October 3, 2016
Higher Education Law Report
March 16, 2016
On March 15, 2016, plaintiffs in the O’Bannon case sought U.S. Supreme Court review of the United States Court of Appeals for the Ninth Circuit’s decision issued in September 2015. In that decision, the Ninth Circuit sided with the NCAA by vacating that portion of the District Court’s ruling that would have required the NCAA to allow member institutions to pay limited deferred compensation to student-athletes for the use of their names, images and likenesses. The Ninth Circuit’s decision did not wholly favor the NCAA, however, as it also upheld that part of the District Court’s ruling that enjoined the NCAA from enforcing its rules precluding member institutions from providing athletic scholarships up to the full cost of attendance. Reports indicate that the NCAA had earlier requested an extension of time to file its own petition to seek U.S. Supreme Court review and that it continues to consider this option following the O’Bannon plaintiffs’ request.
December 21, 2015
Last week, a three-judge panel for the United States Court of Appeals for the Ninth Circuit voted 2-1 to deny the O’Bannon plaintiffs’ petition for a rehearing en banc of the Ninth Circuit’s September 30, 2015 decision on the NCAA’s appeal of the District Court’s 2014 decision. On appeal, the Ninth Circuit had upheld that part of the District Court’s ruling which enjoined the NCAA from enforcing its rules precluding member institutions from providing athletic scholarships up to the full cost of attendance, but disagreed with that part of the District Court’s decision which would have required the NCAA to permit member institutions to pay deferred compensation to student-athletes in an amount up to $5,000 per year for the use of their names, images and likenesses. While the parties’ next steps in the case are presently unknown, both the O’Bannon plaintiffs and the NCAA could potentially seek U.S. Supreme Court review of the Ninth Circuit’s decision.
Education Department Reverses Course on Prohibition Against Incentive Compensation Based on Retention and Graduation; Clears Way for Graduation Rate and APR Based Bonuses in Coaching Contracts
November 30, 2015
On November 27, 2015, the United States Department of Education announced a reversal of its previously existing prohibition against the payment of incentive compensation based on students’ program completion or graduation rates. The announcement follows two successive federal appeals court decisions, in 2012 and 2014, that the Department had not articulated a sufficient rationale for the prohibition. Although the announcement may impact retention and graduation based incentives on any number of fronts, it is of particular interest in the context of coaching and other athletics personnel employment contracts, where the prohibition had created significant uncertainty as to the permissibility of bonuses based on these metrics. As many will recall, on October 29, 2010, the Department adopted so-called Title IV “Program Integrity Rules.” Among other things, these new regulations eliminated previously existing regulatory safe harbors under the statutory prohibition against payment of incentive compensation for securing enrollment, and reversed a prior Department position that payments based on retention, degree completion or graduation were not considered impermissible enrollment-based compensation. In response to a comment questioning the applicability of the prohibition to the recruitment of student-athletes, the Department explained that:
[r]ecruitment of student-athletes is not different from recruitment of other students. Incentive compensation payments to athletic department staff are governed by the restrictions included in [the regulations]. If the payments are made based on success in securing enrollments or the award of financial aid, the payments are prohibited; however, the Department does not consider “bonus” payments made to coaching staff or other athletic department personnel to be prohibited if they are rewarding performance other than securing enrollment or awarding financial aid, such as a successful athletic season, team academic performance, or other measures of a successful team.
Based upon the Department’s statements that (a) incentivizing retention, degree completion or graduation is equivalent to prohibited incentivization of success in securing enrollments, and (b) athletic recruitment is no different than recruitment of other students, it appeared as though athletic department bonuses tied to student-athlete retention or program completion (e.g., graduation rate bonuses and/or Academic Progress Rate (APR)-based bonuses) would violate the new regulations. On March 17, 2011, however, the Department issued a “Dear Colleague” letter for the stated purpose of clarifying a number of new Title IV regulatory requirements, including the revised incentive compensation restrictions. Among other things, the “Dear Colleague” letter noted that:
[t]he preamble [to the new regulations] noted that bonuses for athletic personnel to reward performance other than securing enrollment or awarding financial aid, such as a successful athletic season, team academic performance, or other measures of a successful team, are permitted. . . . This statement merely reflects the fact that the payment of bonuses to athletic personnel is a common practice and is not typically viewed as incentive compensation based on recruitment of individuals as students, but at most may indirectly reward success in recruiting that small subset of individuals whose enrollment would benefit the institution’s athletic program.
Unfortunately, this “clarification” created more ambiguity than it resolved. For example, one could adopt a narrow reading of this explanation as standing for the proposition that payments based on successful on-field/on-court performance reward only indirectly success in recruiting, and that such bonuses (but not bonuses based on retention or academic progress) are therefore permissible. Alternatively, one could read the explanation more broadly as stating that athletic personnel may be paid bonuses based on retention or academic progress because they are not recruiting individuals for the purpose of increasing general student enrollment, but are instead recruiting individuals for the limited benefit of the institution’s athletics program. Under this broader reading, the incentive compensation prohibitions would not apply to athletic department staff insofar as they related solely to the recruitment of student-athletes. In the wake of the Dear Colleague letter, institutions adopted varying practices with respect to retention- or graduation-based incentive compensation in coaching and other athletics employment agreements. Some institutions proceeded cautiously, and restructured academic performance bonuses to be based on GPA or other clearly permissible metrics. Others, believing strongly in the merit of compensating personnel for keeping student-athletes in school and questioning whether the Department truly intended to prohibit this practice, retained graduation rate and APR-based bonus structures. Thankfully, the Department’s November 27 announcement removes any remaining uncertainty in this regard, and clearly supports the use of such bonus structures, as well as retention- or graduation-based compensation in other contexts. The Department’s announcement does not change other aspects of the continuing prohibition on paying commissions, bonuses or other forms of incentive compensation based directly or indirectly on securing enrollments or financial aid. Among other things, the Department expressly refused to alter its prohibition on compensation tied to minority enrollments, which had also been questioned in the court decisions referenced above, stating that the Program Integrity Rules bar compensation based on the number of students enrolled, “irrespective of the student’s minority or other status and irrespective of whether the goal of the recruiters is to increase diversity.”
October 9, 2015
The United States Court of Appeals for the Ninth Circuit issued its highly anticipated decision in the O’Bannon case on September 30, 2015. This case was an appeal of the United States District Court for the Northern District of California’s decision finding that certain NCAA rules were an unlawful restraint of trade in violation of federal antitrust law. Specifically, the District Court issued a permanent injunction prohibiting the NCAA from enforcing rules regarding scholarship caps, and requiring the NCAA to allow member schools to pay deferred compensation to certain student-athletes of up to $5,000 per year of eligibility to compensate them for revenues generated from the use of their names, images and likenesses. The Court of Appeals affirmed the portion of the District Court’s decision regarding scholarship caps and vacated the portion pertaining to deferred compensation. In reaching its decision, the Court of Appeals found that while the NCAA rules in question were procompetitive, they were not exempt from antitrust scrutiny, and were subject to antitrust law’s “Rule of Reason” test. Using this test, the Court of Appeals agreed with the District Court that the plaintiffs had demonstrated that the NCAA’s amateurism rules had an anticompetitive effect on the college education market. The analysis then turned to the procompetitive justifications for the amateurism rules posited by the NCAA. The Court of Appeals accepted two of the NCAA’s four proffered justifications as identified by the District Court: “integrating academics with athletics” and “preserving the popularity of the NCAA’s product by promoting its current understanding of amateurism.” The Court of Appeals next observed that not all of the NCAA’s compensation rules that restrict the market are necessary to preserve the “character” of collegiate athletics, and moved to consideration of whether there were “substantially less restrictive alternatives” to the NCAA’s compensation rules at issue in this case. The Court of Appeals agreed with the District Court that permitting institutions to set the grant-in-aid cap at student-athletes’ full cost of attendance was a less restrictive alternative to the NCAA’s current restrictions on compensation. In so doing, the Court of Appeals observed that the NCAA’s current rule “has no relation whatsoever to the procompetitive purposes of the NCAA: by the NCAA’s own standards, student-athletes remain amateurs as long as any money paid to them goes to cover legitimate educational expenses.” However, the Court of Appeals disagreed with the District Court regarding the payment of compensation to student-athletes for the use of their names, images and likenesses. According to the Court of Appeals, when the District Court found “that paying student-athletes would promote amateurism as effectively as not paying them,” the District Court “ignored that not paying student-athletes is precisely what makes them amateurs.” (Emphasis in original). The Court of Appeals continued:
The difference between offering student-athletes education-related compensation and offering them cash sums untethered to educational expenses is not minor; it is a quantum leap. Once that line is crossed, we see no basis for returning to a rule of amateurism and no defined stopping point…
To summarize, the Court of Appeals’ decision permits the offering of grants-in-aid up to the full cost of attendance (which, notably, had already been approved by the so-called “autonomy conferences” and was scheduled to take effect on August 1, 2015), but continues to permit the NCAA to enforce its rules prohibiting (among other things) the payment of deferred compensation to student-athletes in the form contemplated by the District Court. At this point, either party could seek review of the decision by the full Court of Appeals (as this decision was rendered by a three judge panel) or seek to appeal to the U.S. Supreme Court. The Court of Appeals’ decision is important in that it makes clear that the NCAA’s rules are not exempt from scrutiny under antitrust law, and specifically a “Rule of Reason” analysis. However, the decision regarding deferred compensation signifies a potentially important victory for the NCAA’s tradition and principles of amateurism, and may prove beneficial to the NCAA in its defense of Jenkins v. NCAA and other similar lawsuits. Elizabeth D’Agostino, a 2015 graduate of Albany Law School who is awaiting admission to the New York State bar, contributed to this blog post.
September 30, 2015
On September 30, 2015, the United States Court of Appeals for the Ninth Circuit issued its highly anticipated opinion on the NCAA’s appeal of the District Court’s decision in the O’Bannon case (a summary of the District Court’s decision is available here). After a lengthy discussion in which the Ninth Circuit ruled that the NCAA’s compensation rules are subject to scrutiny under antitrust laws, the Ninth Circuit affirmed in part and reversed in part the District Court’s decision. The Ninth Circuit upheld that part of the District Court’s ruling which enjoined the NCAA from enforcing its rules precluding member institutions from providing athletic scholarships up to the full cost of attendance. The Ninth Circuit reasoned that this constituted a substantially less restrictive alternative to the NCAA’s current compensation rules because this would have virtually no impact on amateurism. The Ninth Circuit disagreed, however, with that part of the District Court’s decision which would have required the NCAA to permit member institutions to pay deferred compensation to student-athletes in an amount up to $5,000 per year for the use of their names, images and likenesses. The Ninth Circuit was particularly critical of the District Court’s decision here, noting that the District Court ignored the fact that not compensating student-athletes is precisely what renders them amateurs. As a result of the Ninth Circuit’s ruling, member institutions may provide FBS football and Division I basketball recruits with grants-in-aid up to the full cost of attendance, but remain prohibited by NCAA rules from providing the $5,000 per year deferred compensation contemplated by the District Court’s decision. A more detailed summary of the Ninth Circuit’s decision will be published on Bond’s Higher Education Law Report in the coming days.
The NLRB Unanimously Shuts Down Attempt to Unionize Northwestern's Scholarship Football Players - August 2015
August 18, 2015
In a long-awaited decision issued on August 17, 2015, the five-member National Labor Relations Board (“Board”) unanimously shut down an attempt by Northwestern University’s scholarship football players to become the first group of college athletes to form a labor union. This Board holding vacates the direction of election issued by an NLRB Regional Director in March 2014 and dismisses the representation petition filed by the College Athletes Players Association (“CAPA”), but does not address the fundamental issue of whether the players are “employees” under the National Labor Relations Act (“Act”). Instead of deciding this issue, the Board declined to assert jurisdiction over this case based on its conclusion that it “would not promote stability in labor relations” and therefore would not effectuate the policies of the Act. The Board noted that it had never been asked to assert jurisdiction in a case involving college athletes, nor had there ever been a petition for representation of a unit of a single college team, or even a group of college teams. The Board also pointed out that the players in this case did not “fit into any analytical framework” the Board had used in other cases involving college students (such as graduate student assistants or student janitors and cafeteria workers) because this case involved student athletes who receive scholarships to participate in what traditionally has been regarded as an extracurricular activity. The Board also distinguished these scholarship players from professional athletes, because the scholarship players are required to be enrolled full time as students and meet various academic requirements. The Board further observed that bargaining units in professional sports have never been limited to a single team’s players – they have always included the players of all teams in the entire league. Therefore, the Board concluded that there was no precedent that required it to assert jurisdiction, and that it was free to exercise its discretion to decline jurisdiction over this case. In justifying its decision to decline jurisdiction, the Board explained that Northwestern is a member of the National Collegiate Athletic Association (“NCAA”), which has a “substantial degree of control over the operations of individual member teams, including many of the terms and conditions under which the scholarship players (as well as walk-on players) practice and play the game.” Under these circumstances, the Board determined that its assertion of jurisdiction over only Northwestern and its scholarship football players would not promote stability in labor relations across the NCAA. The Board further explained that Northwestern competes in the NCAA Football Bowl Subdivision (“FBS”), where 108 of the 125 member schools are public institutions that are not covered by the Act. As a result, the Board does not have jurisdiction over the vast majority of the FBS teams. In fact, the Board pointed out that because Northwestern is the only private school in the 14-member Big Ten Conference, it “cannot assert jurisdiction over any of Northwestern’s primary competitors.” The Board cited this as an additional reason why its assertion of jurisdiction over only Northwestern and its scholarship football players would not promote stability and uniformity in labor relations. Although the Board’s exercise in restraint in this decision comes as somewhat of a surprise given this Board’s activism in expanding the reach of the Act, the Board made clear that its decision does not “preclude a reconsideration of this issue in the future,” and should be interpreted narrowly. In fact, the Board seemingly opened the door for consideration of a broader proposed bargaining unit than scholarship football players at one university by stating that its decision is not intended to “address what the Board’s approach might be to a petition for all FBS scholarship football players (or at least those at private colleges and universities).” So, the landscape of collegiate athletics will remain the same for now, but this may not be the last unionizing effort of student athletes that we see.
August 3, 2015
On July 31, 2015, the United States Court of Appeals for the Ninth Circuit granted the NCAA’s request to stay the injunctions ordered by the District Court in the O’Bannon v. NCAA case. In August 2014, the District Court enjoined the NCAA from enforcing its rules that prohibited member schools and conferences from offering FBS football or Division I basketball recruits a limited share of the revenues generated from the use of their names, images, and likenesses and from offering to deposit a limited share of licensing revenue in trust for such student-athletes. As a result of the stay, the NCAA’s current rules may continue to be enforced until such time as the Ninth Circuit rules on the NCAA’s appeal of the District Court’s decision.
October 14, 2014
Bond attorneys Mike Glazier and Paul Avery authored an article discussing the United States District Court for the Northern District of California’s decision in O’Bannon v. NCAA which was published on October 6, 2014 as a NACUANOTE by the National Association of College and University Attorneys. The article, entitled O’Bannon v. NCAA: The District Court Decision, can be viewed here.
August 25, 2014
Last Thursday, the NCAA announced that it had filed a notice of appeal of Judge Claudia Wilken’s August 8, 2014 decision in O'Bannon v. National Collegiate Athletic Association et al. The appeal was widely anticipated as the decision has been broadly viewed as a major setback for the NCAA. Although this is certainly true insofar as the court concluded that current NCAA rules represent a violation of federal antitrust law, the decision actually somewhat measured and contained some content beneficial to the NCAA, including (a) an acknowledgement of the NCAA’s interest in limiting payments to student-athletes while enrolled in order to promote the educational goal of integrating student-athletes into their respective campus communities, (b) an acknowledgement that limiting payments to student-athletes might help the NCAA maintain viewer interest in, and demand for, broadcasts of intercollegiate athletic contests, (c) an acknowledgement that permitting student-athletes to endorse commercial products would undermine the NCAA’s goal of preventing commercial exploitation of student-athletes, and (d) authorization for the NCAA to cap the amount of compensation paid by institutions to student-athletes for use of their likenesses. These aspects of the O’Bannon decision could be helpful to the NCAA, among other things in the context of Jenkins et al. v. National Collegiate Athletic Association et al. (the so-called Kessler litigation), in which the plaintiffs are expected to argue that the NCAA cannot limit student-athlete compensation at the cost of attendance. As a result, the NCAA’s decision to appeal is, on some level, interesting from a strategic standpoint. In announcing its appeal, the NCAA made specific reference to a passage in Judge Wilken’s decision suggesting that reform of NCAA principles governing student-athlete compensation would be best achieved outside the courtroom. It is possible that discussion of such reforms may occur against the backdrop of the NCAA’s appeal and in advance of the decision becoming effective for the 2015-2016 academic year, though the pendency of Jenkins and other litigation will necessarily pose challenges in this regard.
August 12, 2014
The United States District Court for the Northern District of California issued its highly anticipated decision in the Ed O’Bannon case on August 8, 2014. The Court ruled in favor of the plaintiffs, a class consisting of current and former college student-athletes who filed suit in 2009, concluding that the NCAA’s rules which prohibit payment to student-athletes are an unreasonable restraint on trade, and thus violate federal antitrust law. In so finding, the Court issued injunctions prohibiting the NCAA from enforcing certain of its rules:
…the Court will enjoin 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. The injunction will not preclude the NCAA from implementing rules capping the amount of compensation that may be paid to student-athletes while they are enrolled in school; however, the NCAA will not be permitted to set this cap below the cost of attendance…
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. Although the injunction will permit the NCAA to set a cap on the amount of money that may be held in trust, it will prohibit the NCAA from setting a cap of less than five thousand dollars (in 2014 dollars) for every year that the student-athlete remains academically eligible to compete.
Notably, the injunction does not preclude the NCAA from continuing to enforce its other existing rules, including those prohibiting student-athletes from endorsing commercial products. The Court’s decision, which came one day after the NCAA voted to afford schools in its major conferences additional autonomy to, among other things, increase the value of scholarships, will not affect prospective student-athletes who enroll prior to July 1, 2016. Yesterday, the NCAA filed a request with the Court seeking clarification regarding the effective date. The NCAA has announced that it will appeal the decision. Among the multitude of questions raised by this decision are (1) the likelihood and prospects of future antitrust challenges against the NCAA’s other amateurism based rules, (2) how the potential compensation of student-athletes will impact recruiting and competitive balance in college athletics, (3) how any significant compensation of student-athletes will impact athletic department and non-revenue generating sports’ budgets and, potentially, threaten the continued existence of non-revenue generating sports, and (4) the Title IX and other regulatory impact of any resulting changes in athletic department offerings. Only time will tell how these and others specific questions stemming from this decision will be answered, but at this point it is clear that the game has changed for the NCAA and its longstanding principles of amateurism.