Court rules NCAA violates antitrust law, but penalty is relatively peanuts

— -- It has a TV contract for its basketball tournament that is worth nearly $11 billion. Its schools have spent $5 billion on athletic facilities in the past 15 years, and they pay their coaches as much as $7 million per year. But when the NCAA faces scrutiny about its treatment of college athletes, its answer always comes in a single word: "amateurism."

And, surprisingly, its use of the term "amateurism" as the foundation of a business worth tens of billions of dollars might be working. Two of three judges in the U.S. Court of Appeals for the 9th Circuit agreed in a decision Wednesday that the NCAA's notion of amateurism protected its schools from the prospect of paying athletes even the paltry sum of $5,000 above and beyond the full cost of their scholarships.

In a decision that the judges themselves labeled as "momentous" and "far reaching," the high court rejected a lower court ruling that would have allowed Division I schools to pay football and men's basketball players $5,000 per year in deferred compensation. In sum, the court ruled that the NCAA has indeed violated antitrust laws, but as long as it pays the full cost of an athlete's college education going forward, it will no longer be in violation of those laws.

In a conference call shortly after the decision was announced, NCAA president Mark Emmert and his top lawyer, Donald Remy, were clearly trying not to smirk in delight with the ruling. The decision is a rare bit of good news for an organization that has been under perpetual attack in antitrust litigation during the past several years. What appeared to be a slow, inevitable, litigation-powered march toward radical transformation of the NCAA and a pay-for-play system is no longer a certainty.

Despite massive efforts from a team of top antitrust trial lawyers, the players led by Ed O'Bannon, former UCLA star, have only a slight increase in the size of their scholarships to show for the effort. The court ruling approved the use of the actual cost of attendance as the basis for an athlete's scholarship, but it is a change that the NCAA was willing to accept and that the major conferences have already adopted.

The majority opinion is based on the NCAA's long-standing principle that "not paying student-athletes is precisely what makes them amateurs." Judges Jay S. Bybee and Gordon J. Quist felt compelled to use italics to make a point that has been the centerpiece of Emmert's response to the O'Bannon litigation and to other demands for change. He used almost the same language in his testimony in the trial in Oakland, California, in June 2014 when he said, "If you're paid anything, you are no longer an amateur."

It is an idea that the NCAA has offered in several lawsuits similar to the O'Bannon litigation, but the judges' adoption of it in the decision Wednesday is one of the first and most important occasions when the idea has been accepted.

Although the NCAA is the clear winner in this decision, the court's reasoning set off some alarms that may result in an appeal by the NCAA. As the result of a decision by the U.S. Supreme Court in 1984 in a case involving NCAA restraints on television broadcasts of college football, the nation's highest court said that the organization's amateurism rules were "valid as a matter of law" and could not be questioned in antitrust litigation. The court added that "in order to preserve the character and quality of [college sports], athletes must not be paid." Understandably, the NCAA has long relied on this ruling as it defended itself against antitrust attacks.

But in the decision issued in O'Bannon, the majority judges ruled that the NCAA's reliance on the 1984 decision was misplaced, ruling that the NCAA was legally and factually subject to antitrust scrutiny. Any restraints in the rules of the NCAA (a limit on the number of TV broadcasts, a bar against payment to players), the court ruled, must be shown in court to be reasonable. A judge or even a jury under this new ruling will determine whether the NCAA is justified in these restraints.

Bybee, who wrote the legal memo authorizing "enhanced interrogation techniques" at Guantanamo Bay and Abu Ghraib while he was White House counsel under President George W. Bush, wrote in the O'Bannon decision that high court in the 1984 decision did not "approve the NCAA's amateurism rules as categorically consistent with [antitrust laws]" and that the court's "long encomium" to amateurism does not qualify as a binding legal precedent.

While the NCAA should be happy with the court's decision overall, this use of the legal doctrine adopted by Bybee and known as The Rule of Reason is not a welcome development for the NCAA, and its legal team is considering an appeal. Remy was not ready to make a decision on an appeal Wednesday, but it appears likely that the NCAA will seek a review, either by a larger group of judges in the 9th Circuit Court of Appeals (an en banc hearing) or in a petition to the Supreme Court.

Under the court's decision, other players can now pursue litigation that will ask juries and judges whether other NCAA rules and restraints on athletes are acceptable. A ruling that a restraint is unacceptable would lead to awards of money damages. In antitrust cases, the money damages are automatically tripled.

As Michael Hausfeld, lead attorney for the O'Bannon group, said after the announcement of the decision, the court "has affirmed that the NCAA and its member schools are a price-fixing cartel that has long violated antitrust laws" and "that [ruling] will translate into real money for college athletes."

The NCAA is also unhappy with the idea that courts, under the decision made in O'Bannon, now have the power to govern the NCAA with the use of court orders and injunctions. As Remy said after the decision was made, the court approval of cost of attendance scholarships was "unnecessary because we were already doing it." If the NCAA wants to preserve any level of independence in its operation, it will appeal the O'Bannon decision.

Whatever Remy and the NCAA decide, the players are certain to seek an appeal. The ruling that schools could pay players as much as $5,000 in deferred compensation was a major breakthrough for college athletes. An appeal to a larger group of judges in the 9th Circuit Court of Appeals could easily result in a reversal of the 2-1 decision and a restoration of the $5,000 payments. The attorneys for the players also will be interested in an appeal because they now face some difficulty in collecting their $40 million in legal fees from the NCAA.

The dissent from Chief Judge Sidney R. Thomas, who was once on President Barack Obama's short list for the U.S. Supreme Court, was a powerful defense of the idea of paying athletes $5,000 per year in deferred compensation and relied on testimony from four experts in marketing and polling who testified that the payment would not have a negative effect on the popularity of college football and baseball. A dissent from Judge Thomas's stature offers significant support in any player appeal.

The ultimate decision in O'Bannon could easily come from the Supreme Court. Judges rarely describe their own decision as "momentous" and "far reaching." The use of those descriptions in this decision is a clear signal the three judges expect their decision in the case to find its way to a review in the Supreme Court.

The high court made a thorough examination of the NCAA and its rules in the 1984 decision, a case involving the football programs at Oklahoma and Georgia. That was 31 years ago, and it may be time for the court to take a new look at a business worth billions that pays its primary performers nothing more than the cost of attendance.