By Jeff Birren
NCAA members and professional sports leagues are incapable of producing a product without an agreement. The participants must agree on the sport that is being contested, and from that flow a myriad of rules that regulate the contest and its participants. In such instances, Federal circuit courts have long-held that Sherman Act rule-challenges are subject to the “flexible Rule of Reason.” The Supreme Court agreed in American Needle, Inc. v. National Football League, 560 U.S. 183, 203 (2010.)
Justice Brandeis created the Rule of Reason in Board of Trade of the City of Chicago et al v. United States, 246 U.S. 236 (1918.)
The true test of legality is whether the restraint imposed is such as merely regulates and perhaps hereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question, the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end to be attained, are all relevant facts. (246 U.S. at 238.)
Today’s antitrust plaintiff must demonstrate that: (i) the practice or rule at issue is an unreasonable restraint of trade; (ii) that restrains trade in a relevant product and geographic market; and (iii) whether this is the type of injury that antitrust laws were designed to prevent. If the plaintiff meets this threshold, the defense must demonstrate that the rule is pro-competitive (i.e. promotes or enhances competition in the relevant market).
If the defense meets its burden, then the issue is whether there is a “less restrictive alternative” (LRA) that can achieve the pro-competitive benefits. Recent Ninth Circuit decisions placed that burden on the plaintiff. Bhan v. NME Hospitals, Inc., 929 F.2d 1401 (9th Cir. 1991); Tanaka v. USC, 252 F.3d 1059, (9th Cir. 2001.) However, the Second Circuit, in N.A.S.L. v. NFL placed that burden on the defense 670 F.2d 1249 (2nd Cir. 1982.) “Moreover, the NFL was required to come forward with proof that any legitimate purposes could not be achieved through less restrictive means. This it has failed to do.” (Id. at 1261.)
The Ninth Circuit agreed in LAMCC v. NFL, 726 F.2d 1381 (9th Cir. 1984.) The court stated that the NFL’s three-quarters affirmative vote rule to approve a franchise’s relocation “can be achieved in a variety of ways which are less harmful to competition… Here, the district court correctly instructed the jury to take into account the reasonableness of Rule 4.3’s territorial restraint (Citations omitted). Because there was substantial evidence going to the existence of such alternatives, we find that the jury could have reasonably concluded that the NFL should have designed its ‘ancillary restraint’ in a manner that served its needs but did not so foreclose competition” (Id. at 1396.)
Chief Judge Claudia Wilken placed that burden on the plaintiffs in Ed O’Bannon v. NCAA, Case No. 4:09-cv-03329-CW, (N. D. Cal.) Findings of Fact and Conclusions of Law, August 8, 2014, at 50 (“O’Bannon Findings.”), stating that if the defendants show pro-competitive benefits, then the plaintiffs must “show that ‘any legitimate objectives can be achieved in a substantially less restrictive manner’” citing Hairston v. Pacific 10 Conference, 101 F.3d 1315, 1319 (9th Cir. 1996.)
Judge Wilken ultimately found that “plaintiffs have shown that FBS football and Division 1 basketball schools have fixed the price of their product by agreeing not to offer any recruit a share of the licensing revenues derived from the use of his name, image and likeness” (O’Bannon Findings at 57.) Defense evidence often supported her findings.
Dr. Daniel Rubinfeld was an economic expert for the NCAA. He is a law professor at NYU, an emeritus law professor at UC Berkeley, a former Assistant Deputy Attorney General for Antitrust and Chief Economist at the United States Justice Department, and the author of a microeconomics textbook. For over 25 years, his textbook has declared: “intercollegiate athletics is a big and an extremely profitable industry” (Tr. 3086/3087:14-8.)
Dr. Rubinfeld testified that the NCAA had three characteristics: to restrain trade, monitor compliance, and possess the ability to punish transgressors (Tr. 3061:12-20.) His textbook also said that the NCAA’s “profitability is the result of monopoly power obtained via cartelization.” Further, “[t]his cartel organization is the National Collegiate Athletic Organization” (Tr. 3063:2-4; 3063/3064:22-4.) He continued to elaborate in his textbook, stating that the NCAA creates and enforces rules regarding eligibility and terms of compensation to reduce bargaining power by athletes (Tr. 3064:18-23.)
Judge Wilken found the NCAA had failed to prove that their rules “promote competitive balance” or that its rules increased output (O’Bannon Findings at 89.) The Court further found that the rules contribute to promoting amateurism (Id. at 79) and in integrating the athletes into the academic environment (Id. at 86.) In each circumstance, however, there was ample evidence of an LRA that could achieve the same benefits.
The Court therefore enjoined the NCAA from enforcing certain of its rules. It cannot prevent the member schools and conferences from paying the athletes the actual full “cost of attendance.” It is also enjoined the NCAA from preventing the members and conferences from paying into a trust account for each FBS athlete and Division 1 basketball player. The NCAA may place a cap on the amount paid to each player, and the NCAA may require that the money be placed in trust until the player’s eligibility expires, but the cap may not be less than $5,000 per year per player. Schools may offer more, but NCAA members cannot conspire to set lower amounts. The injunction begins with the 2015 recruiting cycle.
Ultimately, the question of which party had the LRA burden of proof was irrelevant. The LRA’s adopted by Judge Wilken were established by defense witnesses, and all of the evidence that follows is from NCAA-witness testimony.
1. Annual Compensation to the $5,000 Cap
Neil Pilson testified for the NCAA as a television expert. He was the first defense witness. He attended Yale Law School and was President of CBS Sports between 1981 and 1995. On cross-examination Mr. Pilson stated that it would be “a negative… a problem for the public” if college teams were paying its players $200,000 per year per player (Tr. 770:4-13.) He was then asked if paying each participant $25,000 a year would “bother” him. He said: “I’m not sure” (Tr. 771:2-4.)
He stated that it was a range. “A million dollars would trouble me and $5,000 wouldn’t, but that’s a pretty good range” (Tr. 771:4-7.) He was not sure where he would come out within that range. (Tr. 771:8-10.)
Mr. Pilson then testified that putting the money in trust for players did trouble him, “but not, frankly, to the extent of large cash money moving to individual players.” (Tr. 771:11-18.)
Stanford Athletic Director Bernard Muir testified and agreed with Mr. Pilson that there was a range that could or could not trouble him. He refused to repudiate either the concept of payments to the athletes or the $5,000 that Mr. Pilson established: “Where I set the limit, you know, that varies, but if does concern me when we are talking about six figures, seven figures in some cases” (Tr. 2545:3-18.)
During the testimony of another NCAA witness, Christine Plonsky, the University of Texas Women’s Athletic Director, it was revealed that a colleague on an NCAA Presidential Task Force remained “committed to the idea of having some return ‘financial’ to the student athletes themselves” (Tr. 1449/1450:8-20, Ex. 2408.)
Two other NCAA experts failed to help the NCAA on this issue. Dr. John Dennis testified as a survey expert. His survey found that although a percentage of the public was opposed to paying college athletes, his lowest benchmark was $20,000 (Tr. 2651:2-9.) He stated that approximately 62 percent of respondents were either no more or less likely to change their behavior (Tr. 2651/2562:14-8), and that seven percent said they would be more likely to watch if the players were paid (Tr. 2664:22-23.): “when the payment levels increase, so does the resistance, if you will, from fans with respect to payment” (Tr. 2653:19-20.) Dr. Dennis did not address the $5,000 level of payment given by Mr. Pilson, and since his results suggested that fan resistance dropped as the amount of payments decreased, it supports Mr. Pilson’s payment threshold.
The Court asked Dr. Rubinfeld if he had an opinion as to what amount of change in the restraint would change competitive balance. Dr. Rubinfeld merely stated that he thought “the literature in the studies show that a much larger payment of compensation would have a much bigger effect.” He also said the literature “doesn’t actually tell you the exact number” (Tr. 3137:4-18.) “Much larger” was the language of Mr. Pilson’s “$200,000” or Mr. Muir’s “seven figures.” These defense witnesses supported the Court’s finding of an LRA payment of $5,000 or failed to refute it.
2. Full Cost of Attendance Payments
NCAA penury was revealed by the fact that the “full grant-in-aid” (GIA) was often thousands of dollars less than the “full cost of attendance” at the various universities. Federal law requires each institution to publish the “full cost of attendance” (Tr. 1739/1741:18-10.) However, NCAA rules prohibit schools from paying the athletes for the full cost of attendance. Dr. Rubinfeld estimated that the annual shortfall between the GIA and the full cost of attendance was in the range of nearly $5,000 (Tr. 3114:2-16.) NCAA President Emmert testified that the members were “considering expanding the value of the grant in aid to cover other full costs of attendance” (Tr. Tr. 1741/1742: 1839:10-13.) Dr. Rubinfeld conceded that in 2013 the members voted down a mere $2,000 increase of the grant-in-aid (Tr. 3117/3118:24-2.)
The plaintiffs’ contended that increasing the GIA to the full cost of attendance was consistent with “amateurism.” The NCAA seemingly agreed. Dr. Rubinfeld testified that in his view, “costs that are compensated up through to perhaps the entire cost of attendance would still be entirely consistent with amateurism” (Tr. 3112:2-6.) He also admitted that if conferences or schools did that, it would “be not without risk because that would violate the NCAA rules” (Tr. 3113/3112:16-1.)
President Emmert favored raising the GIA by $2,000 to “to cover close — more closely the full cost of attendance.” (Tr. 820/1821:12-9.) Mr. Muir did not believe that athletes would be isolated from other students if the payments were “up to the cost of attendance per se.” (Tr. 2545:3-10.)
NCAA-witness Conference USA Commissioner Britton Bankowsky went further: he believed “that the cost of attendance or the cost to attend the education institution—your educational costs is something that universities should be able to provide student athletes” (Tr. 2364:2-5.) Moreover, Conference USA Presidents agreed that the schools should “be permitted to fund the cost of their education.” (Tr. 2364:14-14.) Mr. Bankowsky admitted that he had previously stated publicly that the NCAA could put together a trust fund that the athletes could access when they graduate (Tr. 2366/2367:23-5.)
The Dennis-survey asked about payments “in addition to providing scholarships that cover expenses” (Tr. 2688:6-20.) That ambiguous question left the NCAA without the ability to argue that the survey showed any public opposition to providing compensation to cover the full cost of attendance. Dr. Dennis admitted that his survey failed to incorporate the concept of putting money into trust for the athletes (Tr. 2686:18-25.)
Dr. Harris Pastides, University of South Carolina President, also testified in favor of increasing the GIA. He admitted that they “have been pleased with the your word, restraints that we have had to date, but we think it’s time for a change” (Tr. 1624:5-11.) “I support an increase in the grant, in the grant-in-aid that would come closer to the full cost of attendance. “ (Tr. 1620:15-20.) He testified that SEC Commissioner Mike Slive supported the increase (Tr. 1620:7-223.) SEC Executive Assistant Commissioner/COO, Greg Sankey, testified that he was also “comfortable and supportive moving our scholarships to the cost of attendance.” (Tr. 2430/2432:21-1.)
Dr. Pastidies elaborated, testifying that: “In fact, all of the SEC-member school presidents are all looking forward to modestly increasing the amount of the grant-in-aid as well as providing additional resources, as I’ve described, health and safety benefits, post-graduation return to degree completion, some limited travel funding for a parent, and things like that“ (Tr. 1626:7-12.)
NCAA EVP Mark Lewis testified that he believed that “more” can be done for the athletes, and that they were “working to reform so that we can do more” (Tr. 325:20-22; Tr. 3236:18-21.) He also admitted to saying that if the NCAA does not do it, then “someone else is going to do it” (Tr. 3235/3236: 23-4.) That “someone” is Judge Wilken.
NCAA witnesses proved the existence of LRA’s to their own restraints, and thus supported both aspects of the injunction; the small annual payments placed into a trust fund, and the GIA increase. Cases are decided on the evidence presented. On these issues, the NCAA presented evidence that favored the plaintiffs.
Birren worked for the Oakland LA/Oakland Raiders for 34 seasons and was the general counsel for much of that time. During those decades he worked very closely with Al Davis, and Amy Trask, the NFL’s first female club Chief Executive.
