In a class action brought under the Sherman Antitrust Act, the Ninth Circuit Court of Appeals held that the NCAA eligibility regulations are subject to antitrust scrutiny. Applying the so-called Rule of Reason, the court held that the longstanding NCAA rule that prohibits colleges from providing the cost of attendance to athletes is “more restrictive than necessary to maintain [the] tradition of amateurism” and therefore violates the Antitrust Act. However, reversing the district court, the court of appeals held that the NCAA rules that prohibit colleges from offering students cash sums that are not directly related to their educational expenses do not violate antitrust laws.

The issue in the case was whether the NCAA amateur rules that prohibit student athletes from being compensated for the use of their names, likenesses, and images (“NILs”) are an illegal restraint of trade under the Sherman Act. After a trial, the district court entered an injunction that barred the NCAA from prohibiting its member schools from (1) compensating FBS Football and Division I men’s basketball players for the use of their NILs by awarding them grants-in-aid up to the full cost of attendance of their respective schools, or (2) paying up to $5,000 per year in deferred compensation for the use of the NILs through trust funds distributable after they leave schools. On appeal, the court of appeals affirmed the first part of the injunction but reversed the second.

The court of appeals rejected the NCAA’s arguments that under Supreme Court rulings the NCAA’s amateurism rules are valid as a matter of law. It also rejected the NCAA’s argument that the Sherman Act does not apply to the NCAA rules because they do not regulate commercial activity. The court agreed with the district court’s conclusion that the anti-compensation rules “have a significant anticompetitive effect on the college education market in that they fix the ‘price’ that the recruits pay to attend college.”

This, however, was not enough for a finding of antitrust violation. The Rule of Reason requires that there be substantially less restrictive alternatives to the current NCAA rules. It is on this point that the court of appeals disagreed partially with the district court, concluding that, given the legitimate and procompetitive goal of amateurism generally, allowing cash compensation does not represent a “less restrictive” means of maintaining it since, as the court put it, “not paying student athletes is precisely what makes them amateurs.” The court went on: “Having found that amateurism is integral to the NCAA’s market, the district court cannot plausibly conclude that being a poorly-paid professional collegiate athlete is virtually as effective for that market as being an amateur.”

O’Bannon v. Nat’l Collegiate Athletic Ass’n, Nos. 12-16601 and 14-17068 (9 Cir. Sept. 30, 2015).