NCAA Found To Violate Antitrust Laws In Preventing Schools From Sharing Licensing Revenue With Student Athletes

from the antitrust dept

It's long been recognized that the NCAA sports setup is a bit of a scam, in which "student" athletes make various colleges a ridiculous amount of money -- none of which actually makes it to the athletes themselves. In many cases, these are barely actually "students" at all. And while some of the athletes may later cash in by going pro, many do not. A few years ago, we wrote about a class action lawsuit brought by basketball player Ed O'Bannon over the fact that his likeness was appearing in an EA video game, and that the NCAA had basically violated antitrust laws in effectively forcing him (and all NCAA athletes) to sign away all such rights for no compensation. The case has gone back and forth over the years, but on Friday Judge Claudia Wilken sided strongly with the players, finding the NCAA had clearly violated antitrust laws.

The NCAA was done in by a variety of factors, but it appears that its own economic expert did not help matters. While he argued that the NCAA's activities were "legal" he also more or less helped make the case that they were violating antitrust laws:
Dr. Noll’s opinions are consistent with the opinions of the NCAA’s own economic expert, Dr. Daniel Rubinfeld, who testified that the NCAA operates as a “joint venture which imposes restraints” on trade.... Dr. Rubinfeld specifically acknowledged that “the NCAA does impose a restraint, the restraint we have been discussing in this case.” Id. 2921:8-:9. Although he opined that this restraint was lawful because it serves procompetitive purposes, he never denied that the NCAA restricts competition among its members for recruits. In fact, his own economics textbook specifically refers to the NCAA as a “cartel,” which he defined during his testimony as “a group of firms that impose a restraint.” ... Although the NCAA’s other economic expert, Dr. Lauren Stiroh, testified that the NCAA does not restrain competition in any market, her opinions were based on the theory that anticompetitive effects cannot arise unless consumers in a “downstream market” are harmed.... In this case, those consumers would be people who watch or attend college football and basketball games or purchase goods using the names, images, and likenesses of student-athletes. The Court rejects Dr. Stiroh’s theory that Plaintiffs cannot show any anticompetitive effects caused by the alleged restraint without demonstrating some harm to these consumers. The evidence cited above demonstrates that student-athletes themselves are harmed by the price-fixing agreement among FBS football and Division I basketball schools. In the complex exchange represented by a recruit’s decision to attend and play for a particular school, the school provides tuition, room and board, fees, and book expenses, often at little or no cost to the school. The recruit provides his athletic performance and the use of his name, image, and likeness. However, the schools agree to value the latter at zero by agreeing not to compete with each other to credit any other value to the recruit in the exchange. This is an anticompetitive effect. Thus, the Court finds that the NCAA has the power -- and exercises that power -- to fix prices and restrain competition in the college education market that Plaintiffs have identified.
The court goes further, in noting that the NCAA's restrictions on student athlete compensation aren't justified, going through the long history of how the NCAA's views have changed over time:
The Court finds that the NCAA's current restrictions on student-athlete compensation, which cap athletics-based financial aid below the cost of attendance, are not justified by the definition of amateurism set forth in its current bylaws.
The court also completely rejects the claims by the NCAA that it's popularity is based on the fact that athletes aren't compensated.
Other historical evidence suggests that the NCAA’s restrictions on student-athlete compensation have not contributed significantly to the popularity of FBS football and Division I basketball. The NCAA’s former president, the late Walter Byers, testified during his 2007 deposition, for instance, that the NCAA’s decision to remove incidental expenses from the grant-in-aid coverage in 1975 was not motivated by a desire to increase consumer demand for its product.... In fact, he specifically noted that NCAA sports experienced a tremendous growth in popularity during the period between 1956 and 1975 when grants-in-aid still covered the full cost of attendance.
In the end, it becomes clear that the NCAA is acting in a manner that pretty clearly violates antitrust law:
Because FBS football and Division I basketball schools are the only suppliers in the relevant market, they have the power, when acting in concert through the NCAA and its conferences, to fix the price of their product. They have chosen to exercise this power by forming an agreement to charge every recruit the same price for the bundle of educational and athletic opportunities that they offer: to wit, the recruit’s athletic services along with the use of his name, image, and likeness while he is in school. If any school seeks to lower this fixed price -- by offering any recruit a cash rebate, deferred payment, or other form of direct compensation -- that school may be subject to sanctions by the NCAA.

This price-fixing agreement constitutes a restraint of trade. The evidence presented at trial makes clear that, in the absence of this agreement, certain schools would compete for recruits by offering them a lower price for the opportunity to play FBS football or Division I basketball while they attend college. Indeed, the NCAA’s own expert, Dr. Rubinfeld, acknowledged that the NCAA operates as a cartel that imposes a restraint on trade in this market.
The court rejects the idea that free tuition is a reasonable exchange, noting that the licensing rights the student athletes give up is clearly worth much, much more.

While the court does find antitrust problems, it's interesting to note that it does not find harm done to the video game licensing market. After saying that such a market would likely exist without the NCAA's rules, that doesn't mean there's anti-competitive harm:
Nevertheless, Plaintiffs have not identified any injury to competition within this submarket. Just as in the live telecasting submarket, the ultimate buyers in this submarket -- videogame developers -- would need to acquire group licenses from a specific set of teams in order to create their product. This set might include all of the teams within Division I, all of the teams within the major conferences, or some other set of teams that the videogame developer believed would be necessary to produce a marketable product. Regardless of which teams were included within that set, those teams would not compete against each other as sellers of group licenses, even in the absence of the challenged rules, because they would all share an interest in ensuring that the videogame developer acquired each of the group licenses required to create its product. These teams would also not compete against any teams outside of the set because the videogame developer determined that those other teams’ group licenses were not required to produce the videogame. Indeed, competition between teams (or conferences) is even less likely in the videogame submarket than the live telecasting submarket because videogame developers -- unlike television networks -- are not constrained by the number of group licenses that they could use to produce their product. The evidence presented at trial demonstrates that videogame companies could, and often did, feature nearly every FBS football and Division I basketball team in their videogames. Under these circumstances, competition among individual teams and conferences to sell group licenses is extremely unlikely. And, to the extent that it happens (or would happen), it is not restrained by the challenged NCAA restrictions on student-athlete compensation. Thus, just as with the live telecasting submarket, the challenged rules do not suppress competition in this submarket.
Either way, the NCAA is going to appeal this decision -- but if it stands, it will likely have a pretty big impact on the nature of college sports going forward, changing the ways in which student athletes are compensated in general. The NCAA is ordered to allow colleges to offer to share licensing revenue with students (and refuses to have the ruling stayed, though it doesn't go into effect just yet anyway -- and it's possible that the appeals court would grant a stay also).

Reader Comments (rss)

(Flattened / Threaded)

  1.  
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    kenichi tanaka (profile), Aug 11th, 2014 @ 4:18am

    The prolem, and I read the writeup on Huffington Post days ago, is that there is a minimum of $5,000 compensation that athletes can be paid, which expect the NCAA to only pay athletes $5,000. Not only that, but the NCAA and the colleges they play for can both appeal the decision.

     

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  2.  
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    Anonymous Coward, Aug 11th, 2014 @ 4:42am

    just another example of 'the company' screwing 'the people'! how many times has this been discussed on Techdirt? how many 'companies' do the same thing? classic examples are the movie and music industries, where they make money off the backs of the artists, giving virtually nothing back, even when the industries triumph in court actions! the 'for the artists' bit is total bollocks, yet politicians still fall over themselves to help the industries in any way possible!

     

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  3.  
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    Anonymous Coward, Aug 11th, 2014 @ 5:32am

    I thought higher education was about education, silly me, it's about making money.

     

    reply to this | link to this | view in thread ]

  4.  
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    Chris-Mouse (profile), Aug 11th, 2014 @ 5:39am

    Re:

    there's a good reason why the highest paid state employee is usually the head coach at the state's largest university or college.

     

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  5.  
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    kenichi tanaka (profile), Aug 11th, 2014 @ 6:13am

    Of course, because the NCAA and the University pays coaches instead of paying their players. Slave labor at its finest.

     

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  6.  
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    Anonymous Coward, Aug 11th, 2014 @ 6:51am

    Re:

    You're right. It absolutely has to be about one or the other. No overlap ever.

     

    reply to this | link to this | view in thread ]

  7.  
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    Anonymous Coward, Aug 11th, 2014 @ 6:55am

    I thought higher education was about education, silly me, it's about making money.

    yes, silly.  everything is about making money.  you think your doctor isn't a businessman?

     

    reply to this | link to this | view in thread ]

  8.  
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    That One Guy (profile), Aug 11th, 2014 @ 7:37am

    Re:

    Yeah, when a single year can costs tens of thousands, it's about nothing but the money.

     

    reply to this | link to this | view in thread ]

  9.  
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    art guerrilla (profile), Aug 11th, 2014 @ 7:37am

    mixed feelings...

    1. ncaa is eee-vil, no doubt, ALL KINDS of crap they get away with by having themselves exempted from various laws, etc, and effectively being a monopoly...
    2. *HOWEVER*, i disagree with the apparent dismissal of 'free tuition' NOT BEING some sort of compensation; you might want to ask the 90% of the other students who pay (or their parents pay) their tuition/books/etc whether THEY think $20-30k+/year is negligible...
    3. now, whether 'free tuition' is ENOUGH compensation, is another question: if you're in some 2nd tier sport that generates ZERO income for the school, then, yes, i think you are justly compensated; if you are in a 'major' sport which brings in TONS of revenue (which is basically football, basketball, and maybe baseball), then, no, perhaps not...
    (although, perhaps so: a 4th team walk-on scrub who is essentially a practice dummy? not even on scholarship ? i don't know, maybe you should just count yourself lucky...)
    4. student-athletes have all kinds of petty rules* which PREVENT them from having other jobs and/or sources of income, not to mention the TREMENDOUS amount of time they have to put in for workouts, practices, team meetings, etc, etc, etc...
    5. BUT a LOT of this 'unfairness' applies only to the 1% of the 1% who are superstars; 90-99% of the players are -by and large- unknowns, then the problem becomes: should a 4th string unknown scrub who never starts be given the same consideration as a superstar athlete who makes the cover of SI, gets all the pre-game hype, their jersey sells 1000 times more than others, and they will go pro next year ? ? ?


    *bearing in mind that a LOT of these petty rules were because coaches, schools, boosters, AND PLAYERS, WERE taking advantage of them: so you have a rule where you can't feed them a crappy denny's dinner, or give them a crappy tee shirt, which sounds petty and stupid, EXCEPT THAT, when that *IS* allowed, suddenly you find some valuable recruit getting 10 GROSS of tee shirts their uncle sells off, or getting a restaurant gift card worth $1000 which they sell to someone, etc, etc, etc...

     

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  10.  
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    Anonymous Coward, Aug 11th, 2014 @ 7:56am

    Am I In the minority thinking that these "kids" In anyway shape or form should be hands off completely, until they graduate , they should not be exploited In any way shade or form for profit whether directly or indirectly.

     

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  11.  
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    Ruben, Aug 11th, 2014 @ 8:42am

    Re:

    Oh please. It's not slave labor.

    It's indentured servitude.

     

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  12.  
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    Tuscanitunr, Aug 11th, 2014 @ 9:13am

    Re: mixed feelings...

    You pretty much hit the nail on the head.

    I wish it were black and white, but like you said, players are not created equal.

    I wonder what sort of compinsation is in place for these guys already (Besides the assistance for tuition and etc).

     

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  13.  
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    James Jensen (profile), Aug 11th, 2014 @ 9:25am

    Re: Re:

    "Stu-dent-ath-o-leets. Oh, that is brilliant sir. Now when we sell their likeness for video games, how do we get around paying for our sla ... student athletes then?" - Eric Cartman

     

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  14.  
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    art guerrilla (profile), Aug 11th, 2014 @ 10:30am

    Re:

    EXCEPT, you are saying they should give up all rights as human beans...
    NON student-athletes can start businesses, do 'endorsements' (i guess), etc, etc, etc... do basically anything within legal means to make money while in school; student-athletes can not...
    is *that* fair ? ? ?

    even giving my point above about the tuition having significant value, i can DEFINITELY see giving the student-slaves, er, athletes a stipend of some sort so they can go out and buy a damn pizza without running afoul of some NCAA RULE (NOT a 'law'!), or depending upon some booster to give them a hundred dollar handshake...
    (which you will NEVER stop, by the way...)

     

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  15.  
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    Mason Wheeler (profile), Aug 11th, 2014 @ 11:22am

    Re: mixed feelings...

    Yeah, I'm kind of of two minds about this. On one hand, it's not nice to see kids being exploited. On the other, think back to high school and college: the "victims" here are almost without exception the very dregs of the educational system, and here we have a court saying it's not enough that they get something for free that most of us who actually care about learning have to take on exorbitant debt burdens for, but that they ought to actually be paid for it too?!?

    There's something really wrong with that.

     

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  16.  
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    Anonymous Coward, Aug 11th, 2014 @ 8:49pm

    Re: Re: mixed feelings...

    The court isn't saying they have to be paid, only that the schools can't have a cartel to prevent their members paying players.

    Sport at that level is basically a side-business for the university, and they can and should decide what payment to offer people to work for them (bearing in mind that they are also competing with lower-teir league teams).

     

    reply to this | link to this | view in thread ]

  17.  
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    John Fenderson (profile), Aug 12th, 2014 @ 9:16am

    Re:

    Not everything is about making money.

    But aside from that, for a whole lot of people, money-making is secondary. Doctors are a good example of that: most don't get rich, many do a lot of volunteer work, and most of the ones that I've been treated by or know personally became and remain doctors first and foremost because they have a genuine desire to heal people.

    This applies outside of doctors, of course. I don't do the work I do for the money (I could make a whole lot more working in a different sector of the industry), but rather because I find the work itself interesting and fulfilling. The money I get paid simply lets me do the work I want to do.

     

    reply to this | link to this | view in thread ]


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