play."

The impact of the decision has already been seen. By way of example, the NCAA has changed its rules to allow schools to compensate athletes up to the "cost of attendance," which would include things like travel and additional meals that were prohibited under the old rules.

This was best demonstrated by the NCAA allowing — for the first time ever — a stipend for players' families to travel to the championship game of the inaugural College Football Playoff.

Amateurs
Not surprisingly, the NCAA is challenging Wilken's ruling, and the March 17 oral argument demonstrated that the game is far from over. On appeal, each side spent considerable time juggling with the idea of "amateurism" in collegiate athletics.

While the NCAA argued that under its desire to protect amateurism, players should receive no cash compensation for their participation in a sport, the plaintiffs juxtaposed the historical inconsistency of the NCAA's own definition of the term and hence its irrelevance in this case.

Moreover, the parties battled as to whether the court, as opposed to the NCAA, is the proper adjudicatory body to decide whether players should receive compensation — and if so, how much.

The Ninth Circuit channeled its focus on one key issue — Wilken's order that schools may "pay" players by placing funds in trust and holding those funds until the players left school.

On appeal, both parties appeared uncomfortable with the $5,000 number offered by the judge, as did the Ninth Circuit judges.

Indeed, the fear of the oft-used legal term slippery slope loomed over the courtroom.

The $5,000 minimum cap was based on the supposition that NCAA athletes could receive $5,000 per year and the public would still view them as amateurs.

The Ninth Circuit panel seemed to have significant concerns as to whether two times, four times, ten times or even 100 times the $5,000 amount could accomplish the same end.

The ramifications of this appeal are significant. Allowing collegiate athletes to receive cash benefits has been hotly debated for decades. Collegiate sports generate revenue in the billions of dollars and many believe that players deserve a share of that revenue.

Although there will likely be no high-flying slam dunks or game-ending touchdowns, upon its publication the Ninth Circuit's decision could be a transformative moment in sports history.

This article is reprinted from the April 02, 2015 issue of the Daily Business Review. © 2015 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.