Paying players? Here’s how it could happen

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Michael Hausfeld may soon become the most powerful man in college football. If you’ve never heard of Hausfeld, don’t worry. He’s not a coach, athletic director or university president. Hausfeld is a class action attorney and the driving force behind a lawsuit brought by former UCLA basketball player Ed O’Bannon against the NCAA and its marketing partners over the association’s refusal to share licensing revenues with Division I basketball and football players.

In an earlier column, I discussed a related lawsuit against the NCAA and Electronic Arts brought by former college football player Sam Keller. The Keller lawsuit alleges violation of athletes’ “right of publicity” under California and Indiana state law. The O’Bannon lawsuit relies on federal antitrust law. Both lawsuits were consolidated and are now before U.S. District Judge Claudia Wilken in Oakland, California.

On August 31, Hausfeld filed notice of his intent to formally certify two classes of antitrust plaintiffs in the O’Bannon case. The first proposed class includes all former college football and basketball players “whose images, likenesses and/or names” have been used in NCAA-licensed video games produced since July 2005. The other proposed class includes all former and current players whose likenesses are used in such games “after the conclusion of the athlete’s participation in intercollegiate athletics.”

As it related to current players, Hausfeld’s notice explicitly states the plaintiffs do not “seek compensation to be paid to current student-athletes,” but rather will ask the court to hold a portion of NCAA licensing revenues “in trust for those individuals until the cessation of their college careers.” Hausfeld has retained Stanford University economist Roger Noll, an expert in antitrust and sports economics, to offer expert testimony on how such a trust would operate.

The details of Noll’s proposal are contained in a sealed report, but the notice provided a few clues. They are:

  • Player would receive half of all television revenue and one-third of video game licensing revenue—figures in keeping with what professional athletes receive.
  • Each team’s share of these revenues equally among all players, so a star quarterback would receive the same compensation as a second-string punter.

NCAA general counsel Donald Remy categorically rejected the Noll trust proposal in a statement responding to the class certification notice. Remy said the NCAA and its member schools have an absolute legal right to its monopoly profits: “[Student-athletes] want to be cut in on TV revenues, but every court that has examined this type of issue has said that plaintiffs have no right to such a claim.”

However, Hausfeld noted the “subjective and ever-changing criteria applied by the NCAA” to student-athlete compensation undermines any antitrust defense it might assert. Notably, the fact that schools award athletic scholarships—which was banned at one time—and the NCAA’s recent move to permit additional $2,000 stipends shows there’s already “a history of paying student-athletes.”

Risking Financial Exposure

Final action on Hausfeld’s motion for class certification is still months, if not years, away. Judge Wilken is not scheduled to hear arguments on the motion until March 2013. And any decision she makes can be appealed to the Ninth Circuit Court of Appeals in San Francisco (and ultimately, the U.S. Supreme Court).

Still, the prospect of class certification means the NCAA and its member institutions—and conferences like the SEC—may soon face an unprecedented threat to their economic model. If the class including current players is certified, and Hausfeld is appointed class counsel, he instantly becomes a major player in the sport. There is little chance the O’Bannon case will ultimately reach a jury. Class action specialists like Hausfeld make their money by getting defendants to settle and cut large checks—including a substantial fee for him and his Washington-based firm, Hausfeld LLP.

In a sense, Hausfeld could assume the role traditionally filled by players unions in professional sports. Since student-athletes are not classified as employees, they cannot collectively bargain with the NCAA. That also means that if he’s named class counsel, Hausfeld won’t be constrained by the rules governing unions. In theory, a class counsel has a fiduciary duty to class members, but in practice, class action attorneys often put their own financial interests first.

The immediate concern for college football leaders is that Hausfeld’s aggressive style will expose a wealth of proprietary information about the sport’s finances. On August 6, Nathaniel Cousins, a magistrate judge overseeing discovery in the O’Bannon case for Judge Wilken, granted Hausfeld’s motion to require the NCAA turn over “confidential revenue reports…which contain media and licensing revenues obtained by each NCAA member.” The NCAA claimed this information was privileged under the First Amendment—that forcing financial disclosure would “have a chilling effect on the associational rights” of the schools—but Judge Cousins found no legal or factual support for that assertion.

Acting Before It’s Too Late

Hausfeld is not some fly-by-night shyster. He’s one of the most experienced antitrust attorneys in the country. He brings a level of firepower the NCAA likely hasn’t seen before. And the NCAA isn’t exactly held in high public esteem these days, especially after recent disciplinary decisions involving Penn State, Ohio State and North Carolina. A large segment of the public—and the media—will want to buy into Hausfeld’s arguments.

Class certification is Hausfeld’s “Doomsday Device.” Once he’s in possession of it, there will be enormous pressure on the NCAA to make a deal with him. And that means putting a self-interested lawyer in charge of restructuring college football. That won’t be good for schools, players or fans.

That doesn’t mean Hausfeld is wrong about his underlying demands. The proposal to hold a portion of licensing revenues in trust for athletes until after they leave school is solid. It’s a workable compromise between the present, widely condemned system and reclassifying student-athletes as university employees. The NCAA won’t make that deal unless forced to by Hausfeld and Judge Wilken. But the conferences and individual members don’t have to wait that long.

Remember, the NCAA once enjoyed monopoly power over its members’ television rights. That ended when Georgia and Oklahoma took the NCAA all the way to the Supreme Court, which agreed that it was a naked antitrust violation. If a handful of schools—say, the 14 SEC members—got together and announced they were simply going to start sharing their licensing revenues with players, the NCAA would be practically powerless to do anything. The NCAA won’t expel or boycott the entire SEC. Indeed, the other major conferences would soon follow suit. That would cut the legs out from Hausfeld’s case, at least as it relates to current players, while bringing about meaningful, positive reform.

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