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The lawsuit that could reshape college sports

A long-running lawsuit against the NCAA by former UCLA basketball star Ed O'Bannon on behalf of former college athletes is still making its way through the legal system and has a court date set for next year. But no matter its resolution, the way college sports operate is likely to be changed for good.

The suit, O'Bannon v. NCAA, was originally filed in 2009. It seeks to end the NCAA's ban on compensating college athletes for the use of their likeness on such items as DVDs, photos, video games and rebroadcasts of games on TV.

Ed O'Bannon
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Ed O'Bannon

Several motions to dismiss from the NCAA have been denied. But a recent court ruling said that former college players cannot sue as a group over past and current NCAA profits—but can sue as individuals.

The fact that the lawsuit is still alive—with a scheduled court date for June of next year—is enough to make experts predict that college sports will be changed forever.

"I think there will be a ruling in favor of the athletes for compensation," said Pat Rishe, a professor of economics and sports business at Webster University.

"But even if they don't win, I think the NCAA will make drastic changes in how they use athletes' images going forward. They can't get away with doing it the same way as before," he said.

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'Wise to settle'

There may have already been a victory of sorts for O'Bannon, who is currently a marketing director for a Toyota auto dealership in Las Vegas. He played professional basketball for 10 years in the U.S. and Europe after leading the UCLA Bruins to the national title in 1995.

Besides the NCAA, the lawsuit included defendants Electronic Arts and the Collegiate Licensing Co. However, this past September, an undisclosed settlement was reached with the two firms and is likely to include some compensation to former college players, according to reports.

EA publishes top-selling college football and basketball video games, while CLC represents more than 200 colleges, conferences and college bowl games in licensing contracts.

The judge in the case, Claudia Wilken of the U.S. District Court for the Northern District of California, has yet to sign off on the deal, but she has been urging all sides, including the NCAA, to reach a compromise.

"I think it would be wise for the NCAA to settle this now," said Exavier Pope, a sports attorney who is head of his own law firm in Chicago. "I really don't think the NCAA wants to keep litigating this, and that could happen even if this case is over. Other athletes may step up to sue."

Billions in college TV revenue

The argument about paying college athletes has gone on for decades.

However, the size of recent contracts for college sports broadcast rights—running in the billions of dollars—keeps pushing the issue back into the spotlight. Add to that the money collected from college player likenesses on T-shirts and video games, and an issue of fairness is at stake, analysts said.

"The revenue generated from all this is so huge and creates so much money for the top 30-40 programs in the country, it's hard to say these kids don't deserve some of it since they are providing the entertainment," said Rishe.

The counterargument is that student-athletes are already being compensated with a sports scholarship that covers their college education.

Also, the NCAA has players sign a waiver that in essence makes them give up any right to make money off their likenesses as an NCAA athlete.

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However, one former college athlete said the scholarship argument misses a key point.

"They don't really cover the costs of everything," said Ramogi Huma, himself a UCLA football player in the mid-1990's, who is currently the executive director of the National College Players Association, an advocacy group for college athletes' rights.

"The scholarships fell about $3-$5,000 short of costs when I played, and it's the same today," he argued.

"And if for some reason I had stopped going to practice or missed a game, the money wouldn't be there," Huma said. "Also, if an athlete gets hurt and can't play anymore, the scholarship is over."

Huma is not involved in the O'Bannon lawsuit.

'Rules exploit athletes'

The NCAA has refused direct comment on the case because of the ongoing litigation but issued a statement last week when it submitted its most recent call for a dismissal.

"The NCAA's rules do not force athletes who wish to be professionals to enroll in school. Instead, the plaintiffs seek to professionalize a few college athletes, which would lead to a reduction in athletic and educational opportunities for the vast majority of male and female student-athletes who pursue Division I, II and III athletics."

The lead counsel for O'Bannon, Hausfeld LLP, issued this statement to CNBC.com when asked for a comment:

"The NCAA's rules that prohibit payment to student-athletes for the use of their names, images, and likenesses may have served a purpose in another era.

"But in this era of the commercialization of college sports and multi-million dollar broadcast contracts, these rules only serve to exploit the very student-athletes that generate the millions of dollars that pad the pockets of the NCAA.

"There is a growing public recognition that the NCAA's business practices are unfair and we look forward to proving in a court of law that they must be changed."

Fairness at issue

The NCAA is considering a stipend along with a scholarship for college athletes in 2014. This comes after an NCAA proposal to give a $2,000 stipend based on need was rejected in 2012 by 160 of the 350 Division I member schools who wanted modifications to the plan.

Part of their concern was over where the money would come from—the colleges or the NCAA—and who would get the stipends.

Under Title IX, universities must ensure that all financial assistance has to be available on a substantially proportional basis to the number of male and female participants in the institution's athletic programs.

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There are fears some athletes deemed stars would get the stipend while others would not.

"There has to be some formula worked out so it's fair to all," said sports lawyer Pope. "That will take some effort."

But the key issue of the O'Bannon lawsuit—the use of a college player's image without compensation—is likely to have reached its end. Either there will be compensation or no use of images at all.

Caught last year for selling individual jerseys and team memorabilia on its own website, the NCAA reluctantly put an end to the sales.

"The main issue for the student-athletes I've talked to is that they are treated fairly," said Webster University's Rishe. "Going forward I think the NCAA will have to adjust to the new way of looking at their athletes."

—By CNBC's Mark Koba. Follow him on Twitter @MarkKobaCNBC.

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