Sports Licensing Corner: Licensing Revolution on the Campuses?

An antitrust lawsuit brought by a former UCLA basketball star has the potential to upend the cozy, lucrative world of collegiate sports licensing, and even to make fundamental changes to the amateur nature of college sports.

Collegiate licensing is a $4 billion a year industry, about 80% of which is handled by the Collegiate Licensing Company (“CLC”), official licensing agent to the NCAA and over 200 universities.

One of the foundations of that industry is that college athletes are required to sign documents that relinquish in perpetuity their rights of publicity for college sports-related purposes, as a condition of participating in NCAA-sponsored college athletics. That means the NCAA can, without compensation to the athletes, license their names and images for apparel, video games, broadcasts, and highlight DVDs, long after they have graduated from college.

Ed O’Bannon, a former basketball star at UCLA during the 1990s, said he got angry seeing his highlight clips from 15 years ago being used to promote NCAA broadcasts, so last July he filed a class action lawsuit against the NCAA and CLC in federal District Court in San Francisco on behalf of himself and other former student-athletes.

The nub of O’Bannon’s legal argument is that requiring student athletes to sign away their rights of publicity in perpetuity is a violation of Section 1 of the Sherman Antitrust Act. Section 1 prohibits, “Every contract, combination…, or conspiracy, in restraint of trade or commerce among the several States….”

Agreements among the NCAA, CLC, and NCAA member universities, as well as the students’ relinquishments of their rights of publicity, are obviously “contracts,” so the next question under Section 1 is whether these contracts unreasonably restrain trade in a particular market. The NCAA will probably argue that: 1) the former athletes should not be able to bring an antitrust lawsuit in the first place, because they validly traded their rights of publicity for room, board, and tuition provided under their athletic scholarships; and 2) prohibiting college athletes from receiving payments for their athletic skills preserves the amateur nature of the college game, and therefore promotes, not restrains, competition in the market for college sports and sports products.

O’Bannon is likely to reply that: 1) requiring a college freshman to sign away his intellectual property rights in perpetuity without the presence of an attorney is invalid; and 2) assuming that amateurism by college athletes increases competition in the market for college sports, it is totally irrelevant to former athletes, who are no longer playing in games. O’Bannon argues that the NCAA, by prohibiting the former student-athletes from cutting their own apparel or video game licensing deals, is lessening competition, decreasing innovation, eliminating compensation to former athletes, and increasing prices to college sports fans, in violation of the Sherman Antitrust Act.

Indeed, by limiting their lawsuit to former students, the O’Bannon plaintiffs have considerably strengthened the legal arguments of their case.

The O’Bannon plaintiffs recently survived the defendants’ motion to dismiss the case before trial, but there is plenty of game left to play, sports fans. With so much money at stake, it is likely that no matter which side wins, there will be years of appeals before the matter is finally settled.

But if O’Bannon wins, the NCAA, CLC, and many college athletic departments could take a large financial hit. They all derive substantial revenue from that $4 billion in licensing fees, but the O’Bannon plaintiffs would claim a major (as yet unspecified) chunk as compensation to former student-athletes whose rights of publicity were utilized in licensing deals. In fact, antitrust law allows victorious plaintiffs to triple their damages. And of course the former college athletes would have the right to cut their own licensing deals going forward, independent of the NCAA and their alma maters.

Furthermore, if O’Bannon wins, it is possible that current college athletes might utilize the rationale in any O’Bannon victory to attempt to weaken or throw out the current system of signing their rights of publicity over to the NCAA and CLC. For example, if the court were to rule the waivers were defective because the NCAA failed to advise students that they should seek legal counsel before signing away rights to future compensation for their intellectual property, then current athletes might argue they too should have the right to be represented by counsel in negotiating rights waivers during their college playing careers. Then star college athletes could get embroiled in contract negotiations, just like professional athletes.

Stay tuned, licensing and college sports fans…

Tags: , ,

4 Responses to “Sports Licensing Corner: Licensing Revolution on the Campuses?”

  1. About time someone tried to pry the veneer of “scholarship” off this huge money-making and hugely exploitative machine. Football and basketball players at I-A schools are about as “amateur” as hockey players were in the USSR. It would be especially interesting to see what happens with current players if the plaintiffs win.

  2. Richard R. Bergovoy says:

    As a matter of fact, there are several class actions pending which include current athletes. One is being lead by Sam Keller, former quarterback for Nebraska and Arizona State, against the NCAA and Electronic Arts on a rights of publicity cause of action. From what I have read, EA is claiming a First Amendment/transformative use defense, saying that video games, unlike ads, can contain creative content that trumps any rights of publicity claim by athletes. We shall see…

  3. Tassos says:

    For the IP theory analysis and the Keller forecast, the ABA Entertainment and Sport Lawyer article under: http://www.kaburakis.com/wp-content/uploads/2009/09/kaburakis.pdf

  4. Richard R. Bergovoy says:

    Thanks, Tassos. The article by you and your fellow sports law and management scholars is indeed a thoughtful, thorough analysis of rights of publicity claims by student athletes against the NCAA and video game companies. The chart summarizing 9th Circuit rights of publicity cases is enormously helpful.

Leave a Reply