A Prelude to Jenkins v. NCAA: Amateurism, Antitrust Law, and the Role of Consumer Demand in a Proper Rule of Reason Analysis

• Author: Marc Edelman
• Position: Professor Marc Edelman (Marc@MarcEdelman.com) is a tenured Professor of Law at the Zicklin School of Business, Baruch College, City University of New York. He is also a summer adjunct professor at Fordham University School of Law and a columnist for Forbes SportsMoney. Professor Edelman advises numerous businesses on legal issues related to...
• Pages: 227-244

A Prelude to Jenkins v. NCAA: Amateurism, Antitrust Law, and the Role of Consumer Demand in a Proper Rule of Reason Analysis Marc Edelman  TABLE OF CONTENTS Introduction .................................................................................. 228 I. The Current Landscape of Big-Time College Sports ................... 229 II. Challenging NCAA “No Pay” Rules Under the Sherman Act ..... 231 A. An Introduction to Section 1 of the Sherman Act.................. 231 1. Antitrust Basics ............................................................... 231 2. Applying Section 1 of the Sherman Act to the NCAA’s No Pay Rules .................................................... 233 B. O’Bannon v. National Collegiate Athletic Association ......... 234 1. Case Overview ................................................................ 235 2. Bench Trial and District Court Decision ......................... 236 3. Appellate Court Decision ................................................ 237 C. Jenkins v. NCAA .................................................................... 238 1. Case Overview ................................................................ 239 2. Why Jenkins May Prove a Game Changer for College Athletes’ Rights ................................................. 241 III. What It Would Take for College Athletes Truly to Prevail in Jenkins v. NCAA ....................................................................... 242 Conclusion .................................................................................... 244 Copyright 2017, by MARC EDELMAN.  Professor Marc Edelman (Marc@MarcEdelman.com) is a tenured Professor of Law at the Zicklin School of Business, Baruch College, City University of New York. He is also a summer adjunct professor at Fordham University School of Law and a columnist for Forbes SportsMoney. Professor Edelman advises numerous businesses on legal issues related to antitrust, gaming, intellectual property, and sports law. 228 LOUISIANA LAW REVIEW [Vol. 78 INTRODUCTION On September 30, 2015, the United States Court of Appeals for the Ninth Circuit held in O’Bannon v. National Collegiate Athletic Association that the National Collegiate Athletic Association (“NCAA”) violated Section 1 of the Sherman Act by prohibiting member colleges from offering their athletes compensation equal to the full cost of their college attendance. 1 Nevertheless, the O’Bannon decision failed to enjoin the NCAA from maintaining its rules that prevent colleges from paying their athletes directly in cash or with additional in-kind benefits. 2 At present, the antitrust status of the NCAA’s “no pay” rules again are the subject of legal challenge in Jenkins v. National Collegiate Athletic Association—a lawsuit that seeks to further overturn the NCAA’s amateurism rules that “plac[e] a ceiling on the compensation that may be paid to [college] athletes for their services.” 3 Although the NCAA has claimed that 1. O’Bannon v. NCAA, 802 F.3d 1049, 1079 (9th Cir. 2015) (“Today, we reaffirm that NCAA regulations are subject to antitrust scrutiny and must be tested in the crucible of the Rule of Reason.”). Although the NCAA had long purported in its public relations materials and media that it allowed colleges to provide athletes with scholarships to cover the cost of their education, until the O’ Bannon ruling, the NCAA’s maximum scholarship levels maintained a several thousand dollar per year shortfall between the maximum amount of athletic scholarship money permissible under NCAA rules and the true cost of a student-athlete attending college. See Free Ride Still Costs Athletes, ESPN (Oct. 26, 2010), http://www.espn.com /college-sports/news/story?id=5728653 [https://perma.cc/VK2A-PMDQ]; see also Study: College Athletes Worth Six Figures Live Below the Poverty Line, DREXEL NOW (Sept. 13, 2011), http://drexel.edu/now/archive/2011/September/Study-Col lege-Athletes-Worth-Six-Figures-Live-Below-Federal-Poverty-Line (explaining that a study entitled “The Price of Poverty in Big Time College Sport” shows that the average scholarship shortfall per college athlete during the 2010–2011 school year was $3,222 per athlete) [https://perma.cc/TY3Y-5UB6]; Ed Payne, Report: College Scholarship Athletes are Living in Poverty, CNN (Sept. 13, 2011), http://edi tion.cnn.com/2011/SPORT/09/13/full.scholarships (also citing to the annual average student-athlete out of pocket expense of $3,222 per year) [https://perma.cc/BD2U-5ACE]. Although this amount is defined as a “full grant-in-aid,” it does not include money to cover the costs of all meals, travel to and home from college, basic living expenses, or even books marked as recommended reading by the student-athletes’ professors; see also Complaint at 3, Jenkins v. NCAA, No. 14-cv-01678 (D.N.J. Mar. 17, 2014) (“[U]nder NCAA and Power Conference Rules, players may receive only tuition, required institutional fees, room and board, and required course-related books in exchange for their services.”). 2. O’Bannon , 802 F.3d at 1076. 3. Complaint, supra note 1, at 1–2; see also O’Bannon v. NCAA, 7 F. Supp. 3d 955, 974–75 (N.D.Cal. 2014) (“The amateurism provision in the NCAA’s current 2017] A PRELUDE TO JENKINS V. NCAA 229 “pay-for-play arrangements would transform the intercollegiate sports model into a minor league in which the virtues of college sports . . . would disappear,” advocates on behalf of players’ rights recognize that, even absent pay, the operation of college football and men’s basketball already “has the feel of a professional economic machine.” 4 This Article serves as a prelude to the litigation in Jenkins. Part I of this Article provides a brief overview of the current economics of NCAA Division I men’s basketball and NCAA Football Bowl Subdivision (“FBS”) football. Part II explores the underlying antitrust challenges to the NCAA’s “no pay” rules in both O’Bannon and Jenkins. Finally, Part III explains how the issue of consumer demand applies to the expected antitrust analysis in Jenkins, and why a strong consumer demand survey would help the plaintiffs to prevail in Jenkins. I. THE CURRENT LANDSCAPE OF BIG-TIME COLLEGE SPORTS Although United States colleges have competed in organized sports for almost 150 years, the commercial market for intercollegiate sports has grown substantially over the past generation. 5 At present, college sports represent an $11 billion enterprise, with most college athletic revenue derived from FBS football and Division I (“D-I”) men’s basketball. 6 According to a recent report produced by USA Today, during the 2014– 2015 academic year, 40 NCAA member colleges earned athletic revenues that exceeded $80 million. 7 Meanwhile, four NCAA member colleges earned athletic revenues that exceeded $150 million. 8 constitution states that student-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.’”) (internal citations omitted). 4. William W. Berry III, Amending Amateurism: Saving Intercollegiate Athletics Through Conference-Athlete Revenue Sharing, 68 ALA. L. REV. 551, 554, 561 (2016). 5. O’Bannon , 802 F.3d at 1053. 6. See Marc Edelman, How Antitrust Law Could Reform College Football: Section 1 of the Sherman Act and the Hope for Tangible Change, 68 RUTGERS L. REV. 809, 809 (2016). 7. See NCAA Finances 2014-15, USA TODAY, http://sports.usatoday.com /ncaa/finances (last visited June 27, 2017) [https://perma.cc/G87D-Y2GR]. 8. See id. (indicating that these colleges include Texas A&M University, the University of Texas, Ohio State University, and the University of Michigan). 230 LOUISIANA LAW REVIEW [Vol. 78 If American colleges were for-profit entities, FBS football and D-I men’s basketball programs would produce shareholder profits. 9 Because the colleges that compete in NCAA D-I sports are entirely non-profits, however, the collegiate sports model is subject to a non-distribution restraint. 10 Thus, instead of producing profits, these collegiate athletics departments must either reinvest their revenues into the college overall or reallocate their revenues as “windfall payments” to some set of quasi-shareholders. 11 Presuming that a college athletics department chooses to reallocate some of its athletic revenue to individuals, two potential classes of quasi-shareholders reasonably might stand to benefit from the financial success of college sports: (1) collegiate athletes, who serve as the primary labor force behind revenue-producing sporting events; and (2) college sports “managers” who supervise these events—sports administrators, athletics directors, and coaches. 12 In this vein, the NCAA’s “Principle of Amateurism” is not truly about some lofty social ideal, 13 but rather is about a specific allocative scheme that keeps college athletics revenues “in the hands of a select few administrators, athletics directors, and coaches.” 14 9. Marc Edelman, From Student- Athletes to Employee Athletes: Why a ‘Pay for Play’ Model of College Sports Would Not Necessa rily Make Educational Scholarships Taxable, 58 B.C. L. REV. 1137 (2017). 10. Id. (citing Gordon Winston, Why Can’t a College Be More Like a Firm , 5 CHANGE 32 (1997)). 11. Id. 12. Id. at 5–6. 13. Professor Berry explains that increasing evidence exists that the current model of big-time college sports does not even serve an educational mission for students. Cf. Berry, supra note 4, at 554. (“The current model compromises the quality and scope of the education received by student-athletes, particularly in revenue sports.”). 14. Marc Edelman , Reevaluating Amateurism Standards in Men’s College Basketball, 35 U. MICH. L. REV. 861, 864 (2002). To further buttress this point, even the NCAA’s purported bright-line rule requiring college athlete amateurism contains exceptions where the compensation of college athletes arguably would not even affect the potential...