Hey, NCAA, State Lawmakers Aren’t Playing Around

The beginning of mandated pay to play is yet another threat to NCAA “amateurism” 

Earlier this month, California lawmakers passed the Fair Pay to Play Act, which will permit student-athletes to be compensated for the use of their name, image, and likeness (“NIL”) starting in 2023.  The teeth of the act, however, is not the concept of NIL compensation (that has been around since 2013), but rather its enforcement.  In addition to being able to receive payment, the Fair Pay to Play Act will also prevent the NCAA from declaring a student-athlete ineligible to participate in NCAA competition (and issuing any discipline to the student-athlete’s school) on the basis that the student-athlete received NIL compensation.

So, in just a few years, state law will prohibit the NCAA from doing anything to prevent NIL compensation, and student-athletes (across Divisions I, II, and III) will be able to be paid actual money for their role on campus as a student-athlete, while currently attending school and participating in NCAA athletics. 

Why?  Because state law trumps NCAA rules.

And California won’t be alone.  Since California passed its bill, lawmakers in Michigan, New York, and South Carolina have either introduced similar bills codifying mandated pay for play for student-athletes in their states, or have publicly spoken out about introducing such legislation.

Given the increasingly pro-compensation narrative surrounding revenue-generating college athletics, it is only a matter of time before other states follow suit.

The tide is turning.

The Legal Backdrop: O’BannonJenkinsand the FBI

To understand the importance of the battle now being waged at in state legislatures, it’s important to understand the history upon which these bills are premised.  This article briefly sets forth that backdrop, but for a deeper dive, check out our own Courtney Way’s article “The Battle for NCAA Athlete Pay & Why it Matters.

NIL compensation is not a new issue for the NCAA.  In a landmark 2013 decision, O’Bannon v. NCAA, Federal District Court Judge Claudia Wilken of the Northern District of California ruled that the NCAA violated federal antitrust law by generating revenue from its student-athletes’ NIL, but refusing to offer payment for such use.  This portion of Judge Wilken’s decision was affirmed by the 9th Circuit Court of Appeals in 2014.

Instead of ushering in an era of controlled NIL compensation, the NCAA went the opposite direction and halted all revenue streams that would lead its student-athletes to be paid.  For example, O’Bannon effectively ended NCAA-branded video games, as no NCAA Football or NCAA March Madness video game has been distributed by EA Sports since 2013.  The decision also mandated EA Sports distribute approximately $60 million in settlement payments to “certain Division I men’s basketball and Division I Bowl Subdivision football student-athletes who attended certain institutions during the years the games were sold.”  The student-athletes who received these payments had already graduated.

In the wake of the favorable decision in O’Bannon, plaintiffs’ attorneys shot their shot, and filed the now-consolidated action In re NCAA Grant-in-Aid Cap Antitrust Litigation in the Northern District of California, which was again assigned to Judge Wilken.  This suit sought to end the outright ban on compensation for student-athletes by (1) eliminating the cap on athletic scholarships student-athletes may receive, (2) permitting schools to set funds aside in trust, earned by the schools from the use of student-athletes’ NIL, to be paid upon graduation or the end of eligibility, and (3) enabling student-athletes to receive compensation from third-party endorsements.

In March of 2019, Judge Wilken found that the NCAA’s rules had “significant anti-competitive effects” including “artificially compressing and capping student-athlete compensation and reducing competition for student-athletes by limiting the compensation offered in exchange for their athletic services.”  Ultimately, Judge Wilken found in favor of the student-athletes, but limited the decision’s revolutionary capability.  She concluded that she would “enjoin NCAA limits on most compensation and benefits that are related to education,” but still allow the NCAA to “limit education-related academic or graduation awards and incentives, as long as the limits are not lower than its limits on athletic performance awards now or in the future.”

In plain English, the decision prohibited NCAA institutions from putting a cap on education-related benefits (e.g. offering grad school scholarships and an unlimited budget for school-related expenses like a laptop), but still may not make payments tied exclusively to athletic participation (i.e. student-athletes cannot receive an athletic salary).  While branded as a “win” for the student-athletes, the whole goal of the lawsuit was to usher in the new era of the NCAA, defined by student-athlete compensation.  Judge Wilken didn’t offer that.  Still, the case lives on, as it is currently pending appeal in the Ninth Circuit.

While student-athletes have been active in the courts, let’s not forget about the FBI’s two investigations into college sports.

First, there is the investigation into the pay for play underbelly in college basketball that led to the conviction and sentencing of multiple NCAA assistant basketball coaches who were directly connected to filtering payments from shoe companies to top-tier recruits in order to secure commitments to their schools.  Two trials have been completed thus far, as juries have already returned two guilty verdicts noting that, yes, college basketball players, despite all of the NCAA rules to the contrary, were offered, and later received, cash payments to commit to certain institutions.

And then there is Operation Varsity Blues, the FBI’s sting operation that outed a system under which countless wealthy individuals paid six and seven figure sums to secure admission to prestigious institutions, by which their children (who were not athletes), were admitted to the school as athletics recruits.  In a prior post, “FBI: Hey, NCAA, You’re Still Pretty Bad at This” I touched on the ethics and irony of this scandal as compared the previous FBI investigation: “Where last year’s FBI indictments revealed coaches in revenue-generating sports bribing players to attend powerhouse athletics institutions with cash bribes sometimes left in movie theater garbage cans, this year movie actresses are writing non-revenue-generating coaches six figure checks to ensure their children are admitted to prestigious academic institutions so they can go to class.”

Where we stand today

Leading up to March Madness 2019, it was clear the NCAA’s model was less than bulletproof.  But with expensive defense teams pursuing a lengthy appeal process of Judge Wilken’s decision, and the FBI’s indictments focusing on only the worst actors in an attempt to preserve the “integrity” of college basketball (rather than legalize payments to its participants), there was serious uncertainty regarding the future of the pay for play fight.

And then lawmakers got involved.

Remember Schoolhouse Rock?  

The legislature makes the law, and the courts interpret it.  When legislators see that the law is incorrect or unfair, they have the power to change it.  So, if legislators across the fifty states want to overrule the NCAA’s model, that is their prerogative, and they are legally entitled to do so. 

And therein lies the beauty in the California Fair Pay for Play Act–it takes the initial fight out of the courts.  This means that the thirty-five-year-old rhetoric from the Supreme Court’s decision in NCAA v. Board of Regents, which granted the NCAA “ample latitude” to play the “critical role of the maintenance of a revered tradition of amateurism in college sports,” by affording its amateurism model protection under the Sherman Antitrust Act, is not at play.  The legislators are not bound by its precedential dicta, and their laws could soon overrule it.

And the NCAA knows it.

In an open letter to the California Governor, the NCAA Board of Governors strongly urged Newsome to veto the bill because “it would erase the critical distinction between college and professional athletics and, because it gives those schools an unfair recruiting advantage, would result in them eventually being unable to compete in NCAA competitions.”  The NCAA continued, “[i]t isn’t possible to resolve the challenges of today’s college sports environment in this way — by one state taking unilateral action.”  And thus, “[w]e urge the state of California to reconsider this harmful and, we believe, unconstitutional bill and hope the state will be a constructive partner in our efforts to develop a fair name, image and likeness approach for all 50 states.”

The letter is quintessential NCAA rhetoric.  It extols the virtues of an amateurism model that refuses, at all costs, to pay its players despite its billion dollar revenue streams.  It speaks of an unfair recruiting advantage to schools that can legally pay players (as opposed to illegally doing so through cash drops in garbage cans coordinated by assistant coaches, agents, and shoe companies).  It asserts the unconstitutionality of a bill, based on thirty-five year old dicta from Board of Regents and its own interpretation of the Sherman Act, neither of which stand on solid ground in 2019.  It threatens to forbid California schools from competition altogether.  And so the NCAA seeks to bully California into retreating because “[o]ne state taking unilateral action” has no effect on the NCAA.  But multiple states stepping in does–especially when those states contain some of the NCAA’s largest revenue generators.

And the NCAA knows it.

The trickle-down effects of the Act are far-reaching.  Given the importance of competitive advantage in college sports, it comes as no surprise that California, Michigan, New York, and South Carolina–all states who house Power 5 schools (e.g. University of Michigan, Michigan State, Syracuse, Clemson, University of South Carolina)–are seeking to offer mandated NIL compensation to their student-athletes.  Talk about advantage.  What eighteen-year-old recruit would turn down the chance to go to school in a state where he or she would be able to receive NIL compensation, in addition to unlimited educationally-related expenses?  In order to keep up with the Jonses, it is merely a matter of time before other states join in (looking at you, Alabama, Florida, North Carolina, and Texas).

The NCAA proclaims this recruiting advantage “unfair.”  No–current recruiting practices, like bag drops and wire transfers sending payments to student-athletes and putting coaches in jail is unfair.  Power Five schools have a stronghold on Division I governance, and its revenue streams.  Yet, institutions being able to pay players may actually even out the playing field by giving those schools that cannot keep up with powerhouses financially the opportunity to entice certain recruits to come to play for a school that would not otherwise be on their radar.  In this hypothetical world, there may actually be true equality between a seven-figure Power Five budget in a state that cannot pay players, and a mid-major with half the budget in a state that can.

Ultimately, the Fair Pay to Play Act signals an important power shift in the fight surrounding NCAA amateurism.  For thirty-five years, the NCAA has been able to maintain the status quo without shifting an inch.  Its open letter to California stays true to that position–but at what cost?

With the tides continuing to turn against the NCAA and legislators getting involved, now seems like the perfect time for the administration to shift its narrative to save a semblance of the institution it holds so dear.  This is especially true as it becomes increasingly clear to more Americans that its model is not infallible, that its system of amateurism is unequal and unfair, and, most importantly, that the lifeblood of its business model, its student-athletes, deserve to be compensated the same way its institutions, coaches, and administrators are.

Then again, with this bill, and the soon-to-be others that follow, amateurism as we know it may have already slipped out of the NCAA’s grasp.

Photo Credit: Wall Street Journal 

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