On January 28, 2008, the National Collegiate Athletic Association (NCAA) did what at the time was unthinkable, it settled an antitrust class action lawsuit filed by college athletes in White v. NCAA that challenged an NCAA amateurism rule. After all, the NCAA had successfully defended each and every antitrust challenge to its amateurism provisions prior to White.
Yet, the NCAA settled the claims in White not too long after the court certified the case as a class action lawsuit, permitting upwards of 20,000 past and current college athletes to pursue an estimated $300 to $400 million in damages. While the class certification may have operated as a procedural catalyst that prompted the NCAA to resolve the claims prior to trial, it was likely the strength of the claims asserted in White that led the NCAA to press the eject button.
Now, it is again advisable for the NCAA to make a similar decision in House v. NCAA and settle the claims challenging its amateurism rules in that case. Like in White, the NCAA once again finds itself on what appears to be the losing end of an argument in a recently certified class action lawsuit challenging its amateurism rules. Except this time, the stakes are significantly higher because damages are projected in the multibillion dollar range.
On November 3, 2023, Judge Claudia Wilken of the Northern District of California granted class-action status to Arizona State swimmer Grant House and a class of college athletes who competed under the NCAA’s amateurism restrictions. Judge Wilken’s name may ring familiar because she also presided over the last two antitrust actions brought against the NCAA’s amateurism rules in O’Bannon v. NCAA and NCAA v. Alston respectively. The NCAA lost both of those lawsuits and there is good reason to believe that the embattled governing body for major college sports will lose this one as well.
Just like in White, reason for doubting the NCAA’s chances at trial in House can be traced back to judicial interpretations of NCAA v. Board of Regents of University of Oklahoma. There are significant differences, however, in terms of how courts interpreted Board of Regents when White was settled, compared to how Judge Wilken must apply the reasoning from Board of Regents in House.
At the time White was settled, the NCAA still enjoyed significant judicial deference for its amateurism policy, with strong legal precedent supporting a presumption of validity for NCAA amateurism rules in the Third, Fifth, Sixth, and Seventh Circuits. Since then, both public and judicial sentiment for the NCAA’s once revered tradition of amateurism has shifted significantly. More importantly, however, is the fact that the NCAA no longer enjoys a presumption of validity for its amateurism rules, which effectively fortified them from application of antitrust law.
The presumption of validity stemmed from Justice Stevens dicta in Board of Regents, which the Supreme Court resolved in 1984. In a case involving the NCAA’s television plan, Justice Stevens made brief mention that the majority of the NCAA’s rules are presumed valid as necessary for preserving “the revered tradition of amateurism.” For more than two decades, federal district and circuit courts interpreted Justice Stevens’ dicta as requiring a presumption of validity for the NCAA’s regulation of amateurism that effectively shielded the regulations from application of the Rule of Reason in antitrust law.
The plaintiffs in White, however, posed a more serious threat than prior cases because they were not requesting the court to ignore the dicta in Board of Regents by holding that the NCAA’s concept of amateurism violated antitrust. Instead, the plaintiffs in White merely wanted to extend existing compensation restrictions to account for educational and economic realities so as to include the full cost-of-attending a university or college. The plaintiffs’ request in White was so compelling that it would eventually become the relief granted to the plaintiffs in O’Bannon v. NCAA. In O’Bannon, the Ninth Circuit found that expanding athlete compensation to the full cost-of-attendance was a less-restrictive approach to preserving amateurism.
Sticking with O’Bannon, in reaching its decision on the reasonableness of the NCAA’s scholarship limits, the Ninth Circuit became the first to do away with the presumption of validity by applying the Rule of Reason to the NCAA amateurism rules. In doing so, the Ninth Circuit deviated from the decades-old interpretation of Board of Regents that effectively exempted NCAA amateurism rules from Rule of Reason review via the presumption of validity interpreted from Justice Steven’s dicta. Instead, the court in O’Bannon looked to the actual reason Justice Stevens mentioned amateurism in Board of Regents in the first place. Specifically, the court held that Justice Stevens mentioned amateurism as part of an analogy for why the Rule of Reason should apply to the NCAA’s television restrictions, rather than find them per se illegal under antitrust.
Following O’Bannon was Alston, which made its way up to the Supreme Court where the Court ultimately affirmed the interpretation of Board of Regents that the Ninth Circuit used in O’Bannon. As a result, the presumption of validity for NCAA amateurism rules no longer exists. Perhaps even more alarming for the NCAA is that the Court seemingly has little patience for the only remaining legal argument the NCAA can still assert in defense of its amateurism rules. Specifically, the last legal arrow in the NCAA’s antitrust quiver is the assertion that its rules are reasonable because they are necessary to preserving amateurism, and are therefore pro-competitive because amateur sports cannot exist without rules to enforce amateurism.
Unfortunately for the NCAA, Justice Kavanaugh, in a concurring opinion within Alston, dismissed the NCAA’s last best argument as “circular”. If the NCAA is to successfully defend its amateurism rules from the Rule of Reason in House, it will need to establish that the rules actually are necessary for product creation. In other words, the NCAA will need to demonstrate, with economic evidence, that preserving amateurism is essential to preserving consumer interest in college sports.
The problem for the NCAA in House, however, is that the introduction of name, image and likeness (NIL) use in 2021 undermines any argument that compensating athletes will destroy college sports. After all, college athletes have been profiting from the use of their NIL for several years now and consumer interest in college sports still exists. So there is little to no reason to believe that interest would change for the worse if the schools were forced to also compensate athletes for their NIL and labor.
Accordingly, the NCAA should read the room and settle with the plaintiffs in House. The NCAA is risking billions if it does not. Not just that, but the NCAA should seriously consider settling House before the case reaches the summary judgment stage of litigation. The plaintiffs’ claims will likely survive any attempt at dismissing them before trial and once that happens, the cost for settlement will likely go up significantly.
Change is difficult and often scary. This time, however, what awaits the NCAA if it does not settle and change its regulation of college sports to include athlete compensation is even scarier. Much has changed for the NCAA since it settled White back in 2008. Back then, the NCAA smartly settled so as to keep their legal presumption from being tested by a very reasonable request in cost-of-attendance stipends. Now in House, the NCAA no longer enjoys judicial deference for its amateurism rules as the presumption of validity for them no longer exists.
Thus, it is time for the NCAA to read the room and realize that now is not the time to fight, it is time to settle.