Legal Analysis of Today's NCAA Decision

Legal Analysis of Today's NCAA Decision

Published Aug. 8, 2014 10:37 p.m. ET

A federal judge ruled against the NCAA on Friday in the five-year antitrust battle waged by Ed O'Bannon. Not in the mood to read the 99-page ruling from Judge Wilken? I've got you covered.

What was this case really about?

Ed O'Bannon and the other plaintiffs challenged NCAA restraints on the following:

1. Limit on athletics-based compensation to a full "grant-in-aid" (tuition, room and board, and required books)


2. Cap on total financial aid received by student athletes, which is limited to a school's "cost of attendance" figure

3. Prohibition on compensation from outside sources based on a student athlete's "publicity, reputation, fame or personal following that he or she has obtained because of athletic ability"

In laymen's terms, O'Bannon and the other plaintiffs wanted greater compensation for student athletes. Just imagine the money student athletes might make if schools had to competitively bid for student athletes during recruitment or if they could sign endorsement deals with Nike or Gatorade.

The NCAA's failed arguments

The NCAA had four major arguments and Judge Wilken was essentially moved by none of them:

1. The NCAA said: The restraints are necessary to maintain amateurism, and the popularity of college football and men's basketball would decrease without amateurism.

The Court said: The NCAA's definition of amateurism has been inconsistent over the years, and there is no direct correlation between amateurism and fan interest in college football and basketball.

2. The NCAA said: The restraints are necessary in order to maintain the current level of competitive balance, which is necessary to sustain fan interest.The Court said: Any positive impact these restraints might have on competitive balance are leveled out by the lack of restraints on other areas of expenditures, such as coaching salaries, recruiting and facilities, and the fact that the bulk of revenue distributed from the men's basketball tournament goes to the athletic departments with the largest budgets. 

3. The NCAA said: The restraints promote the integration of athletics and academics, meaning student athletes can participate in their schools' academic communities.

The Court said: Any academic benefit comes from other NCAA rules and athletic department practices, such as requiring student athletes to attend class, setting minimum academic standards, tutoring and other academic support offered by the athletic department, and prohibiting dorms exclusively for student athletes. 

4. The NCAA said: The restraints allow for more schools and student athletes to participate in FBS football and Division I football. 

The Court said: More schools participate in FBS football and Division I basketball not because of restraints on student athlete compensation but because it raises the school's profile and can increase revenue. 

Proposed Solutions

The O'Bannon plaintiffs proposed three rule modifications:

1. Raise the limit on grant-in-aid to allow for stipends funded by licensing revenue

2. Create a trust fund where schools could deposit a share of licensing revenue to be paid to student athletes after they graduated or left school 

3. Allow student athletes to be compensated for third-party endorsements

The Final Outcome

Judge Wilken essentially ruled in favor of O'Bannon and the other plaintiffs on the first two of their three proposed solutions. She noted allowing stipends up to the cost of attendance would not "violate the NCAA's own definition of amateurism because it would only cover educational expenses."

Wilken also ruled in favor of the trust fund, as long as the compensation was limited and distributed evenly amongst team members. In other words, whether you're a Heisman winner or the third-string backup, you receive the same amount.

Third-party endorsements, however, were specifically struck down by Judge Wilken. She noted the NCAA and member institutions' efforts to protect student athletes from "commercial exploitation." So, no Nike or Gatorade or Beats by Dre endorsements are coming anytime soon for student athletes. 

Not a total loss for the NCAA

Wilken's ruling is close to best case scenario for the NCAA if it was going to lose. The ruling could have been incredibly broad – allowing everything from student athletes directly sharing in television revenue to commercial endorsements – but instead it's very narrowly tailored. I don't think it changes college sports profoundly.

Here are some "wins" for the NCAA in the ruling:

1. The ruling allows the NCAA to set a cap on stipends, but that cap can be no lower than cost of attendance. This means cost-of-attendance stipends will now be allowed (as of the next recruiting cycle), but the NCAA can cap it there and is under no obligation to allow one penny more. This was coming soon with the Power 5's new autonomy anyway, so not that big of a deal for the NCAA.

2. The NCAA cannot prohibit a trust fund, but it can cap the trust fund at $5,000 per student athlete per year they are academically eligible. However, just because the trust fund exists doesn't mean anyone has to fund it. There is no mandatory minimum deposit required, it simply cannot be prohibited. However, schools cannot "unlawfully conspire" to set amounts lower than the limit the NCAA establishes. 

3. Schools may vary the amount deposited into the trust from year-to-year, but they must offer the same amount to each recruit in a recruiting class.

4. Wilken specifically noted the NCAA could prohibit student athletes from taking out loans against their funds in the trust while still in school. The ruling also specifically allows the NCAA to limit the funding of both stipends and trust funds to revenue derived from the use of student athletes' names, images and likenesses in videogames, live game telecasts, re-broadcasts and archival game footage. No jerseys, no bobbleheads, nothing else (because the plaintiffs abandoned those earlier in the case). And, as of now, the videogames don't even exist anymore, and even when they did exist they weren't that lucrative for schools. 

What kind of money are we talking about being available to fund the stipends and trust funds? 

We don't really know yet. There is no determination in the ruling about what portion of a videogame, live game telecast, re-broadcast or archival game footage is attributable to student athlete name, image or likeness.The NCAA will still appeal the ruling, but it's tough to imagine a better way to lose than this extremely limited decision. It could be complicated to implement, however, since Wilken wasn't required to consider any other sports or the Title IX implications of her ruling. Can universities actually implement these stipends and trust funds for football and men's basketball players alone? That remains to be seen.

If the NCAA had to lose, this was the way to do it. The sky isn't falling. It's not Armageddon. Despite being a landmark ruling for student athletes, it preserves much of the status quo.