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Sunday, March 11, 2007
 
Update on White v. NCAA

Robin Acton and Richard Gazarik of the Pittsburgh Tribune-Review have an interesting article on a class action lawsuit filed on behalf of over 20,000 current and former Division 1-A football and major Division 1 basketball players from 144 schools against the NCAA ("NCAA: United Steel Worker Union is trying to Make Athletes 'Paid Employees,' 3/11/2006). In White v. NCAA, the plaintiffs allege that the NCAA violated Section 1 of the Sherman Act, which prohibits illegal restraints of trade, by precluding member colleges from offering athletic scholarships up to the "full cost of attendance" (meaning all of the actual costs of attending college). Presently, scholarships may cover tuition, room, board and required books but not incidentals, such as phone bills, laundry, school supplies, and travel expenses--expenses that the plaintiffs claim are collectively worth between $2,500 and $3,500 a year per student.

The lawsuit also seeks elimination of earning caps for NCAA players, better health care coverage, higher death benefits, and legal assurance that athletic scholarships--which under NCAA bylaws are renewable each year at the discretion of coaches and injured athletes routinely lose them--become guaranteed for four years. If successful, White v. NCAA could require the NCAA to pay more than $100 million in damages, which would be trebled under antitrust law to over $300 million. The plaintiffs are represented by Attorney Marc Seltzer (pictured to left) of Susman Godfrey in Los Angeles, while the law firm Bingham McCutchen is representing the NCAA. I analyzed this lawsuit last February in a post entitled Incidental Matters: Antitrust Class Action Filed Against NCAA.

Acton and Gazarik interview a number of prominent experts for their story, including Professors Richard Southall of the University of Memphis, Stephen Ross of the Penn State Institute for Sports Law, Policy and Research, and Rodney Fort of Washington State University.

Here are some excerpts:
Richard Southall, assistant professor of sports and leisure commerce at the University of Memphis, said highly paid coaches exercise too much control over the players who are struggling financially while making millions for their schools. "Either it's a free market, or it's not," Southall said. "The NCAA says it can't constrain coaches, but yet it can constrain athletes. It's very hypocritical."

* * *

"If you're a really poor kid, you can get a full grant-in-aid and additional money from Pell grants. If you're not desperately poor and not wealthy enough for your parents to send you an extra couple hundred dollars a week, you still fall short," said Stephen Ross, director of the Penn State Institute for Sports Law, Policy and Research. Ross said a star athlete can generate as much as $1 million annually by attracting fans. In a free market, he said, that athlete could be worth a salary of $100,000 per year.

* * *

Rodney Fort, a sports economics professor at Washington State University, said studies show that playing Division 1 football or basketball is a full-time job. He said scholarship athletes, who fit the description of an employee in IRS guidelines, can lose their "jobs" without guarantees.

For more from the article, click here.





12 Comments:

This case exposes the circularity problem in the NCAA's amateurism justification. Basically, the NCAA claims that it provides a unique product - "amateur" sports - but also claims that "amateur" means whatever the NCAA says it means. Thus, if the NCAA allows schools to pay only tuition and books, then that's what makes its ptoduct unique. But if the NCAA also allows schools to give stipends, that becomes the definition of "amateur" that makes the product unique.

Anonymous Anonymous -- 3/11/2007 5:46 PM  


A fascinating case, with a lot of ramifications.

1. Title IX. If the plaintiffs prevail, there will be a need to provide similar benefits to female athletes.

2. Worker's compensation. Going back to cost of attendance (COA) clearly brings with it issues of potential coverage for worker's comp.

3. Taxation. Currently the IRS seems to turn a blind eye to the fact that grants-in-aid (GIA) in excess of books, fees, and tuition are taxable. The difference between COA and GIA is clearly subject to income tax and may also trigger the visiting pro athlete state income tax provisions of several states.

Realistically, there aren't many schools that will award an additional $2,000 to $3,000 per athlete and as long as they aren't colluding to deny it, the money won't magically appear.

Blogger Mark F -- 3/12/2007 1:51 PM  


>>but also claims that "amateur" means whatever the NCAA says it means.<<

But that is at the root of every amateur sports sanctioning body. There are differences in how the NCAA and NAIA define an amateur. The various sports federations have different ideas as well.

I'm not sure the courts are going to be inclined to substitute it's own definition over that of the NCAA or substitute the definition of another organization for that of the NCAA.

The NCAA could if it were so inclined change its definition of amateur to exclude athletes receiving any athletic ability based aid, or limit such aid to tuition, books and fees and exclude room and board.

So far this case is missing the element that made NCAA v. NIT interesting. Some athletic director willing to take the stand and say, "We want to offer more but the NCAA won't let us do it." Just as Bobby Knight testified he'd go to the NIT.

Blogger Mark -- 3/14/2007 1:25 AM  


Mark:

I think that shifting definitions of "amateur" are very troubling for antitrust purposes. You've got a horizontal agreement among competitors to fix prices. The NCAA claims that the agreement is necessary to create a new product: "amateur" football. But a product is only "new," and thus efficiency-enhancing, if it is different in a way that consumers care about. If the NCAA can change its definition of "amateur" at will to give stipends or other amounts of money, then how is the "amateur" label actually important to fans?

Anonymous Anonymous -- 3/14/2007 8:57 AM  


The White plaintiff's aren't seeking a free market. I've got their complaint up right now and they are asking for a substitution of judgment. They want permissible aid to cover up to the actual amount of attending school.

The plaintiffs appear to concede that a limitation on aid to preserve amatuer status is appropriate, they just don't like the limitation.

The NCAA has changed the rules of the game before. Individual sport participants with aspirations of professional or international competition were quite unhappy with limitations on practice under the guidance of a coach.

Blogger Mark F -- 3/14/2007 12:10 PM  


Mark:

What is the NCAA's likely defense going to be? I think that they'll say the restriction on payments is necessary to create the product of amateur football. Therefore shifting definitions appear to create the same problems whether the players are seeking a true free market or just increased compensation above what the NCAA currently considers appropriate.

Blogger Peter -- 3/14/2007 12:49 PM  


I think the primary arguments will be that financial compensation is not the sole or possibily not even the largest factor in selecting an institution.

Second the relief requested, an injunction on any cap that is less than COA, merely moves us to the same point that existed. Players at Texas and North Texas get the same basic compensation, the value of GIA. The relief requested merely changes that compensation to COA, but does not modify the basic forces that determine who a player will sign a letter of intent with (ie. such factors as conference membership, access to bowls, access to national telecasts, schedule, color of uniform, anticipated educational experience, affinity for a coach, affinity for a program, accessibility for friends and family).

The market is relatively free in that a desired highly gifted player can sign with most any institution, with options becoming less based upon skills, ability and experience. The plaintiff's aren't asking that a top player be able to seek and receive the most compensation possible above COA, they are merely seeking COA.

Economically they are asking that the a student-athlete be permitted to attend a university for four or five years with zero out-of-pocket expense and allege trade is restrained because that out-of-pocket expense is somewhere in the neighborhood of $2,000 to $3,500. (I don't recall if that was an annual or semester figure.)

To me the entire premise of the plaintiffs is flawed because they merely want to move the cap line rather than remove it and permit wealthier programs to bid what the market will bear.

The plaintiffs also argue that players are not "input" for the markets college football and college basketball. Rather they are consumers and the output they wish to purchase is a college education / collegiate "experience" / or additional training that will enhance their ability to play professionally.

The plaintiff's contention is that they are purchasing the college education, etc., at an inflated price, that is they have to pay some amount out-of-pocket in order to obtain the desired product, but could receive the product at no-cost if the NCAA did not restrain the sale of the product.

The problem I see with that analysis is that the players are not consumers purchasing output, but rather they are input for the products sold by athletic departments (tickets and electronic media rights to view games).

Another problematic issue for the plaintiffs is that the market for the input is relatively fixed, at most there are 2,975 spots available for freshmen and junior college transfers to obtain a GIA in a given year due to the signing restrictions (not challenged) but a large number of potential student athletes to fill those positions. I've not looked in the past few seasons but historically the rosters of Super Bowl participating teams tend have 20% to 25% players who did not play Division I-A football, in other words the supply of potential players exceeds the fixed demand.

Input cases, which this appears to be, have traditionally been about producers over-purchasing input to deny it to competitors. NCAA regulations prevent Alabama from "buying up" the supply to prevent UAB from effectively participating.

Blogger Mark F -- 3/14/2007 1:58 PM  


Mark:

I agree the plaintiffs' claims are flawed for the reasons you state, but they obviously framed their claims to avoid taking the NCAA's amateurism rationale head-on.

I haven't read the case in awhile, but is there any support in the Third Circuit's opinion in Brown University that this could be framed as a purchaser's case?

I disagree that input cases are traditionally about predatory buying. There are many cases about buyers colluding to drive down costs. Further, it's not obvious that the NCAA's rules will increase competitive balance, as you imply. There are decreasing marginal returns to talent; as a team stockpiles talent, it will pay less for other superstars. By capping compensation, the NCAA may exacerbate competitive imbalances by limiting the effect that diminishing marginal returns to talent would have on stockpiling. Indeed, studies of competitive balance in NCAA football show that competitive balance (admittedly a vague term that could mean many things) decreases as NCAA enforcement increases.

Anonymous Anonymous -- 3/14/2007 5:45 PM  


Excellent point regarding Brown.

My opinion for what it is worth is that unless it can be made a Brown case where the player is the consumer, it probably isn't winnable.

I think the flaw in a Brown analysis is two-fold.

First each institution has its own GIA value. A smaller regional state institution could see the GIA value as low as $10,000 while some private institutions could see that value easily exceed $40,000. If players are Brown consumers, pricing for the GIA component becomes interchangeable so that the cost of books, fees and tuition to the consumer can be a Ball State Cardinal or Stanford Cardinal at an identical price, and an excellent savings for the Stanford player.

The more important differential is that Brown turned on a conspiracy to limit the only source financial assistance. DOJ basically concluded that the involved schools conspired to eliminate any price "discount" other than need based aid across the board. The NCAA rule limits one form of "discount". A player could forego athletic ability aid and still be a consumer of a college education eligible to receive academic merit aid or financial need based aid.

Blogger Mark -- 3/14/2007 10:32 PM  


Great discussion. This can't be a consumer case. Sellers don't care WHO the buyer is, their sole motivation is to get the maximum $$ for their product and they will sell to anybody willing and able to pay it. That's obviously not the case here because schools are only willing to sell a scholarship to a very small percentage of the population and they are very selective about who they sell it to. Most importantly, that determination has absolutely nothing to do with how much $$ the consumer is willing to pay for it -- it's based upon talent, position, age, work ethic, high school GPA etc.

Thus, college players are clearly selling their services in return for a form of compensation. If this is a consumer case, then Law v. NCAA could be characterized as a consumer case (and any input case really). The difference between this case and Law is basically the form of compensation -- the assistant coaches were receiving a salary, and here the players are receiving tuition, books, room and board. In other words, one could also say that the assistant coaches in Law were purchasing a salary with their services.

For an antitrust claim, there must be a restraint on TRADE. Therefore, I've always thought that this case should turn on whether scholarship players are legally "employees" by definition (which is really just a policy issue and another whole discussion in and of itself). If the court says they are not "employees" selling their services (which will most likely be the case), then there is no "trade" involved.

Blogger Rick Karcher -- 3/17/2007 6:35 AM  


Prof. Karcher:

I think your emphasis on the fact there must be a restraint of "trade" may be captured in the commercial/non-commercial distinction that some courts have developed under Section 1. Several courts have invoked the fact that the NCAA's activities are "non-commercial" and thus wholly exempt from antitrust review. See, e.g., the Third Circuit's Smith decision.

I think it clearly lacks merit in the context of a money-making enterprise like big-time college athletics. As Einer Elhauge noted in his article, The Scope of Antitrust Process, Section 1 should apply anytime parties are colluding in a way that could advance their own economic interests. There's no doubt that universities are advancing their own economic interests by colluding on player compensation.

Anonymous Anonymous -- 3/17/2007 10:59 AM  


Thanks for this post! I'm taking a Sports Law class in the undergraduate level as a Sport Management major at University of Michigan. This case was on our last test and I didn't remember talking about it so thanks to this post, I am now ready for the final this evening!

Plus, Rodney Fort is actually one of my professors this semester. He now teaches Sports Economics at U of M. Go Blue!

Blogger Christy Hammond -- 12/14/2007 1:35 PM  


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