Law v. National Collegiate Athletic Ass'n, 96-3034

• Decision Date: 23 January 1998
• Docket Number: No. 96-3034,96-3034
• Parties: 1998-1 Trade Cases P 72,047, 123 Ed. Law Rep. 510, 98 CJ C.A.R. 609 Norman LAW, Andrew Greer, Peter Herrmann, Michael Jarvis, Jr., and Charles M. Rieb, individually and on behalf of others similarly situated, Plaintiffs-Appellees, v. NATIONAL COLLEGIATE ATHLETIC ASSOCIATION, Defendant-Appellant, and William Hall, Amicus Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1010

134 F.3d 1010

1998-1 Trade Cases P 72,047, 123 Ed. Law Rep. 510,

98 CJ C.A.R. 609

Norman LAW, Andrew Greer, Peter Herrmann, Michael Jarvis, Jr., and Charles M. Rieb, individually and on behalf of others similarly situated, Plaintiffs-Appellees, v. NATIONAL COLLEGIATE ATHLETIC ASSOCIATION, Defendant-Appellant, and William Hall, Amicus Curiae.

No. 96-3034.

United States Court of Appeals, Tenth Circuit.

Jan. 23, 1998.

William C. Barnard (Gayle A. Reindl, Donald C. Biggs and Mary T. Doherty, Sommer & Barnard, Indianapolis, IN; John J. Kitchin and Linda J. Salfrank, Swanson, Midgley, Gangwere, Kitchin & McLarney, Kansas City, MO, with him on the briefs) for Defendant-Appellant.

W. Dennis Cross (Lori R. Schultz, Morrison & Hecker, Kansas City, MO; Robert G. Wilson, Cotkin & Collins, Los Angeles, CA; and Gerald I. Roth, Allentown, PA, with him on the briefs) for Plaintiffs-Appellees.

Leonard B. Simon, Jan M. Adler, Dennis Stewart and Bonny E. Sweeney, Milberg, Weiss, Bershad, Hynes & Lerach, San Diego, CA; R. Lawrence Ward, Phillip W. Bledsoe, Shugart, Thomson, & Kilroy, Kansas City, MO; and Steven Beldsoe, Overland Park, KS, Shugart, Thomson, & Kilroy, on brief for Amicus Curiae.

Before EBEL, LOGAN, and KELLY, Circuit Judges.

EBEL, Circuit Judge.

Defendant-Appellant the National Collegiate Athletic Association ("NCAA") promulgated a rule limiting annual compensation of certain Division I entry-level coaches to $16,000. Basketball coaches affected by the rule filed a class action challenging the restriction under Section 1 of the Sherman Antitrust Act. The district court granted summary judgment on the issue of liability to the coaches and issued a permanent injunction restraining the NCAA from promulgating this or any other rules embodying similar compensation restrictions. The NCAA now appeals, and we affirm.

I. Background

The NCAA is a voluntary unincorporated association of approximately 1,100 educational institutions. ¹ The association coordinates the intercollegiate athletic programs of its members by adopting and promulgating playing rules, standards of amateurism, standards for academic eligibility, regulations concerning recruitment of student athletes, rules governing the size of athletic squads and coaching staffs, and the like. The NCAA aims to "promote opportunity for equity in competition to assure that individual student-athletes and institutions will not be prevented unfairly from achieving the benefits inherent in participation in intercollegiate athletics."

The NCAA classifies sports programs into separate divisions to reflect differences in program size and scope. NCAA Division I basketball programs are generally of a higher stature and have more visibility than Division II and III basketball programs. Over 300 schools play in Division I, and each Division I member hires and employs its own basketball coaches.

During the 1980s, the NCAA became concerned over the steadily rising costs of maintaining competitive athletic programs, especially in light of the requirements imposed by Title IX of the 1972 Education Amendments Act to increase support for women's athletic programs. The NCAA observed that some college presidents had to close academic departments, fire tenured faculty, and reduce the number of sports offered to students due to economic constraints. At the same time, many institutions felt pressure to "keep up with the Joneses" by increasing spending on recruiting talented players and coaches and on other aspects of their sports programs in order to remain competitive with rival schools. In addition, a report commissioned by the NCAA known as the "Raiborn Report" found that in 1985 42% of NCAA Division I schools reported deficits in their overall athletic program budgets, with the deficit averaging $824,000 per school. The Raiborn Report noted that athletic expenses at all Division I institutions rose more than 100% over the eight-year period from 1978 to 1985. Finally, the Report stated that 51% of Division I schools responding to NCAA inquiries on the subject suffered a net loss in their basketball programs alone that averaged $145,000 per school.

Part of the problem identified by the NCAA involved the costs associated with part-time assistant coaches. The NCAA allowed Division I basketball teams to employ three full-time coaches, including one head coach and two assistant coaches, and two part-time coaches. The part-time positions could be filled by part-time assistants, graduate assistants, or volunteer coaches. The NCAA imposed salary restrictions on all of the part-time positions. A volunteer coach could not receive any compensation from a member institution's athletic department. A graduate assistant coach was required to be enrolled in a graduate studies program of a member institution and could only receive compensation equal to the value of the cost of the educational experience (grant-in-aid) depending on the coach's residential status (i.e. a non-resident graduate assistant coach could receive greater compensation to reflect the higher cost of out-state tuition than could an in-state student). The NCAA limited compensation to part-time assistants to the value of full grant-in-aid compensation based on the value of out-of-state graduate studies.

Despite the salary caps, many of these part-time coaches earned $60,000 or $70,000 per year. Athletic departments circumvented the compensation limits by employing these part-time coaches in lucrative summer jobs at profitable sports camps run by the school or by hiring them for part-time jobs in the physical education department in addition to the coaching position. Further, many of these positions were filled with seasoned and experienced coaches, not the type of student assistant envisioned by the rule.

In January of 1989, the NCAA established a Cost Reduction Committee (the "Committee") to consider means and strategies for reducing the costs of intercollegiate athletics "without disturbing the competitive balance" among NCAA member institutions. The Committee included financial aid personnel, inter-collegiate athletic administrators, college presidents, university faculty members, and a university chancellor. In his initial letter to Committee members, the Chairman of the Committee thanked participants for joining "this gigantic attempt to save intercollegiate athletics from itself." It was felt that only a collaborative effort could reduce costs effectively while maintaining a level playing field because individual schools could not afford to make unilateral spending cuts in sports programs for fear that doing so would unduly hamstring that school's ability to compete against other institutions that spent more money on athletics. In January of 1990, the Chairman told NCAA members that the goal of the Committee was to "cut costs and save money." It became the consensus of the Committee that reducing the total number of coaching positions would reduce the cost of intercollegiate athletic programs.

The Committee proposed an array of recommendations to amend the NCAA's bylaws, including proposed Bylaw 11.6.4 that would limit Division I basketball coaching staffs to four members--one head coach, two assistant coaches, and one entry-level coach called a "restricted-earnings coach". ² The restricted-earnings coach category was created to replace the positions of part-time assistant, graduate assistant, and volunteer coach. ³ The Committee believed that doing so would resolve the inequity that existed between those schools with graduate programs that could hire graduate assistant coaches and those who could not while reducing the overall amount spent on coaching salaries.

A second proposed rule, Bylaw 11.02.3, restricted compensation of restricted-earnings coaches in all Division I sports other than football to a total of $12,000 for the academic year and $4,000 for the summer months (the "REC Rule" for restricted-earnings coaches). ⁴ The Committee determined that the $16,000 per year total figure approximated the cost of out-of-state tuition for graduate schools at public institutions and the average graduate school tuition at private institutions, and was thus roughly equivalent to the salaries previously paid to part-time graduate assistant coaches. The REC Rule did allow restricted-earnings coaches to receive additional compensation for performing duties for another department of the institution provided that (1) such compensation is commensurate with that received by others performing the same or similar assignments, (2) the ratio of compensation received for coaching duties and any other duties is directly proportional to the amount of time devoted to the two areas of assignment, and (3) the individual is qualified for and actually performs the duties outside the athletic department for which the individual is compensated. The REC Rule did not prevent member institutions from using savings gained by reducing the number and salary of basketball coaches to increase expenditures on other aspects of their athletic programs.

Supporting adoption of the REC Rule, the Committee stated:

The largest expense item in the athletics budget is personnel. Currently, only football and basketball have limits on the number of coaches who may be employed, and the existing categorical designations of part-time graduate student and volunteer coach have not been effective in reducing the number of full-time paid employees associated with the sport. In addition, the committee recognizes the recent proliferation of part-time personnel associated with many Division I sports.

Proposed limitations reflect an effort to (1) reduce the number of coaches associated with each sport by at least one full-time-equivalent position; (2) establish an "unrestricted" head or assistant coach category that will accommodate any type of volunteer, paid, full-time or part-time coach; and (3) establish a "restricted earnings" category that will...