In re Nat'l Collegiate Athletic Ass'n Athletic Grant-In-Aid Cap Antitrust Litig.

• Decision Date: 08 March 2019
• Docket Number: No. 14-md-02541 CW,14-md-02541 CW
• Citation: 375 F.Supp.3d 1058
• Parties: IN RE: NATIONAL COLLEGIATE ATHLETIC ASSOCIATION ATHLETIC GRANT-IN-AID CAP ANTITRUST LITIGATION
• Court: U.S. District Court — Northern District of California

375 F.Supp.3d 1058

IN RE: NATIONAL COLLEGIATE ATHLETIC ASSOCIATION ATHLETIC GRANT-IN-AID CAP ANTITRUST LITIGATION

No. 14-md-02541 CW

United States District Court, N.D. California.

Signed March 8, 2019

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Claudia Wilken, United States District Judge

INTRODUCTION

Plaintiffs are current and former student-athletes who played men's Division I Football Bowl Subdivision (FBS) football and men's and women's Division I basketball during the relevant period. Defendants are the National Collegiate Athletic Association (NCAA) and eleven of its conferences¹ that participate in FBS football and Division I basketball.

Plaintiffs challenge the current, interconnected set of NCAA rules that limit the compensation they may receive in exchange for their athletic services. Plaintiffs contend that these limits on compensation, which are set and enforced by agreement of Defendants, violate federal antitrust law, because Plaintiffs would receive greater compensation in exchange for their athletic services in the absence of these artificial limits.

Defendants respond that the limits are procompetitive for two reasons. First, the limits help preserve the demand for college sports because consumers value amateurism as Defendants define it. Second, the rules promote integration of student-athletes into their academic communities, which in turn improves the college education they receive in exchange for their services.

The Court resolved certain of the issues relevant to Plaintiffs' claims on summary judgment, and presided over a non-jury trial on the remaining issues.

The Court finds and concludes that Defendants agreed to and did restrain trade in the relevant market, affecting interstate commerce, and that the challenged limits on student-athlete compensation produce significant anticompetitive effects. The Court further finds that the only procompetitive effect that Defendants established, namely preventing unlimited cash payments, unrelated to education, similar to those observed in professional sports, can be achieved through less restrictive means. Specifically, the Court finds that an alternative compensation scheme that would allow limits on the grant-in-aid scholarships at not less than the cost of attendance and limits on compensation and benefits unrelated to education, but that would generally prohibit the NCAA from limiting education-related benefits, would be virtually as effective as the challenged rules in achieving the only procompetitive effect that Defendants have shown here. The only education-related compensation that the NCAA could limit under this alternative would be academic or graduation awards or incentives, provided in cash or cash-equivalent. The limit imposed by the NCAA could not be less than its current or future caps on athletics participation awards.

Based on the findings of fact and conclusions of law set forth below, the Court will enter separately a permanent injunction barring the restraints that the Court finds to be overly and unnecessarily restrictive.

FINDINGS OF FACT²

I. Background

The NCAA, then known as the Intercollegiate Athletic Association (IAA), was founded in 1905 to regulate college football. Today, the NCAA and its members collectively issue rules that govern many aspects of athletic competitions among NCAA member schools. Joint Stipulation of Facts (Stip. Facts) ¶ 1, Docket No. 1098.

The NCAA comprises three Divisions. Id. ¶ 2. Of the NCAA's eleven hundred schools, approximately three hundred and fifty schools compete in Division I. Id. ¶ 5. Division I itself is divided, for the purposes of football competition, into two subdivisions, one of which is the FBS. Id. ¶ 6. There are thirty-two conferences in Division I. Id. ¶ 7. Conferences may enact and enforce conference-specific rules, but these must be consistent with the NCAA's own rules. Id.

The NCAA rules governing participation in Division I generally are enacted by the Division I Board of Directors. Id. ¶¶ 11, 12. The rules that Plaintiffs challenge here govern a small subset of the conduct that the NCAA regulates.

The NCAA generates approximately one billion dollars in revenues each year. See Defs.' Ex. 0532 (D0532); Pls.' Ex. 0030 (P0030). Its revenues have increased consistently over the years. See P0030. Most of the NCAA's revenues are derived from the Division I men's basketball post-season tournament known as March Madness, and the media and marketing rights relating to it. Trial Transcript (Tr.) (McNeely) at 2134; D0532 at 0006. The total value of the current multi-year media contracts for March Madness, which extend to 2032, is $ 19.6 billion. See P0045 at 0001-02. Each year, the NCAA distributes about half of its revenues to the conferences. Joint Ex. 0021 (J0021); P0030.

Division I conferences negotiate their own contracts and generate their own revenues from regular-season basketball and regular-and post-season FBS football. See, e.g., Dr. Daniel Rascher Direct Testimony Declaration ¶¶ 169-172, Docket No. 865-3. The FBS conferences have a multi-year media contract with ESPN for the College Football Playoff, the total value of which is $ 5.64 billion. See P0045 at 0006-07. The five conferences with the largest revenues, known as the Power Five Conferences, each generate hundreds of millions of dollars in revenues per year, in addition to the money that the NCAA distributes to them. See P0031; P0032; P0033; P0036; see also P0037 (showing that SEC made more than $ 409 million in revenues from television contracts alone in 2017, with its total conference revenues exceeding $ 650 million that year). The revenues of the Power Five have increased over time and are projected to continue to increase. See P0031; P0032; P0033; P0036; P0037. Conferences distribute most of their revenues to their member schools.

Among the areas that the NCAA regulates are the compensation and benefits that can be afforded to student-athletes. The 1906 bylaws of the IAA, as the NCAA was originally known, expressly prohibited student-athletes from receiving any compensation whatsoever, even athletics scholarships, in exchange for their participation in college sports. In 1956, the NCAA enacted a new set of rules permitting schools to award athletics scholarships, known as "grants-in-aid," to student-athletes. Stip. Facts ¶ 25, Docket No. 1098. These rules imposed a limit on the size of the grant-in-aid that schools were permitted to offer. Id. The limit precluded student-athletes from receiving any financial aid beyond that needed for commonly accepted educational expenses, which were tuition, fees, room and board, books, and cash for incidental expenses such as laundry.

In 1976, the cash for incidental expenses was disallowed by way of an amendment to the definition of the grant-in-aid that limited the scope of commonly accepted educational expenses to include only "tuition and fees, room and board and required course-related books." Stip. Facts ¶ 26, Docket No. 1098. Cash for incidental expenses related to school attendance, such as laundry, supplies, and transportation, was not included in the grant-in-aid limit. This definition of a grant-in-aid remained in place until August 2015. See Stip. Facts ¶ 10, Docket No. 1093.

On August 7, 2014, the NCAA adopted a new legislative process for the Power Five, which is referred to as the Autonomy structure.³ It allows those five conferences collectively to adopt legislation in specific areas, which include limits on grants-in-aid. Soon afterward, in January 2015, the Power Five voted to increase the overall limit on grants-in-aid, from the limit then in place, to a higher limit based on the cost of attendance at each school. See O'Bannon v. Nat'l Collegiate Athletic Ass'n, 802 F.3d 1049, 1054-55 (9th Cir. 2015) ( O'Bannon II ), cert. denied, ––– U.S. ––––, 137 S.Ct. 277, 196 L.Ed.2d 33 (2016). This became effective on August 1, 2015. The revised "full grant-in-aid" comprises "tuition and fees, room and board, books and other expenses related to attendance at the institution up to the cost of attendance[.]" Division I Bylaw 15.02.6; Stip. Facts ¶ 10, Docket No. 1093. Cost of attendance is calculated by each school in accordance with federal regulations. J1517 at 0002; Stip. Facts ¶¶ 3-6, Docket No. 1093. It is generally several thousand dollars higher than the prior grant-in-aid limit because it includes cash for incidental expenses related to the cost of attendance. See Stip. Facts ¶ 5, Docket No. 1093.

Compensation and benefits in addition to the full grant-in-aid, some related and some unrelated to education, are also allowed and regulated by the NCAA. These include benefits the NCAA denominates "incidental to athletics participation," as well as money from the NCAA's Student Assistance Fund and Academic Enhancement Fund, government grants, and payments from outside entities. Other compensation is generally prohibited.

In 2009, a group of Division I male basketball and FBS football student-athletes brought an antitrust class action against the NCAA and its licensees to challenge the association's rules preventing them from being paid by schools or other entities for the sale of licenses to use their names, images, and/or likenesses (NIL) in videogames, live game telecasts, and other footage.⁴ See O'Bannon v. Nat'l Collegiate Athletic Ass'n, 7 F.Supp.3d 955, 962-63 (N.D. Cal. 2014) ( O'Bannon I ), aff'd in part, vacated in part, 802 F.3d 1049 (9th Cir. 2015). The rules challenged by the O'Bannon plaintiffs related to the release, use, and licensing of NIL. The then-applicable maximum limit on the grant-in-aid was discussed and implicated in the relief ordered by the Court, but the plaintiffs did not specifically challenge it in O'Bannon I. Some of the rules challenged in the present case were challenged in O'Bannon; others were not.

This Court held in O'Bannon I that the NCAA rules challenged there violated Section 1 of the Sherman Act, 15 U.S.C. § 1.

Id. at 963. The Court found...