NCAA and the rule of reason: analyzing improved education quality as a procompetitive justification.

• Author: Ginder, Cameron D.
• Position: National Collegiate Athletic Ass'n

TABLE OF CONTENTS INTRODUCTION I. ANTITRUST FRAMEWORK AND THE NCAA A. Antitrust Framework 1. Per Se Rule of Illegality 2. Rule of Reason Analysis 3. Rule of Reason Analysis and Joint Ventures B. O'Bannon u. NCAA 1. Background 2. Relevant Portions of the O'Bannon Ruling 3. Improved Academic Quality II. PROCOMPETITIVE BENEFIT ANALYSIS A. Procompetitive Framework B. Product Quality and National Society of Professional Engineers C. Engineers and Its Progeny III. PROCOMPETITIVE BENEFIT AND OBANNON A. Why Academic Integration Is Not a Procompetitive Justification B. Brown University C. Illusory Benefit CONCLUSION: THE NCAA MOVING FORWARD INTRODUCTION

In early August of 2013, Jay Bilas--ESPN basketball analyst, lawyer, and frequent National Collegiate Athletic Association (NCAA) critic--sent a series of tweets with pictures of screenshots from ShopNCAASports.com. (1) Bilas used the website's search function to look up the names of prominent NCAA Division I football players. For instance, Bilas searched "Clowney" and University of South Carolina football jerseys with the number seven appeared. (2) Number seven just happened to be star defensive end and future number one overall NFL draft pick, Jadeveon Clowney. (3) Bilas repeated the process using the names Johnny Manziel, Tajh Boyd, Teddy Bridgewater, Braxton Miller, Denard Robinson, Everett Golson, and Tyrann Mathieu. (4) Within minutes the NCAA removed the search function from the website.(5) Within days the entire ShopNCAASports.com website was shut down, later to be put back up selling only NCAA championship merchandise. (6) NCAA President Mark Emmert commented, saying, "In the national office, we can certainly recognize why [the sale of that merchandise] could be seen as hypocritical, and indeed I think the business of having the NCAA selling those kinds of goods is a mistake, and we're going to exit that business immediately." (7)

According to its own Division I Manual, the NCAA's Principle of Amateurism is that "[s]tudent-athletes shall be amateurs in an intercollegiate sport, and their participation should be motivated primarily by education and by the physical, mental, and social benefits to be derived. Student participation in intercollegiate athletics is an avocation, and student-athletes should be protected from exploitation by professional and commercial enterprises." (8) In contrast, the NCAA had nearly $871.6 million in total revenue for the fiscal year 2011-2012. (9) At the heart of the discrepancy between the NCAA's mission statement and its annual revenue is the debate about whether big-time collegiate athletes should be compensated for the use of their names, images, and likenesses. Legal academics (10) and the sports establishment have frequently advocated for compensating student-athletes, which would alter the current NCAA amateurism ideal. (11) That position has only increased in popularity as the NCAA's annual revenue continues to rise. (12) Bilas, in an interview after his Twitter rant, stated that there is a tension between the NCAA's amateurism model and the NCAA's current commercial model. (13) The NCAA is making money by licensing student-athletes' names, images, and likenesses, but restricting what the revenue drivers, the student-athletes, can make. (14)

Current NCAA bylaws restrict student-athletes from receiving any compensation from their school or outside sources for use of their names, images, or likenesses. (15) Schools are not permitted to give student-athletes financial aid in an amount greater than a full grant-in-aid. (16) Additionally, the NCAA prevents an athlete from receiving outside financial aid in an amount greater than the cost of attendance. (17)

The discussion about whether student-athletes should receive compensation for use of their names, images, and likenesses was thrust into the national spotlight following the United States District Court for the Northern District of California's ruling in O'Bannon v. NCAA. (18) In O'Bannon, a group of current and former big-time NCAA Division I football and men's basketball players brought a class action suit. (19) The Complaint alleged that NCAA rules that restrict elite Division I football and men's basketball players' compensation violated section 1 of the Sherman Antitrust Act. (20) Judge Claudia Wilken, sitting for a bench trial, held that the challenged NCAA rules unreasonably restrained trade in the market for certain educational and athletic opportunities offered by NCAA Division I schools, that the NCAA's proffered procompetitive justifications supported the restraint, but that these justifications could be achieved through less restrictive alternatives. (21) Judge Wilken granted an injunction that prevented the NCAA from enforcing any rules that prohibited member schools from offering Division I football and men's basketball recruits a share of the revenue generated from their names, images, and likenesses. (22) The injunction also prohibited the NCAA from enforcing any of its rules that prevented member schools from depositing a share of NCAA licensing revenue in trust for Division I football and men's basket ball recruits. (23) Schools could put a limited amount of money in trust for each of their football and men's basketball student-athletes, which would be paid out to the athletes after they leave school. (24)

This landmark decision, which could have altered the shape of collegiate athletics, was tempered by limitations in the injunction. The injunction allowed the NCAA to continue capping the amount of money recruits receive while in school at the cost of attendance. (25) The injunction also allowed the NCAA to cap the amount of licensing revenue paid to an athlete in trust at $5000 per year--in 2014 dollars. (26) Despite what may be described as a win for student-athletes, commentators have criticized the decision for not going far enough. Michael McCann, sports legal analyst and New Hampshire Law School professor, stated that Judge Wilken allowed the NCAA to cap player pay for reasons "not entirely clear in her opinion." (27) McCann added that, "it is not readily apparent why it is unlawful for the NCAA to 'collude' to cap at $0, but not at $5000." (28) Fellow law professor and sports legal analyst Marc Edelman echoed McCann's opinion in the immediate aftermath of the decision. (29)

Judge Wilken used antitrust law's Rule of Reason analysis to examine the NCAA's restraint on student-athlete compensation. (30) The Rule of Reason is the framework courts most often use to analyze restraints challenged under the Sherman Act. (31) Despite holding that the NCAA's limits on student-athlete compensation restrained trade within the meaning of the Sherman Act, Judge Wilken upheld the restraints--with some limitations--due to the NCAA's alleged procompetitive benefits. (32) When courts perform the Rule of Reason analysis, they are comparing an activity's anticompetitive effects with its procompetitive justifications. Procompetitive benefits, when accepted by the court, justify a restraint that would otherwise violate the Sherman Act as an unreasonable restraint on trade. (33) This Note focuses on Judge Wilken's holding that the restraints on student-athlete compensation were justified in part on grounds that they improved the integration of athletics and academics. (34) Judge Wilken undoubtedly held that the NCAA restrained trade as defined by section 1 of the Sherman Act. She also held, however, that integrating student-athletes into the broader campus--thereby improving the academic product student-athletes receive--was a procompetitive justification for the restraint.

The purpose of this Note is to argue that improving education quality for student-athletes is not a procompetitive justification for restraining trade, and thus Judge Wilken should have overruled the NCAA's limitations on pay in their entirety as to this procompetitive justification and allowed schools to compensate athletes for their names, images, and likenesses. Part I of this Note outlines the relevant antitrust framework, and describes how the Supreme Court has applied that framework to the NCAA in the past. Part I concludes with the relevant portions of Judge Wilken's ruling in O'Bannon. Part II describes the analysis courts apply when determining whether a given restraint is justified by its procompetitive benefits. Part II then analyzes how the Supreme Court has applied that analysis to procompetitive claims similar to what the NCAA argued in O'Bannon--namely that the restraint is necessary to improve product quality. Part III applies the framework established in Parts I and II to Judge Wilken's determination that an improved educational product is a procompetitive benefit that justifies the challenged restraints on trade. This Note then concludes by briefly describing what this analysis means for the NCAA moving forward. Because Judge Wilken held that maintaining amateurism is also a procompetitive benefit, this analysis will not be outcome determinative in any future student-athlete compensation cases. Nevertheless, it strikes at one of two accepted NCAA defenses in the O'Bannon case and leaves the NCAA open to future antitrust challenges. Multiple such challenges are already pending, and legal attacks on currently accepted NCAA defenses threaten the current NCAA structure.

1. ANTITRUST FRAMEWORK AND THE NCAA

   1. Antitrust Framework

      Section 1 of the Sherman Act makes illegal "[ejvery contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations." (35) To prevail on a [section] 1 claim, a plaintiff must show (1) that there was a contract, combination, or conspiracy; (2) that the agreement unreasonably restrained trade under the per se rule of illegality (36) or the Rule of Reason analysis; (37) and (3) that the agreement affected interstate commerce. (38) For purposes of the O'Bannon case...