Ed O'Bannon v. the NCAA: A complete case primer
Pat Haden was the first to say it publicly. That doesn't mean he was the only one thinking it.
When the USC athletic director told SI.com's Stewart Mandel that his fellow ADs and other school leaders need to think long and hard about the potential repercussions of an NCAA loss in the antitrust lawsuit originally filed by former UCLA basketball player Ed O'Bannon, Haden echoed the thoughts of dozens of his colleagues. Many ADs have said the same thing for the past few months, always followed by "Don't quote me on that." Some of the most powerful people in college sports are frustrated with the NCAA's unwillingness to update them on the progress of the case, and they fear they might have to pick up the pieces if the NCAA can't uphold the status quo in court.
If this sounds like a huge deal, that's because it is. Few cases against the NCAA get this far, and the millions of dollars invested by the plaintiffs' attorneys -- many of whom see the NCAA and college conferences as a poor man's Big Tobacco -- ensure this will be a bloody fight. Unfortunately, we in the media have done as poor a job explaining the importance of this case to the public as the NCAA has done updating its member institutions on its defense. NCAA president Mark Emmert will likely get quite a few questions about the case when he addresses the media this week in Atlanta ahead of the Final Four, but, like most CEOs of companies getting sued for a gazillion dollars, he'll probably decline comment or stick to only the most general terms. In this primer, we'll dig much deeper into the case.
Only the entire business model for major college athletics. This began in 2009 as a case about the NCAA profiting off the likenesses of former athletes in EA Sports video games. The case took a hard right turn in January, when federal judge Claudia Wilken ruled that the plaintiffs could add current athletes to the case and that the plaintiffs could go after everyone profiting off the likenesses of college athletes. That includes the conferences and the networks that televise the games. At college sports' highest level -- think the ACC, Big 12, Big Ten, Pac-12 and SEC -- television revenue is the primary economic driver. If a jury were to rule that athletes were entitled to a large percentage of that revenue -- the plaintiffs have suggested half -- it would turn the economic model for major college sports on its ear. Schools would have to give players a cut of the television revenue beyond their scholarships.
The most visible plaintiffs are O'Bannon and former Nebraska quarterback Sam Keller, but the legal team -- with the help of perpetual athlete advocate/NCAA antagonist Sonny Vaccaro -- has also attached such luminaries as Oscar Robertson and Bill Russell. The defendants are the NCAA, EA Sports and the Collegiate Licensing Company. The CLC, founded by recently named Alabama athletic director Bill Battle, handles trademarks and licensing for most major schools, and it is now a division of IMG College.
The phalanx of plaintiffs' attorneys is led Michael Hausfeld of Hausfeld LLP. Hausfeld has represented Native Americans in Alaska against Exxon after the Valdez spill, Holocaust victims against Swiss banks who kept their assets after World War II and consumers in the European Union's antitrust case against Microsoft. The plaintiffs also are working with Ken Feinberg, who has organized distribution plans for financial settlements for 9/11 victims, those effected by the BP oil spill in the Gulf of Mexico, victims of the Aurora, Colo., theater shootings and sexual abuse victims of former Penn State defensive coordinator Jerry Sandusky. Feinberg has been placed along with Vaccaro and National Collegiate Players Association president Ramogi Huma on the board of directors of the Former College Athletes Association. This likely would be the group through which any settlement funds would be distributed. The NCAA is represented primarily by Ann Arbor, Mich., firm Schiff Hardin LLP.
On June 20, in Oakland, Calif., Wilken will hold a class certification hearing. This is a critical moment in the case. If the class gets certified, the NCAA will be backed into a corner. It could either fight and risk a judgment that could run into the billions, or it could settle and force schools into a new economic model. If Wilken does not certify the class, the plaintiffs would all have to file their own lawsuits. Unless thousands took the initiative to file, the NCAA could probably settle with a few plaintiffs and make this go away.
While the NCAA has not revealed much of its defense strategy, it did file a motion in opposition of class certification that shows what tack its attorneys intend to take with regard to the class. The NCAA will rely heavily on its victories in two cases brought by former athletes that contended the NCAA's scholarship-limit rules were illegal restraints of trade. In tossing a case brought by a former Rice football walk-on, a judge ruled that each member of the class would have had to prove he would have been good enough to receive a scholarship had no limit been in place. Essentially, the potential members of the class didn't have enough in common. That argument might work here, but it also would open up the NCAA to individual suits from players who can prove they were not paid for the marketing of their likeness. This likely includes any player whose jersey number was sold at retail stores during his career. A Mark Ingram or Johnny Manziel would have little trouble proving the school received significant value for using the player's likeness. Heck, if Manziel ever decided to file a suit, Texas A&M has already done much of the work for him. John Infante, the author of the excellent Bylaw Blog, wrote a more thorough examination of this issue last month.
These types of cases rarely reach a jury because they either get thrown out by a judge or a defendant realizes there is too much money at stake to risk a negative verdict. Still, each side is fairly dug in, so let's break this section into two subsections.
If the class gets certified and the case goes to trial on June 9, 2014 ...
• The NCAA could prevail in a jury trial, and if the verdict is upheld on appeal, the status quo would be retained.
• The NCAA could lose a jury trial, and the jurors could award the plaintiffs everything they want. If this held up on appeal -- remember, damages in antitrust cases are tripled -- it likely would bankrupt the NCAA and force schools to form a new governing body. It also would force schools to negotiate a better deal for athletes, who would now be legally entitled to a share of television revenue. This would result in more money for the players, less money for coaches and administrators and less spending on stadium additions and fancy weight rooms. It also likely would require the cutting of some non-revenue sports as departments adjust to decreased revenue. This wouldn't be a sudden change. The appeals process would take years.
• The jury could do to the O'Bannon plaintiffs what a federal jury did to the USFL in 1986. The jury declared the NFL a monopoly -- a win for the USFL -- but awarded the league just $1 in damages. This was tripled to $3. With interest, the NFL wound up paying out $3.76.
If the case gets settled ...
If the class gets certified and the schools and the NCAA decide to cut a deal with the plaintiffs, the possibilities are endless. This is the most logical: The schools agree to set aside a portion of revenue -- one power-conference AD I spoke to recently tossed out $2 million a year -- to distribute to athletes. This money would be placed in a trust and given to the athlete only when that athlete obtains a degree.
From a practical standpoint, this would require a new NCAA subdivision. The schools of the ACC, Big 12, Big Ten, Pac-12 and SEC are the only ones that could afford such a model. This would offer them an even greater recruiting advantage than they already have over the poorer leagues. They would have to compete only amongst themselves in football. From a viewer's standpoint, that would be fantastic. School leaders insist such a settlement would require them to distribute the money evenly among all athletes so as not to run afoul of Title IX. If so, it still wouldn't address the issue of a select few athletes receiving significantly less than market value. It could lead to more legal action, but conversations with those on the plaintiffs' side suggest this is a deal they'd be willing to make. But it would cost much more than $2 million a year per school.
If you've been reading SI.com, you know Big Ten commissioner Jim Delany believes his league's presidents would opt to downsize to a Division III or non-scholarship model rather than participate in such a settlement. The binding television contracts and hefty debt-service obligations at most of the schools suggest that's an empty threat. But in the interview in which he outlined his views, Delany did bring up an interesting point. If schools did increase the amount of money to athletes, would those athletes then be considered employees by the government? That brings a bevy of taxation and Worker's Compensation issues into the equation.
Given all these possibilities, Haden's concern is understandable. Athletic directors and campus leaders need to prepare, because the least likely outcome seems to be the retention of the status quo.