(Editor’s Note: The following was issued by the Drake Group)
Earlier this month, Judge Claudia Wilken issued a long-awaited decision in the case titled National Collegiate Athletic Association Athletic Grant-in-Aid Cap Antitrust Litigation. She found that the NCAA is violating antitrust law by limiting the benefits that athletes can receive to a grant-in-aid scholarship based on the cost of attendance at the athletes’ respective universities. Reasoning that the NCAA’s compensation rules restrain trade, Judge Wilken held that the Association cannot limit specifically identified noncash benefits that are tethered to education (e.g., financial assistance for a study-abroad program or to attend graduate school). She agreed with the NCAA, however, that certain limits are necessary to maintain the distinction between college sports and professional sports. Therefore, she permitted the NCAA to continue to cap athlete compensation and benefits unrelated to education and cash or cash-equivalent education-related awards and incentives for academic achievement. A discussion of Judge Wilken’s order and the Drake Group’s concerns about it follows.
Education Benefits.
The compensation and benefits related to education that are provided in addition to a full athletic scholarship based on the federal definition of “cost of attendance” (COA) that cannot be capped by the NCAA are computers, science equipment, musical instruments and other tangible items not included in the cost of attendance but nonetheless related to the pursuit of academic studies and post-eligibility scholarships to complete undergraduate or graduate degrees at any school; scholarships to attend vocational schools; tutoring; expenses related to studying abroad (that are not included in the COA calculation) and paid post-eligibility internships.
Drake Concerns:
No dollar limits are specified for tangible items, inviting the purchase of high-priced computers, science equipment and musical instruments with high resale value. Given the lavish excesses common to athletic facilities, similar excesses to win recruiting competition should be expected.
No dollar limits or limits on numbers of students are specified for post-eligibility scholarships to complete undergraduate or graduate degrees at any school (current NCAA limit is two at $10,000 each), raising questions of undisciplined recruiting promises and significant costs (i.e., “we’ll fund your master’s and doctoral education”). While Drake applauds additional education benefits, all but twenty athletic programs book revenues in excess of expenditures with regard to operating costs and few if any are actually profitable when capital expense debt service is included. The institution’s ability to support such unlimited expenditures must be considered.
The use of 501 (c) 3 education institution dollars to provide scholarships for students to attend another 501 (c) 3 education institution or for-profit institution, including the current NCAA rules that permits institutions to provide up to two $10,000 scholarships to another institution[1], raises issues of misuse of institutional resources. The tax-exempt purpose of the institution is to provide accredited educational degrees to its students – not the gifting of scholarships to students attending other educational institutions.[2]
“Other tangible items” related to the pursuit of academic studies are undefined and costs unknown.
While the Court’s judgment is applicable solely to the plaintiffs’ classes (Division I Football Bowl Sub-division football and men’s and women’s Division I basketball), Title IX applies and would require male and all female athletes to be equally treated.
Cash Incentives for Academic Achievement.
The NCAA may not limit cash academic achievement or graduation awards or incentives below the combined equivalent dollar amount of those items currently permitted by the NCAA for athletic participation and championship awards as specified in NCAA rules Article 16.[3] If the NCAA increases amounts in Article 16, then this cash benefit limit goes up equivalently.
Drake Concerns:
At trial, plaintiffs’ counsel suggested that it would be permissible for the institution to offer the maximum allowable annual incentive for incredibly minimal academic standards such as maintaining the lowest GPA required for athletics eligibility (generally, NCAA rules require freshman to achieve a GPA of 1.8 by the end of the freshman year, 1.9 by the end of the sophomore year and a 2.0 GPA thereafter)or passing the minimum number of credits required for normal progress (24 credit hours per year). Such rewards should be an anathema to higher education leaders because they are equivalent to rewarding students at high academic risk.
While the Court’s judgment is applicable solely to the plaintiffs’ classes (Division I Football Bowl Sub-division football and men’s and women’s Division I basketball), Title IX applies and would require male and female athletes to be equally treated.
The cost of this provision would be significant, increasing pressure to increase institutional subsidies and mandatory student fees, upon which 90% of Division I athletic programs depend, and have the effect of further distancing the “haves” from the “have nots”.
Conferences May Set Lower Limits.
Conferences (individually and not in collusion with each other) can set limits below the above types of benefits (1 above) or cash limits (2 above) that are set by the NCAA.
Drake Concerns:
This provision is meaningless in a practical sense in that when conferences adopt rules, they are known to everyone. The pressures of recruiting and the perpetual Division I basketball and football “arms race” will result in the most generous and expensive benefit or cash limit becoming the rule for all conferences within a competitive division.
Like The Drake Group, the media and public are now engaged in hypothesizing what these benefits will be, their cost and Title IX implications. This conversation will continue for many months or years as the case is most likely to be appealed and the specific benefits and limits determined.
The Drake Group strongly believes that this decision demonstrates that the courts cannot and should not be the place to solve what is wrong with the NCAA and college athletics. Courts by nature and purpose make piecemeal decisions for a limited number of class actions of plaintiffs based on a narrow set of principles and facts. “Rules of evidence, constrained testimony, limited briefing, and artfully constructed oral arguments are not conducive to full analyses of all the stakeholders’ information, positions, and implications thereof necessary to resolving these important public policy matters.”[4] They make incremental changes and often do not have a full understanding of the impact of such changes on the larger whole. For example, if the Wilken decision is upheld on appeal, any decision that allows athlete non-cash compensation decisions (but still costly to the institution) to be relegated to athletics conferences simply changes the driver of the Division I “arms race” from the richest institutional athletic programs to the richest athletic conferences, effectively accelerating the pace and increasing gaps between the “haves” and “have nots.”
The Drake Group strongly believes that numerous NCAA failures have driven the athlete compensation issue into the courts. These cases may not have occurred in the first place if the NCAA:
did not unfairly prohibit college athletes from participating in outside employment and exploiting their own names, images and likenesses (apart from the marks of or affiliation with their universities);
owned all national championships and used these extraordinary revenues to provide adequate athletic injury insurance for all 480,000 athletes instead of requiring athlete or family insurance as a condition of athletic participation;
required, as a condition of membership, institutions to follow their own Sports Medicine Handbook policies and procedures detailing industry standards for athlete health protection;
prohibited institutions from spending millions of dollars granting the absurd wishes of football and basketball coaches to create recruiting advantages that are a waste of money: lavish athlete-only practice and competition facilities, plush oak or mahogany locker room, laser tag rooms, lounges, video game rooms, movie theatres, sleeping pods, training tables, extravagant dormitories – all of which isolate athletes from the rest of the student body and produce a sense of entitlement and privilege that has enabled coaches and athletes to operate above the law or normal student disciplinary systems; and
sought and obtained a limited anti-trust exemption from Congress to allow it to control coach and administrator salaries wholly inappropriate for tax-exempt institutions of higher education.
All of these practices have created the public pressure to pay college athletes and precipitated college athlete antitrust lawsuits. Many athletes are rightfully angry that they are prohibited from earning their own money outside the institution or limited to highly restrictive scholarship benefits while millions of dollars easily flow to personally benefit their coaches or contribute to coaches’ recruiting success. Neither higher education leaders nor the NCAA are engaged in this larger conversation that questions the above practices.
The Drake Group believes that only Congress is in a position to expose the educational fraud that the NCAA and college presidents and boards of trustees refuse to address. The NCAA could effectively mandate academic practices that would prevent the current athletics program assault on the academic integrity of our institutions of higher education. For example, the NCAA could:
place a limit on classes missed and hours engaged in athletics-related activities rather than the current 20-hours per week limit that excludes travel – the current 20-hour limit is falsely advertised by the NCAA as effective and must be revised;
prohibit athletic departments from controlling tutors, academic counseling or other academic support services;
prohibit the admission of athletes through waiver of the institution’s normal academic standards or limit the number of such special admits to a percentage equal to athletes’ as a percent of the student body;
require full disclosure of athlete vs. non-athlete registration in courses and require tenured faculty oversight to ensure athletes are not being systematically funneled to less-demanding professors, majors or courses; and
discard its statistically inaccurate Graduation Success Rate and revert to the Federal Graduation Rate which would enable a more valid comparison with non-athlete students.
Dr. David Ridpath and Dr. Gerald Gurney, past-presidents of The Drake Group, issued a joint comment: “The courts have slowly recognized the Division I intercollegiate athletics fraud and, as is their nature, are chipping away at the madness. The NCAA continues to operate a billion-dollar entertainment enterprise while denying any role in policing academic transgressions or protecting the health and well-being of college athletes. Tax-exempt colleges and universities continue to participate in an educational masquerade contending they don’t exploit college athletes or hiding the fact that they regularly enroll athletes who do not meet their own academic admissions standards.” Similarly, most Division I college presidents and Boards of Trustees have bought into the unsupported or weak contention that winning football and basketball records helps colleges and universities compete economically by producing positive benefits such as more and higher quality applications, donations, and state appropriations – conveniently dismissing the fact that this so-called “Flutie Effect” is not supported by research.[5] Drs. Ridpath and Gurney conclude, “The nature of courts cannot fully acknowledge the farce. The bottom line is that the NCAA is incapable of reform and higher education leaders aren’t willing to tackle intercollegiate athletics issues. The result is no clear public policy on the proper role of intercollegiate athletics within tax exempt institutions of higher education. Congress provides billions of dollars to these institutions and should intervene to force an examination of these issues.”
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[1] National Collegiate Athletic Association. 2018-19 NCAA Division I Manual. Section 16.1.4.1.1, p. 228
[2] The higher education institution’s application for 501 (c) 3 non-for-profit tax exempt status represents that all donations, grants, and revenues provided to the institution will be used to teach its students, not the students of other entities. The only two exceptions to such use are (1) joint educational programs formally agreed upon by two universities and (2) if an institution discontinues an educational program, any prepaid tuition collected from students for that program may be transferred to another institution to allow the students to complete the discontinued program.
[3] See Figures 16-1, 16-2 and 16-3, pp. 237-238 of the 2018-19 NCAA Division I Manual – estimated to be a $5,600 limit currently. The Drake Group notes that the injunction is somewhat indecipherable regarding the exact dollar limit. Thus, caution is recommended regarding the exact value of the cap.
[4] Jayma Meyer and Andrew Zimbalist. (2017) “Reforming College Sports: The Case for a Limited and Conditional Antitrust Exemption.” The Antitrust Bulletin, p. 20.
[5] Ben Baumer and Andrew Zimbalist. “The Impact of College Athletic Success on Donations and Applicant Quality.” International Journal for Financial Studies, forthcoming.
