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How tentative grant-in-aid class action settlement affects NCAA, student-athletes

The NCAA reached a tentative settlement in a class action lawsuit over grant-in-aid maximums. Here's what that means for going forward.

The NCAA and 11 major athletic conferences have reached a tentative class action settlement that, if approved by U.S. District Judge Claudia Wilken, would end In Re: National Collegiate Athletic Association Athletic Grant-in-Aid Cap Antitrust litigation. This case is more widely known as former West Virginia University running back Shawne Alston’s class action lawsuit against the NCAA. Since 2014, Alston and later co-plaintiffs have argued that the NCAA and its members, by agreeing to cap the maximum grant-in-aid at less than the full cost of attending a college, unlawfully conspired to deny student-athletes the full cost of attending their respective schools.

Past tense is appropriate in this discussion. In 2015, the NCAA changed its rules to allow schools to offer student-athletes the full-cost of attendance. Typically valued at between $2,500 and $5,000 a year depending on the school and accompanying cost of living data, the full cost of attendance is an amount of money in addition to that received by student-athletes through grant-in-aid (financial aid). Per NCAA rules, grant-in-aid is capped at tuition and fees, room and board, and required course-related books.

Attorneys at Hagen Berman, the law firm representing Alston and other players, have stressed that the NCAA should compensate affected student-athletes for the full cost of attendance before the NCAA changed its rules. Those attorneys have persuaded the NCAA to agree to a settlement that would require the NCAA to pay $208.7 million to a class of approximately 40,000 persons who played or have played Division 1 football, men’s basketball and women’s basketball since March of 2010.

Judge Wilken will review the terms of the settlement to ensure that it adequately addresses the interests of class members. As part of that process, she will consider any objections by class members. Given that the NCAA has agreed to pay a significant amount, the odds are high that Judge Wilken will approve the settlement.

How the Alston settlement, if approved, will work

According to the terms of the settlement, class members should generally expect to receive between $5,000 and $7,500. A class member who played football, men’s basketball or women’s basketball for four years will receive, on average, $6,763. If you qualify as a class member, Hagen Berman indicates that you will be contacted after the settlement is approved and a check will be mailed to you as well.

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Class members will also be provided with an opportunity to “opt out” of the settlement. By opting out, a class member would forgo the settlement payment but remain able to pursue his or her own lawsuit against the NCAA, conferences and schools over the same legal claims.

The NCAA does not admit fault as part of the Alston settlement

While the settlement (if approved) will require the NCAA to pay $208.7 million, it will not require the NCAA to admit any wrongdoing. This is not surprising. A settlement is not an admission of guilt. It is a contract where the defendant and plaintiff agree on an arrangement that both find preferable to continuing the litigation. It is possible, if not likely, that NCAA attorneys were confident they would have ultimately prevailed in a trial against Alston and other players. But any such confidence would have come with a major risk—the risk of losing. Along those lines, we know it is worth at least $208.7 million for the NCAA to terminate this litigation, otherwise the NCAA would not have agreed to the terms of this settlement.

So what does the NCAA gain from a settlement that, if approved would require the NCAA to pay such a hefty fee? Perhaps most important, the NCAA eliminates the possibility of the “worst case” scenario occurring: losing the case, having to pay much more than $208.7 million and being forced to radically change its governing rules. The NCAA also cuts off any further obligations to share evidence or partake in depositions that might reveal damaging information about the NCAA and its officials.

Relationship between the Alston settlement and the broader debate over “amateurism”

The Alston settlement occurs in the midst of a larger legal crisis facing the NCAA over the relationship between student-athletes, their education and the monetary value they generate.

Over the last decade, the NCAA has fought hard to protect “amateurism,” an overarching principle that policies governing college sports should create clear boundaries between college sports and professional sports. One particularly controversial aspect of amateurism is that student-athletes’ eligibility to play is contingent upon them not receiving payment outside of grants-in-aid and, at participating schools, full cost of attendance. Many critics find such a dynamic hypocritical given the billions of dollars generated by college sports. These critics highlight how massive revenue generated by college students playing sports fuels construction of professional sports-quality stadiums for college teams and enables college coaches to sign multi-million dollar employment contracts. Some have lamented that everyone except the college athlete—who might spend 50 hours per week on playing games, travelling, attending team meetings, practicing and other team activities—receives a fair share.

In response, the NCAA and supporters of amateurism have long insisted that plainly distinguishing college athletes from pro athletes promotes those college athletes’ education—which is, after all, the main point of college. They also contend that college athletes receive considerable benefits through amateurism. Student-athletes on full athletic scholarships, for instance, are relieved of having to pay tuition, which at some private universities costs more than $50,000 a year. Student-athletes also receive thousands of dollars in value through free housing, books and fee waivers. Further, student-athletes sometimes receive superior access to tutors, training facilities and healthcare that, if valued, would likewise be worth thousands of dollars. For their part, superstar college athletes receive an additional benefit: high caliber coaching that improves their chances for successful careers in pro sports or Olympic sports.

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Whether amateurism makes sense from a policy standpoint is an excellent debate topic. Courts, however, care much less about that debate and more about whether the NCAA’s amateurism rules comply with the requirements of law. Amateurism encounters particular hostility while under the scrutiny of antitrust law: when colleges—which are fundamentally businesses that compete over many things, including students and student-athletes—conspire through amateurism to limit how much money each can spend on student-athletes, those colleges are engaged in a form of anti-competitive conduct.

In recent years, numerous former and current student-athletes have sued the NCAA on antitrust grounds. Alston and his fellow plaintiffs are some of those athletes. As explained below, Ed O’Bannon, Martin Jenkins and their co-plaintiffs are others. What matters most is that all of their lawsuits are connected: each implicates the same areas of antitrust law and a player’s victory in one case improves the odds for players in other cases.

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Ed O’Bannon’s successful antitrust case likely played a key role in NCAA’s decision to settle with Alston

Last October, the U.S. Supreme Court declined to review Ed O’Bannon’s historic lawsuit against the NCAA. The Supreme Court thereby left in place O’Bannon’s victory at the U.S. Court of Appeals for the Ninth Circuit. O’Bannon’s lawsuit, a trial for which was presided over by Judge Wilken, centered on whether DI men’s basketball and football players should be compensated for the commercial use of their names, images and likenesses—such as when their names, images and likenesses appear on television broadcasts and on apparel, and in video games. O’Bannon successfully argued that the NCAA and its members unlawfully conspired to set the value of such commercial use to $0, thereby relieving themselves of any obligation to compensates athletes.

While O’Bannon proved that the NCAA violated antitrust law, the court ordered a remedy that proved much less disruptive for the NCAA than some NCAA critics had desired. So long as the NCAA permits colleges to offer the full cost of attendance, the court reasoned, the NCAA remedies harm related to the use of names, images and likenesses. The remedy did not compel immediate change: as noted earlier, the NCAA already permitted colleges to offer the full cost of attendance.

Still, O’Bannon’s victory was a game-changer when considering the larger landscape. By proving that the NCAA violated antitrust laws, O’Bannon created precedent for ongoing and future cases involving amateurism rules. This is why the NCAA hoped that the Supreme Court would review and reverse O’Bannon’s victory: even if O’Bannon’s win did not trigger immediate disruption for the NCAA, the win has made it easier for other plaintiffs to pursue antitrust cases against the NCAA. If successful, some of those cases might compel massive changes. This is particularly true of cases heard in a federal district under the Ninth Circuit’s jurisdiction—those federal districts are in Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Washington, Guam and the Northern Mariana Islands. A court presiding over such a case must follow the precedent of O’Bannon v. NCAA. It is perhaps not surprising, then, that the NCAA agreed to pay $208.7 million to settle the Alston class action when it is before the same court and the same judge who ruled in favor of O’Bannon.

The Jenkins v. NCAA case continues

The NCAA settling the Alston class action does not end the NCAA’s ongoing antitrust worries. The NCAA is also defending against an antitrust case brought by Martin Jenkins, Nigel Hayes and other former and current players over grant-in-aids. The players, whose attorneys are prominent sports lawyers Jeffrey Kessler and David Greenspan, argue that the NCAA and its members should not be able limit the value of student-athlete compensation to tuition, room, board, books, fees and the full cost of attendance. Instead, so the logic goes, colleges—which, as explained above, are competing businesses—should behave as competitors, not as conspirators, when recruiting student-athletes. Along those lines, if coveted student-athletes are worth “more” financially to a school than what is permitted by grants-in-aid, the school should be able to offer more to those student-athletes.

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To illustrate, imagine that the University of Alabama, Florida State University, the University of Southern California and other top college programs all recruit the same top high school athlete. According to Jenkins, those schools should be able to extend athletic scholarship offers (or analogous forms of payment) that are commensurate with the market value of such a coveted recruit. That could mean offering an athletic scholarship that is worth several hundred thousand dollars or perhaps even millions of dollars.

This all may sound radical, even crazy, but ask yourself what Deshaun Watson and Leonard Fournette have been worth to Clemson University and Louisiana State University, respectively? It’s safe to say a lot more than the value of their athletic scholarships. The Jenkins case contends that Watson, Fournette and similar players are essentially defrauded of the value greater than their scholarships, and that such value wrongly goes to fund exorbitant coaches’ salaries and pricey construction projects.

At the same time, in a world in which Jenkins wins, no university would “have to” spend more. The only outcome would be that the NCAA could not prevent schools from spending more.

As with other cases discussed above, Judge Wilken is presiding over the Jenkins case. She has made clear that she expects any payments in excess of the value of athletic scholarships to exhibit some degree of relationship to educational expenses. Such reasoning could limit the potential impact of the Jenkins case on the NCAA, though that remains to be seen.

The Jenkins case may be a difficult one for the NCAA to settle. Any settlement that Jenkins and other plaintiffs would find acceptable would presumably require significant changes to amateurism. Remember, Jenkins seeks a game changer outcome: the end of capping the value of athletic scholarships to grants-in-aid and full cost of attendance. Would Jenkins accept a world where there are de facto salary caps on the value of athletic scholarships? For instance, say the cap of an athletic scholarship is set at $150,000 a year—such an amount would be higher than what is currently permitted through grants-in-aid. But $150,000 might prove less valuable for star student-athletes than they would be able to obtain in an unrestricted free market where schools enter into financial bidding wars for top high school athletes.

Sorry, the Alston settlement does not mean new college sports video games

Many college sports fans remain annoyed that Electronic Arts discontinued its popular college football and college basketball video game series. The last college football game published was in 2013, when EA released NCAA Football 14, and the last basketball game published was in 2009, when EA released NCAA Basketball 10. EA discontinued those series on grounds of litigation against the NCAA and EA over avatars of specific college players (albeit without their names) appearing in video games. In 2014, EA and Collegiate Licensing Company, which is the marketing arm of the NCAA, agreed to a $40 million settlement with student-athletes whose avatars appeared in EA’s games. The NCAA negotiated a similar settlement, worth $20 million, over these games with respect to intellectual property claims (some antitrust claims proceeded to litigation in the O’Bannon trial).

The NCAA’s settlement with Alston concerns the full cost of attendance, not video games. That said, EA could lawfully develop and publish a college sports game featuring former college players, so long as EA and those players—and those players’ schools, conferences and other entities whose intellectual property appears in the games—are able to negotiate a licensing agreement that makes sense for all involved.

It remains a more difficult legal question as to whether EA could publish a college sports video game featuring current student-athletes. The remedy imposed by the courts to resolve the O’Bannon case instructed that the NCAA could maintain its system of amateurism so long as schools are permitted to offer the full cost of attendance. This same remedy did not dictate that the NCAA must also permit student-athletes to receive monetary compensation for appearing in video games.

Perhaps the NCAA might agree to modify its amateurism rules so as to permit such a video game. As intriguing as that idea may be, it is also wishful thinking for the gamers out there.

Michael McCann is SI’s legal analyst. He is also an attorney and a tenured law professor at the University of New Hampshire School of Law.