O’Bannon Case Reaches End of Road

The Supreme Court recently refused to hear Ed O’Bannon’s case challenging NCAA limits on payment from the use of players’ names, images, and likenesses (NILs) in videogames and game footage. This non-decision offers something for both sides, but raises questions for antitrust fans. 

First, it offers a win for the NCAA, which gets to keep its Ninth Circuit ruling that rejected a deferred NIL payment of up to $5,000. That court concluded that the district court had erred in upholding such a payment since “paying students cash compensation” would not “promote amateurism as effectively as not paying them.” The Court’s refusal to hear the case means that (at least in the 9 states and 2 Pacific Island jurisdictions that make up the Ninth Circuit), Division I men’s basketball and football players will not be paid for the use of their names, images, and likenesses.

Second, it offers a win for the players in the undermining of the NCAA’s prized amateurism defense. For decades, the NCAA has claimed that all sorts of anticompetitive restrictions are justified because of amateurism. Now it will not be so easy. 

In a full trial consisting of 24 witnesses, 15 days, and thousands of pages of testimony, the district court considered the amateurism defense more thoroughly than any previous court. And the more it looked under the hood, the worse amateurism appeared: football players “accept[ing] Pell grants in excess of their cost of attendance”; tennis recruits earning “$10,000 per year in prize money”; and shifting definitions of the term, with “significant and contradictory” revisions of “malleable” compensation rules. 

In addition to amateurism skepticism, the plaintiffs won because they get to keep “cost of attendance” awards, which are higher than “grant in aid” stipends since they include nonrequired books and supplies, transportation, and other expenses. Almost certainly because of the case, schoolsincluding the Power 5 conferences have adopteda similar rule. 

Third, though perhaps less exciting, it offers a loss for antitrust fans. For most business arrangements, courts apply a test known as the “Rule of Reason.” Under this analysis, courts consider the pros and cons (in antitrust parlance, the procompetitive and anticompetitive effects) of the conduct. 

Unfortunately, the Ninth Circuit forgot this, punishing O’Bannon for not offering a “less restrictive alternative” to the $5,000 NIL payment. As I have explained elsewhere, if the court insisted on rejecting this alternative, it should have proceeded to balancing, on which O’Bannon was likely to emerge victorious given the strong anticompetitive effectsof a “price-fixing agreement” that “value[d] the athletes’ NILs at zero” and weakened amateurism justifications. Adding insult to injury, the Ninth Circuit substituted its version of amateurism (one in which student-athletes could not be paid any cash at all) for the one adopted by the district court (in which NIL payments were acceptable since they did not affect demand for college sports). 

My antitrust disappointment aside, on balance the plaintiffs came out ahead in the O’Bannon case. While the NIL payment was struck down, the skeptical treatment of amateurism will have effects for years to come. For example, the ongoing Jenkins case, which takes even more direct aim at the college model by striking down all limits on payment, can now point to the bloodied amateurism defense not as an automatic savior but rather as a hobbled justification. If Jenkins or another case topples the NCAA’s system, the O’Bannon case will have played a crucial role.

EXCLUSIVE: LAWSUIT FILED TO BLOCK NEW YORK FANTASY SPORTS LAW

The future of daily fantasy sports in New York may soon be in a state of flux, if not outright jeopardy. In a stunning, but not altogether surprising development (since I’ve highlighted this issue previously), a quartet of New York residents has filed a lawsuit in Albany County Supreme Court to block the implementation of the recently-enacted New York fantasy sports law. (A copy of the complaint can be found here). Specifically, the lawsuit—coordinated by the anti-gambling group Stop Predatory Gambling—seeks a declaratory judgment declaring that New York’s “Interactive Fantasy Sports” Law (Chapter 237 of the Laws of the State of New York) is “unconstitutional” because it impermissibly expands commercial gambling in New York in contravention of Article I, Section 9 of the New York State Constitution. On this point, the lawsuit contends that the New York Legislature was without authority to legalize DFS in New York absent a constitutional amendment, a time-consuming process which requires two successive sessions of legislative approval, separated by a general election, and then followed by a statewide voter referendum. At minimum, this process can take two years or more.

The complaint accuses the state legislature of circumventing this mandatory process. As the lawsuit explains, “the Legislature may not amend the Constitution under the guise of legislating. It cannot unilaterally define ‘gambling’ to deviate from its ordinary and well-understood meaning as used in the Constitution by excluding therefrom interactive fantasy sports contests, and, in particular, DFS. It cannot usurp the right of the people as any such redefinition is the exclusive prerogative of the People via a Constitutional amendment approved in a statewide referendum. See New York Constitution, Article XIX. That process was not followed here. Chapter 237 should therefore be declared unconstitutional and the Defendant State officials and agencies should be permanently enjoined from implementing it.”

Predictably, the lawsuit highlights the fact that New York’s chief law enforcement officer, Attorney General Eric Schneiderman, “has already declared in court filings that DFS violates Article I, § 9 of the [New York] Constitution and successfully obtained an injunction to prevent such activity prior to the adoption of Chapter 237.” Calling DFS “a new business model for online gambling,” the 44-page complaint also attacks the well-worn argument of industry supporters that the predominantly “skill-based” nature of DFS precludes it from being characterized as “gambling.” Referring to this premise as both a “non-sequitur” and “fallacy,” the plaintiffs characterize the “skill vs. chance” distinction as “a false dichotomy conjured up in an obvious effort both to circumvent a clear and unequivocal constitutional prohibition and to prevent the people from exercising their exclusive right to decide whether the Constitution should be amended to exclude DFS from the constitutional ban on gambling.” As the lawsuit explains in greater detail, “[s]kill and chance are not mutually exclusive, and just as betting on a horse can involve skill, the outcome remains uncertain and a bet that one horse will win is still a gamble. Guessing on how an athlete will actually perform in a subsequent real life game always involves chance.” That includes an ‘educated’ guess.”

Interestingly, the lawsuit also alleges that the New York DFS law violates the Professional and Amateur Sports Protection Act (“PASPA”), a 1992 federal law which prohibits states from “authorizing” or “licensing’ sports betting.

More troublingly (for industry operators and players alike), the 44-page lawsuit  seeks to shut down daily fantasy sports in New York. The one-count complaint, which names New York Governor Andrew Cuomo and the New York State Gaming Commission as the sole defendants, seeks a permanent injunction preventing New York State officials from “implementing” Chapter 237 or “expending taxpayer dollars” to implement any of its provisions. While the new law has already been “implemented” so to speak—as a number of companies (including FanDuel and DraftKings, among others) have obtained temporary permits and have been operating in New York since August—this lawsuit has the potential to unwind all of these efforts. No word yet on whether the plaintiffs are seeking a more immediate preliminary injunction—which could jeopardize fantasy sports in New York during the current NFL season (depending on how quickly such a motion could be heard)—or will be pursuing only a permanentinjunction following a trial (or as part of a summary judgment motion). While this lawsuit has not yet been served, I would expect it to heat up pretty quickly, with both FanDuel and DraftKings likely “intervening” in the case to protect their interests, and motions for a preliminary injunction and/or summary judgment being filed before the end of the year.

So who are these plaintiffs? According to the complaint, the plaintiffs (Jennifer White, Katherine West, Charlotte Wellins, and Anne Remington) “are citizens who are residents and taxpayers of New York who either have gambling disorders or are relatives and family members of such persons.” The complaint explains that “[t]heir heartbreaking stories include a litany of suffering marked by child neglect, bankruptcy, divorce, loss of homes, and the agony of rehabilitation and relapse, all directly caused and threatened to continue to be caused by DFS gambling.” The complaint describes the various ways that each plaintiff has personally been harmed by gambling, an important point for purposes of establishing “standing” to sue. However, New York law recognizes liberalized taxpayer standing to challenge legislative enactments as contrary to the state constitution. Thus, these four plaintiffs should be able to withstand any legal challenges to their standing and legal capacity to bring this lawsuit, although that will not stop the State, (and eventually DraftKings and FanDuel) from trying to dismiss the lawsuit on that basis.

The lawsuit was filed by O’Connell and Aronowitz, the Albany-based law firm known for having previously challenged the New York Legislature’s approval of video lottery terminals more than a decade ago. So this type of lawsuit is definitely in their wheelhouse. And the complaint is painstakingly detailed and compelling. I’ve always believed that with the right plaintiffs and the right law firm—and both categories appear to be satisfied in spades here—a lawsuit challenging the New York DFS law on constitutional grounds always stood an excellent chance of success. This one definitely has a chance, and, as such, the future of DFS in New York may be in serious jeopardy.

New Jersey Sports Betting, The Supreme Court, and a Nuclear Option (with a Twist)

For those of you who have been closely following New Jersey’s five-year quest to legalize sports gambling, it should come as no surprise that the Garden State is not quite ready to throw in the towel following its latest federal court setback. Earlier today, New Jersey State Senator Ray Lesniak told ESPN’s David Purdum that New Jersey would be filing a petition with the United States Supreme Court by the end of this week. While the news is not surprising—after all, New Jersey appealed its Third Circuit loss in 2013 to the Supreme Court, so why wouldn’t it do so again, following another divided Third Circuit opinion (with two dissenting opinions and an en banc rehearing). But the deadline for filing a petition for writ of certiorari is November 7th, which is more than one month away. Why the rush, especially with only eight justices? Wouldn’t it make more sense to file in November with the potential recess appointment of Justice Merrick Garland looming (if Hillary Clinton becomes the President-Elect), thereby enhancing the possibility of certiorari being granted with one more judge being able to vote. In all likelihood, Senator Lesniak was referring to his own chamber’s petition—the anticipated Supreme Court filing by the New Jersey State Senate and New Jersey State Assembly, who are represented in this case by Stephen Sweeney (the Senate President) and Vincent Prieto (the Assembly Speaker). There are, however, two other “New Jersey” parties: the New Jersey Thoroughbred Racing Association and New Jersey Governor Chris Christie. They are the principal New Jersey parties in this case, and their expected petitions will likely be filed much closer to the November 7th deadline.

Whenever these petitions are actually filed, we can expect the key arguments to again focus on the anti-commandeering doctrine, a principle of constitutional law that prevents the federal government from dictating how a state regulates its own citizens. New Jersey would presumably highlight the dissenting opinions in Christie II, particularly Judge Thomas Vanaskie’s criticism of the “shifting line approach” employed by the majority, which had opened the door to the possibility of a partial repeal in Christie I before essentially sealing it shut in Christie II. Judge Vanaskie observed that after Christie I, a state like New Jersey “at least[had] the choice of either: (1) repealing, in whole or in part, existing bans on gambling on sporting events,” or (2) “keep[ing] a complete ban on sports gambling.” Such a choice, he explained, was essential to upholding PASPA’s constitutionality in Christie I. By contrast, he wrote, the majority’s decision in Christie II “does not leave a state ‘much room’ at all. Following Christie II, states “must maintain an anti-sports wagering scheme” by “leav[ing] sports gambling prohibitions on the books to regulate their citizens.” Judge Vanaskie opined that this really “leaves the States with no choice,” adding that “[t]he anti-commandeering doctrine, essential to protect State sovereignty, prohibits Congress from compelling States to prohibit such private activity.” Judge Vanaskie was unpersuaded by the majority’s assertion that some partial repeal options “may pass muster” (such as the example involving small wagers between friends and family), noting that the majority “does not explain why all partial repeals are not created equal or explain what distinguishes the 2014 Law from those partial repeals that pass muster.” As Judge Vanaskie explained, “[t]he bedrock principle of federalism that Congress may not compel the States to require or prohibit certain activities cannot be evaded by the false assertion that PASPA affords the States some undefinedoptions when it comes to sports wagering.” Contending that the majority opinion “excised” the distinction between a “repeal” and an “authorization,” Judge Vanaskie declared that it is “clear” that no repeal of any kind will evade PASPA’s command that no State “shall . . . authorize by law sports gambling.” Such commands, Judge Vanaskie concluded, “are fundamentally incompatible with our constitutional system of dual sovereignty.”

Judge Vanaskie’s commandeering analysis—and his thesis that PASPA requires states to maintain and enforce existing state-law gambling prohibitions—will likely be the centerpiece of New Jersey’s petition to the Supreme Court. In his Christie II dissent, Judge Vanaskie described PASPA as “seek[ing] to control and influence the manner in which States regulate private parties” by effectively commanding the states to maintain and enforce existing gambling prohibitions. By issuing this directive, Judge Vanaskie wrote, “Congress has set an impermissible ‘mandatory agenda to be considered in all events by state legislative or administrative decisionmakers.’” “The logical extension of the majority,” he continued, “is that PASPA prevents States from passing any laws to repeal existing gambling laws.” (italics in original). By “effectively command[ing] the States to maintain and enforce existing gambling prohibitions,” Vanaskie concluded, “PASPA . . . dictat[es] the manner in which States must enforce a federal law,” adding that the Supreme Court “has never considered Congress’ legislative power to be so expansive.”

Although New Jersey unsuccessfully sought certiorari review following the Christie I decision, its commandeering argument this time around is arguably more compelling. In its previous Supreme Court petition, New Jersey’s commandeering argument in Christie I was directed to PASPA’s “negative command” forbidding states from licensing or authorizing sports wagering. That was always an uphill battle given the Supreme Court precedent limiting the anti-commandeering doctrine to cases where the federal government requires states to engage in some type of “affirmative activity,” such as taking title to radioactive waste (as in the New York case) or performing background checks on prospective handgun purchasers (as in the Printz case). But this time around, New Jersey’s commandeering argument will address the flip-side of PASPA: its “affirmative requirement” compelling states to prohibit sports wagering. This view of PASPA fits more neatly into the Supreme Court’s commandeering jurisprudence, and, as such, New Jersey’s prospects for Supreme Court review are arguably enhanced. Nonetheless, this is still a long-shot proposition at best since the Supreme Court typically grants less than one percent of all petitions seeking certiorari review. New Jersey’s chances for Supreme Court review are also hampered by the absence of any “circuit split” on the issue of PASPA’s constitutionality. Most cases accepted for review by the Supreme Court involve conflicting decisions among the lower federal courts on a particular legal issue. Since the Christie line of cases are only the federal court decisions addressing the constitutionality of PASPA, the all-important “circuit split” is lacking here. (Note: New Jersey could potentially focus the “circuit split’ on the broader commandeering issue by pointing to the Ninth Circuit’s decision in Conant v. Walters, 309 F.3d 629 (9th Cir. 2002), where Judge Kozinski reasoned in a concurring opinion that “preventing [a] state from repealing an existing law is no different from forcing it to pass a new one,” and, therefore, “runs afoul of the commandeering doctrine.” That language is arguably at odds with Christie II).

Even if New Jersey’s pitch to the Supreme Court fails (and we will likely not know until the Spring of 2017), it still possesses other options—legislatively—to legalize sports betting. One option would be to enact another partial repeal law, though perhaps one not nearly as targeted or selective as the 2014 Law (which decriminalized sports gambling only for casinos, racetracks and former racetrack sites). While the Christie II decision did not provide specific examples of a partial repeal law that would “pass muster”—other than the commercially meaningless “friends and family” exception—it did allow that states had “sufficient room” under PASPA to “craft their own policies.” The precise contours of this policy-making room for state lawmakers were not spelled out in Christie II, but, clearly, New Jersey would be permitted to partially repeal its state-law prohibitions on sports gambling so long as it did not cross the line into an “authorization” of that activity (which would be prohibited by PASPA). So, what kind of partial repeal would “pass muster” with the Third Circuit? Perhaps a partial repeal based on geographic boundaries, such as a law repealing sports gambling prohibitions at any commercial establishment within Atlantic County (where all of New Jersey’s casinos are located) and Monmouth County (the home to Monmouth Park Racetrack). While such a law could likewise be viewed as benefitting casinos and racetracks, it would not be nearly as selective or targeted as the 2014 Law: it would decriminalize sports betting within the entirety of both counties (and not just at state-licensed casinos and racetracks). A repealer like this would stand a far better chance of passing legal muster, though it would likely lead to more litigation with the sports leagues, which would invariably point to language in the Christie II opinion stating that a state law which “channels wagering activity to particular locations . . . is in essence, an ‘authorization’ under PASPA.” Ironically, this could the tee up the next round of litigation—anyone ready for a “Christie III”?—over the meaning, breadth and scope of the word “locations,” such as whether it refers only to specific venues or encompasses any “geographic-based” repealer (such as a law decriminalizing the activity throughout an entire county or municipality).

A second option—and one completely within New Jersey’s control to pull off—is the so-called “nuclear option,” e.g., a complete decriminalization of sports betting statewide. Under a complete repeal, any and all state-law prohibitions against sports betting would be removed so that anybody (literally anybody) could offer, accept, or place sports wagers without criminal or civil repercussions (or any form of regulation). This “Wild West” scenario would decriminalize sports betting not only for casinos and racetracks, but also for the corner bookie, retail stores, and, most stunningly, for organized criminal enterprises. One New Jersey State Senator—Ray Lesniak (who has long championed sports betting in New Jersey)—announced that he intends to introduce such legislation in the near future. While such a measure would face long odds in the New Jersey Senate and New Jersey Assembly due to its controversial premise (e.g., having no laws on the books prohibiting sports betting), its true goal is more forward-thinking: to force the major sports leagues and Congress to address the issue of expanded legal sports betting sooner rather than later. The leagues’ worst fears—widespread unregulated and unmonitored sports gambling (with no oversight)—would be realized if New Jersey were to enact such a law. Thus, the thinking here is that a complete repeal, if enacted, would dramatically shorten the timeline for expanded legal sports betting by forcing the sports leagues and Congress to act more expeditiously in legalizing sports betting nationally. While this “nuclear” option may not be taken seriously by some observers—who see it as nothing more than a “bluff” or a publicity stunt—it is the only one of the three remaining options that would guarantee sports betting in New Jersey on day one.

Finally, New Jersey may wish to consider what I call the “nuclear option with a twist”: completely repealing its state-law prohibitions on sports betting and then, over time, adding restrictions to arrive at essentially the same place as the 2014 Law: legal sports betting at casinos and racetracks. Judge Fuentes alluded to this very possibility in his Christie II dissent when he reasoned that “no conceivable reading of PASPA” would preclude a state from “repeal[ing] completely its sports betting prohibitions” and then adding “later enacted limiting restrictions regarding age requirements and places where wagering could occur.” Such a multi-stage legislative approach—which could be spread out over a period of several years—could allow New Jersey to accomplish over time what it could not achieve in a single legislative act—legal sports betting confined to specific locations of the State’s choosing. Of course, such a maneuver would surely be challenged by the sports leagues, which would argue that New Jersey was trying to accomplish indirectly what it was prohibited by Christie II from doing directly. But this option offers certain advantages: at the outset, it would guarantee legal sports betting in New Jersey, while potentially providing the State with an opportunity to make appropriate down-the-road adjustments to the law free from the clutches of PASPA. This could be the pragmatic solution for those lawmakers hesitant to completely decriminalize sports gambling.

NJICLE Kickoff Classic

I am honored to be speaking at the New Jersey Institute for Continuing Legal Education's upcoming "Kickoff Classic" on September 24. The classic will focus on sports law controversies and CLE credit will be available. This link has the key details and information on signing up, and I hope you do. 

Specific topics in the classic include:

• Public relations disasters – what is an attorney’s role when the players and coaches

commit “fouls” off of the field

• Representing sports agents – legal issues involved in courting and signing with the NFL

• NCAA compliance – how to keep college players on the amateur side of the dividing line

• Betting on games - the current status of sports betting in New Jersey

• Concussions – the latest law on injuries and liability

• Gaming the system - O’Bannon vs. NCAA and should student athletes be paid for the

use of their names and likenesses in video games

Here's some more info:

NJICLE Kickoff Classic

Format/Skill Level:

Meeting

Location:

Rutgers- Livingston Campus
84 Joyce Kilmer Avenue Piscataway, NJ 08854

Date:

September 24, 2016

Time:

8:30 AM - 11:30 AM ET

Add to Calendar

NJSBA & NJSBA Section/Committee members are eligible for
special discounts - login to see your discounted rate for this program.
     

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Program time confirmed: 8:30 am. to 11:20 a.m.
Program Location: Rutgers Livingston Student Center, 84 Joyce Kilmer Ave, Piscataway.
Game time confirmed: 12:00 p.m.

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Presented in cooperation with the NJSBA Entertainment, Art and Sports Law Section, the NJSBA Young Lawyers Division and the NJSBA Senior Lawyers Special Committee

Click here to print the registration form. Seminar registration does not include football ticket. To purchase tickets, please email, fax or call customer service at 732-214-8500.

Moderator/Speaker:

Timothy D. Cedrone, Esq.  Chair, NJSBA Entertainment, Art and Sports Law Section Apruzzese McDermott Mastro & Murphy, PC (Liberty Corner)

Speakers include:

Anthony R. Caruso, Esq. Scarinci Hollenbeck (Lyndhurst)

Alan Milstein, Esq. Sherman Silverstein Kohl Rose & Podolsky, PA (Moorestown)

Paul Perrier Senior Associate Athletic Director/ Chief Compliance Officer, Rutgers University Athletic Department (Piscataway)

Elnardo J. Webster, II, Esq. Former football player (1988 to 1991), Rutgers University Inglesino, Webster, Wyciskala & Taylor LLC (Parsippany)

About the Program:

R U Ready for Some Football??!! Join NJICLE, some former Rutgers football players, the NJSBA EASL Section and the Young Lawyers Division as we create a new football tradition with the NJICLE Kickoff Classic! Hear directly from attorneys and some former players who represent athletes, agents, facilities and university football programs as they tackle some of the hottest legal issues in sports. Then, enjoy the Rutgers vs. Iowa game with your friends and family.

CLE Credits:
NJ CLE information: This program has been approved by the Board on Continuing Legal Education of the Supreme Court of New Jersey for 3.3 hours of total CLE credit.
NJ CLE:	This program has been approved for 3.3 credits (50 minute hour)
PA CLE:	2.5 substantive credits pending ($12 fee – separate check payable to NJICLE must be submitted at the end of the program)
NY CLE (t&nt):	3.0 professional practice credits

Click here to print the registration form. Seminar registration does not include football ticket. To purchase tickets, please email, fax or call customer service at 732-214-8500.