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SBJ/Sept. 1-7, 2014/Opinion
When a loss is really a win, and the future of the NCAA
Published September 1, 2014, Page 39
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The recent O’Bannon v. NCAA ruling has been widely characterized as a loss for the NCAA. But was it?
In my opinion, the NCAA was the real winner in this case, and its victory started long before the ruling was handed down. So what does that mean for Division I men’s basketball and the Football Bowl Subdivision going forward?
O’Bannon was certified as a national class-action on liability, but not on damages, which was the first real win for the NCAA. D-I men’s basketball and FBS, the focus of the O’Bannon lawsuit, bring in $6 billion-plus of the total approximate $10 billion in sports revenue for all of Division I. That’s where the money is, and the plaintiffs were shut out from pursuing damages based upon that pot of gold.
The day before the O’Bannon opinion was released, the NCAA voted to allow the major conferences autonomy to enact their own set of rules so that they can have grants-in-aid that equal the actual cost of attendance, and otherwise adopt rules more reflective of their commercialized environment, such as paying stipends to players. The rules would become effective next year after they are drafted and adopted. Other D-I schools are allowed to opt in to the autonomy model.
The next day, federal Judge Claudia Wilken essentially did the same thing: She enjoined the NCAA’s rules that prevent payment for actual cost of attendance for these same major conferences as well as the remainder of FBS and all D-I men’s basketball. Wilken’s opinion also enjoined the NCAA’s rules that prevent sharing of revenue by the same groups with college athletes, but she said the NCAA could cap this at no less than $5,000 per athlete, which must be uniformly applied for each team and which may be deferred until after graduation or withdrawal from school.
The NCAA is not done in the courtroom: Appeal on O’Bannon ruling and Jenkins case await.
So what does “win” mean? If someone told you that you might have to share maybe $300 million of your $6 billion-plus pie, would you care, or would you breathe a sigh of relief, especially when the judge tells you that you can engage in future antitrust violations by capping the “sharing” at $5,000, apparently forever? Remember that the NCAA had threatened to seek an antitrust exemption from Congress if it lost. But didn’t Wilken just give it one without the messiness of congressional hearings that might propose crazy things like capping coaches’ and presidents’ salaries?
The NCAA appeared to win on everything else. Even so, the NCAA has stated that it intends to appeal the ruling, although an appeal may make its situation worse.
To show how badly the plaintiffs lost: Prior to trial, they waived their claims for damages, and they waived their claims for unjust enrichment and an accounting, thus just leaving the antitrust claims, which was a huge strategic mistake, since unjust enrichment should have been the primary focus in the first place. Why does this matter? Let’s go back to the money, which means the broadcast money, if we’re talking about the pot of gold, and here’s what Wilken wrote:
The first set of potential buyers — the television networks — already compete freely against one another for the rights to use student-athletes’ names, images, and likenesses in live game telecasts. Although they may not be able to purchase these rights directly from the student-athletes, they nevertheless compete to acquire these rights from other sources, such as schools and conferences. 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. 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.
So in the complicated legal world, claims matter, and the claim that mattered most, and which could have actually recognized college athletes’ property rights, unjust enrichment, was gone. Whether the plaintiffs will appeal “winning” no damages is unknown as of yet, but their attorneys are now seeking $52.4 million in attorneys’ fees and expenses.
Going forward, what does O’Bannon mean for men’s basketball and FBS?
First, considering the power five conferences, they don’t need to do anything as it relates to autonomy unless they want to go further than Wilken’s order. If the remainder of the FBS schools as well as men’s basketball wish to go further, they can choose to opt-in to the autonomy model.
Second, as it relates to men’s basketball and FBS, those colleges and universities can start competing next year for incoming college athletes in these sports by offering increased grants-in-aid and revenue sharing, as long as those amounts offered are uniform for all incoming athletes. The NCAA has the option of erecting a cap of at least $5,000 per athlete, but with autonomy, the major conferences can opt-out. However, they can’t impose their own cap, because Wilken’s order prohibits them from colluding on what they pay college athletes. Thus, at least on a group basis, the free market will determine, team by team, what those college athletes are worth.
Third, college athletes are largely left with no individual rights, because Wilken believes they need to be protected from commercial exploitation from third parties but not from their own colleges and universities. Unless the unionization effort takes hold, they will continue to be unorganized and really have no voice at the economic table. Whatever rights or privileges they have will be whatever the colleges and universities decide to give to them, unless Congress mandates otherwise.
What does the future hold? There are multiple things that will be tugging at the interrelated college sports landscape. One or more of the conferences may just resign from the NCAA, a move that could remove those conferences from the scope of Wilken’s order. The conferences also no longer need the NCAA, since its primary purpose was to shield them from litigation and bad public relations — yet it has hardly done a good job at that under its current leadership.
The pending Jenkins v. NCAA case, which is aimed at both the NCAA and the power five conferences, is still hanging out there, so look for those conferences to be bargaining with class-counsel to give the college athletes the individual rights they now lack. And if they’re smart, they’ll do so without the confines of the NCAA.
So while the NCAA may have won the O’Bannon case, it is largely unnecessary to the major conferences at this point. In fact, it has become the problem. Thus, we may be witnessing the beginning of the end of the NCAA.