Ninth Circuit Upholds District Court’s Ruling in “Pay for Play” Case Against NCAA

May 20, 2020
Firm Publication

On May 18, the U.S. Court of Appeals for the Ninth Circuit handed down its decision in Alston v. NCAA, the so-called “pay for play” case in which student-athletes challenged certain “amateurism” rules of the National Collegiate Athletic Association (NCAA) as violating the antitrust laws. The Court of Appeals affirmed the district court’s opinion in all respects, disappointing both the NCAA (which wanted the district court’s injunction dissolved) and the student-athlete plaintiffs (who wanted the NCAA’s rules enjoined to an even greater degree).

Impact of Ruling on Division I Athletics   

The bottom line is that the district court’s injunction (which was stayed during the appeal) may take effect after the decision becomes final. That injunction provides as follows, as to student-athletes in Division I in football and men’s and women’s basketball:

  • The NCAA may continue to limit grant-in-aid scholarships to the cost of attendance [COA] and may limit compensation and benefits that are not related to student-athletes’ education to the COA.
  • The NCAA may also limit cash or cash equivalent academic or graduation awards or incentives, as long as such limits are set no lower than the total amount a student-athlete can earn in athletics participation awards under NCAA rules (currently $5,600).
  • The NCAA may not limit education-related benefits provided to student-athletes. These benefits specifically include computers, science equipment, musical instruments, and other items not currently included in the COA but related to the pursuit of a student’s educational studies, as well as post-eligibility scholarships for undergraduate, graduate, and vocational programs at any school, tutoring, study-abroad expenses, and paid post-eligibility internships.
  • The NCAA may define education-related benefits and may regulate how schools provide such benefits to student-athletes.
  • Each conference may limit the compensation and benefits provided to student-athletes, including those related to education, as long as those limits are imposed independently from other conferences.
  • Individual schools may set limits on offers to student-athletes.

Rationale for Ninth Circuit’s Ruling

The Court of Appeals affirmed the district court based on the following conclusions:

  • The Court of Appeals’ earlier decision in O’Bannon v. NCAA, which addressed student-athletes’ rights to their name, image and likeness, did not preclude the Alston suit because of the significant changes in the factual circumstances since the decision in O’Bannon. These changes included that the NCAA had allowed student-athletes to be provided a variety of additional types of compensation (including Visa gift cards) in addition to COA since the decision in O’Bannon.
  • The district court properly granted judgment to the student-athletes under §1 of the Sherman Act using the three-step Rule of Reason analysis which applies to anti-competitive rules set by sports leagues. The parties agreed that under the first step of that rule, the challenged NCAA amateurism rules have a significant anti-competitive effect in the market for student-athletes’ “labor,” which the parties agreed was the relevant market.
  • The district court also properly found, under step two of the Rule of Reason, that while the NCAA had justified the procompetitive effect of some of its amateurism rules, it had failed to justify the procompetitive effect of its rules limiting compensation to student-athletes where that compensation is tied to student-athletes’ educational needs. While the NCAA may appropriately justify rules that differentiate college sports as “amateur,” it failed to support its contention that amateurism depends upon student-athletes being paid “not a penny more” than COA. Instead, the Court of Appeals agreed with the district court’s formulation that “[n]ot paying student-athletes unlimited payments unrelated to education, akin to salaries seen in professional sports leagues is what makes them amateurs.”
  • Under the third step of the Rule of Reason, less restrictive alternatives (LRAs) would further the procompetitive justification of promoting an amateur sports league as well or better than the NCAA’s rules and at no additional cost. The district court appropriately identified two such LRAs—allowing the NCAA to only limit education-based compensation and benefits to the extent they are provided as cash or cash equivalents and exceed a certain amount; and allowing individual conferences to independently limit any compensation or benefits, including those tied to education.
  • The injunction issued by the district court was not vague in its reference to compensation and benefits related to education and appropriately provides the NCAA the latitude to define such benefits and how schools may pay for them.
  • The district court appropriately found that unlimited cash payments untethered to educational expenses would provide competitive harm by eliminating the difference between amateur and professional sports leagues and therefore did not err in rejecting the student-athletes’ additional arguments.

Judge Smith wrote a concurring opinion, calling the NCAA a cartel and expressing concern that the current state of antitrust law “unwittingly” expands the Rule of Reason in a way that “deprives” the student-athletes of the “fundamental protections” that the antitrust laws were meant to provide them. While Judge Smith agreed that this expansion of the Rule of Reason (whether a party at step two of the Rule of Reason may use a procompetitive effect in a different market to justify anti-competitive conduct in the market at issue) was not raised as an issue by the parties in Alston, he flagged it so that the Ninth Circuit may address it in an appropriate case.

Conclusion

We expect to provide further thoughts on the interplay of this decision with the report issued last month of the NCAA Federal and State Legislation Working Group in the wake of the proposed pay for play legislation coming out of many states. But keep in mind that when the Ninth Circuit issued its decision in O’Bannon, the NCAA filed a petition for rehearing en banc (which was denied) and then both sides filed unsuccessful petitions for a writ of certiorari in the Supreme Court before the decision became final.

If you have any questions about the Ninth Circuit’s ruling and how it might impact your university or college, please contact the author.