Judge ends NCAA cap on athlete compensation 'related to education,' leaves other limits intact

A federal judge ruled Friday night that the NCAA cannot “limit compensation or benefits related to education” for athletes playing Division I men’s or women’s basketball or Bowl Subdivision football.

Among the items U.S. District Judge Claudia Wilken said these athletes may receive are scholarships to complete undergraduate or graduate degrees at any school. The judge also appeared to open the possibility of athletes being able to receive cash or cash-equivalent awards based on academics or graduation, albeit under some constraints. 

At the same time, however, her 104-page ruling prevents athletes from receiving unlimited benefits, as the plaintiffs had hoped.

The NCAA "may continue ... to limit compensation and benefits that are unrelated to education," Wilken ruled.

She also said that the association may adopt a definition of compensation and benefits that are “related to education.”

The association can limit "academic or graduation awards of incentives, provided in cash or cash-equivalent" but that limit cannot be "less than the maximum amount of compensation that an individual could receive in an academic school year in participation, championship, or other special achievement awards (combined)."

The NCAA Division I Manual shows the current limits on the value of these kinds of awards, but added together, they could provide athletes the opportunity to receive several thousand dollars worth of academically related awards.

Wilken wrote that the changes to the NCAA's current system will take effect in 90 days, but will be stayed if either side appeals.  

The outcome represents a partial victory for plaintiffs who were seeking to have the association’s limits on athletes compensation in favor of allowing conferences to determine what athletes can receive.

And because Wilken determined that her decision constituted a judgment in favor of the plaintiffs, she ruled that the NCAA will have to pay the plaintiffs' legal costs. This is an amount likely to be in the tens of millions of dollars.

However, the ruling also represents a partial victory for the NCAA, which had argued that athletes' compensation should remain basically limited to scholarships that cover the full cost of attending school because that helped promote athletes' integration into their campuses and it enhanced fan interest in college sports.

"It's not everything we wanted, but it's an important first step," one of the plaintiffs' lead attorneys, Steve Berman, told USA TODAY on Friday night. "Schools will now have to compete -- and we think they will compete -- in offering student-athletes educational benefits, including grad school and other things like that. I think that's going to be great for the student-athletes."

"There is a great disparity between the extraordinary revenue" that the NCAA and the schools get from Division I basketball and FBS football "and the modest benefits" athletes "receive in exchange for their participation in these sports relative to the value of their athletic services and the contributions they make," Wilken wrote. Athletes "contribute their elite talent and time, they limit their educational options, and they risk their long-term health to create enormous financial value" for the NCAA and the schools.

"Allowing each conference and its member schools to provide additional education-related benefits without NCAA caps and prohibitions, as well as academic awards ... may provide some of the compensation student-athletes would have received absent" the NCAA's compensation limits.

Wilken is the same judge who handled the Ed O'Bannon lawsuit and found that the NCAA's limits on what major-college football and men's basketball players can receive for playing sports "unreasonably restrain trade" in violation of antitrust laws.

That finding was upheld by a three-judge panel of the 9th Circuit, although the panel — by a 2-1 margin — threw out Wilken's plan that would have allowed schools to provide athletes deferred compensation of as much as $5,000 per year. In overturning this remedy, the appellate panel said that while antitrust law requires that schools be allowed to provide athletes with scholarships that cover all of their costs of attending college, “it does not require more,” such as what it termed “cash sums untethered to educational expenses.” Both sides appealed to the Supreme Court, which declined to hear the case.

So the 9th Circuit’s language in the O’Bannon case became the fulcrum point for the Alston case.

And it may well become the basis for an appeal on Friday night's ruling by the NCAA.

"Although the court rejected the plaintiffs’ desire for a free market system, we will explore our next steps as appropriate," a statement from the NCAA's chief legal officer, Donald Remy, said in part. "We believe the ruling is inconsistent with the decision by the 9th Circuit Court of Appeals in O’Bannon. That decision held that the rules governing college athletics would be better developed outside the courtroom, including rules around the education-related support that schools provide."

In Friday night's ruling, Wilken again found that the NCAA's current limits on athlete compensation "unreasonably restrain trade."

Under antitrust law, this types of restraints can exist if a defendant can show that the limits have certain benefits. And even justified restraints can be overcome if plaintiffs can show there are less restrictive alternatives that would achieve the same outcome for the defendants without significantly increased cost.

Wilken ruled on Friday that the NCAA  "failed to show that the challenged rules have an effect on promoting integration of student-athletes and their communities." She also wrote that while the NCAA showed that limits on athlete compensation have some effect on preserving fan interest in college sports "as compared with no limit," the plaintiffs demonstrated that a less restrictive set of compensation limits "would be virtually as effective" as the current limits "without requiring significant costs to implement."

The case began in March 2014 on behalf of former West Virginia football player Shawne Alston. The case later was consolidated with other suits involving athletes in other sports. In the end, it covered Bowl Subdivision football players, Division I men’s basketball players and Division I women’s basketball. Although the NCAA and 11 conferences were named as defendants, other Division I schools and conferences were alleged to have been co-conspirators.