Are NCAA Players About to Get Paid? We’ll Find Out Soon: An Overview

The American sports media, as always happens come March, is focused on the NCAA action on the court. Unfortunately, they’re focused on the wrong court. While the sports world’s eyes are centered on Atlanta, location of the 2013 Final Four, they should instead be watching events unfold in Oakland.

On June 20th, the United States District Court for Northern California will hear arguments in the most important sports law case of the past twenty years: The class certification hearing in the case of Ed O’Bannon vs the National Collegiate Athletics Association.

Before we get into the details of the class hearing, a brief history of the case is in order. The original case was brought forward in 2009 by Ed O’Bannon, former UCLA basketball player and NBA forward, and Sam Keller, a former QB at Nebraska and Arizona State. The aim of the case was to force the NCAA to compensate athletes for the use of their likeness in video games. O’Bannon argued that every organization represented in the game (NCAA, the conferences, EA Sports) profited off their use in the game, but the individuals who drive sales of the game receive nothing. The case evolved to include television and other media deals, and eventually expanded to encompass all sports related revenues.

OBannon-beaming

The aim of the class certification hearing is for the judge to determine whether the the plaintiffs (in this case O’Bannon, Keller, Sonny Vacarro, and NBA legends Oscar Robertson and Bill Russell) have all suffered “common injury”, as they contend that they have all been negatively impacted by the NCAA’s actions regarding sharing of revenues.

While the NCAA has not, as is to be expected, publicly revealed their intended strategy, most legal experts believe the NCAA will attempt to use precedent from previous cases it has been involved in to prevent the class being certified. The previous cases focused on scholarship limits, with players arguing that placing scholarship limits on schools represent illegal restrictions on trade, in light of which schools should be allowed to give as many scholarships as they can afford according to the market. The NCAA won these cases by successfully arguing that not all players are worthy of scholarships, and as such the class did not have enough in common to warrant certification. Some legal experts believe that use of this strategy could leave the NCAA open to lawsuits from individual players. An example of this would be Johnny Manziel, more commonly known as Johnny Football, whose on-the-field exploits have generated approximately $37,000,000 for his alma mater, Texas A&M.

If this class is not certified, the case will die in utero. However, if the class is certified, the NCAA will be forced into a difficult spot. Their two options are outlined below.

1)      Take the case to trial by jury

This option has the highest risk/reward for the NCAA. There are three possible outcomes:

The jury sides with the plaintiffs, and awards them all of their requested damages

This option is the worst possible outcome for the NCAA. If the outcome survived an appeal (and the NCAA most certainly would appeal to the Ninth Circuit Federal Court), it would spell the end of the NCAA. As this is an anti-trust lawsuit (a lawsuit that manipulates the competitive free market) damages awarded are tripled. It would bankrupt the NCAA and force the schools and conferences to form a new governing body. Players would be entitled to a portion of the TV revenue, money that would normally be spent on facility upgrades, non-revenue generating sports, and coaching and administration. This would probably take years, as one would assume the case would be appealed all the way up to the Supreme Court.

The jury sides with the plaintiffs, but awards only nominal damages

This is what happened to the USFL in 1986. The court agrees with the plaintiffs, but doesn’t agree with the plaintiffs regarding compensation. In 1986, the court agreed that the NFL was an illegal monopoly on professional football, but awarded the USFL a paltry $3 award.

The jury sides with the NCAA

Nothing changes. The status quo is maintained.

2)      Settle out of court

If the two groups attempt to settle out of court, the possibilities regarding the settlement are endless. One BCS conference AD recently said the most likely scenario if the parties settle is that each school sets aside a fund (he assumed $2M a year) that would be distributed to the athletes through a trust fund they receive if they graduate with a degree. This would create a two-tiered system of FBS Division schools, as most non-BCS schools could not afford this system. This would create a huge advantage for teams when it came to recruiting, especially if the amount set aside for athletes was only set as a minimum and not a concrete number. It would be tantamount to paying players (though it would happen after they are done playing, still maintaining their amateur status). It would also require schools to set equal money aside for men’s and women’s sports, so as to not violate Title IX. This also would still not fix the “issue” of some athletes receiving less than they are worth. The commissioner of the Big Ten, Jim Delaney, has said that his schools will move to a non-scholarship model or move down to Division 3 rather than participate in a system like this.

While we would love to be able to talk about what probably will happen, until we hear full arguments in the class certification hearing, and the judge’s comments in that ruling, we cannot really speculate as to the outcome of the case.

I can say, on a personal note, that a victory for O’Bannon could bring down not just the NCAA but amateur sports entirely. If schools refuse to offer scholarships,  how many potential athletes will lose their motivation to excel, since going to a good school for free is now no longer an option? If the NFL maintains its “3 years after high school rule”, what will players do in the time between high school and professional sports? Actions like the one Brandon Jennings took a couple years ago may become vastly more popular. Schools derive their identity from their sports teams, despite what we may hope regarding academic success. When you picture Duke University, does one of the best medical schools in the country jump to mind? No. You picture Mike Krzyzewski and the Blue Devils basketball team, the ACC and March Madness. At Stanford, home to the nation’s second ranked business school, do you picture future CEOs taking their corporate strategy exam, or Andrew Luck,  John Elway and “The Game”? Collegiate athletics mean so much to so many, outside of the athletes and coaches themselves. The stories of people drawing inspiration from college sports teams are innumerable.

I understand the vast sums of money that schools make of collegiate athletics. I also understand that it costs a lot of money to run the programs. Could Tennessee have built its brand new, palatial $120M football facility if the athletes who get to use the facility got half of the revenue football generated? No.

Here is an example of athletic department financials. We will use the University of Michigan as an example.

U of M Athletics Department 2010-11 Revenues

$105M

U of M Athletics Department 2010-11 Expenses

$100.3M

U of M Athletics Department Profit

$4.7M

Revenue Portion for Athletes (50/50 split)

$2.35M

# of Student Athletes at U of M

335

Amount per student-athlete

$7,015

Scholarship Costs (average athlete)

$42,000

Now if you were an athlete, what would you rather do? Receive a scholarship, worth around $170K over four years, to a great school and get a degree that will help you in succeed in life post-sports? Or would you like to receive $28K over your four years, and have to pay around $140K a year just to play sports for Michigan.

Receive a great education for free and play sports at a high level, coached by great coaches, in stadiums full of fans, working out at gorgeous temples to sport? Or have to pay to play, receive your piece of the revenue, and come out of school bankrupt?

Seems like the athletes have it pretty good already.

 

Written and Researched by Jake Williams

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