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August 17, 2014 6:27 PM Ruling Against the NCAA

By Don Taylor

A federal judge ruled against the NCAA in the so-called Ed O’Bannon case, opening the way for players to share in licensing revenue (the use of their image and likeness on TV, etc) above the cost of attending college (what can be covered by a scholarship). The most consequential points:

In a 99-page opinion, U.S. District Judge Claudia Wilken issued an injunction that will prevent the NCAA “from enforcing any rules or bylaws that would prohibit its member schools and conferences from offering their FBS football or Division I basketball recruits a limited share of the revenues generated from the use of their names, images and likenesses in addition to a full grant-in-aid.” Wilken said the injunction will not prevent the NCAA from implementing rules capping the amount of money that may be paid to college athletes while they are enrolled in school, but the NCAA will not be allowed to set the cap below the cost of attendance. (my emphasis)

And

The injunction will also prohibit the NCAA from “enforcing any rules to prevent its member schools and conferences from offering to deposit a limited share of licensing revenue in trust for their FBS football and Division I basketball recruits, payable when they leave school or their eligibility expires,” Wilken wrote. Her injunction will allow the NCAA to set a cap on the trust fund at less than $5,000 in 2014 dollars for every year an athlete remains academically eligible to compete. The money would be payable to athletes upon expiration of their athletic eligibility or graduation, whichever comes first. She ruled schools could offer lower amounts of compensation if they want, but they can’t “unlawfully conspire with each other in setting these amounts.”

Basically, universities can now offer the full cost of attendance plus $5,000/year to be received upon graduation to play Division 1 basketball or FBS football (other sports aren’t included; they don’t generate much money,and are in fact, money losers). The ruling explicitly denies players from being able to individually negotiate the sale of their likeness, for example through endorsement deals while in college.

Some thoughts on this:

  • This is a fairly friendly adverse ruling, because the NCAA is allowed lots of discretion and the money still all flows through universities and conferences (no direct player endorsements). However, the purely amateur model of college sports is now officially dead.
  • The principle of athletes sharing in more of the money they help generate (beyond a scholarship) is correct, I think, and roughly in line with proposals I have made in the past.  However, a more economically appropriate “fix” would be to set a base stipend amount that the vast majority of players would get, and allow for an explicit market mechanism to determine the amount that “stars” receive. A modest stipend could be delivered while the students played; the stars could get the big bucks when they left college.
  • This decision, along with this past weeks NCAA announcement allowing the 5 FBS football conferences to make their own rules about cost of attendance coverage for athletes signal that there will be some big changes (The NW football union debate is another signal). What strikes me about where Universities like Duke stand now is how much policy making there is to undertake, especially with the decision explicitly saying Universities can set the share of licensing money below $5,000/year/player, they simply cannot collude in doing so. Overlaid on that is the ACC (and other 4 FBS football conferences) trying to determine their rules on what scholarships cover. Will there be an ACC decision about a cost of attendance calculation for football and basketball that must be complied with? Or will it be left up to members to work under a set of to be developed guidelines? And will collusion (I think that is what the ACC members agreeing to a ‘must follow’ cost of attendance decision would be) be ok, but collusion in setting the share of licensing revenue is explicitly not allowed in the judges ruling? Lots of policy making to be done.
  • It is a particularly interesting time for Duke. 5 or 6 years ago, we would likely be looking for a Georgetown solution (play Div 1 basketball, but drop to a lower level in football). But Duke just went to the ACC Championship game in football, and probabilistically speaking have to be approaching a ‘regression to the mean’ phase in basketball within the next 5-7 years. Duke is so far in that I think we will have to match the maximum package allowable, especially in basketball in the short term. Overcoming that inertia and choosing a different approach would be very difficult.
  • I am a member of the Executive Committee of the Academic Council at Duke, the primary faculty governance body at the University, so we will inevitably have to weigh in. This will of course be chaotic. The professors break down into three groups: (1) those who embrace Duke’s big time sports; (2) those who hate the attention and money given to big time sports and who want to de-escalate; (3) those who are clueless about it and don’t pay attention (on basketball national championship game day in April, 2010 I had coffee with a faculty friend who said “isn’t there some sort of match tonight?” Um…). I think that big time sports are inextricably a part of Duke’s identity and there is really no going back. We will have to learn the new rules and compete within them. I will go so far as to say that Duke’s recruitment of undergraduate students ‘niche’ are very smart students who say they want a ‘balanced’ college experience, that includes big time sports. I believe that if we dropped to D3 sports, our student body would become less competitive. This telling of Duke’s story will be bitterly opposed by other faculty. However, you cannot ‘split the difference between the two views’  as Duke either has to try and compete at the highest level of football and basketball, or not.
  • Finally, I assume that Duke makes every effort to fully comply with the rules, and  further assume that this will always be the case. The question is what are the rules, and how will people react as the reality of the new regime becomes clear.

Should be an interesting year.

[Cross-posted at The Reality-Based Community]

Don Taylor is an associate professor of public policy at Duke University, where his teaching and research focuses on health policy.

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