Citations
- 375 F. Supp. 3d 1058
Full opinion text
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 conferences 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 FACT
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. 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. 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 that the plaintiffs met their burden to show that the NCAA had fixed the price of the student-athletes' NIL rights, which had significant anticompetitive effects in the relevant market. Id. at 971-73, 988-93. On the question of procompetitive justifications of the restraints, the Court found that the NCAA's challenged restrictions on student-athlete compensation played "a limited role in driving consumer demand for FBS football and Division I basketball-related products." Id. at 1001. The Court also found that the challenged rules might facilitate the integration of student-athletes with their academic communities. Id. at 1003.
The O'Bannon plaintiffs proposed alternatives they asserted were less restrictive than the NCAA rules they challenged. This Court found that two of these proposed alternatives, which relied specifically on the use of revenue derived from NIL licensing, constituted "less restrictive means of achieving" the challenged rules' limited procompetitive effects. Id. at 982-84; 1004-07.
Accordingly, this Court issued an injunction barring the NCAA from enforcing any rules that would prohibit its member schools and conferences from offering their FBS football and men's Division I basketball recruits compensation for the use of their NIL in addition to a full grant-in-aid as then defined. The Court permitted the NCAA to implement rules capping the amount of compensation that could be paid to student-athletes while they are enrolled in school as long as the amount of the cap was not lower than the cost of attendance for students at that school. Id. at 1007-08. The Court also required the NCAA to allow member schools to deposit a limited share of NIL licensing revenue in trust for their student-athletes. Id. at 1008. The Ninth Circuit affirmed the liability finding and the remedy prohibiting the NCAA from limiting payment of a share of NIL revenues to less than the cost of attendance. It vacated the remedy allowing a trust fund payment. O'Bannon II, 802 F.3d at 1074-79. By the time the O'Bannon injunction went into effect, the NCAA had already increased, through the Autonomy structure, the grant-in-aid limit to the cost-of-attendance amount for all Division I student-athletes, regardless of NIL use or revenue.
Plaintiffs in the present case are student-athletes who played Division I FBS football and men's and women's basketball between March 5, 2014, and the present. Order Granting Motion for Rule 23(b)(2) Class Certification (Class Cert. Order) at 1, Docket No. 305. The Court certified three injunctive relief classes in the consolidated action under Federal Rule of Civil Procedure 23(b)(2), each consisting of student-athletes who would be offered or receive a full grant-in-aid during the pendency of this action. Id. at 4-5, 31.
II. Agreement in Restraint of Trade Affecting Interstate Commerce
On summary judgment, the Court found that the existence of an agreement (i.e., a contract, combination, or conspiracy) restraining trade and affecting interstate commerce was undisputed. Defendants did not contest evidence showing that (1) the compensation limits that Plaintiffs challenge are enacted by agreement of Defendants and other NCAA members through the NCAA's legislative process and are embodied in NCAA rules published in the NCAA Division I Manual; (2) Defendants enforce these rules by requiring all NCAA members to comply with them, and by punishing violations; (3) the challenged rules affect interstate commerce, because they regulate transactions between Plaintiffs and their schools in multiple states nation-wide; and (4) these transactions are commercial because they regulate an essential component of Division I basketball and FBS football. Order Granting in Part and Denying in Part Cross-Motions for Summary Judgment (Summary Judgment Order) at 15, Docket No. 804.
The Court also found on summary judgment that the challenged NCAA rules restrain trade in that they limit the compensation that student-athletes may receive for their athletic services. These limits cap athletics-based grants-in-aid at the cost of attendance, but they also allow and fix the prices of numerous and varied additional benefits and compensation on top of a grant-in-aid that have a monetary value above the cost of attendance. Some of these rules regulate compensation that relates to education; others regulate compensation incidental to athletics participation and unrelated to education, including monetary awards that reward performance in athletics. The compensation limits are artificially set through an exercise of Defendants' monopsony power, and Plaintiffs would receive more compensation in exchange for their athletic services in the absence of the challenged limits. This Court had made similar findings in O'Bannon I, which were affirmed on appeal in O'Bannon II. O'Bannon I, 7 F.Supp.3d at 971-73 ; O'Bannon II, 802 F.3d at 1064-69. Horizontal price-fixing among competitors is usually a per se violation of antitrust law. However, because "a certain degree of cooperation" is necessary to market athletics competition, the Court applies the Rule of Reason. See O'Bannon II, 802 F.3d at 1069 (citation and internal quotation marks omitted).
III. Rule of Reason: Market Definition
The Court's first step in applying the Rule of Reason is to determine the relevant market. On summary judgment, at the request of both parties and in the absence of a genuine issue of material fact, the Court adopted the market definition from the O'Bannon case. The relevant market there was that for a college education combined with athletics, or, alternatively, the market for the student-athletes' athletic services. See Summary Judgment Order at 18, Docket No. 804. In O'Bannon I, the Court had found that the plaintiffs' antitrust claims could be analyzed as a monopoly or, alternatively, as a monopsony. 7 F.Supp.3d at 991. Under the theory of monopsony, sometimes referred to as a buyers' cartel, schools were characterized as buyers and student-athletes as sellers in a market for recruits' athletic services and licensing rights. Id. The NCAA did not challenge the market definitions on appeal and the Ninth Circuit adopted them. O'Bannon II, 802 F.3d at 1070.
At trial in this case, Plaintiffs based their claims on a theory of monopsony only. Dr. Rascher, Plaintiffs' economics expert, defined the relevant market here as comprising national markets for Plaintiffs' labor in the form of athletic services in men's and women's Division I basketball and FBS football, wherein each class member participates in his or her sport-specific market. See Rascher Report ¶¶ 30-130, 148-85. In these markets, the class-member recruits sell their athletic services to the schools that participate in Division I basketball and FBS football in exchange for grants-in-aid and other benefits and compensation permitted by NCAA rules. Dr. Rascher found that Defendants have monopsony power in all of these markets and exercise that power to cap artificially the compensation offered to recruits. Id. ¶ 37.
Dr. Rascher's definition of these markets is based on economic analyses similar to those performed in the O'Bannon case. His analyses here are predicated on updated data and take into account women's Division I basketball, which was not at issue in O'Bannon. Id. ¶¶ 148-53. Dr. Rascher's economic analyses show that the most talented athletes are concentrated in the respective markets for Division I basketball and FBS football; possible alternatives, such as the National Association of Intercollegiate Athletics (NAIA) or the National Christian College Athletic Association (NCCAA), have not proved to be viable substitutes; none of the major professional sports leagues in class members' sports provide competitive options for most college-aged talent; high barriers to entry into the market preclude any viable alternatives emerging for class members' athletic services; and the geographic scope of the markets is nationwide. Id. ¶¶ 154-85. In sum, class members cannot obtain the same combination of a college education, high-level television exposure, and opportunities to enter professional sports other than from Division I schools.
IV. Rule of Reason: Anticompetitive Effects
On summary judgment, the Court found that the challenged restraints produce significant anticompetitive effects in the relevant market. The absence of a genuine dispute with respect to the existence of an agreement among Defendants that is intended to, and does, limit student-athlete compensation in the relevant market, is in and of itself sufficient to find that this agreement has a strong potential for significant anticompetitive effects. Plaintiffs offered evidence of significant anticompetitive effects, however, which Defendants did not meaningfully dispute. The Court had also found significant anticompetitive effects with respect to the rules challenged in O'Bannon I, which the Ninth Circuit affirmed in O'Bannon II. O'Bannon I, 7 F.Supp.3d at 973, 993 ; O'Bannon II, 802 F.3d at 1057-58, 1070-72.
The economic analyses of Plaintiffs' experts established that the challenged rules have the effect of artificially compressing and capping student-athlete compensation and reducing competition for student-athlete recruits by limiting the compensation offered in exchange for their athletic services. The compensation that student-athletes receive under the challenged rules does not correlate meaningfully with the value of their athletic services, based on indicators of their talent. This is consistent with the absence of rigorous competition among schools with respect to student-athlete compensation. In a market free of the challenged restraints, competition among schools would increase in terms of the compensation they would offer to recruits, and student-athlete compensation would be higher as a result. Student-athletes would receive offers that would more closely match the value of their athletic services. See Lazear Report ¶¶ 11-50.
Plaintiffs' experts' analyses also show that Defendants are able to artificially compress and limit student-athlete compensation as described above because they possess monopsony power in the relevant market. See Rascher Report ¶¶ 30-130, 148-85; id. ¶ 37 ("Defendants and their co-conspirators have monopsony power in all three markets - that is, they have the power to collectively depress input prices without fear of loss of revenue in excess of the immediate cost savings"). Because of the absence of viable alternatives to Division I basketball and FBS football, and because of reduced competition among conferences due to the challenged compensation limits, the market for recruits in these sports is highly or perfectly concentrated under the current NCAA compensation limits. By contrast, if each conference were free to set its own compensation limits in competition with other conferences, the market concentration would decrease from highly or perfectly concentrated, to "moderately concentrated" for FBS football and "unconcentrated" for Division I basketball. Rascher Report ¶¶ 155-57.
This evidence shows that student-athletes are harmed by the challenged compensation limits, because these rules deprive them of compensation they would receive in the absence of the restraints.
At trial, Plaintiffs offered additional proof of the anticompetitive effects of the NCAA's limits on compensation. It shows that changes had been made, starting in August 2014, to the amounts and types of permissible student-athlete compensation. The changes were caused, in part, by the desire of the Power Five, those conferences with the highest revenues in Division I, to divert some of their relatively significant resources away from expenditures that only indirectly benefit student-athletes (such as expenditures on opulent athletic facilities and multi-million dollar coaches' salaries) and toward student-athlete compensation. See, e.g., P0056 at 0001-02; Rascher Direct Testimony Declaration ¶ 212. Dr. Harvey Perlman, chancellor of the University of Nebraska, agreed with the statement that, "[i]n short, we recruit by shifting funds from regulated benefits for student athletes to unregulated frills[.]" Perlman Deposition Transcript (Dep. Tr.) at 60-61.
In a presentation in 2013, the presidents and chancellors of the Power Five had asked the Division I Board of Directors for autonomy in a variety of subject areas, for the following reasons: (1) the recognition of criticisms and accusations "of exploiting student athletes for our own financial gain"; (2) the desire to avoid "unintended consequences" if "ill-advised reforms are imposed" as a result of these criticisms; (3) a wish to move away from efforts to "create 'a level playing field,' " because "[t]oo often, our efforts to improve the lives of student athletes have been deflected because of cost implications that are manageable by our institutions but not by institutions with less resources"; and (4) a sense that efforts to " 'level the playing field ' " led the Power Five to "spend these resources in almost any way we want EXCEPT to improve support for student athletes." P0056 at 0001-02. This is evidence that these conferences were prevented from making the increases in student-athlete compensation that they would have made absent the anticompetitive effects of the challenged restraints.
After the new Autonomy structure became effective on August 7, 2014, in January 2015, the Power Five voted to increase the overall limit on grant-in-aid athletics scholarships from the limit in place at the time of the O'Bannon I trial to the higher, cost-of-attendance limit, effective on August 1, 2015. The Power Five also created new forms of permissible compensation for student-athletes, and expanded the scope of previously permissible benefits or compensation. These changes permitted student-athletes to borrow against their future professional earnings to purchase loss-of-value insurance (Division I Bylaw 12.1.2.4.4); expanded reimbursement or payment of travel expenses for certain family members to attend certain events (Division I Bylaw 16.6.1.1); provided unlimited food (Division I Bylaw 16.5.2.5); and required schools to pay for medical care for athletics-related injuries for at least two years after graduation (Division I Bylaw 16.4.1).
Although the Power Five's Autonomy legislative enactments have resulted in greater compensation for student-athletes, such compensation is still capped by overarching NCAA limits that prevent the Power Five and all NCAA members from expanding compensation beyond a point determined by the NCAA through its traditional rulemaking process.
In light of the foregoing, the Court finds that Defendants, through the NCAA, have monopsony power to restrain student-athlete compensation in any way and at any time they wish, without any meaningful risk of diminishing their market dominance. This is because the NCAA's Division I essentially is the relevant market for elite college football and basketball. And, because elite student-athletes lack any viable alternatives to Division I, they are forced to accept, to the extent they want to attend college and play sports at an elite level after high school, whatever compensation is offered to them by Division I schools, regardless of whether any such compensation is an accurate reflection of the competitive value of their athletic services. Moreover, the compensation that class members receive under the challenged rules is not commensurate with the value that they create for Division I basketball and FBS football; this value is reflected in the extraordinary revenues that Defendants derive from these sports.
The challenged rules thus have severe anticompetitive effects and student-athlete are harmed as a result of the challenged rules, because the rules deprive them of compensation that they would otherwise receive for their athletic services.
V. Rule of Reason: Asserted Justifications for the Challenged Restraints
A. Consumer Demand for Amateurism
Defendants argue that the challenged compensation limits are procompetitive because "amateurism is a key part of demand for college sports" and "consumers value amateurism." Defs.' Closing Brief at 7, 10, Docket No. 1128. The corollary is that if consumers did not believe that student-athletes were amateurs, they would watch fewer games and revenues would decrease as a result. Defendants rely on the notion that it is the "principle" of amateurism that drives consumer demand, and that the challenged restraints are procompetitive because they "implement" or "effectuate" that principle. Id. at 37. They did not offer evidence to establish that the challenged compensation rules, in and of themselves, have any direct connection to consumer demand.
Defendants nowhere define the nature of the amateurism they claim consumers insist upon. Defendants offer no stand-alone definition of amateurism either in the NCAA rules or in argument. The "Principle of Amateurism," as described in the current version of the NCAA's constitution, uses the word "amateurs" to describe the amateurism principle, and is thus circular. It does not mention compensation or payment. The constitution says, "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. Student participation in intercollegiate athletics is an avocation, and student-athletes should be protected from exploitation by professional and commercial enterprises." NCAA Constitution Article 2.9. No connection between the "Principle of Amateurism" and the challenged compensation limits is evident. Mike Slive, who served as commissioner of the SEC, one of the Power Five, from 2002 to 2015, testified that amateurism is "just a concept that I don't even know what it means. I really don't." Slive Dep. Tr. at 23, 45. He repeated, "You know, the term amateur I've never been clear on what is meant either by in your question or otherwise, what is really meant by amateurism[.]" Id. at 43.
The definition of amateurism that Defendants point to is one that cannot be found in the Division I manual. Defendants and their witnesses often describe amateurism by reference to what they say it is not: namely, amateurism is not "pay for play." See, e.g., Defs.' Closing Brief at 36 n.214, Docket No. 1128 ("Amateurism is, by definition, 'not paying' the participants."); Trial Tr. (Lennon) at 1275-77 (justifying challenged compensation limits on the ground that they prevent "pay for play"). Defendants do not explain the origin or meaning of the term "pay for play." The NCAA constitution and the Division I Bylaws do not define, or even mention, "pay for play."
The concept of "pay" is addressed only in certain bylaws that govern student-athlete compensation and eligibility. In these bylaws, "pay" is defined only indirectly; it is defined by listing a variety of forms of compensation that could be considered pay, and indicating that each form of compensation constitutes prohibited "pay," unless it falls within one of many exceptions or is otherwise permitted by the NCAA. Thus, whether any form of compensation constitutes "pay" in violation of NCAA rules cannot be determined except by studying all of the relevant bylaws and all of their exceptions and cross-references. Erik Price, the Pac 12's Rule 30(b)(6) witness, testified, "Well, I think the NCAA, the way Bylaw 12 is written is a series of things that you cannot do, and by then still remain an amateur. It doesn't exactly have a beautiful definition of [amateurism]." Pac 12 Rule 30(b)(6) witness (Erik Price) Dep. Tr. at 60; see Division I Bylaw 12.1.2 (listing items that would cause a student-athlete to lose "amateur status" and eligibility for intercollegiate competition); Division I Bylaw 12.1.2(a) (prohibiting a student-athlete from using his or her athletic skills "for pay in any form" in his or her sport); but see Division I Bylaw 12.1.2.4 ("Exceptions to Amateurism Rule").
"Pay" under NCAA rules does not necessarily track the plain meaning of the word, whereby something of monetary value is provided in exchange for something else. Indeed, a review of the bylaws shows that many forms of payment, often in unrestricted cash, from schools and other sources, are allowed by the NCAA as "not pay," and thus as not inconsistent with amateurism. Much of this permissible compensation appears on its face to be akin to "pay" under the plain meaning of the word. In some instances it is provided to student-athletes in exchange for their athletic performance, making it similar to what a reasonable person could consider to be "pay for play."
As noted, the NCAA allows grants-in-aid up to the cost of attendance, which are intended to pay for the student-athletes' education-related expenses. It also allows monetary awards it describes as "incidental to athletics participation" on top of a grant-in-aid, which reward participation or achievement in athletics, such as qualifying for a bowl game in FBS football. See Division I Bylaw 16.1.4.1 and Figures 16-1, 16-2, 16-3; Trial Tr. (Lennon) at 1275. These performance awards, which are not related to education and can be provided on top of a full cost-of-attendance grant-in-aid, are allowed at several hundred dollars for each award, but the rules permit student-athletes to qualify for multiple of these awards, meaning that they could receive several thousand dollars in cash-equivalent compensation if they perform well enough in their sport. See Rascher Direct Testimony Declaration ¶¶ 72, 205; Dr. Kenneth Elzinga Direct Testimony Declaration ¶¶ 95-96, Docket No. 883-1 (a student-athlete on a team that won a national championship could receive $ 5,600 total in athletics participation awards when combined); Hostetter Dep. Tr. at 207. These awards can be provided to student-athletes in the form of Visa gift cards that can be used like cash. See Hostetter Dep. Tr. at 224-27. Robert Bowlsby, the Big 12 Conference's Rule 30(b)(6) witness, explained that "these things [gift cards] were all previously geared towards being mementos of the ... games" and "it's ... taken ... another turn, and the gift cards are representative of that." Big 12 Conference Rule 30(b)(6) witness (Robert Bowlsby) Dep. Tr. at 160. On their face, athletics participation awards seem to violate other Division I bylaws, including those that prohibit cash or cash-equivalent payment or compensation that incentivizes athletic performance (Division I Bylaws 12.1.2.1.4.1 and 12.1.2.1.5); nevertheless, these awards do not constitute a prohibited form of payment or compensation only because the NCAA has chosen to permit them.
Without affecting their status as amateurs, Division I student-athletes can also receive money from their schools, from monies provided by the NCAA each year through the conferences, by way of the Student Assistance Fund (SAF) and the Academic Enhancement Fund (AEF), on top of a full cost-of-attendance grant-in-aid. In 2018, the NCAA made available for distribution more than $ 84 million in SAF money, and more than $ 48 million in AEF money. This money is disbursed by schools to assist student-athletes in meeting financial needs, improve their welfare or academic support, or recognize academic achievement. Division I Revenue Distribution Plan, J0021 at 0004, 0014. It can be provided in cash or as a benefit, and it is not limited to education-related expenses. The schools are not constrained in the amount of these funds they can disburse to an individual student-athlete; they are limited only in the aggregate by the amount that the NCAA distributes through these funds each year. Since 2015, SAF disbursements to individual student-athletes has reached to the tens of thousands of dollars above a full cost-of-attendance grant-in-aid, and in some cases, $ 50,000 for premiums for loss-of-value insurance against the loss of future professional earnings, Trial Tr. (Lennon) at 1340.
Schools can also make thirty-dollar per diem payments to student-athletes for un-itemized incidental expenses while they are travelling for certain events. Division I Bylaw 16.8.1.1. Schools can pay travel expenses for certain family members to attend certain events. Division I Bylaw 16.6.1. In January 2015, without changing any bylaws, the NCAA began to pay up to $ 3,000 for family members of student-athletes who reach the Final Four but do not advance to the basketball championships, and up to $ 4,000 to attend the basketball championships. See P0148. Also in January 2015, the College Football Playoff committee began to pay up to $ 3,000 for each competing athlete's family members to travel to that event. Id.
Cost-of-attendance grants-in-aid themselves provide cash for expenses, as well as providing tuition, room, board, and books at no cost to the student-athlete. Any athletics aid in excess of the fixed expenses of tuition, room, board and books is provided to the student-athlete in the form of a cash stipend. The cash stipend can total several thousand dollars for some students. Defendants do not monitor how student-athletes spend their stipend. NCAA Rule 30(b)(6) witness (Kevin Lennon) Dep. Tr. at 35, 37; Hostetter Dep. Tr. at 85-86. Schools may provide full cost-of-attendance grants-in-aid to student-athletes who have already received federal Pell grants, which also are calculated to cover the cost of attendance. Any athletics aid in excess of tuition, room, board, and books, therefore, pays student-athletes a second time for the same cost-of-attendance expenses that the Pell grant is intended to cover.
Each school may award two post-eligibility graduate school scholarships per year of $ 10,000 each that can be used at any institution (Senior Scholar Awards). Division I Bylaw 16.1.4.1.1. This is an exception to the NCAA's prohibition on post-eligibility financial aid to attend graduate school at a different institution. Defendants have not provided any cogent explanation for why the NCAA generally prohibits financial aid for graduate school at another institution, or for why the Senior Scholar Awards are limited in quantity and amount. The record suggests that these limitations are arbitrary. For example, when asked whether increasing the current limit on Senior Scholar Awards from two students per school to five students per school would render the awards inconsistent with amateurism, the NCAA's Rule 30(b)(6) witness, Kevin Lennon, provided no meaningful response other than to justify the current limit on the basis that the membership decided that limiting the awards to two students per school constituted a "reasonable cap." Trial Tr. (Lennon) at 1551-53. Lennon agreed that if the membership wanted to increase the awards "from two to three ... they'd certainly be permitted to raise that[.]" Lennon Rule 30(b)(6) Dep. Tr. at 179.
In addition to the payments in excess of cost of attendance allowed from schools to student-athletes described above, the NCAA has allowed, and in recent years increased, payments that student-athletes may receive from outside entities without being found ineligible to play. For example, since 2015, international student-athletes have been allowed to receive unlimited payment from their national Olympic governing body in exchange for their performance at certain international competitions. And student-athletes continue to receive unlimited funds from the U.S. Olympic Committee for their performance in the Olympics; this also is not "pay." NCAA Rule 30(b)(6) witness (Mark Lewis) Dep. Tr. at 50-51 (a swimmer received $ 115,000 for participating in the Olympics, permissible under NCAA rules).
A given student-athlete is permitted to receive, in combination, all of the foregoing compensation and benefits for which he or she qualifies, on top of a full cost-of-attendance grant-in-aid, regardless of what the total amount of such compensation may turn out to be. Yet this compensation, some of which is unrelated to education and some of which is provided in cash or a cash-equivalent, is not considered to be "pay" and student-athletes who receive it remain amateurs.
These payments and benefits are, without a doubt, justifiable and well-deserved. They are relevant to the analysis of Defendants' consumer-demand procompetitive justification for two reasons. First, the rules that permit, limit, or forbid student-athlete compensation and benefits do not follow any coherent definition of amateurism, including Defendants' proffered definition of no "pay for play," or even "pay." The only common thread underlying all forms and amounts of currently permissible compensation is that the NCAA has decided to allow it.
Second, whatever understanding consumers have of amateurism, they enjoy watching sports played by student-athletes who receive compensation and benefits such as these, because this compensation has been paid and increased while college athletics has become and remains exceedingly popular and revenue-producing. This belies Defendants' position that the challenged current restrictions on student-athlete compensation are necessary to preserve consumer demand. Indeed, as discussed in more detail below, increases in compensation since 2015 have not reduced consumer demand, suggesting that all of the current limits on student-athlete compensation are not necessary to preserve consumer demand.
Defendants' only economics expert on the issue of consumer demand, Dr. Elzinga, failed to show that the challenged compensation limits are necessary to preserve consumer demand. First, Dr. Elzinga's opinions on consumer demand are unreliable. He did not study any standard measures of consumer demand, such as revenues, ticket sales, or ratings. See Trial Tr. (Noll) at 285-287. The "narrative" evidence that formed the primary basis of his demand analysis was not representative. Trial Tr. (Elzinga) at 477-78, 445-47 (acknowledging that his economic analysis did not include interviews of fans, coaches, student-athletes, broadcasters, or conference commissioners). Instead, he interviewed people connected with the NCAA and its schools, who were chosen for him by defense counsel. Id. at 446-47.
Second, Dr. Elzinga's analysis of consumer demand is not relevant because he failed to study the effect of changes to student-athlete compensation on consumer demand. Dr. Elzinga explained his failure to study this issue by opining that "no test of the effect of amateurism" is possible "because there is no period during which the NCAA did not have and enforce amateurism standards." See Elzinga Direct Testimony Declaration ¶ 20. Dr. Elzinga also posits that studying the effects on consumer demand of changes to compensation would be unnecessary in any event because the principle of amateurism has been "materially consistent over the years." Id. ¶ 23. He explains that "[t]he central tenet of amateurism is not a specific dollar amount (as in $X = amateur, but $X + e = professional)," rather, it is whether student-athletes are "being paid to play." Id. ¶¶ 14, 34-35; see also id. ¶ 14 ("[T]he difference between amateurism and professionalism isn't captured in some wooden and mechanical way by the number of dollars a student-athlete receives. True student-athletes are amateurs in the sense that they are not being paid to play.") (emphasis omitted).
The record directly undercuts the premises of Dr. Elzinga's analysis. Dr. Elzinga's assertion that there is "no period" during which the NCAA did not "have and enforce amateurism standards" is contradicted by undisputed facts, which show that "NCAA did not have any rule-making or enforcement authority over its members until the 1950s." Stip. Facts ¶ 23, Docket No. 1098. And, as discussed above in the Background section, the NCAA's implementation of amateurism has changed materially on multiple occasions throughout its history. Further, Dr. Elzinga's contention that amateurism does not depend on a specific dollar amount is contradicted by the NCAA. The NCAA's Rule 30(b)(6) witness, Kevin Lennon, testified that specific dollar limits on student-athlete compensation incidental to athletics participation, such as performance awards, are set precisely for the purpose of distinguishing between permissible compensation and "pay for play." Trial Tr. (Lennon) at 1275. In other words, the amounts are set for the purpose of distinguishing between amateurism and non-amateurism. Dollar amounts (and changes to such amounts), therefore, cannot be said to be irrelevant to the analysis of this procompetitive justification. As described above, such amounts can reach the hundreds and thousands of dollars.
For these reasons, the Court is not convinced by Dr. Elzinga's testimony.
The only economic analysis in the record that specifically speaks to the effects of compensation amounts on consumer demand is that by Dr. Rascher. Dr. Rascher analyzed two natural experiments to determine whether increases in student-athlete compensation would have an impact on consumer demand. He concluded that increased student-athlete compensation does not negatively affect consumer demand for Division I basketball and FBS football. The Court finds Dr. Rascher's analysis and opinions to be reliable and persuasive.
The first natural experiment involved comparing consumer demand before and after the increase to the grant-in-aid limit to the cost of attendance, which was voted on in January 2015 and implemented in August 2015. As explained earlier, this change to the grant-in-aid limit, on its own, resulted in a significant increase in permissible compensation per student-athlete, because it allowed grants-in-aid to provide cash for expenses that previously could not be covered, such as supplies and transportation. Rascher Direct Testimony Declaration ¶¶ 52, 54; Noll Direct Testimony Declaration ¶ 12. Some schools adjusted their cost-of-attendance calculations so that the value of a full cost-of-attendance grant-in-aid would be greater. See, e.g., Trial Tr. (Lennon) at 1365 ("some" schools' financial aid offices "revisited their calculation[s]" regarding the cost of attendance after the increase of the grant-in-aid limit to cost of attendance). Moreover, because the NCAA rule that permits schools to award full grants-in-aid to student-athletes in addition to a Pell grant was not adjusted after the change to the grant-in-aid limit in 2015, the amount of cash provided above the cost of attendance increased even more for student-athletes who are awarded both a Pell grant and a full grant-in-aid scholarship. See Noll Direct Testimony Declaration ¶¶ 78-79.
Dr. Rascher's conclusions are also supported by the fact that the NCAA has increased its SAF and AEF distributions since 2015. See P0039 at 0001; D0695 at 0001. As noted, a student-athlete can receive unlimited money through the school, from the NCAA's SAF and AEF, on top of a full cost-of-attendance grant-in-aid. Since 2015, SAF cash to individual students has reached to the tens of thousands of dollars above a full cost-of-attendance grant-in-aid. See P0104; P0105; P0106; Rascher Direct Testimony Declaration ¶¶ 75, 78-81. The schools are not constrained in terms of the amount of these funds they can disburse to an individual student-athlete. Stip. Facts ¶¶ 3-12, Docket No. 1094.
Thus, Dr. Rascher found that total permissible student-athlete compensation has increased since August 2015, resulting in thousands of class members receiving significant benefits and compensation on top of full cost-of-attendance grants-in-aid since O'Bannon I was decided. Rascher Direct Testimony Declaration ¶ 52. This has had no negative impact on consumer demand; to the contrary, Dr. Rascher found that NCAA, conference, and school revenues from Division I basketball and FBS football have increased since 2015. Rascher Direct Testimony Declaration ¶¶ 45, 47, 52, 54-55; P0139, P0030, P0032-P0039; P0048, P0049; P0137. The revenues of the schools in the Power Five alone for basketball and FBS football increased from a very large amount in 2014-2015 disclosed under seal, to an even larger amount in 2015-16. Rascher Direct Testimony Declaration ¶ 47; see also P0045; J0017 at 0012-13 (showing that generated revenues have increased since 2014 for schools in the Power Five and other schools not in the Power Five). Revenues are one of the best economic measures of consumer demand. Rascher Direct Testimony Declaration ¶ 51.
Dr. Rascher acknowledged that some of the media revenues he examined are derived from multi-year contracts that were executed before 2015 and have escalating clauses (i.e., the payments under the contracts will increase each year for their duration without the need to renegotiate). Trial Tr. (Rascher) at 32. Nonetheless, some of the most valuable and longest-term contracts were executed after 2015. This supports the finding that consumer demand was not negatively affected after more student-athlete compensation became permissible in 2015. Dr. Rascher also testified that multi-year contracts that were executed before 2015 show that the increase in student-athlete compensation in 2015 did not negatively impact consumer demand given that these contracts were not renegotiated after the compensation change in 2015. Trial Tr. (Rascher) at 32.
The second natural experiment is based on the University of Nebraska Post-Eligibility Opportunities (PEO) program, which was created after the O'Bannon I trial and allows post-eligibility aid from the university, on top of a grant-in-aid, of up to $ 7,500 for education-related endeavors, including graduate school, as well as study abroad, or an internship. Perlman Dep. Tr. 127-28. This natural experiment shows two things. First, at least one school has the desire to offer post-eligibility benefits such as these provided on top of a grant-in-aid. Second, there is no evidence that the creation of this program has reduced consumer demand for Nebraska sports or Division I basketball or FBS football in general. The evidence is to the contrary: Nebraska's chancellor testified that this program is consistent with amateurism because it advances "the kinds of activities that higher education are involved with" and that Nebraska's "Athletic Director talks about it at every opportunity, public and private[.]" Perlman Dep. Tr. at 127-28; see also Trial Tr. (Rascher) 19-20; Rascher Direct Testimony Declaration ¶¶ 206-07; Trial Tr. (Elzinga) at 434-37.
Dr. Rascher's analysis and opinions, therefore, support a finding that, because the described increases to student-athlete compensation did not lead to a decrease in consumer demand, similar future increases in compensation would not reduce demand.
Some defense witnesses corroborated Dr. Rascher's conclusions. See, e.g., NCAA Rule 30(b)(6) witness (Mark Lewis) Dep. Tr. at 112 (negotiated media contracts for NCAA, testified that increase of grant-in-aid limit to cost of attendance did not affect consumer demand for FBS football and Division I basketball); Big 12 Rule 30(b)(6) witness (Robert Bowlsby) Dep. Tr. at 67-68 (he is not aware of "any impact on revenue" based on "greater meals and snacks," and "with respect to Big 12 members' ability to provide cost of attendance scholarships").
Defendants try to show that consumer demand is dependent on maintaining current restrictions on student-athlete compensation by presenting the opinions of a survey expert, Dr. Bruce Isaacson, who concluded that "amateurism" is an "important" factor in consumers' decision to watch or attend college sports, and is an "important reason for the popularity of college sports." Dr. Bruce Isaacson Direct Testimony Declaration ¶¶ 24, 26, 160, 13, Docket No. 883-3. Dr. Isaacson surveyed 1,086 consumers of college football and basketball, id. ¶¶ 111, 114, on-line to determine the reasons why they watch college sports. One of the reasons that respondents could select was that student-athletes are "amateurs and/or not paid." He also asked whether consumers would favor or oppose certain compensation scenarios.
Dr. Isaacson's survey results and the inferences he draws from them do not establish or reliably indicate that a relationship exists between the challenged compensation limits and consumer demand for Division I basketball and FBS football.
First, the Court is not persuaded that the selection by some respondents of the "amateurs and/or not paid" option as a reason for viewing college sports sheds any light on the question of whether the challenged compensation limits, or increases in them, would cause those respondents to view fewer college sports events. Dr. Isaacson did not define "amateurs" or "not paid" in his survey, or determine what either of those terms meant to respondents. Trial Tr. (Isaacson) at 1907-09. Worse, the use of the phrase "amateurs and/or not paid" renders the responses hopelessly ambiguous. (emphasis added). The phrase includes the response "amateurs or not paid," implying that a respondent could believe that an athlete could be an amateur though not unpaid. Dr. Isaacson "intend[ed] [the terms] to be synonymous" but admits that he provided no indication to respondents in his survey that they were so intended. Id. at 1908-09.
Even so, Dr. Isaacson's conclusion that "amateurism" is an "important" factor in consumers' decision to watch or attend college sports is an overstatement, because only 31.7% selected the "amateur and/or not paid" option as a reason why they watch or attend college sports, meaning that the great majority of respondents, 68.3%, gave other reasons. Isaacson Direct Testimony Declaration 153, 24, 26; Trial Tr. (Isaacson) at 1903-04. More respondents selected the options "I like it when certain colleges win or lose" and "my friends or family watch games, or attend games in person" than the "amateurs and/or not paid" option (which was the third most common selection). This suggests that these more-frequently selected reasons are more "important" factors for viewing college sports than "amateurism and/or not paid." Moreover, the respondents who selected the "amateurs and/or not paid" option selected an average of more than four other reasons they watch college sports. Trial Tr. (Isaacson) at 1902.
Second, Dr. Isaacson did not show that opposition or support for the hypothetical compensation scenarios he asked about would serve as a reliable indicator of how consumers would actually behave if the scenarios were implemented. Trial Tr. (Isaacson) at 1893; Dr. Hal Poret Direct Testimony Declaration ¶ 28. Dr. Isaacson tested four compensation scenarios: (1) academic incentive payment; (2) graduation incentive payment; (3) off-season expenses; and (4) unlimited payments. Isaacson Direct Testimony Declaration ¶ 126. He also tested a fifth "control" scenario that was not related to compensation. Id. ¶ 130. Dr. Isaacson's survey did not ask whether respondents would view fewer or more Division I basketball and FBS football events if additional compensation were provided to student-athletes. Dr. Isaacson acknowledged that measuring consumer preferences is "not the same thing" as measuring future consumer behavior, and that he did not do any work to measure any relationship between the two. See Trial Tr. (Isaacson) at 1894-96; see also id. (testified at his deposition that his "survey does not attempt to measure future behavior"); see also Poret Direct Testimony Declaration ¶ 28 and Poret Rebuttal Testimony ¶¶ 2-3 (opposition to a scenario does not translate to a change in behavior if the scenario were implemented).
By contrast, Plaintiffs' survey expert, Dr. Hal Poret, did attempt to measure the potential impact on future consumer behavior of providing additional compensation. He conducted a survey of 2,696 people who watch or attend college basketball or football to assess the extent to which certain scenarios involving increased compensation, if permitted by conferences and schools, would cause them to watch or attend these sports events more or less often. Poret Direct Testimony Declaration ¶¶ 4, 17 and n.2, 18. Unlike Dr. Isaacson, Dr. Poret specifically asked respondents to indicate whether scenarios whereby compensation provided by conferences or schools would include some compensation that is not currently permitted or is currently limited would affect their viewership or attendance and, if so, to indicate the extent. Id. ¶¶ 44-47. Dr. Poret tested scenarios involving (1) a healthcare fund; (2) an academic incentive payment of up to $ 10,000 per school year; (3) a one-time graduation incentive payment of up to $ 10,000; (4) a post-eligibility undergraduate scholarship; (5) a work-study payment; (6) off-season expenses; (7) a graduate school scholarship for the cost of attendance; and (8) a post-eligibility study abroad scholarship. Poret Direct Testimony Declaration ¶ 24. Dr. Poret concluded, based on the survey responses, that viewership and attendance would not be negatively impacted if the scenarios he tested were implemented individually. Id. ¶ 59; Trial Tr. (Poret) at 1792, 1795. Dr. Poret's survey, therefore, supports the finding that the current limits on student-athlete compensation, to the extent they relate to the scenarios that he tested, are not necessary to preserve consumer demand.
Defendants presented no evidence that NCAA bylaws limiting compensation are enacted based on any analysis of consumer demand. Limits on student-athlete compensation and benefits are set through "a deliberative process" of NCAA members, Trial Tr. (Lennon) at 1309, and are based on the "delicate balancing that the membership ... engage[s] in," Trial Tr. (Lennon) at 1552. That deliberative process and delicate balancing do not appear to include considering any possible effects on consumer demand. Indeed, Lennon, who has worked for the NCAA for more than thirty years, testified that he does not recall any instance in which any study on consumer demand was considered by the NCAA membership when making rules about compensation. Trial Tr. (Lennon) at 1550-51. Lennon did not offer much insight as to what the NCAA membership does consider when it decides where to set a compensation cap, and the explanations that he did provide suggest that the caps are set arbitrarily.
Defendants also rely on the testimony of lay witnesses to try to establish a connection between the compensation limits and consumer demand. These lay witnesses presented their own personal opinions and those of unidentified other people with whom they have spoken. This testimony posits that consumers oppose increasing compensation to student-athletes and support what the witnesses described as amateurism. The witnesses imply that these consumers would watch fewer games if they did not believe that student-athletes were amateurs. But there is no way to know what that concept means to the consumers these witnesses reported on.
Some lay defense witnesses testified that, absent the challenged NCAA limits in their current form, conferences would set limits, or not, based upon different values and resources, and that could diminish the consumer appeal of national tournaments or rivalries or lead to conference realignment. See, e.g., Trial Tr. (Scott) at 1141-1143. But, at present, there is wide variation among conferences and their members in Division I in terms of the compensation they permit their student-athletes to receive within the current NCAA limits. Further, resources, budgets, revenues, and performance among schools and conferences that continue to play each other in Division I already vary significantly, and the disparities that exist are longstanding. There is no evidence that this lack of uniformity detracted from the popularity of national tournaments or rivalries. Rascher Direct Testimony Declaration ¶¶ 97-98. The variety in compensation models and resources across schools and conferences may, in fact, promote the popularity of national tournaments. See Trial Tr. (Elzinga) at 546 (agreeing that a "david/goliath story" is appealing to consumers in the national NCAA men's basketball tournament, March Madness, because it provides "differentiation" due to the schools' varying economic models and strengths); id. at 483. Moreover, this testimony is further undermined by the fact that other rules that assist in promoting equity among conferences, such as the limits on total scholarships, are not being challenged in this litigation and would not be modified through any of the proposed alternatives.
Further, even if modifications to the NCAA's current compensation scheme resulted in some conferences realigning their membership because of differences in values, the argument that this would harm college sports as a product is unconvincing. Changes in conference membership have happened frequently in the last two decades. See Trial Tr. (Elzinga) at 485-87 (it is a "well-established fact" that "dozens and dozens of teams have" changed conferences over the years and conference changes "have increased in the past two decades"); Stip. Facts ¶ 10, Docket No. 1098.
The record does not support a finding that media or other commercial agreements would be renegotiated or terminated if conferences realigned. Some of the conference media agreements in the record contain clauses that permit the networks to renegotiate fees or terminate the agreement in the event that certain schools leave the conference. There is no evidence that any agreement was renegotiated or terminated in the past as a result of realignment. Instead, when the Big East experienced a significant realignment and ultimately became the AAC in July 2013, ESPN did not terminate its contract with the Big East/AAC; in fact, the existence of this contract was described as one of the reasons why the Big East/AAC was able to "recover" from the realignment. Trial Tr. (Aresco) at 1023, 1048; J1509 at 0003-05.
Defense lay witnesses also testified that consumer demand for Division I basketball and FBS football is driven by consumers' perception that student-athletes are, in fact, students. See, e.g., Bowlsby Dep. Tr. at 12-13 ("This really isn't about amateurs or not amateurs.