NCAA Grant-In-Aid Cap Antitrust Trial Preview: What You Need to Know

 
Courthouse Photo (Tim Nevius NCAA Lawyer).jpg
 

On Tuesday, the NCAA returns to trial in the most recent litigation over “pay for play.”  In re NCAA Grant-In-Aid Cap Antitrust Litigation is a case brought by three classes of Division I football and men’s and women’s basketball athletes seeking to abolish NCAA rules that prohibit payment to athletes.  Filed in March 2014, this nearly five-year case proceeds to trial to decide at least one big question: Would fans be any less interested in college sports if the rules did not prohibit payment to the players?

The damages portion of the case was resolved last year when the NCAA agreed to a $209 million settlement.  Now, remaining for resolution is whether the cap on compensation is illegal under federal antitrust law, an issue that requires the judge to weigh the economic pros and cons of NCAA rules.  Below are some key things to know:

 

Plaintiffs:  

This is a class action brought by Division I men’s and women’s basketball and FBS football athletes.  The court certified a class of athletes in each sport, which means the named plaintiffs represent all similarly-situated Division I athletes in their sport.

 

Defendants:  

The defendants are the NCAA and the 11 Division I Conferences that sponsor FBS football (i.e. the highest level), including the Power Five (ACC, Big Ten, Big 12, Pac-12, and SEC).

 

Location and Dates:

U.S. District Court for the Northern District of California (Oakland).  The trial is scheduled for 10 days, starting September 4, with the week of September 10 off.

 

Presiding Judge:

Federal District Court Judge Claudia Wilken will oversee the case.  A Clinton appointee, she has served on the court since 1993, including two years as chief judge, and presided over the previous NCAA pay-for-play case (In re NCAA Student-Athlete Name, Image, and Likeness Litigation a.k.a. O’Bannon v. NCAA), in which she found in favor of the college athletes but her remedy was overturned in part on appeal.

 

Claims:

As plaintiffs, the college athletes claim that the NCAA, through its member schools, and its conferences have conspired to fix the price of their athletic services at the amount of a full grant-in-aid (plus cost of attendance).  The players allege that such agreement violates the Sherman Antitrust Act, a long-standing federal law designed to protect against economic cartels, price fixing, and monopolies. In short, the Sherman Act says that agreements that restrain trade are illegal.  More on what that means below.

 

Defenses:

The NCAA says the rules are necessary to preserve college sports as “amateur” and distinguish them from the professional leagues.  The NCAA and conferences claim that without the rules, fans would be less interested in watching and attending games and, therefore, college sports would cease to exist or be greatly diminished.  It also says that the cap on compensation helps integrate the athletes into their academic environment, thus enhancing the value of a college education.

 

Relief Sought:  

The college athletes are asking the court to strike NCAA rules that prohibit pay beyond a scholarship.  The athletes want the court to deem the rules illegal under the Sherman Act and eliminate them from the rulebook.  It is important to note that the athletes are not demanding to be paid or calling for new rules that require payment.  They are only asking the court to strike down the current rules as they exist today.

 

Issues and Arguments:

What is an unreasonable restraint of trade?  Unlike many other antirust and price fixing cases, in this instance, there is no dispute of an agreement among competitors to restrain trade.  That is, the universities and their conferences (the competitors) have not only collectively agreed to fix the price of the athletes’ services (restraint of trade), but have also codified and published that agreement in the form of the NCAA rulebook.  

However, an agreement that restrains trade alone does not necessarily make the conduct illegal.  The question is whether the restraint is unreasonable.  Courts have said that some agreements among competitors to restrain trade can actually produce economic benefits, particularly those agreements that are necessary for the product to exist in the first place.  Other agreements are invalid on their face (e.g. price fixing and big-rigging) and still others require closer scrutiny before we decide if they are illegal. Here, the court has to weigh the benefits of the NCAA rules versus their harms.  Keep in mind, the rules are being analyzed only in terms of their economic pros and cons.

After an earlier ruling on summary judgment, the NCAA now has the burden to prove that its rules serve an economic benefit.  In doing so, it will argue that the rules against compensation protect the “unique” nature of college sports and attempt to convince the court that consumer demand depends directly on such rules.  According to the NCAA, without the cap on pay, fans would no longer be interested in watching and attending games, particularly because they would be no different than professional sports. It will also claim that the rules serve to integrate the college athlete into campus, which enhances the economic value of a college education, a point leftover from O’Bannon.

On the other hand, the college athletes will argue that consumer demand is not dependent on the compensation cap.  Instead, they will argue that fans watch and attend the games for many reasons, including their affiliation with or proximity to a school, and fan interest will not diminish if the court simply lifts the restrictions on compensation without imposing any requirement on schools to pay the players.

If the NCAA is able to show that the compensation cap promotes or protects consumer interest or enhances the value of a college education, the players can still win by showing that the benefits of such rule can be accomplished in another way that isn’t as harsh (i.e. a “less restrictive alternative”).  Plaintiffs will argue that a less restrictive alternative to the existing cap, includes allowing the conferences to decide whether to cap compensation or not. That is, the court could remove the nation-wide NCAA rule and just let the conferences determine if the players should be compensated beyond a scholarship or not.  In that case, the Pac-12 might have different ideas than the SEC or the Big Ten, none of which individually have control over the market for the college athletes’ services.

Another less restrictive alternative proposed by the players is to remove all limits on compensation that are “tethered to education” or “incidental to participation.”  Confined by the previous court ruling in O’Bannon, the players will argue that the NCAA currently prohibits certain payments tied to education and permits others that have no connection to education but are considered “incidental to participation.”  As a result, they say, there is no consistent definition of amateurism underpinning the enterprise and upon which consumer demand depends. Therefore, as an alternative, the NCAA could lift any restriction on payments tied to education and any considered “incidental to participation” without harming consumer interest.  This approach could help the plaintiffs overcome the challenging confines of the O’Bannon ruling, which shot down “cash payments untethered to educational expenses.”

 

Key Testimony:

Some of the most important testimony will come from expert witnesses, including several economists, who will present opinions and draw conclusions from data and statistics, including surveys of consumers.  Dan Rascher and Roger Noll, both of whom testified for the players in O’Bannon, will offer their expertise again here.  The NCAA and conferences will rely upon testimony from Dr. Kenneth G. Elzinga, Dr. James Heckman, and some notable college sports administrators, including SEC commissioner Greg Sankey.  Look also for the testimony of Hal Poret for the plaintiffs, a consumer survey expert, who will testify that additional forms of compensation or benefits would have no negative impact on consumer interest and might actually have a positive impact.  College players will testify on Friday if everything goes according to schedule.  Former men's Wisconsin men's basketball player, Nigel Hayes, was originally slated to testify but is unavailable because he is overseas pursuing his basketball career.  Former West Virginia football player, Shawne Alston, former Clemson football player, Martin Jenkins, and former Cal women's basketball player, Justine Hartman, are scheduled to testify for the players.

 

Case Precedent:

Virtually every case involving NCAA rules cites to a well-known case from 1984 called NCAA vs. Board of Regents.  There, the Universities of Georgia and Oklahoma sued the NCAA to challenge rules that limited the number of football games that could be broadcast on TV.  The case went all the way to the U.S. Supreme Court and the NCAA lost. As a result, schools were allowed to strike their own TV deals, which led to decades of massive growth and revenues in college sports that continues today.  

The impact of that case cannot be understated.  It allowed for the schools to profit massively and created the underlying inequity at the heart of the player’s case (the players have not been able to share in those profits directly).  Even though it lost to the schools in that case, the NCAA has used the decision to defend itself for decades against claims by the players, citing over and over to the following passage:

"The identification of this ‘product’ with an academic tradition differentiates college football from and makes it more popular than professional sports to which it might otherwise be comparable, such as, for example, minor league baseball. In order to preserve the character and quality of the ‘product,’ athletes must not be paid, must be required to attend class, and the like. And the integrity of the ‘product’ cannot be preserved except by mutual agreement; if an institution adopted such restrictions unilaterally, its effectiveness as a competitor on the playing field might soon be destroyed. Thus, the NCAA plays a vital role in enabling college football to preserve its character, and as a result enables a product to be marketed which might otherwise be unavailable. In performing this role, its actions widen consumer choice -- not only the choices available to sports fans but also those available to athletes -- and hence can be viewed as procompetitive.

The other major case at play is the aforementioned O’Bannon case, which was argued in front of this same judge.  After finding that the NCAA’s rules violated antitrust law, Judge Wilken enjoined NCAA rules that prohibited cost of attendance payments as well as those that capped deferred payments for name, image, and likeness rights at less than $5,000.  On appeal, the 9th Circuit affirmed the lower court ruling with respect to the cost of attendance but overturned the relief related to deferred payments. In its ruling, the appeals court drew a distinction between “education-related compensation” and “cash sums untethered to educational expenses,” the latter of which it said would violate notions of amateurism that are necessary to preserve college sports.

The NCAA has argued that the O’Bannon ruling should prevent any new findings on this topic.  Essentially, it says that the pay-for-play issues were already decided and the NCAA should not have to defend itself against these types of claims again.  The court disagreed with the NCAA’s pre-trial motions on that point and has said the cases are distinguishable and present new issues for the court to decide.  Nevertheless, the court and parties recognize that the 9th Circuit ruling in O’Bannon is controlling and its language imposes limits on the current litigation, as noted above with respect to less restrictive alternatives.

 

Decision and Appeals:

Judge Wilken will likely take a couple months to issue a final, written decision on the matter.  At that point, an appeal to the U.S. Court of Appeals for the Ninth Circuit is likely, regardless of which party prevails.  That process may take another several months to a year. Depending on that result, which will be greatly influenced by the O’Bannon decision before it, one or both parties may appeal to the U.S. Supreme Court.  The same sequence took place in O’Bannon, but the Supreme Court declined the case, leaving the 9th Circuit decision intact.

 

I will be attending portions of the trial in Oakland.  Follow me on Twitter for updates and analysis on this and other important college sports topics.

Timothy Nevius