Regulate, Don't Litigate, Change in College Sports

Yesterday, a federal judge heard opening arguments in one of several antitrust lawsuits challenging National Collegiate Athletic Association rules restricting the compensation intercollegiate athletes may receive for their sports participation. Some commentators herald these cases as a potential way to effectively resolve the problems inherent in commercialized college athletics.

In contrast, we believe that the potentially adverse consequences if these rules are invalidated make antitrust litigation a less attractive means of reforming college sports.

While the outcome of these cases could significantly change the way big-time college sports traditionally has operated, a free market solution mandated by antitrust law would inhibit universities from providing many athletes with a college education they would not otherwise receive, severely limit colleges’ ability to cross-subsidize women’s and men’s non-revenue sports with surplus funds from football and men’s basketball, and probably reduce the economic value of scholarships currently offered to many college football and basketball players, while providing greater economic benefits (including cash payments) to a relatively few star college football and basketball players. 

As an alternative, we propose an open and transparent system of federal regulation combined with antitrust immunity for intercollegiate athletics reforms that are approved by a federal regulatory commission and voluntarily adopted by the NCAA.

Most sports sponsored by the NCAA and its 1,100 member universities -- particularly Division II and III sports, as well as Division I non-revenue sports -- are based on an idealized “amateur/education” model of intercollegiate athletics. The NCAA Constitution expressly states that the NCAA’s objective is to “retain a clear line of demarcation between intercollegiate athletics and professional sports” and that “[s]tudent-athletes shall be amateurs,” meaning “their participation should be motivated primarily by education and by the physical, mental and social benefits to be derived.”  Intercollegiate athletes “should be protected from exploitation by professional and commercial enterprises,” and   university athletic programs should be operated with “prudent management and fiscal practices.”

The enormous popularity of and public demand for Division I football and men’s basketball, particularly games played by ACC, Big Ten, Big 12, Pac 12, and SEC universities, have given rise to a “commercial/education” model for these college sports, which collectively generate very substantial revenues.  For example, the NCAA men’s basketball television contracts will generate $10.8 billion over 14 years.  The broadcast rights for the Division I FBS College Football Playoff that will begin this year has an estimated worth of $7.3 billion over 12 years.

The pervasive commercialization of “big-time” college football and basketball directly reflects marketplace realities. Fueled by new media technologies needing popular content to attract viewers and advertisers, sports is one of the few things that millions of people watch live. Universities’ use of big-time sports as an entertainment product and marketing tool is a rational response to marketplace realities in an increasingly competitive higher education environment.

The Problem

However, university leaders have often allowed this rampant commercialization to trump, rather than serve, the broader goals of higher education.  For example, financial resources are often misallocated from academics to athletics. Each year, relatively few Division I athletic departments (approximately 20-25) generate net revenues, and university subsidies to balance their budgets are prevalent.  Too often, the educational aspects of intercollegiate athletics are marginalized.  As former Ohio State football coach Woody Hayes stated: “The coach will squeeze every bit of football from each player that he can, but in return the coach must give that man every legitimate measure of help he needs to get ‘the rest’ of his education.... We feel that the man who plays college football and does not graduate has been cheated."  This is particularly true for students from underprivileged backgrounds, disproportionately students of color.

In addition, commercialization economically exploits elite Division I football and men’s basketball players.  Big-time football and basketball programs generate billions of dollars of annual revenues, and many coaches are paid multimillion-dollar salaries.  But the value of the players’ athletic scholarships is less than the full cost of attendance at their respective universities, and because of the extensive time demands of playing football or basketball at this level of competition, their lifestyle during the season generally is less than that enjoyed by their classmates, alumni, and fans. Although they receive high-quality coaching and training, only about 1 percent of them will ever play professionally in the NFL or NBA. Virtually none will earn enough from playing professionally to achieve lifetime financial security.

These realities are inconsistent with the NCAA’s constitutional objectives. Big-time football and basketball are not played by “amateurs,” and the “clear line of demarcation between intercollegiate athletics and professional sports” is blurred. Ironically, big-time intercollegiate athletics is the commercial enterprise causing the academic and economic exploitation of student-athletes. Prudent management and fiscal practices also are lacking because so few Division I athletic program generate net revenues.  

At the same time, professionalization of big-time football and basketball programs is not socially optimal. Although commercialized college sports operate in a fundamentally different way from the amateur sports ideal -- because university athletics directors seek to maximize the commercial return on big-time sports -- they are not subject to the same economic forces as purely commercial enterprises like professional sports.  

The “commercial/education” model is distinct from the “commercial/professional” model embodied by the NBA and NFL in several important respects. First, nonprofit universities use excess revenues generated by commercially successful football and men’s basketball programs to cross-subsidize women’s and men’s non-revenue sports rather than distributing these “profits” to owners or investors as professional leagues and clubs do.  

Second, the commercial/education model features important social benefits not feasible for a “minor professional league,” including access to college educational opportunities for athletically gifted persons of all socioeconomic backgrounds, offering a very popular distinctive brand of sports entertainment, cross-subsidizing athletic participation opportunities for women, and potentially providing additional financial support for academic programs if university athletic departments exercise prudent fiscal management.   

Third, maintaining this model will avoid the numerous collateral labor, tax, worker’s compensation, and other legal issues if intercollegiate athletics are professionalized by the unionization of college football and basketball players or they receive salaries for playing services greater than scholarships covering the full cost of university attendance through the operation of free market forces mandated by antitrust law. Refining this model to ensure student-athletes participating in commercialized sports receive the educational, physical, mental, and social benefits of intercollegiate athletics, which distinguishes them from professional sports, is a better alternative. 

History demonstrates that economically self-interested NCAA internal reform will not  effectively achieve these objectives. The former Congressman and NBA and college basketball player Tom McMillen correctly observes that “[t]here is just too much money involved in the multibillion-dollar industry that is college athletics to expect the participants to police themselves.” As evidenced by the current debate among Division I universities regarding full cost of attendance scholarships, universities’ economic interests inhibit the development of NCAA rules to remedy student-athlete exploitation and prevent subordination of academic values to the forces of commercialization.

Although external reform is necessary, micromanagement of intercollegiate athletics through contract and antitrust litigation is not the optimal solution. Courts will enforce the express terms of athletic scholarships, but will not otherwise use contract law to remedy any perceived unfairness in the relationship between a university and its athletes. Regardless of the outcome of the O’Bannon litigation, which challenges NCAA rules prohibiting college basketball and football players from being compensated for the use of their likenesses in video games and television broadcasts, and other pending antitrust cases, piecemeal antitrust analysis of individual NCAA rules will not broadly resolve systemic problems inherent in the production of intercollegiate athletics. 

Although antitrust law prohibits unreasonable conduct, it does not require socially optimal policies (e.g., ensuring college football and basketball players receive educational and other non-economic benefits) and may inhibit the continuing cross-subsidization of women’s and non-revenue sports by refusing to recognize this practice as a procompetitive economic justification for NCAA rules that restrain competition in the production of college football and men’s basketball.

A Better Way

To better promote the educational values and economic sustainability of intercollegiate athletics, our proposed Congressional intercollegiate athletics reform legislation would have three mandatory substantive requirements: (1) at least a four-year athletic scholarship with limited university termination rights; (2) medical care or health insurance for all sports-related injuries and scholarship extensions for injuries; and (3) elimination of the NCAA requirement that Division I universities operate at least 14 intercollegiate sports. It would create an independent intercollegiate athletics oversight commission authorized to propose non-binding rules regulating intercollegiate athletics originating from Congress, of its own accord, or with any intercollegiate athletics stakeholder. 

The commission would establish procedures providing transparency and access to all intercollegiate athletics stakeholders, including student-athletes and members of the public, akin to the Administrative Procedure Act’s notice and comment requirements for informal rule-making. NCAA, athletic conference, or university conduct taken in compliance with the commission’s rules would receive antitrust immunity, provided that any intercollegiate athletics stakeholder allegedly harmed by one of these entities’ conduct in compliance with the subject rule(s) may seek independent arbitral review to ensure the rule(s) have a reasoned basis consistent with the public interest.

In our recent Oregon Law Review article, “A Regulatory Solution to Better Promote the Educational Values and Economic Sustainability of Intercollegiate Athletics,” we suggest that the commission consider adopting rules creating financial incentives and funding to increase graduation rates for Division I football and men’s basketball players such as requiring universities to offer a graduation bonus (at least to those at-risk academically) and scholarship aid to those who leave school in good academic standing and later seek to complete their college education.  

We also suggest rules that would define a “full athletic scholarship” to include modest stipends beyond tuition, fees, books, supplies and room and board to allow poor athletes to have a lifestyle consistent with many of their non-athlete classmates, which would not compromise the “clear line of demarcation” between college and professional sports. In addition, financial self-sufficiency rules would give each Division I university the flexibility to determine which mix of sports to offer and invest in to achieve its individualized academic and intercollegiate athletics mission consistent with Title IX, should be considered. 

This federal regulatory commission would have the necessary authority to establish rules that effectively prevent intercollegiate athletics from crossing the line between a commercial/ education model and a commercial/professional model for intercollegiate sports, enhance the academic integrity of intercollegiate athletics, promote more competitive balance in intercollegiate sports competition, and require university athletic departments to operate with fiscal responsibility. The “carrot” of antitrust immunity would provide the NCAA, athletic conferences, and their member institutions with a significant incentive to adopt and comply with its rules to achieve these objectives, which would be the product of a transparent process in which all stakeholders (including student-athletes) and members of the public would have a full opportunity to be heard by the independent commission.