A Deeper Look Into The Potential Damages In The O’Bannon Case

The O’Bannon case has recently been in the news again. This time the focus has been on the release of the plaintiffs’ class certification expert report. In the report, Stanford economics professor Roger Noll attempts to show that the plaintiffs will be able to prove their case against the NCAA using evidence that is common to the putative class members (i.e., current and former Division I basketball players and FBS football players). If plaintiffs cannot make this showing, their case will not be certified as a class action and the case will likely fade away. So the report is one of the most important documents that will be filed in the case.

Most of the media’s coverage of the report has focused on Noll’s live broadcast revenue damages calculations. Specifically, it has been reported by a number of media outlets that under Noll’s formula SEC football players on team rosters during the 2009-10 school year would share $61.5 million of live broadcast revenue, SEC basketball players $42.5 million, Pac-10 football players $26.3 million, and Pac-10 basketball players $30.4 million. The media reports don’t explain how Noll reached these numbers. But, because you have the good sense to read BusinessofCollegeSports.com, you will now learn.  I must give one warning though.  If you don’t like math you might want to skip the next few paragraphs.

The first step in Noll’s formula is determining the amount of live television revenue a conference’s football and basketball teams generated in a given year. According to Noll’s figures, in 2009-10 the SEC’s football teams generated $123,096,376 in live television revenue and its basketball teams generated $85,043,590.  The Pac-10’s football teams generated $52,506,327 and its basketball teams generated $60,480,049.  (On a side note, the huge gap in the amount of TV revenue earned by the SEC and the Pac-10 points out just how far the Pac-10 was falling behind the other BCS conferences in revenue generation.  Luckily, the Pac-10 members hired Larry Scott as their commissioner and have now closed the gap).

Noll’s formula assumes that this revenue is shared equally among conference members.  That leaves us with the following per-team revenue numbers:

• Each 2009-10 SEC football team earned $10,296,733 in live broadcast revenue.

• 2009-10 SEC basketball teams earned between $6,991,974 and $7,205,685 in live broadcast revenue (the basketball calculations also include a small amount of school specific live television revenue).

• Each 2009-10 Pac-10 football team earned $5,250,633 in live broadcast revenue.

• 2009-10 Pac-10 basketball teams earned between $5,519,602 and $7,142,893 in live broadcast revenue.

Noll’s formula also assumes that yearly live broadcast revenue is split evenly between a school’s athletic department and the members of the men’s basketball and football teams. So, each of the per-team numbers above is divided in half to calculate the players’ share of the live broadcast revenue. Here are those numbers:

• 2009-10 SEC football players’ share per school: $5,129,016

• 2009-10 Pac-10 football players’ share per school: $2,625,316

• 2009-10 SEC basketball players’ share per school: between $3,490,636 and $3,597,328

• 2009-10 Pac-10 basketball players’ share per school: between $2,744,750 and $3,551,969

Lastly, to calculate the per-athlete damages, Noll divides the players’ share of the live broadcast revenue by the number of players on a team’s roster.  Because the roster size is different at each school, the amount of per-athlete damages varies by school. Here are the per-athlete damage numbers:

• Per-athlete damages for an SEC football player on a 2009-10 roster vary from $46,627 to $66,610.

• Per-athlete damages for a Pac-10 football player on a 2009-10 roster vary from $26,253 to $44,497.

• Per-athlete damages for an SEC basketball player on a 2009-10 roster vary from $177,860 to $295,475.

• Per-athlete damages for a Pac-10 basketball player on a 2009-10 roster vary from $171,547 to $253,171.

A couple of interesting observations can be made by examining the per-athlete numbers and Noll’s model in general.

First, although football generates more total broadcast revenue, basketball players will be entitled to more money under Noll’s damages calculation than football players. There is one reason for this: because of the large difference in roster sizes there are fewer players on a basketball team to split the revenue with.

The per-athlete basketball and football numbers are so skewed by roster sizes that a basketball player at a mid-major like Bucknell would be entitled to more live broadcast revenue than a football player at USC. Using Noll’s formula, a basketball player on Bucknell’s 2009-10 team would be entitled to $34,903. (This revenue comes solely from the broadcast rights to the NCAA men’s basketball tournament).  A member of the 2009-10 USC football team is only entitled to $28,229.

Second, in many instances, a BCS football player’s live broadcast damages would not even be equal to the value of his athletic scholarship. For example, the per-athlete number for Stanford’s 2009-10 football team is $36,463. The value of a full athletic scholarship at Stanford in 2009-10 was over $50,000.

Lastly, while the O’Bannon case is still a long way from resolution, if it results in a system like Noll’s being implemented if will be a shock to the collegiate athletics model. Division I members will lose a large chunk of their athletics budgets. As a result, colleges are paying close attention to the case. For example, the Big 12 has recently convened a task force to study what the college sports landscape will look like if the O’Bannon plaintiffs are successful.

The NCAA will also lose the vast majority of its revenue if the plaintiffs prevail. Nearly 88% of the NCAA’s revenue comes from the sale of the broadcast rights for the NCAA men’s basketball tournament. But, in a post O’Bannon world, all of that money will be distributed to Division I men’s basketball players and the schools, not the NCAA. Despite this, the NCAA will not be as affected as the schools. The NCAA already distributes 96% of its annual revenue to NCAA member schools. The loss of NCAA revenue will most hurt the schools that are reliant on the NCAA distributions.

In the end, the O’Bannon case has the potential to be as important as the U.S. Supreme Court’s NCAA v. University of Oklahoma Board of Regents decision. That decision granted schools the ability to sell the broadcast rights to their athletic events. Prior to tha decision, the NCAA controlled and sold the television rights. With schools allowed to sell their television rights, money began to flow directly into the school’s athletics coffers. If the O’Bannon plaintiffs are successful, some of that money will begin to flow directly into the hands of the student-athletes.

One thought on “A Deeper Look Into The Potential Damages In The O’Bannon Case”

  1. It would seem athletic department expenses, scholarship costs, and other liabilities would have to be factored into the athletes’ claims to broadcast revenues. If they are to become full partners in this venture, their cut cannot come right off the top.

    This situation is not like Kobe Bryant giving contractual permission so that Nike to use his likeness to sell shoes. The players are partners in these organizations, and as such should get to share in its financial risks and rewards.

    Every business needs to conform to a system of regulations, and in this respect the NCAA fills a vital task. The arbitrary nature of its decisions and their enforcement may undermine its long-term survival as much the dependence on March Madness for the vast majority of its revenue.

    This situation could have been averted with a little foresight on the part of the NCAA and its members. But when the gravy train is running, no one is prepared for when the caboose comes around the bend. A dated reference certainly, but no more dated the top-down model that has brought intercollegiate athletics to this inevitable crossroads.

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