Impact for NCAA Institutions Following Ninth Circuit’s “Pay for Play” Ruling

May 26, 2020
Firm Publication

Last week, a three-judge panel of the United States Court of Appeals for the Ninth Circuit affirmed, in all respects, an injunction issued by Judge Claudia Wilken of the Northern District of California in Alston v. NCAA, the so-called “pay for play” case. This injunction, when (and if, more on that later) it goes into effect, will prevent the National Collegiate Athletic Association (NCAA) from adopting rules that prohibit member colleges and universities from limiting the non-cash education-related benefits that can be provided to student-athletes. For more information about the ruling, please read our previous alert here.

This ruling comes just weeks after the NCAA Board of Governors adopted the Final Report and Recommendations of its Federal and State Legislation Working Group (NCAA Working Group) concerning “modernization” of the NCAA rules applying to student-athletes’ rights to commercialize their “name, image and likeness” (NIL). This report provides guidelines for the three divisions of the NCAA to enact rules allowing student-athletes to receive compensation from third-parties (but not their college or university) for their NIL rights as long as the student-athletes do not use the intellectual property of their college or university in doing so. The NCAA Board of Governors has called on Divisions I, II and III to draft their legislative proposals in line with the NCAA Working Group recommendations by October 31, 2020, and vote on those proposals by January 31, 2021 so that they will go into effect no later than the 2021-2022 academic year.

How do these developments fit together and what do they mean for counsel at colleges and universities?

Antitrust Law Remains a Real Risk

The Ninth Circuit’s decision in Alston cements the notion that antitrust law will be applied by courts to NCAA rules that limit the ability of colleges and universities to provide certain benefits to student-athletes. The NCAA has argued that language from the Supreme Court’s opinion in NCAA v. Board of Regents of the University of Oklahoma means, at the most, that NCAA rules promoting amateurism are immune from antitrust review, and, at the least, that courts reviewing such rules must give wide deference to the NCAA’s conception of amateurism. In Alston, the NCAA used Board of Regents in its briefs to argue that plaintiffs attacking an NCAA rule promoting amateurism bore an exceptionally heavy burden at stage two of the Rule of Reason analysis. But the Ninth Circuit rejected any such notion, discussing Board of Regents only to note that it had previously (in its O’Bannon opinion) found the language relied on by the NCAA to be dicta.

What this means is that any restrictions issued by NCAA Divisions I, II and III on the ability of student-athletes to receive compensation for their NIL rights in the wake of the NCAA Working Group Report will be subject to challenge under the antitrust laws. Moreover, inter-university discussions about how such benefits might be limited can be expected to be used as evidence by plaintiffs in potential future suits. University counsel should be aware of these risks and advise their internal clients appropriately.

State Legislatures May Have More to Say

The impetus for the NCAA Working Group was legislation proposed in state legislatures in the spring of 2019 that would provide student-athletes with greater ability to commercialize their NIL rights. In the fall of 2019, California passed the Fair Pay to Play Act, which provides that no college or university in California may restrict a student-athlete’s ability to earn compensation for their NIL rights. The Fair Pay to Play Act does not take effect until January 1, 2023. Other states have passed or are considering similar legislation.

The Fair Pay to Play Act was amended to specifically provide that the California legislature will monitor efforts by the NCAA and “revisit this issue to implement significant findings and recommendations of the NCAA working group in furtherance of the statutory changes proposed by this act.” As to California, the question will be whether the recommendations of the NCAA Working Group are in line with the goals of the California legislature when it comes to student-athlete benefits for their NIL rights. If the California legislature finds the NCAA Working Group to have insufficiently “modernized” its rules, that is, finds that the NCAA is still unduly limiting student-athletes’ ability to be compensated for NIL rights, it may leave the Fair Pay to Play Act as is.  And, of course, other state legislatures may determine that student-athletes in their states deserve to be compensated for their NIL rights.

University counsel should be aware of the legislative activity in their states on this topic, both to engage with state legislatures and to monitor for compliance as any such legislation may go into effect.

The NCAA Has More Arrows in its Quiver

No one should assume that the Ninth Circuit’s decision in Alston is settled law just yet. The decision disappointed both the NCAA and the student-athletes and either side could petition the Ninth Circuit for rehearing or rehearing en banc, a petition for which would be due in early June. In addition, either side could file a petition for writ of certiorari seeking review by the Supreme Court, which has lengthened its filing time for such petitions to 150 days due to the COVID-19 pandemic. In the earlier O’Bannon case, both sides filed certiorari petitions with the Supreme Court (which were denied), so such filings would not be a surprise here.

As for the pay for play legislation, it is no secret that the NCAA is considering bringing suit to challenge such laws based on the Commerce Clause. The NCAA was successful in the 1990s in a similar challenge in NCAA v. Miller when the Ninth Circuit struck down a Nevada law that required the NCAA to provide greater “due process” protections before sanctioning Nevada institutions and coaches. Nevada had enacted the law in anticipation of NCAA enforcement actions brought by the NCAA against University of Nevada, Las Vegas basketball coach Jerry Tarkanian. At the Alston oral argument in March of this year, counsel for the NCAA, when questioned on the topic, stated that if the California Fair Pay for Play Act was to go into effect as currently written it would be challenged by the NCAA on Commerce Clause grounds.

Plan for Student-Athletes to Receive Greater Benefits

However the Alston litigation proceeds through the courts and whatever may unfold in the state legislatures, the general trend is clear and it points toward greater opportunities for student-athletes to receive greater benefits, whether in the form of education-related benefits from their college or university or NIL compensation from third parties. University counsel should be sure that their leadership is aware of the general trends and not surprised by upcoming changes that allow for greater education-related benefits or NIL compensation from third parties. When those changes come – whether in the form of new NCAA rules, the Alston injunction, or new state laws – university counsel should work proactively with athletics directors and other campus personnel to ensure that student-athletes and compliance staff are appropriately prepared and trained.

If you have any questions about these topics, or how they might play out on your campus, please contact the author.