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Lawsuit threatens NCAA's amateur business model

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The NCAA is facing a potential game-changing legal battle that has some colleges worrying their athletic budgets could be halved.

On June 20, a U.S. District Court in Oakland, Calif., will determine if an antitrust lawsuit brought by former UCLA basketball player Ed O’Bannon—who argues he should’ve been paid for the use of his likeness on game broadcasts and in EA Sports video games—can become a class action. The plaintiffs say players should get 50 percent of revenue tied to player images.

If the NCAA loses the case, sports business experts say, college athletics would change forever. Many are calling the case the biggest threat to college sports’ amateurism model the Indianapolis-based organization has ever faced.

Big Ten Commissioner Jim Delany even suggested to Sports Illustrated last month that schools in his conference could move to a model without athletic scholarships.

While that might seem far-fetched and, in fact, Delany later backed off the comment, the case is serious enough that athletic directors nationwide are considering contingency plans for the worst-case scenario.

“I think Ed O’Bannon has a solid case,” said local attorney Milt Thompson, who operates the sports marketing firm Grand Slam Cos. “There’s merit that these players have the right to their own likeness and that shouldn’t be exploited without their permission.”

ncaa_factbox.jpgThe case itself, which was filed in 2009, isn’t due to come to trial until July 2014. But that hasn’t kept athletic directors like the University of Notre Dame’s Jack Swarbrick from thinking ahead.

“We’ve certainly discussed the O’Bannon case internally and we’ve talked about the consideration of what might come,” said Swarbrick, an attorney who formerly practiced law in Indianapolis. “I wouldn’t feel comfortable calling it a contingency plan. It’s a matter of monitoring [this case] and thinking about the consequences.”

Swarbrick said Notre Dame is not alone.

“Most institutions are engaging in internal discussions about this,” he said. “Clearly, we have to at least consider the possibility of any ruling which would impact the basic business model [of college athletics], which this case certainly has the potential to do.”

Purdue Athletic Director Morgan Burke and Indiana Athletic Director Fred Glass declined to comment on the pending suit or its ramifications. Swarbrick wouldn’t divulge specifics of internal discussions at Notre Dame.

Pat Haden, an attorney and University of Southern California athletics director since 2010, hasn’t been shy about voicing concern. He said the case is “no slam dunk” for the NCAA.

“What do we do if we lost? All of a sudden, your television revenue—let’s say it’s $20 million a year [for a school], now if [the plaintiffs] win, it’s $10 million a year,” Haden recently told Sports Illustrated. “How do you make 21 sports work on half the revenue?”

This much is clear: With the NCAA’s enormous TV contracts and burgeoning licensing business, a lot of cash is at stake. The TV and multimedia contract for the men’s basketball tournament alone is a 14-year, $10.8 billion arrangement.

Money generated by such entities as the Big Ten Network also could become a target. Each Big Ten school — including I.U. and Purdue — reaped $8.1 million in 2012 and will receive $7.6 million this year from the Big Ten Network. The schools each received another $10.9 million this year from the conference’s contracts with ABC and ESPN.

Also at stake is a share of the estimated annual $4 billion in collegiate licensed merchandise, a business that has exploded over the last 15 years.

All that cash could be targeted by the expanding O’Bannon lawsuit, which now wants to include current players.

Trench warfare

As the stakes rise, the NCAA and its allies are digging in.

“This case has always been wrong —wrong on the facts and wrong on the law,” NCAA Executive Vice President and Chief Legal Counsel Donald Remy said in a statement released earlier this spring.

NCAA officials maintain the association has the right to control a player’s likeness in perpetuity. That right, say officials for the NCAA and its member institution, comes from waivers signed by college athletes.

Big Ten’s Delany told reporters in Chicago in late April that the NCAA won’t settle and that he expects a long, hard legal fight.

“There should be no compromise on this,” he said.

That all-or-nothing strategy could be a mistake — especially if things don’t go the NCAA’s way on June 20.

“If the class gets certified, the NCAA will be backed into a corner,” said Andy Staples, who has covered the case for Sports Illustrated. “It could either fight and risk a judgment that could run into the billions, or it could settle and force schools into a new economic model.”

The plaintiffs’ case is being argued by a bevy of law firms, including the renowned Washington, D.C.-based Hausfeld LLP, which specializes in difficult class-action suits, having previously secured damages for Holocaust survivors from Swiss banks who kept their assets after World War II, Alaska Native Americans in their fight with Exxon after the Valdez oil spill, and plaintiffs in the European Union’s antitrust case against Microsoft.

The plaintiffs also are working with Ken Feinberg, who organized distribution plans for settlements for 9/11 victims; those affected by the BP oil spill in the Gulf of Mexico; victims of the Aurora, Colo., theater shootings; and sexual abuse victims of former Pennsylvania State University defensive coordinator Jerry Sandusky.

Big O, Russell join case

The case has morphed dramatically since O’Bannon sat in his house in 2009 watching a video game featuring a UCLA player bearing his likeness.

In 2011, high-profile co-plaintiffs such as Indianapolis native Oscar Robertson and Bill Russell joined the lawsuit, in which video-game maker EA Sports is a co-defendant.

The case took a major turn in August 2012, when plaintiffs began arguing that current and former athletes should be included in the case and the plaintiffs’ lawyers argued that players are entitled to 50 percent of revenue generated by not just video games but also NCAA and conference TV contracts.

Any judgment along those lines would be a massive blow to the NCAA, which is represented primarily by Ann Arbor, Mich., firm Schiff Hardin LLP, since TV revenue is by far its biggest revenue generator. It would also be a huge hit to Big Ten schools such as I.U. and Purdue, which have quickly become dependent on revenue generated by the Big Ten Network.

Whopper settlement?

The NCAA sought to halt the plaintiffs from pursuing class-action status, saying the O’Bannon group had dramatically changed its claim.

But in January, the NCAA suffered a big hit when Judge Claudia Wilken of the U.S. District Court of Northern California denied the NCAA’s motion and agreed to hear the class-action certification request. Wilken also ruled in January that plaintiffs could add current players to the case and go after everyone profiting from the likeness of college athletes, including college conferences.

The June 20 court date “represents a tremendously important showdown in this case,” Thompson said. If the plaintiffs’ attorneys are granted class-action status, Thompson thinks the NCAA should be eager to settle. But that might not be easy.

“How do you calculate back damages?” Thompson said. “Those images allow the NCAA to generate a lot of money. The settlement could be a whopper.”

Even if damages escalate into the billions, they may not be the NCAA’s biggest concern.

In addition to demanding that all players get paid for every video game, highlight reel and game rebroadcast, O’Bannon’s lawyers are asking for something else — something that could position colleges one dangerous step from bidding for the services of student-athletes.

Plaintiffs are demanding that all current and future college athletes be able to forge their own licensing deals.

“Now you’re talking about a whole new game,” Thompson said. “It’s a game the NCAA doesn’t want any part of.”•

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  1. I like the concept. Seems like a good idea and really inexpensive to manage.

  2. I don't agree that this is an extreme case. There are more of these people than you realize - people that are vindictive and/or with psychological issues have clogged the system with baseless suits that are costly to the defendant and to taxpayers. Restricting repeat offenders from further abusing the system is not akin to restricting their freedon, but to protecting their victims, and the court system, from allowing them unfettered access. From the Supreme Court opinion "he has burdened the opposing party and the courts of this state at every level with massive, confusing, disorganized, defective, repetitive, and often meritless filings."

  3. So, if you cry wolf one too many times courts may "restrict" your ability to pursue legal action? Also, why is document production equated with wealth? Anyone can "produce probably tens of thousands of pages of filings" if they have a public library card. I understand this is an extreme case, but our Supreme Court really got this one wrong.

  4. He called our nation a nation of cowards because we didn't want to talk about race. That was a cheap shot coming from the top cop. The man who decides who gets the federal government indicts. Wow. Not a gentleman if that is the measure. More importantly, this insult delivered as we all understand, to white people-- without him or anybody needing to explain that is precisely what he meant-- but this is an insult to timid white persons who fear the government and don't want to say anything about race for fear of being accused a racist. With all the legal heat that can come down on somebody if they say something which can be construed by a prosecutor like Mr Holder as racist, is it any wonder white people-- that's who he meant obviously-- is there any surprise that white people don't want to talk about race? And as lawyers we have even less freedom lest our remarks be considered violations of the rules. Mr Holder also demonstrated his bias by publically visiting with the family of the young man who was killed by a police offering in the line of duty, which was a very strong indicator of bias agains the offer who is under investigation, and was a failure to lead properly by letting his investigators do their job without him predetermining the proper outcome. He also has potentially biased the jury pool. All in all this worsens race relations by feeding into the perception shared by whites as well as blacks that justice will not be impartial. I will say this much, I do not blame Obama for all of HOlder's missteps. Obama has done a lot of things to stay above the fray and try and be a leader for all Americans. Maybe he should have reigned Holder in some but Obama's got his hands full with other problelms. Oh did I mention HOlder is a bank crony who will probably get a job in a silkstocking law firm working for millions of bucks a year defending bankers whom he didn't have the integrity or courage to hold to account for their acts of fraud on the United States, other financial institutions, and the people. His tenure will be regarded by history as a failure of leadership at one of the most important jobs in our nation. Finally and most importantly besides him insulting the public and letting off the big financial cheats, he has been at the forefront of over-prosecuting the secrecy laws to punish whistleblowers and chill free speech. What has Holder done to vindicate the rights of privacy of the American public against the illegal snooping of the NSA? He could have charged NSA personnel with violations of law for their warrantless wiretapping which has been done millions of times and instead he did not persecute a single soul. That is a defalcation of historical proportions and it signals to the public that the government DOJ under him was not willing to do a damn thing to protect the public against the rapid growth of the illegal surveillance state. Who else could have done this? Nobody. And for that omission Obama deserves the blame too. Here were are sliding into a police state and Eric Holder made it go all the faster.

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