What does O'Bannon vs NCAA mean for you?

As you have likely heard by now, Judge Claudia Wilkens found in August that in the case of O’Bannon vs NCAA, “the challenged NCAA rules unreasonably restrain trade in the market for certain educational and athletic opportunities offered by NCAA Division I schools.”

If you are a D-I student-athlete or hope to be one soon, this ruling may have an effect on the offers that you receive from your institution. I’ll be exploring this ruling, the anti-trust laws behind it and how it will affect student-athletes.

The contents of the ruling

The decision applied specifically to NCAA rules that disallow student-athletes from receiving revenues from the sale of licenses for so-called “NIL’s”, or Name, Images and Likenesses. Currently, schools often sell these licenses to third parties and keep the profits under the agreement between them and the student. Students are barred from selling these licenses independently or accepting anything of value under NCAA amateurism rules.

Wilkens ruled against O’Bannon on several counts. She held that the plaintiffs failed to show how the NCAA policy forbids the sharing of these revenues with student-athletes actually being caused harm, that NCAA restraints are preventing competition between students to sell group licenses or that the restraints have an anti-competitive effect on the buyers’ market for group licenses.

Where Wilkens did rule in O’Bannon’s favor was in regards to the college education market. She found that schools with elite athletics programs are the only supplier of college education in this specific market – that is, high level student-athletes – and that they act in concert with the NCAA to fix the price of their product. In this case, the price of their product is not the nominal cost of tuition, but rather the recruit’s athletic services and the use of his or her name, image and likeness. In the absence of this restraint, Wilkens opined that schools would compete against each other for the best recruits by using more attractive scholarships and licensing stipends.

Anti-trust laws

In simple terms, Wilkens ruled that colleges and the NCAA are working together to keep the “cost” of a student-athlete’s services and licensing rights down. As of now, the cost is only the price of a college education – the maximum allowed under NCAA amateurism rules.

Under the Sherman Act, the first anti-trust law established in the United States, “every contract, combination or conspiracy in restraint of trade” is forbidden, though this has long been interpreted to mean only unreasonable restraints of trade. Those practices that are almost always considered to be unlawful under the Sherman Act include things like bid rigging, dividing markets and fixing prices.

By agreeing together not to offer licensing rights or payment in excess of the cost of attendance, colleges and the NCAA are effectively fixing the price of the student’s athletic services, according to Wilkens’ ruling. Insofar as this constitutes a violation of the Sherman Act, it is therefore unlawful.

Results for student-athletes

Students in D-1 athletics programs shouldn’t start selling licensing rights yet. The results of Wilkens’ ruling seem likely to be fairly limited in scope.

First, Wilkens ruled that any collusion not to pay for NILs was enjoined, but that she might accept a plan for deferred payments for costs above the full cost of attendance. Further, she said that she would strike down a cap on deferred payments below $5,000, implicitly opening the door to a $5,000 cap.

Perhaps more importantly, Wilkens is not mandating $5,000 worth of compensation, nor even the full cost of attendance. The only thing that this ruling does is to ban schools from agreeing together not to increase their compensation.

The NCAA has already appealed the ruling, but it may well hold. If so, expect to see offers of deferred compensation for licensing rights within a few years.