NCAA’s March [Legal] Madness
The NCAA faces yet another legal battle brought by current student athletes.
NCAA Headquarters Photo by Intiaz Rahim (Flickr)
While college basketball teams from across the country have been battling it out on the court for the past several weeks, the National College Athletic Association (NCAA) continues to face an ever-increasing number of legal battles in the courtroom. Sports labor attorney Jeffrey Kessler filed suit (pdf) on March 17, 2014, naming the NCAA, the Atlantic Coast Conference (ACC), the Big 12, the Big Ten, the Pac-12, and the Southeastern Conference (SEC) as defendants. The suit alleges that capping player compensation at the cost of a scholarship is an antitrust violation.
The named plaintiffs in the class action suit, representing all Football Bowl Subdivision (FBS) and Division I basketball players, includes student-athletes from Rutgers, Clemson, the University of Texas-El Paso, and UC-Berkeley. This class action against the NCAA and the athletic sports conferences is the latest of several high-profile legal actions that seek to change the “amateurism” model of college sports. The complaint claims that the “class action is necessary to end the NCAA’s unlawful cartel, which is inconsistent with the most fundamental principles of antitrust law.”
Unlike the lawsuit filed earlier in March 2014 on behalf of former West Virginia running back Shawne Alston, in which he asked the NCAA to pay damages for the difference in the value of an athletic scholarship and the full cost of attendance, Kessler’s lawsuit simply states that no cap is legal in a free market and asks the judge to issue an injunction against the NCAA ending the practice. Kessler contends that NCAA member universities are acting as a cartel by fixing the prices paid to athletes, who presumably would receive offers well in excess of tuition, room, board and books if not capped by NCAA rules. As a result of the restrictions placed on the player’s compensation, they have received and will continue to receive less pay for their playing services than they would in a competitive market. The complaint also states the restrictions are “pernicious, a blatant violation of the antitrust laws, have no legitimate pro-competitive justification, and should now be struck down and enjoined.”
A majority of these athletes will never play on a professional level or receive a college degree, making their college career their last chance to realize the economic benefits of their talents.
Under current NCAA rules, players may receive only tuition, required institutional fees, room and board, and required course-related books in exchange for their services as college football and men’s basketball players. The NCAA defines this amount as a “full grant-in-aid” and commonly referred to as an “athletic scholarship.” The schools that make up these NCAA and “Power Conferences” compete for the most talented college athletes in the country, but cannot offer anything more than a full grant-in-aid. Furthermore, a majority of these athletes will never play on a professional level or receive a college degree, making their college career their last chance to realize the economic benefits of their talents. The complaint alleges that the “agreements to price-fix players’ compensation, and to boycott any institutions or players who refuse to comply with the price fixing agreement” are illegal acts in violation of Section 1 of the Sherman Act. The agreements also “constitute an unreasonable restraint of trade under the rule of reason, whether under a ‘quick look’ or full-blown rule of reason analysis.”
Moreover, the complaint contends that the restraints operate as a perpetual horizontal price-fixing agreement, and group boycott, each of which is per se unlawful. There are three elements to prove that there is an antitrust violation under Section 1 of the Sherman Act. First, a plaintiff must show the existence of a contract, combination, or conspiracy among two or more persons or entities that unreasonably restrains trade or competition and which affects interstate or foreign commerce. Second, a plaintiff must show that the challenged activity must affect “trade or commerce,” which involves proving that the effect of the challenged activity is “substantial” or not “insubstantial.” Third, a plaintiff must prove the challenged activity is an “unreasonable” restraint on trade. Three types of analysis inform this classification: a per se analysis; the rule of reason test; or the truncated rule of reason test.
The NCAA and the Power Conferences unquestionably engage in interstate commerce through substantial travel, communications, purchases and movement of equipment, broadcasts of games, advertisements and promotions, and other business practices. The complaint lists numerous NCAA bylaws that the plaintiffs consider to be anti-competitive rules that are strictly enforced but per se illegal.
Kessler argued that most fans would not take issue if a portion of this multi-billion dollar revenue went to the athletes, who “contribute to the revenue pie of college sports.”
According to court documents, college athletics generated more than $16 billion in broadcasting, in addition to funds from sponsorships, tickets sales, merchandise and payouts from championship tournaments and bowl games. In 2010, for example, the NCAA signed a fourteen-year, $11 billion deal with CBS Sports and Turner Sports for the broadcast and digital rights to the men’s Final Four tournament, and ESPN paid $5.64 billion in 2012 for the rights to the newly formed College Football Playoffs that will launch this upcoming season. In a recent article, Kessler argued that most fans would not take issue if a portion of this multi-billion dollar revenue went to the athletes, who “contribute to the revenue pie of college sports.”
Players have also tried to receive part of the profits that the NCAA generates from using the names, images, and likenesses of athletes. Judge Claudia Wilken ruled in February 2014 that the case, O’Bannon v. NCAA (pdf), would proceed after the NCAA petitioned for a dismissal on the ground that the First Amendment precludes it from seeking permission from student-athletes to broadcast college athletics games.
The complaint in the present suit shows that the NCAA has a history of anti-trust violations.
The complaint in the present suit shows that the NCAA has a history of anti-trust violations. In 1984, the Supreme Court of the United States ruled that the NCAA violated Section 1 of the Sherman Act by limiting the number of live televised football games under the media plan it adopted for the 1982-85 football seasons. In 1998, the Court of Appeals for the Tenth Circuit upheld a summary judgment ruling that an NCAA cap on part-time coaches’ salaries was an unlawful restraint of trade under Section 1 of the Sherman Act. The Tenth Circuit also upheld a permanent injunction enjoining the NCAA from enforcing or attempting to enforce salary limitations on the class of coaches who had sued, ruling that a horizontal agreement to fix compensation was presumptively anticompetitive.
Most notably, in 2009, a class of college football and basketball players challenged NCAA rules limiting student-athlete compensation to the value of a grant-in-aid. These athletes argued that the limitation was a horizontal agreement that unreasonably restrained trade and violated the Sherman Act. The plaintiffs alleged that the grant-in-aid limitation suppressed competition in the market for talented student-athletes – the same allegations as those in the most recent lawsuit. However, the effect on competition was never tested because the parties settled before trial. Before the settlement occurred, the court certified a class and denied an NCAA motion to dismiss, ruling that plaintiffs had adequately pled a relevant market and harm to competition (pdf).
The existence of so many grievances by so many players seems to foreshadow a complete overhaul of the NCAA amateurism business model.
Big changes to college sports could be in the near future. The Chicago District of the National Labor Relations Board (NLRB) recently ruled that the football players at Northwestern University are considered employees and can unionize. If upheld after what will assuredly be a lengthy appeal, this development could greatly change the student-NCAA dynamic by allowing students to negotiate with the NCAA over issues such as sports-related medical expenses and establishing educational trust funds for former players. More importantly, with the formation of a union, it could be easier to demand higher pay, or at least a starting wage. Additionally, the most recent suit involves current student-athletes that essentially want the right to become free agents. Although this free agent model would allow for higher compensation for players, it could create future bidding wars among the top programs for high school talent.
Although there have been many unsuccessful challenges to NCAA antitrust violations, Jeffrey Kessler could be the attorney to accomplish change. Kessler is a litigator with a history of victories against sports leagues, most notably bringing free agency to the National Football League (NFL) in 1992. He is currently outside counsel to the NFL Player’s Association and the National Basketball Association’s (NBA’s) players union, has taken on Major League Baseball (MLB), and has represented Michael Jordan and Tom Brady, among many others. In his arsenal against the NCAA and the Power Conferences is a former NCAA insider, Tim Nevius, who was one of the organization’s top investigators of rules violations and is now the co-chair of college sports. Nevius worked on some of the NCAA’s highest-profile investigations, including that of Ohio State football, whose former coach, Jim Tressel, admitted he had broken NCAA rules related to his knowledge of his players’ sale of memorabilia.
It will be interesting to see how all of these lawsuits play out, but the existence of so many grievances by so many players seems to foreshadow a complete overhaul of the NCAA amateurism business model.
