Title IX Implications of the O'Bannon Decision

HIGHLIGHTS:

• The recent O'Bannon v. NCAA decision affirmed that the NCAA must allow colleges and universities to award scholarships up to the full cost of attendance for Division I men's basketball and football programs.
• Allowing institutions to change the overall amount of athletic financial assistance to Division I men's basketball and football teams has the potential to create an imbalance that violates Title IX.
• While the O'Bannon decision may be appealed further, in the immediate short term, colleges and universities seeking to alter student-athlete compensation practices will be challenged to ensure gender equity in athletics in accordance with Title IX.

The recent federal appellate decision in O'Bannon v. NCAA may have profound implications for colleges obligated to ensure gender equity in athletics under Title IX of the Education Amendments of 1972 (Title IX).

In the decision, the U.S. Court of Appeals for the Ninth Circuit affirmed that the NCAA's rule against paying Division I men's basketball and football student-athletes violated federal antitrust laws. The Ninth Circuit concluded that the NCAA must allow colleges to award scholarships up to the full cost of attendance for men's basketball and football programs – a change that the NCAA and the Power Five Conferences (ACC, Big 12, Big Ten, Pac-12 and SEC) put into effect voluntarily in January 2015. However, the Ninth Circuit struck down the district court's remedy of establishing a system that would pay certain student-athletes with deferred compensation of up to $5,000 per year. The NCAA and member institutions had argued that the deferred compensation system was fundamentally inconsistent with the principles of amateurism and the student-athlete model.

The Title IX impact of O'Bannon is more limited than it could have been in light of the court striking down the deferred compensation system. But, offering scholarships up to the full cost of attendance for men's basketball and football players presents its own set of Title IX challenges, which we outline below.

The Ninth Circuit's O'Bannon Decision

The O'Bannon case started in 2009. Class representative Edward O'Bannon, a former standout UCLA basketball player, asserted that it was an antitrust violation for the NCAA to prohibit Division I men's basketball players from being paid in exchange for the use of their names, images and likenesses (NIL). Sam Keller, a former Division I quarterback, filed a related action, and the cases were consolidated in a single class action.

The trial court held in August 2014 that the NCAA rules against paying student-athletes violated federal antitrust law and ordered a two-part remedy. First, the NCAA must allow colleges to award scholarships for Division I men's basketball and football programs up to the full cost of attendance. (The full cost of attendance includes tuition, room and board, transportation, books, supplies and other miscellaneous costs, and it is generally in the range of a few thousand dollars more per year than a traditional "grant-in-aid" scholarship.) Second, the NCAA must permit colleges to establish a deferred compensation system that would compensate certain Division I men's basketball and football players up to $5,000 per year in exchange for NIL rights, payable when the student-athletes left school or when their eligibility expired.

On appeal, the Ninth Circuit affirmed the district court's finding that the NCAA's prohibition on paying student-athletes unlawfully restrained trade in the competitive market of college athlete recruiting. As part of its antitrust analysis, the Ninth Circuit concluded that there were two procompetitive effects of the NCAA's rules: integrating academics with athletics and increasing the popularity of NCAA events by promoting amateurism. The Ninth Circuit went on to conclude that these procompetitive effects could be achieved by the less restrictive means of allowing NCAA schools to offer aid covering full cost of attendance. The Ninth Circuit vacated the district court's additional remedy of a deferred compensation system on the grounds that such payments would be inconsistent with the principle of amateurism.

While the O'Bannon decision may be appealed further, in the immediate short term, colleges and universities seeking to implement the O'Bannon decision on their campuses will be challenged to develop student-athlete compensation practices and policies that ensure gender equity in athletics in accordance with Title IX.

Gender Equity and Title IX

Title IX prohibits sex discrimination and requires gender equity in federally funded educational institutions, including athletic programs. The U.S. Department of Education's regulations set forth the areas of an athletic program for which there must be gender equity. These components – referred to colloquially as the "Laundry List" – are as follows:

1. effective accommodation of interests and abilities
2. the provision of athletic financial assistance
3. the provision of equipment and supplies
4. scheduling of games and practice time
5. travel and per diem allowance
6. opportunity to receive coaching and academic tutoring
7. assignment and compensation of coaches and tutors
8. recruitment
9. provision of locker rooms, practice and competitive facilities
10. provision of medical and training facilities and services
11. provision of housing and dining facilities and services
12. publicity
13. support services

The U.S. Department of Education's Office for Civil Rights (OCR) enforces Title IX, and the U.S. Department of Justice also has been involved in certain Title IX cases. Many states also have gender equity laws that address these issues. Title IX also provides a private right of action to individuals, which has allowed student-athletes, coaches and others affiliated with collegiate athletics to bring federal claims based on gender equity.

The Ninth Circuit's decision most clearly implicates the equitable provision of athletic financial assistance, as additional scholarship aid – including additional aid to cover the cost of attendance – is a form of athletic financial assistance that must be provided equitably by gender. Consequently, by requiring the NCAA to allow institutions to decide whether to change the overall amount of athletic financial assistance available in its athletic program, there exists the potential to create an imbalance that violates Title IX.

Before heading down the path opened both by the Ninth Circuit's decision in O'Bannon and the NCAA's recent changes, institutions should ask the following questions:

• Who is receiving the new athletic financial assistance, and is the athletic program still within the NCAA rules in terms of the number of scholarships allowed by team?
• How does the new scholarship money provided via cost of attendance enhancements impact the institution's overall provision of athletic financial assistance in real dollars across the athletic program?
• Is the provision of athletic financial assistance substantially proportional to the gender breakdown of the athletic program to keep it in compliance with Title IX?

Practical Title IX Challenges

Institutions well-versed in athletic financial assistance have long lamented the challenges of following the NCAA rules while also seeking to comply with Title IX. This is largely because while the NCAA provides scholarship limitations in the individual sports that it governs, Title IX simply requires that the overall amount of athletic financial assistance that an institution is providing to its athletes across the athletic program is substantially proportionate by gender.

In other words, while the NCAA limits the amount and number of scholarships in different contexts, it also gives institutions discretion in the way they provide scholarships for each of their teams. Many institutions take advantage of that discretion in different ways. For example, many institutions provide the maximum scholarships for their revenue generating sports, typically men's basketball and football, but provide scholarships in a more varied way for non-revenue generating sports. From an institutional or economic standpoint, this approach may make good fiscal sense. However, Title IX does not distinguish between revenue-generating and non-revenue-generating sports, nor does it matter to federal regulators that the revenue generating sports often subsidize the non-revenue generating sports. Title IX requires "substantial proportionality" with regard to the provision of athletic financial assistance across the athletic program, regardless of whether the male athlete plays for a team that garners millions of dollars in revenue or the female athlete plays on a team that is wholly subsidized by an institution.

What does this mean in practice? An athletic program could now decide that it will provide the NCAA maximum 85 scholarships to its football team and the NCAA maximum 13 scholarships to its men's basketball team. Moreover, it could decide to provide the maximum 15 scholarships to its women's basketball team. It could then decide to increase the value of these scholarships up to the cost of attendance for these 113 scholarships, and let's imagine that cost of attendance for each student-athlete is $50,000. This means that the institution is providing $5,650,000 in scholarships to just those three teams, but the bulk of that money ($4,900,000) is going to men's teams, which – viewed in a vacuum – would certainly put the institution out of compliance with Title IX with regard to athletic financial assistance.

So, what is an institution to do? The typical institutional answer is to build up the scholarships for the women's programs. However, if the institution cannot or will not provide scholarships up to the cost of attendance for those women's programs, then the multiplier might be smaller, say $45,000 per student. Similarly, because NCAA rules cap scholarships for all sports, both men's and women's, the institution cannot simply opt to provide 50 scholarships to the women's rowing team to counterbalance the football team, because the NCAA caps rowing scholarships at 20. This tension between the NCAA rules and Title IX results in an exacting push and pull across the athletic program that requires institutions to consider carefully which sports it offers for women and how scholarships are offered across all sports.

While achieving Title IX compliance was already a challenge before O'Bannon, the Ninth Circuit's decision and recent NCAA rule changes give institutions the ability to increase the total value of scholarships up to the cost of attendance. This then magnifies the challenge reaching compliance with Title IX and potentially provides an advantage to the wealthy institutions that can compete in what many athletic directors have referred to as a college athletics "arms race."

The O'Bannon decision is only the latest legal development affecting collegiate athletics and Title IX. In August 2015, the National Labor Relations Board ruled that scholarship football players at Northwestern cannot unionize. (See Holland & Knight's alert, "NLRB Decision on Student-Athlete Unionization a Win for Colleges, But Title IX Still in Play," Aug. 26, 2015.)

Meanwhile, for several years, the NCAA, conferences and individual colleges have implemented changes designed to address issues of scholarships, safety and the unique role of the student-athlete. (See Holland & Knight's alert, "Boston Ordinances Proposed to Address Student-Athlete Safety and Scholarships," Oct. 15, 2014.) For colleges and universities adjusting to these changes, the ongoing challenge is to effectively manage these reforms while competing on the field and complying with Title IX.

Holland & Knight's Collegiate Athletics Team has followed – and will continue to follow – each of these issues and can advise clients on these and other matters related to their athletic programs. We have deep experience advising institutions on the obligations and impact of Title IX, as well as on NCAA and other reporting issues, drafting contracts for individuals in athletic departments, separating from coaches when the situation demands and athletic conference realignment matters.
   

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.