O'Bannon, NCAA await judge's rulingDetermining the NCAA's control of the marketplace and players' piece of the pie
Originally Published: July 18, 2014
By Lester Munson | ESPN.com
http://espn.go.com/college-sports/story/_/id/11231638/answer-coming-shortly-ed-obannon-v-ncaa-trialFor 15 days of trial testimony and in hundreds of pages of legal briefs, Ed O'Bannon and his lawyers have tiptoed ever so gently in their discussions of what would happen if they were victorious in their battle with the NCAA.
If federal Judge Claudia Wilken in Oakland rules in their favor, they say, it would "allow players and former players to profit modestly off their own
names,
images and
likenesses [NIL]." A victory in court would result in a "modest equal payment to players" or a trust fund that would be paid when their eligibility ends.
Looking at the same possibilities, the NCAA and its lawyers see disaster. Using the terms of current TV contracts and calculations from world-class economists, they say that a football player in the SEC would collect $325,000 over five years and a basketball player in the Pac-12 could collect $1.2 million in a typical career.
One of the NCAA's most impressive witnesses, Neal Pilson, the former president of CBS Sports, testified that "if we paid the players substantial sums, all will be lost." Other NCAA witnesses predicted that schools would leave the FBS and would abandon Division I basketball before they would pay their players. NCAA president Mark Emmert was serious when he said that a win for the players would mean "there would be no more national championships."
Within the next several days, Judge Wilken will decide whether the nation's antitrust laws require the NCAA to eliminate its ban on cash payments to football players and men's basketball players for use of their NIL in merchandise and in television broadcasts.
What will her decision be?
The judge has heard detailed testimony about billions of dollars in television contracts for football and men's basketball. Witnesses explained to her that there is no cap on coaches' salaries and that Duke men's basketball coach Mike Krzyzewski is paid $9 million per season. Others told her that pay for players is capped at zero. She was incredulous when she realized that coaches are paid for apparel and shoe contracts and that South Carolina football coach Steve Spurrier, for example, collects between $600,000 and $750,000 from Under Armour each season. Among the hundreds of exhibits used in the trial, she has a list of $5 billion in palatial athletic facilities that NCAA member schools have built in the past five years, including a $37 million dorm at Ohio State that one critic said could "qualify as a Four Seasons hotel."
It is hard to imagine that Judge Wilken, in her decision, is going to leave intercollegiate sports in the same condition as they were when O'Bannon and his lawyers filed the lawsuit in 2009.
If she rules that college athletes must be paid for use of their NIL in merchandise and for their play in televised games, it would the single most transforming event in college sports in decades. The ruling would come in the form of an injunction, a court order that would bar the NCAA from prohibiting payments to college athletes. But it is important to add that the injunction that she may soon issue is a step in a process that could go on for years. If the players prevail, the NCAA will request a "stay" on the injunction, a procedure that would delay the effect of the court order until the NCAA can complete an appeal of her ruling to the U.S. Court of Appeals for the 9th Circuit, a process that will take at least two years. After the higher court rules, the losing side may wish to apply for review in the U.S. Supreme Court, another lengthy process.
If Judge Wilken rules that the NCAA will be allowed to continue its ban on athletes' profiting from the NIL, the players and their attorneys have vowed to seek to reverse the ruling in the same protracted appeals process.
While the losing side pursues what appears to be an inevitable and time-consuming appeal, other potentially transforming events will continue to develop. As Jim Delany, the commissioner of the Big Ten and one of the most respected leaders in intercollegiate athletics, told ESPN.com, "We would continue to pursue reform and restructuring of the NCAA, we would defend our principles in other litigation, and we would be watching the Congress for its actions."
The reform effort includes an attempt by the Big Five conferences to obtain greater autonomy from the NCAA and the power to establish their own rules. The litigation includes another antitrust case known as the Kessler case now pending before Judge Wilken that seeks salaries for players. The Congressional action includes bills pending in both the House of Representatives and the Senate that seek reform of the NCAA on player welfare, due process in rules enforcement, and compensation for players.
In addition to the developments Delany listed, the NLRB is expected to decide whether Northwestern football players are employees of the university who are entitled to form their own union.
Delany's narrative is likely to start when Wilken issues her decision. Based on a review of the testimony and many of the more important exhibits presented at the O'Bannon trial, it appears probable that Wilken will tell the NCAA that it must allow athletes to use their NIL for their personal profit. It is less likely that she will give the players what they want on live television broadcasts of their games, but it is well within the realm of possibility.
The players, led by attorney Michael Hausfeld and their star expert witness, Stanford economist Roger Noll, managed to satisfy the challenging requirements of America's antitrust laws. The laws and the patois of antitrust litigation can be challenging, but the purpose of antitrust laws is to protect the rights of consumers and businesses to a free and open market where they can buy or sell things at fair prices.
If an enterprise like the NCAA uses its total control of the market to set prices at levels that gouge others in the market, then the victims of the confiscatory prices can use antitrust litigation to set things right.
Although the NCAA fought the players on all issues, large and small, the organization also managed to make it easier for the players to prove their case. To qualify for relief under antitrust laws, the players must prove a series of things that can be difficult. Their task was simplified by the NCAA's most important witness, NYU economist Daniel Rubinfeld, who stated in his authoritative textbook, "Microeconomics," that "The NCAA restricts competition in a number of ways. To reduce bargaining power by student athletes, the NCAA creates and enforces rules regarding eligibility and terms of compensation."
The economist's statement in his textbook may not have been game, set and match for O'Bannon and his lawyers, but it gave them a commanding lead in the courtroom contest. All that remained for the players to prove was that the ban on pay for athletes injured them in the market for college sports and related merchandise and that there was a less restrictive alternative that would work for both the NCAA and the players.
In the world of NIL, the players met those requirements with ease. O'Bannon told Judge Wilken how he discovered himself in an Electronic Arts game while watching a friend's son play Xbox. Like O'Bannon in his days at UCLA, the avatar in the EA game was 6-foot-9, 230 pounds, bald, wore No. 31, was left-handed, and had a dark complexion. Two other former college stars, WR Tyrone Prothro of Alabama and LB Chase Garnham of Vanderbilt, offered similar testimony about their avatars in video games.
NCAA attorneys, incredibly, contested the use of the players' identities in the EA games. The faces of the avatars were identical, generic cartoon images, but arguing about the avatars was a futile effort, particularly with the unique characteristics of Prothro, who is 5-8, 173, dark-skinned, and wore No. 4. In her cross-examination of Garnham, NCAA attorney Carolyn Luedtke tried to compare Garnham's avatar with another white linebacker in an attempt to deflect Garnham's claim that he was part of the game, but Garnham immediately recognized and named the other player, a Stanford linebacker named Shane Skov.
Moving to the next link in the antitrust chain of evidence, the players were unanimous in their testimony that they had received no compensation for use of their likenesses in the games. The clincher came when the players offered testimony from Joel Linzner, a top executive at EA, who stated that if the NCAA had permitted the players to use their names in the games, EA would have continued to make them and to sell them in a market that would have produced sales of two million games and a profit of $80 million.
With the players' proof that the NCAA was a monopoly that used its market power to destroy their opportunities to profit from their NIL, the burden shifted to the NCAA to try to show that its ban on pay for athletes was excused because it accomplished other laudable goals. With testimony from 15 witnesses, who included NCAA president Mark Emmert, a Nobel Prize-winning economist, conference officials, and college presidents and athletic directors, the NCAA tried to show that its ideal of amateurism was alive and well despite the huge commercialization of football and men's basketball. The NCAA also tried to show that the ban on pay somehow produced balance among competing teams and that it integrated the athletes into the university community and allowed them to achieve the goals and values of higher education.
To prove the value of amateurism, the NCAA offered a highly sophisticated Internet poll that showed that a vast majority of Americans would be less interested in college sports if the athletes were paid. The players responded by showing that TV audiences increased significantly in broadcasts of Ohio State and Texas A&M football games after OSU players were caught accepting payment in the form of tattoos and Johnny Manziel was accused of selling autographs.
The players also suggested that the NCAA's amateurism was more of a brand than an ideal. In an embarrassing moment for the NCAA and its attempt to present its ideal of amateurism, Stanford athletic director Bernard Muir was confronted with photos of Stanford athletes offered for sale on the school's website and admitted that he must immediately report the offer to the university compliance officer.
In another demonstration of the remarkable depth of the research by the players' legal team, O'Bannon attorney Bill Isaacson surprised Emmert in cross-examination by flashing up on the courtroom screens an offer of a Jameis Winston trading card for $29.95. Clearly uncomfortable with the commercialization of the sport's top player, Emmert still managed to disagree with Isaacson's assertion that "amateur defines the participant and not the enterprise."
Noll, the player's star economist, ridiculed the NCAA's claim that its restriction on pay enhanced competitive balance. Explaining that there are more peer-reviewed articles on competitive balance than any other issue in sports economics, Noll asserted that the restriction on pay actually reduces competitive balance by preventing less successful teams from using pay as an incentive in recruiting and by allowing successful teams to continue to draw blue-chip recruits to their winning teams. He produced an elaborate chart of recruiting victories and defeats that showed that star players tended to go where other stars preceded them. The Kentucky basketball program, for example, snared four of the top 20 recruits in 2011 and four of the top 40 in 2012.
The NCAA's best chance to show a justification for its restraints on athlete pay seems to be in its assertion that payments would isolate the players from the campus community. Responding to questions from Judge Wilken, even Noll admitted that the integration of athletes into the academic life of the school was a possible justification.
But, despite Noll's reluctant support, it may be a tough sell for the NCAA. In another impressive flourish in his cross-examination of Emmert, attorney Isaacson used a memo from a former NCAA executive, Wally Renfro, that said, "The notion that athletes are students is the great hypocrisy of intercollegiate sports." Emmert had already labeled Renfro as a "provocateur," but Renfro's statement remains the closest thing to a smoking gun that Judge Wilken saw during the trial.
The three athletes who testified agreed that their primary roles at their schools were as athletes and not as students. "I was an athlete masquerading as a student," O'Bannon testified. Prothro and Garnham agreed with virtually identical statements that they were "athletes first, students second."
With solid evidence on every element of the NIL claim, it would be a complete surprise if Judge Wilken somehow rules against the players on payment for their NIL. In addition to the evidence of a violation of antitrust laws, Judge Wilken may look at the issue as one of elemental fairness. Garnham summed it up nicely when he said, "I brought value to Vanderbilt, and Vanderbilt brought value to me. The difference is that they could capitalize on it, and I could not."
Wilken remained inscrutable in her questions, her remarks and her demeanor during the trial, but she asked at least three witnesses, including Emmert, about the possibility of establishing a trust fund to pay players for use of their NIL after the players graduated.
Emmert told the judge that the deferred payments were unacceptable, stating that "It is still pay whether it is paid today or tomorrow."
If Judge Wilken issues the injunction for the players, she could include in her order a provision that would require the NCAA to adopt the trust fund idea or she could leave it open to the conferences and the schools to make their own decisions on the issue. The NCAA would, of course, appeal her injunction either way.
Although attorney Hausfeld initially sought only NIL compensation in the lawsuit, a year ago he added a claim for payment to players for live television broadcasts and rebroadcasts. As Hausfeld and his team analyzed thousands of pages of NCAA materials, they realized that television revenue could be another, and considerably larger, source of compensation for players.
They also noticed that NCAA officials were worried about the possibility of a claim for TV money. Christine Plonsky, a top official in the Texas athletic department who is active on NCAA committees, said in an email about the filing of the O'Bannon lawsuit, "If student-athletes can sue for [NIL], then what's to prevent all players from suing us to get a piece of every broadcast rights fee since clearly we use their names and images in those telecasts."
But, despite Plonsky's concerns, the NCAA appears to have the winning argument on television revenue. Neal Pilson, the NCAA's most persuasive witness, explained to Judge Wilken early in the trial that in 40 years of negotiating TV rights contracts in team sports, he had never heard anyone mention anything about the rights of players to a share of the income produced by the broadcast.
In negotiating more than $15 billion in contracts for the NFL, the Olympics and the NCAA, Pilson said he had "never viewed the NILs of the participants as an issue." If the players had rights, he said, "there would be language and statements of value in the contracts."
As the NCAA lawyers stated ponderously in one of their briefs, "No state statute or judicial decision in any jurisdiction has ever recognized that it would be unlawful to show a participant in a live team sporting event in the broadcast of that event without his permission." Translation: College players have no rights to sell to a network broadcasting their games.
The best the players could do in reply to the NCAA's assertion that they have no rights was to offer another veteran broadcast negotiator, Edwin Desser, who asserted that the players' rights were included "either explicitly or implicitly" and that they were a part of the "holistic value" of the contract with the TV broadcaster.
It will take more than an "implicit" mention of a "holistic" value to persuade Judge Wilken that the players have the right to collect on their NIL in live broadcasts of their games.
If she rules for the players on the use of their NIL in video games and merchandise, and for the NCAA on television broadcasts, then both sides will do exactly what they have always said they will do: They will appeal her decision. And we will see the players continue to tiptoe around their demands for compensation, and the NCAA issuing its warnings that paying players would be the end of college sports.
