Ninth Circuit’s Decision in the Ed O’Bannon Case and the Curious Connection with Johnny Football




By: Jason M. Gerber

At the end of September the Ninth Circuit issued a decision affirming in part a judgment in favor of Ed O’Bannon and his class members against the NCAA.  The Ninth Circuit holding will not tearing down the wall of NCAA control over the massive financial benefits of major college sports. Today student athletes are not permitted to personally profit from the sale of their names, likeness or images (“NILs”) and the O’Bannon decision does not change this antiquated status quo. But, the decision may be the first step in opening the door to new opportunities that were not available to two monumentally popular college athletes with star crossed professional careers.

O’Bannon’s (first) Day Before the Ninth Circuit.

The Ninth Circuit’s decision[1] was largely overlooked when it was issued on September 30, 2015.[2] It’s possible we are a nation of sports fans weary of more court intervention – after all we did just finish the summer of Deflategate. The decision, however, is still a big deal even if we are not looking. The Ninth Circuit affirmed in part and vacated in part the District Court’s 2014 decision but still left the most important decision in tact – the confirmation that the NCAA and its rules are subject to antitrust scrutiny.

Before O’Bannon, the NCAA could argue against antitrust scrutiny by banging the drum of amateurism and the US Supreme Court decision in Board of Regents of the University of Oklahoma. The O’Bannon courts, however, refused to follow this drum beat and agreed that the NCAA’s should be subject to the antitrust “Rule of Reason”. Both the District Court and the Ninth Circuit get to this conclusion by taking a leap and finding that the NCAA’s amateur compensation rules are commercial in nature and anticompetitive. Basically, the trial court and the appellate court agreed that the rules limiting compensation to hundreds of athlete’s in men’s football and basketball had something to with money. This leap was necessary only because the NCAA remains as tone deaf as possible on this issue and continues to demand recognition that college sports are not a commercial enterprise.

The Ninth Circuit, however, wasn’t fully behind the District Court’s dismantling of the NCAA’s amateur façade. The District Court demanded the NCAA start putting aside $5,000 per athlete in trust for the use of that athlete’s NILs during the time the player is a student athlete. The District Court found this to be a less restrictive means of protecting “amateurism” then simply denying athletes any benefit from the sale of their very valuable rights of publicity. The Ninth Circuit disagreed and shot down this portion of the District Court decision.

Ultimately, the Ninth Circuit supported most of what the District Court decided last year. The NCAA and its rules are subject to antitrust scrutiny. The NCAA cannot stop schools from offering scholarships to athletes that actually cover the cost of attendance.[3] The Ninth Circuit also rejected a litany of ridiculousness from the NCAA. The NCAA argued its athlete compensation rules are nothing more than “eligibility rules” and that no commercial activity was regulated.[4]  The NCAA also argued athletes did not suffer an “injury in fact” because, among several examples, the NCAA stopped letting video game companies use student athletes’ images.[5] The NCAA also argued the compensation rules have no anticompetitive effect because the NILS of student athletes have no value.[6] In the refined air of the Ninth Circuit this argument was politely rejected, but, in the real world it is one laced in absurdity and dishonesty. No one truly believes the personas of the top football players or basketball players have no value.

The Right to Sell and Market What is You.

The importance of NILs was evident throughout the decision. All people have certain rights to profit from the sale or marketing of their name and image.[7] If I wanted to, I could go out today and start trying to use my name, my picture or my personality to make money. In all but a few cases (my wife and my mom – maybe) no one would pay any money to have me endorse a product, to put my face on a billboard or to use my aging 5’7” frame in a sports video game. I am willing to venture that my NILs probably have almost no value.

Of course, comparing the value of my NILs with that of a major college sports athlete is exactly what makes the NCAA’s argument so foolish. The NCAA has sold rights to video game companies like EA Sports (at one time a defendant in the O’Bannon case) and made money on those deals.  EA Sports freely admits that their college video games would have had more value with the right to use student-athlete NILs.  Every big time college football program makes millions promoting star players, using their images and their personalities to sell tickets, sell merchandise and help keep the gargantuan television deals rolling in.

The compensation rules themselves make clear that the potential value of a student athlete’s likeness could lead to compensation. NCAA Bylaw 12 is titled “Amateurism” and includes the compensation rules for anyone that wants to compete as an NCAA athlete. After enrolment in school, it is impermissible for a student athlete to receive compensation for advertisements and promotions.[8] In order to maintain amateur status an athlete is not allowed to accept pay for the use of his name or picture to advertise a product or to receive pay to endorse a product.[9] Under these rules an athlete that profits from wearing a Nike jersey in a commercial would lose his amateur status even though the NCAA could use him in the same commercial so long as only they got the money. Jersey sales, in fact, are a great example of why these rules are unfair and one of the curious links between Ed O’Bannon and Johnny Manziel.

Johnny and Ed – Connected by Their Shared Loss of Opportunity.

The number 2 jersey for Texas A&M probably saw its best sales ever during Johnny Manziel’s years wearing Maroon and White. I doubt seriously that the uptick in sales could be attributed to anything else but Johnny Football’s popularity – a popularity he could not profit from based on Bylaw 12. Johnny could not sell a jersey he wore, sign a replica in exchange for cash or profit in any way from making No. 2 famous – only the NCAA and A&M make money. In all likelihood, a similar phenomenon occurred while O’Bannon was wearing number 31 for UCLA.

Herein lies another unlikely intersection between Ed O’Bannon and Johnny Manziel. It is fair to say that Ed O’Bannon’s popularity and the value of his brand was at its peak while he was a student athlete at UCLA. He was the best player, on the best team, at an institution known for basketball greatness and an almost unrivaled tradition. Unfortunately, O’Bannon’s star and the marketing clout that came with it began to fade once he left college. O’Bannon hung around the NBA for about two seasons, played only 128 games and was never an All Star or a significant contributor to any of his teams. Based on that performance, the value of O’Bannon’s NILs disappeared. Because of Bylaw 12, O’Bannon missed out on the opportunity to draw value from his publicity rights because the NCAA barred him from doing so when he was at the height of his popularity.

Although the verdict is not yet in, Johnny Football may find himself in a similar, and unfortunate, predicament.  There is no disputing the immense popularity Manziel garnished in his two years at Texas A&M. A Heisman and a two year highlight reel of backyard football plays made Manziel a household name, a national star and a cult hero in Texas. Manziel also demonstrated the fallacy of the NCAA’s argument that NILs have no value.   According to an investigation, Manziel received $7,500 for signing about 300 footballs and helmets for a memorabilia dealer. Manziel was suspended for a half a game and then returned to playing out the rest of his brief amateur career. The incident did little to slow the “Johnny Football” train or its popularity.

Now in his second professional year, Johnny may be facing the same reality that O’Bannon faced once he left the cradle of UCLA – massive success in college does not necessarily translate to similar success in the professional ranks. Johnny had an entirely underwhelming rookie season, went to rehab and is now entrenched as the back up to the 36 year old Josh McCown.[10] He did a Snickers commercial (terrible) and probably has other endorsements that may be providing him some value. But, without a massive change in the trajectory of his career, Johnny is never going to see the value in his future that he held in his past. The problem, of course, is that the NCAA would not let him capitalize on the massive value he had for his time in college.

Like others that came before them, O’Bannon and Manziel have been denied the ability to use a set of rights that all of us are supposed to have – the right to sell yourself if someone is willing to buy. Unlike me, Ed and Johnny most certainly had potential buyers. Those buyers ended up paying the NCAA and the universities for the opportunity to profit off of the exploits of the institutions’ greatest assets. O’Bannon and Manziel had to wait to become professional athletes and then saw their value tumble when their success did not transfer to the next level. Because of Bylaw 12, they unfairly missed their window.

There is no doubt the NCAA profits from selling and licensing its athletes, its rules allow the likeness of an athlete to be used for university fundraising, promotions for NCAA tournaments and championships, schedule cards for teams and institution sponsored camps.[11] These “permissible” uses don’t even include the daily use of football and basketball stars in highlights and other promotional tools used by any network that broadcasts football and basketball games – those are ok as well. The NCAA is absolutely profiting from the use of its athletes’ NILS while arguing the NILs have no value.

Why shouldn’t the athlete? Why is the vaunted notion of NCAA amateurism threatened by athletes trying to create value in their personalities while they are playing? The basis for denying the exercise of these rights just don’t seem to make sense or fit with the current nature of major college teams and the money flowing through the system.

Let them Sell.

At the heart of amateurism is the direct compensation for performance on the field. Few argue that the colleges and universities should be paying salaries to players to keep them playing college football or basketball. If there is a legitimate market for amateur athletics, and it seems like there is, then there is probably a good basis to continue to keeping the reimbursement for play to simply scholarships. That does not mean, however, that an athlete should also be barred from personally capitalizing on the exact same value the NCAA and it partners see in the athlete’s persona. The concerns over “pay for play” in college should not stop athletes from selling what is intrinsically theirs – themselves.

Bylaw 12 could be scrapped with little change to the current structure of these sports. The money will not come from Universities or the NCAA, it will come from off field sponsorship opportunities, licensing agreements or appearances. It will come through the social media accounts this generation’s athletes are already experts at using. It can come from simple places – how many “Johnny Football” t shirts could Manziel have sold before A&M games? The point is that the money doesn’t need to come as a direct compensation for play; it will come to those athletes who have developed the notoriety and popularity that will attract advertisers. It’s no different than what the NCAA, ESPN, NBC, CBS, the SEC Network, the Big 10 Network, the PAC12 Network are already doing – except the athlete would actually get to see some of the money.

Just like in any other sport or business, there will be disparity in value among the market participants. Manziel’s image, signature and jersey are going to be much more valuable than the backup punter’s NILs. So what? A disparity in value doesn’t mean every athlete should lose, it just means they will be treated like everyone else. No matter how hard I try, the market for Jason Gerber t-shirts is really small, but, I am free to create the t-shirts, to market my personality and to make a profit if I can. Not every student athlete is going to have O’Bannon’s stature or Manziel’s rock star persona, not every athlete will have the opportunity to cash in large dollars while they are in school. But that is no reason to stop them from trying.

Once the market is open, it is not difficult to imagine opportunities even for the lessor known members of these major programs. Would it be a stretch for the local Tuscaloosa car dealership to offer $100 a head for Alabama’s offensive line to make an appearance together to promote the dealership? What college kid says no to $100? What about $20 a head for the starting defense to sign a football, or a poster or a pennant? Right now the NCAA would not let any athlete do this – unless it was for charity or to help promote an NCAA tournament or event.[12] The point is to allow the opportunity, not to guarantee that every athlete gets what only a special few may be able to earn.

The NCAA and its member universities would certainly argue this threatens the unique market for amateur athletics.[13] But, this argument presupposes that the current fan base still thinks major college sports are amateur events when all signs for the last 20 years point in the opposite direction. The television contracts keep getting bigger, conferences now shift and change on a yearly basis as schools chase those television contracts, team uniforms are searching for Oregonian like changes to keep the jerseys flying off the racks and sponsor logos are unavoidable at any major event. Men’s college football and basketball are commercial enterprises and have been for a long time. The fans still come out to the stadiums for games or tune in on Tuesday, Wednesday, Thursday, Friday, Saturday, some Sundays and sometimes even Mondays to watch.

If there is an honest threat, there are certainly better compromises than just saying the athletes have no rights.  The District Court in O’Bannon ordered the NCAA to establish a $5,000 trust for every athlete that would be available after the student leaves college as compensation for the use of the athlete’s NILs. The Ninth Circuit, however, struck this provision down. The notion was a good start, but it hardly solves the problem and doesn’t even seem fair since it distorts the value of some athletes and artificially caps the benefit the athlete can receive. It beats the current system but that does not say much when there must be better ideas.

This Will Not be the End.

Were the option to profit from NILs ever made available, there will be voices from universities and the NCAA lamenting the idea of making some college athletes rich while they are in school. There will be others that will claim the sky is falling and the end of amateur sports as we know it is coming.  Letting amateur athletes profit from their personas, instead of their play, is not likely to tumble the world of major college athletics because there exist easy ways to balance the rights of the athletes with amateurism. Voices of fear and doubt, for that matter, are not uncommon when those in power cede a financial benefit they have grown accustomed to controlling.

If we don’t want the sponsorship or licensing dollars to go directly into the athlete’s pocket during college because it would make them less “amateur” than come up with a better alternative. Why not set up separate accounts for each athlete’s payments and hold that money until the athlete leaves school? The athlete is then free to exercise his personality rights and garnish the value he can and the NCAA can continue to maintain the tenuous impression of amateurism. This is just one idea that could create a better balance and is certainly a less restrictive means that just denying the athlete any compensation. Universities could ensure athletes are not taken advantage of by requiring potential sponsors to register with the school or by ensuring that form contracts are used so that no unsavory characters can take advantage of student athletes. This process could be one that helps athletes learn the ins and outs of business before they enter the professional sports or professional work environments after school.

The death of amateur sports argument is little more than fear mongering. Those in control of all levels of sport decry the “end” whenever there is a change that gives athletes more rights or powers. Every professional sports owner feared free agency until he or she had the chance to spend wildly on the one piece their team may be missing. No one can really argue that the NBA, NFL and MLB have lost popularity because of free agency. Most fans probably don’t care that the owners may make less money as a result of the free movement of players. The Olympics gave up its amateur requirements and remains wildly popular. In all these instances the threat of change was baseless and there is no reason to think it will be any different if a fair change to Bylaw 12 is made.

The NCAA and college sports fans can both benefit from the change. Allowing student athletes to profit from their NILs may help keep student athletes in school longer. With money coming in, super star college athletes may not be so quick to jump to the professional ranks and start earning for their output on the field. The NCAA, then, benefits in at least two ways: (1) more student athletes stay through their four years and earn their degrees and (2) the quality of the games improve because the best athletes aren’t making the jump to the pros after only one or two years of school. Everyone wins – athletes can exercise commercial rights like every other American, the NCAA supports its goals of graduating college athletes and fans get a better product on the field and the basketball court. The only tradeoff is the acknowledgement that the NILs of student athletes have value, a notion that will come as a surprise to exactly no one.

With the silliness of the “no value” argument cast aside so easily by the Ninth Circuit, there is a chance the day will come when student athletes will have the opportunity to profit from their NILs the same way as the NCAA, its member universities and its partners. Allowing fair revisions to the NCAA compensation rules will not be the end of college sports or amateurism. It will simply let the Ed O’Bannons and Johnny Manziels of the amateur world take advantage of the potentially fleeting opportunities created by their college success. It will be different, but at least it will be honest.

___________________________

Jason M. Gerber is a shareholder of the Las Vegas law firm, Marquis Aurbach Coffing (“MAC”).  Mr. Gerber is a business and trial attorney with more than 10 years of litigation experience.  Mr. Gerber is also the head of MAC’s Sports and Entertainment Division and the manager of Evoke Sports Group.  He can be reached at (702) 207-6097 or visit the firm’s website at www.maclaw.com

 

[1] Now subject to a request from O’Bannon’s attorneys for a review by the entire en banc Ninth Circuit. So, O’Bannon may have more days with the Ninth Circuit.

[2] Google “Obannon Ninth Circuit” and only the first six items reference the decision and only two of those are articles.

[3] Amazing that the NCAA even fought this. How could they possibly tout the educational benefits of scholarships when those very scholarships don’t actually pay for the student athlete to attend school? This would seem absurd but for the even sillier arguments made to the court.

[4] Rejected as a “clever manipulation of words”.

[5] Rejected because the NCAA could simply decide, at any time, to start allowing the video games to be made again.

[6] Cast aside as just a new way of saying there is no “injury in fact”.

[7] The U.S. Supreme Court recognized the right of publicity in Zacchini v. Scripps-Howard Broadcasting a case that is awesome mostly because it’s about a human cannon ball. Since then, lower courts and state generally hold that a person’s right of publicity includes the ownership of their name, likeness and image.

[8] Bylaw 12.5.2.1.

[9] Bylaw 12.5.2.1(a-b).

[10] As I am writing this the Browns and the NFL are investigating a domestic incident between Manziel and his girlfriend and concerns remain that alcohol was involved.

[11] Bylaw 12 again. Section 12.5.1.1 lists “permissible” promotional activities. The key criteria for being “permissible” is the assurance that the athlete does not get any money.

[12] Bylaw 12 again….

[13] They may even argue again that the NILs have no value, putting them on the same laughable footing as all of Roger Goodells ball inflation arguments.


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