NCAA Cap on Athlete Pay Fought at 9th Circuit

SAN FRANCISCO (CN) – Competition should determine how much student athletes are compensated for their services, an attorney representing college players told a Ninth Circuit panel of judges Monday, urging the appellate court to broaden an injunction relaxing restrictions on student-athlete pay.

In March last year, Senior U.S. District Judge Claudia Wilken ruled that the National Collegiate Athletic Association’s rules limiting student-athlete compensation to a few thousand dollars a year “overly and unnecessarily restrictive” in a class action led by former West Virginia running back Shawne Alston.  

Alston represented thousands of current and former Bowl Subdivision football and men’s and women’s Division I basketball players claiming their scholarships did not cover their expenses. 

In 2017, Wilken approved a $208 million settlement for college players affected by the NCAA’s “grant-in-aid” scholarship cap.

In her March 2019 ruling, Wilken – a Bill Clinton appointee – also found the rules violated antitrust laws by restraining trade in the market for a college education combined with athletics, the market for the players’ athletic services. 

Wilken issued an injunction that barred the NCAA from limiting student athletes’ compensation for anything that would contribute to their studies, such as computers, postgraduate scholarships, tutoring, study abroad expenses, or paid internships. But she stopped short of allowing compensation not related to education.

Wilken said the 11 conferences that play within the NCAA will be allowed to offer non-cash, education-related benefits as well as academic awards on top of grant-in-aid as they see fit, though the NCAA would be able to regulate how schools provide them.

NCAA attorney Seth Waxman told the three-judge panel composed of Circuit Judges Milan Smith and Ronald Gould and Chief U.S. Circuit Judge Sidney Thomas that Wilken’s injunction would upend the world of collegiate sports, painting a jaundiced portrait of colleges courting star prospects with extravagant offers of high-paying internships and luxury cars.

“Colleges can promise to pay thousands in cash each year that any student athlete remains eligible to play, and can also provide other lavish benefits so long as they are somehow related to education,” Waxman said.

Steve Berman, an attorney representing the Alston class, called Waxman’s characterization of the injunction “flat-out wrong” and said that “the injunction only requires the NCAA or the conferences to focus on educational-related benefits and nothing more.”

“But how is that defined?” Milan asked. “If you have an outstanding athlete you want to recruit and somebody else wants to recruit the same athlete, don’t you have some wiggle room within the injunction to entice the athlete to come to your school versus another school in a financial way?”

Berman said educational benefits were clearly defined. For example, schools or conferences could offer to pay for graduate school or a vocational school, which has a fixed price.

Waxman argued that Wilken’s injunction stands in stark contrast to the Ninth Circuit’s 2015 decision in O’Bannon v. NCAA, which disagreed with Wilken that schools should set aside cash payments of $5,000 per player each year for the use of their likenesses in broadcasts, though it upheld part of her ruling finding the NCAA’s compensation restrictions had anticompetitive effects in the college education market.

Writing for the majority in O’Bannon, Circuit Judge Jay Bybee, a George W. Bush appointee, said college players should only be compensated for the full cost of attending college. 

“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.”

Though the O’Bannon case differs from Alston – it is centered around the limiting issue of compensating student athletes for the use of their names, images and likenesses, and also excluded women from the class – both cases still seem to be inextricably linked by the thorny issue of what student-athlete pay should look like. 

Representing the Alston class, attorney Jeffrey Kessler said Wilken was wary of issuing a broad injunction because of Bybee’s “quantum leap” concerns, but she should have have loosened the NCAA’s rules limiting any type of compensation for the student-athletes, and allow the conferences to compete for the most efficient market outcome. 

Kessler noted that the NCAA has already begun to offer non-education benefits such as disability insurance and other monetary incentives.

“Is your point that since your wall has been breached, there’s no wall anymore? Humpty Dumpty is gone?” Milan asked.

“Because the wall has been breached and all the evidence showed it did not adversely affect consumer demand,” Kessler said. 

Kessler said conferences had testified at trial that they would “do the right thing” in compensating their student athletes.

“What is the right thing?” Milan asked.

“The right thing is what every competitor does in a competition,” Kessler said. “You decide your behavior based on what is demand-enhancing. If you’re a conference, you’re not going to – won’t allow spending on athletes that will decrease consumer demand because you’re motivated by those billion of dollars in revenue. The judge [Wilken] said, ‘I think they’ll do that but it will be a trial and error process.’ That, your honors, is competition.

“So the correct injunction, we believe, is to let competition decide this,” he added. “We trust competitors to make the right decision. And if we’re not going to do that, Congress has to decide to create an exception to not have competition decide, not the courts.”

Waxman said even though “O’Bannon should have barred this case from the outset,” Wilken nevertheless erred in the Alston case by disregarding her finding in O’Bannon that the NCAA’s amateurism rules have pro-competitive benefits – part of a doctrine in antitrust law called the Rule of Reason under which courts evaluate a restraint’s effect on competition.

“There is no question that the product we provide – amateur collegiate sports – is pro-competitive because it provides for consumer choice,” he added. 

But Milan said he wasn’t so sure that the market should be controlled by consumer demand at the expense of protections for sellers. “I don’t think anybody disagrees that you have an antitrust violation here, the question is where does the Rule of Reason apply, how does it apply? And the market consideration I think is principle here.”

He also asked Berman whether the O’Bannon court had gotten the law on the relevant market wrong and whether the case should be reheard on those grounds by an en banc panel.

Berman said he believed the market was correctly defined and did not believe the issue needed revisiting. 

The panel took the arguments under submission. 

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