(CN) - The Ninth Circuit slammed the existing scheme of compensating college athletes on Wednesday but limited relief to tuition coverage, keeping cash off the table.
Ed O'Bannon, a former basketball star at the University of California, Los Angeles, had led the 2009 lawsuit against the National Collegiate Athletic Association.
He and 20 other student athletes contended that they had right to a share in the profits that the NCAA makes by licensing players' names, images and likenesses to video game companies like Electronic Arts.
NCAA Division I schools have spent $5 billion on athletic facilities over the past 15 years, and sold the television rights to the NCAA men's basketball championship game to CBS for 12 years for $10.8 billion.
U.S. District Judge Claudia Wilken enjoined the existing rules last summer after a two-week bench trial, finding that the class had shown an injury to competition in the market for recruits' athletic services.
The Ninth Circuit affirmed Wednesday that "the NCAA is not above the antitrust laws."
"The NCAA's rules have been more restrictive than necessary to maintain its tradition of amateurism in support of the college sports market," Judge Jay Bybee said, writing for a three-judge panel. "The Rule of Reason requires that the NCAA permit its schools to provide up to the cost of attendance to their student athletes."
Noting the broad modern legal understanding of "commerce," the panel said that the definition "surely encompasses the transaction in which an athletic recruit exchanges his labor and NIL [names, images, and likeness] rights for a scholarship at a Division I school, because it is undeniable that both parties to that exchange anticipate economic gain from it."
Absent the NCAA's restrictive compensation rules, video game makers would have to negotiate with student-athletes for the right to use their likenesses in games.
Though the NCAA balked at the prospect of paying amateurs, the San Francisco-based panel found that students are entitled to compensation for the use of these likenesses in the form of tuition.
Rather than forbidding NCAA student-athletes from receive payment for the use of their images, Bybee said capping compensation for student-athletes at the "full cost of attendance is a substantially less restrictive alternative means of accomplishing the NCAA's legitimate precompetitive purposes."
The panel was divided, however, on the lower court's decision about cash compensation for the athletes.
Wilken had directed schools to set aside $5,000 per player each year for the use of their likenesses, funds that would be held in trust for the players while they were in college.
Bybee and Senior U.S. District Judge Gordon Quist, sitting on the panel by designation from Grand Rapids, Mich., said this measure went too far.
"We cannot agree that a rule permitting schools to pay students pure cash compensation and a rule forbidding them from paying NIL compensation are both equally effective in promoting amateurism and preserving consumer demand," the 63-page lead opinion states (emphasis in original). "In finding that paying students cash compensation would promote amateurism as effectively as not paying them, the district court ignored that not paying student-athletes is precisely what makes them amateurs."
Maintaining student-athletes' amateurism will preserve consumer demand better than letting student-athletes become a "poorly-paid professional collegiate athlete," Bybee added.
Judge Sidney Thomas wrote in partial dissent that he would have affirmed the deferred-compensation relief as well.
"In the context of this antitrust suit, the concept of 'amateurism' is useful only to the extent that it furthers this goal," Thomas wrote. "In terms of antitrust analysis, amateurism is relevant only insofar as popular demand for college sports is increased by consumer perceptions of and desire for amateurism." (Emphasis in original.)
Thomas poked holes in the NCAA's claim that consumers would stop watching college sports if students are paid even a small amount of money.
"The NCAA insists that this multi-billion dollar industry would be lost if the teenagers and young adults who play for these college teams earn one dollar above their cost of school attendance," he wrote. "That is a difficult argument to swallow."
Bybee responded to the dissent in the majority opinion. "The difference between offering student-athletes education-related compensation and offering them cash sums untethered to educational expenses is not minor; it is a quantum leap," he wrote. "Once that line is crossed, we see no basis for returning to a rule of amateurism and no defined stopping point; we have little doubt that plaintiffs will continue to challenge the arbitrary limit imposed by the district court until they have captured the full value of their NIL."
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