Most of us (over a certain age) remember Ed O’Bannon cutting down the nets as a star at UCLA. Now he has become the face of an historic lawsuit against the NCAA which could change the way college athletics operate forever. Last week, U.S. District Court Judge Claudia Wilken ruled she is going to allow the plaintiffs in O’Bannon v. NCAA to add a current college athlete to the suit.
In case you are not completely familiar with this suit, former UCLA basketball star Ed O’Bannon filed an antitrust lawsuit against the NCAA for using his name, images, and likeness to make billions of dollars, none of which O’Bannon has been entitled to. Since the suit was filed more than four years ago, O’Bannon has been able to add former NCAA athletes as plaintiffs including NBA legends Bill Russell and Oscar Robertson. The plaintiffs contend that they are entitled to a share of the television revenue and revenue from video games and other digital and electronic media generated by schools and the NCAA. EA Sports (a leading developer of sports video games), and the Collegiate Licensing Company (which handles trademarks and licensing for most schools) are also defendants in the case.
What are ‘antitrust’ laws and what do they have to do with the NCAA?
Congress passed the Sherman Antitrust Act in 1890 (the “Act”) prohibiting certain business activities that federal government regulators deem to be anticompetitive or ‘in restraint of trade’. There are three sections to the act, Section 1 focuses on the specific means of achieving anti-competitive conduct, Section 2 focuses on whether the end result is anti-competitive and Section 3 extends Section 1 to U.S. Territories and the District of Columbia.
Section 1 has three elements:
- An agreement;
- which unreasonably restrains trade; and
- effects interstate commerce.
Section 2 has two elements:
- The possession of monopoly power in the relevant market; and
- the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.
The violation that O’Bannon and the rest of the plaintiffs allege against the NCAA is price-fixing. Price-fixing occurs when two parties agree to sell a product at a certain price rather than allowing the market to determine the price. Price-fixing can be seen as a ‘per-se’ violation of Section 1 of the Act, meaning the intentions of the parties or the effects of their actions do not matter, only that there is evidence that prices were fixed. In the alternative, courts can apply the ‘rule of reason’ when analyzing whether a price-fixing scheme exists and whether it is in violation of Section 1 of the Act. In this case, the plaintiffs allege that the NCAA is restraining trade by not allowing college athletes to realize their potential market value.
What is the current status of the case?
Two weeks ago, U.S. District Judge Claudia Wilken heard arguments over whether the plaintiffs can certify the lawsuit as a class action. Wilken has not yet made a decision on whether to certify the class but this week she announced she is allowing a current college athlete to join the plaintiffs in the lawsuit. This does not mean she is going to certify the class but it could be a good indication that she may. The plaintiffs have two weeks to amend their complaint adding a current college athlete to the suit. This should not be an issue as the lawyers for the plaintiffs say they have ‘a number of current athletes’ who are interested. Currently there are about a dozen plaintiffs including O’Bannon but if Wilken certifies the suit as a class action, thousands of former and current athletes could join increasing the potential damages into possibly billions of dollars.
What does all of this mean?
The final decision in this lawsuit could mean that the ‘amateurism’ of college athletics may be over for good. If this case is ruled in favor of the plaintiffs, it means the NCAA may have to pay a cut of their broadcast and other digital media revenue to NCAA Division I football and mens basketball players. One scenario would be to place funds for each player into a trust allowing them to access it once they leave school or reach a certain age. In any case, the ramifications of this case could be huge and mean the end of college athletics as we have known it.