O'Bannon v. NCAA—College Athletes Get a Lump of Coal

In August 2014, a federal judge ruled in O'Bannon v. NCAA that the NCAA's amateurism rules were an unlawful restraint of trade in violation of the Sherman Antitrust Act because colleges improperly prevented their athletes from being compensated for the use of their names, images, and likenesses (NILs). The judge entered an order requiring the NCAA to place some portion of the money colleges earned from athletics—up to $5,000 per athlete per year—into a trust fund which athletes could access once their collegiate careers had concluded. Not surprisingly, the NCAA appealed.

In September, a three-judge panel of the Ninth Circuit Court of Appeals issued an opinion largely affirming the district court's determination that the NCAA violated antitrust law by restricting compensation paid to college athletes to the cost of attending school (tuition, room and board, books, and fees). The panel, however, limited the athletes' relief to expanding athletic scholarships to the full cost of attendance, but struck the district court's order to establish an athlete trust fund. Today, the full Ninth Circuit denied the athletes' petition for rehearing en banc, leaving the panel's appeal decision as the final ruling in the case, barring an improbable appeal to the United States Supreme Court.

Although the O'Bannon decision has been rightly hailed as significant blow to the NCAA's claim of general exemption from federal antitrust law, the Ninth Circuit's opinion is actually a major loss for college athletes. Surprised? Let's take a closer look.

In applying what is known as the "Rule of Reason" analysis to the NCAA's amateurism rules, the district court and appellate court each agreed that the NIL rules actually provided a pro-competitive effect which was beneficial to the schools and athletes by creating special market conditions for college athletics. Both courts agreed that the benefits of the NIL rules included “preserving the popularity of the NCAA’s product by promoting its current understanding of amateurism” and “integrating academics and athletics.”

Of these supposed benefits of the NCAA's NIL rules, the more important was the public appeal of amateurism. Citing a U.S. Supreme Court decision, the Ninth Circuit noted that paying college athletes would potentially damage the NCAA product by transforming amateur college athletes into poorly paid minor league athletes. In other words, college athletics exists as a lucrative product in large part because athletes are not paid, so requiring athletes to be paid might destroy the very market upon which college athletics depends (italics in original):

"We cannot agree that a rule permitting schools to pay students pure cash compensation and a rule forbidding them from paying NIL compensation are both equally effective in promoting amateurism and preserving consumer demand. Both we and the district court agree that the NCAA’s amateurism rule has procompetitive benefits. But in finding that paying students cash compensation would promote amateurism as effectively as not paying them, the district court ignored that not paying student-athletes is precisely what makes them amateurs.

Having found that amateurism is integral to the NCAA’s market, the district court cannot plausibly conclude that being a poorly-paid professional collegiate athlete is “virtually as effective” for that market as being as amateur. Or, to borrow the Supreme Court’s analogy, the market for college football is distinct from other sports markets and must be 'differentiate[d]' from professional sports lest it become 'minor league [football].'"

Denying college athletes any share in the mountains of cash they earn for the NCAA and its member schools, in the court's view, is a feature, not a bug in the collegiate sports business model. Now the Ninth Circuit grudgingly acknowledged that the meager NIL payments ordered by the district court would likely not cause significant harm to the concept of amateurism for the sports-consuming public. Yet, the Ninth Circuit noted that payments of any kind would inevitably lead to slippery slope demands for greater payments to college athletes:

"The difference between offering student-athletes education-related compensation and offering them cash sums untethered to educational expenses is not minor; it is a quantum leap. Once that line is crossed, we see no basis for returning to a rule of amateurism and no defined stopping point; we have little doubt that plaintiffs will continue to challenge the arbitrary limit imposed by the district court until they have captured the full value of their NIL. At that point the NCAA will have surrendered its amateurism principles entirely and transitioned from its 'particular brand of football' to minor league status."

The upshot of the Ninth Circuit decision is a bright line determination that any payment in excess of the costs of attending college is substantively compensation for play, and athletes are instantly transformed from amateur to professional. Because the court determined that preservation of the amateur athletic paradigm is a pro-competitive purpose for the NCAA's business model, the Ninth Circuit has given the NCAA a green light to enforce a hard line rule against any NIL payments in excess of the cost of attending school. Essentially, while paying lip service to antitrust law, the O'Bannon decision actually provides the NCAA and its members schools a virtually unassailable get-out-of-jail-free card—"protection of amateurism"—which effectively trumps antitrust law and prevents athletes from obtaining any meaningful monetary compensation.

With O'Bannon in its hip pocket, the NCAA and its member schools are essentially free to continue to rake in billions of dollars of revenue (and in many cases, still run large deficits) without paying its labor force anything remotely close to their fair market value for their work. The relief the O'Bannon decision affirmed—increasing scholarships to the full cost of attendance—is a hollow victory, as major conferences had already adopted these minor scholarship enhancements. The O'Bannon decision also likely guts other pending athlete compensation class action cases; if modest compensation of $5,000 per year is out of bounds for athletes as a threat to amateurism, how can a court award the even greater unlimited "market value" compensation sought in these pending cases? Throw in the recent National Labor Relations Board decision to deny college athletes the ability to form labor unions, and it's pretty much business as usual for the NCAA.

So, as you sit back to enjoy the upcoming college football bowl games this holiday season, rest easy that America's colleges will take on the terrible burden of divvying up a half a billion dollars in revenue so that their athletes remain true amateurs. It's all about the integrity of the game.

The Usual Brackets: America's Curious Embrace of Sports Gambling

"The greatest trick the devil ever pulled was convincing the world he did not exist. And like that, poof. He is gone."

~ Roger "Verbal" Kint (Kevin Spacey), in The Usual Suspects (1995)

Today is the beginning of one of the great American sports holidays—the NCAA men's basketball tournament, a/k/a "March Madness", a/k/a "The Big Dance". Tens of millions of Americans who rarely if ever gamble will enter office pools, filling out brackets to pick the winners of 63 basketball games over the next three weeks, hoping to win a piece of prize pools which can range from enough to feed a family off the fast food value menu to thousands of dollars in some higher stakes contests.

My first time winning a bracket contest was my junior year of high school. I was in a pool with a handful of guys on the basketball team, along with our coach (who was also the principal). The stakes? The winner got a free soda (50 cent value in those days) from each of the losers. Keith Smart and "The Shot" kept me in quality caffeine for a week.

It was also my first big gambling win.

In the ensuing couple of decades, I have participated in and/or organized scores of NCAA basketball pools in numerous formats (all scrupulously conducted within the requirements of Iowa's social gaming statute, of course). There have been straight brackets, randomly drawn brackets, and brackets with upset bonuses (add the difference in seed to the points for each win). There have been "against the spread" brackets where players draft teams which play through the bracket with the Final Four teams getting the prize money; the catch is that the "winner" which advances is the team that beats the spread. There have been Calcuttas, where teams are auctioned off to the highest bidder, with a percentage of the overall pool awarded for each win. For years I operated a Sweet Sixteen second-chance "confidence pool" which required participants to rank the remaining teams in the tournament, with weighted points awarded for wins.

One of my favorite pools was one operated by a friend and (now former) law partner. His pool had five games; your standings in the overall pool were determined by your agregated standings from the individual games:

• Game 1:  Standard straight bracket.
• Game 2:  Rank the top ten potential champs. Winner is the person with the eventual champ ranked highest (first tiebreaker was highest ranked runner-up). A "go for broke" strategy would be to eliminate one team from your picks which is a popular championship pick among the rest of the participants (say, Duke, to pull an example from thin air). If that team doesn't win, you likely have a major edge in where you've ranked the actual champion. 
• Game 3:  Pick all first round games against the spread. Picking all the dogs was usually a winning strategy. 
• Game 4:  Pick one team from each seed level (i.e., pick one of the four 1-seeds, one of the four 2-seeds, etc. all the way to one of the four 16-seeds). Points are scored for each win, with points doubling each round. 
• Game 5:  Pick any five teams. For each win, you get points worth the picked team's seed divided by the seed of the team they beat (i.e., if a 5-seed beats a 12-seed, you get 5/12 = .417 points, while a 12-seed beating a 5-seed would get 12/5 = 2.4 points). So, a 1-seed or 2-seed doesn't score many points until the late rounds, but is likely to go deeper, while a lower seed might score big points early, then fall out of the tourney. A good strategy was to pick seeds 2-6 likely to make deep runs, with maybe one flyer on a 10-12 seed likely to win a couple of games.

The best part of the pool was that participants and their guests would watch the championship game together in a sports bar. The kicker was that while the top 40% of participants split the prize pool, the bottom 40% had to split the tab for the party. You could always spot the locked-in winners—they were the ones drinking the top shelf booze. And with numerous tiebreakers in play, many participants were rooting for strange outcomes in order to make the money or miss the bar tab: "You need North Carolina to win by more than six in regulation, or you need two overtimes and total points scored under 166."

Regardless of structure, all NCAA pools are gambling, assuming there is an entry fee. Frankly, NCAA pools are nothing more than the bastard love child of sports betting and keno (though Wall Street could probably sell them as "sports derivatives"). Whether these pools are illegal depends on applicable state gambling laws; many states carve out small-stakes social gaming from their criminal gambling and bookmaking statutes. Of course, even where NCAA pools are technically illegal, law enforcement rarely pursues them unless they are high-stakes or there are complaints of cheating or theft.

Despite being blatant gambling, NCAA pools occupy something of a moral and legal blind spot in American culture. President Obama can broadcast his bracket picks every year without any criticism that he is promoting gambling. Celebrities like Kevin Jonas and Kati Couric can participate in "celebrity bracket challenges" without fear of damaging their wholesome public images. Sitting down to help their young children fill out brackets is part and parcel of being an All-American Dad these days; none of these parents would dream of playing casino-style games with their kids. In Congress, fifteen Representatives have signed on as co-sponsors of an expansion of the federal Wire Act which prohibits electronic transmission of sports betting information; if I were a betting man—and I am—I would wager most of those Representatives have staff, friends, and family using one of the mainstream online sites (CBS Sports, ESPN, Yahoo) to manage their brackets. Opponents of online gambling legalization often dramatically tout the dangers in "making every cell phone a casino"; how many of them have a bracket tracking app on their own cell phones or tablets?

Americans' embrace of NCAA pools is directly at odds with their general hostility toward gambling. Recent Iowa polls, for example, show strong majorities opposed to legalization of online gaming (71% opposed) and daily fantasy sports contests (63% opposed). So why do NCAA pools get a free pass from America's otherwise judgmental gaze?

Our collective cognitive dissonance on the status of our brackets undoubtedly arises from the wild popularity of college sports in general and March Madness in particular. Even the most casual of sports fan is drawn to the drama of the tournament, rooting for their favorite team(s) and cheering for David-versus-Goliath upsets. Filling out brackets augments the enjoyment of the experience by giving fans something to root for in every one of the 63 tournament games, and something to talk about with friends and co-workers.

NCAA pools are just an old-school version of social gaming, the sports equivalent of Farmville or Candy Crush. Sure, they might cost a few bucks, but filling out brackets for a fun contest with friends or coworkers is nothing like calling a bookie or going to a casino. So, with a wink and nod, Americans have collectively convinced themselves NCAA pools are entertainment, not gambling. Fiction though it may be, that's our story and we're sticking to it.

On the Feet of Babes—Huskers' Offense Roars Back to Life

It's my favorite time of year—football season.  I grew up in the cult of the Huskers, loving the Blackshirts and the option attack, loathing the Oklahoma Sooners, laughing at the occasional upstart wannabes (looking at you, Kansas St. Mildcats and Colorado Heffalumps), and dreading every bowl game against a team from Florida.  Agonizingly close, last second losses in National Championship games in the Orange Bowl to the Miami Hurricanes and Florida St. Seminoles to end dominating runs in the 1983 and 1993 seasons were two of the lowest moments of my sportsfandom, but they only made the eventual run of national titles in 1994, 1995, and 1997 all the sweeter (particularly with the first two wins coming over the hated Hurricanes and the overhyped Florida Gators).

As the Huskers enter the third year of the Pelini-era, there are high expectations for the season following a season with a Big XII North title, coming within a second of beating Texas in the Big XII Championship game, and a crushing defeat of Arizona in the Holiday Bowl.  Although the defense lost the once-in-a-generation dominating talent of Ndamukong Suh, the biggest question entering the season was whether the offense—a comedy of ineptitude and self-inflicted errors last year—could step up to the level needed to be a national title contender.

After yesterday's season-opening win over Western Kentucky, it appears that question has been answered with a qualified "yes".  Redshirt freshman quarterback Taylor Martinez electrified the crowd with 3 TDs and over 100 yards rushing, as well as a decent passing performance.  "T-Magic" looks ready to live up to his hype; his first TD run of 46 yards during his first drive as the Husker QB brought back memories of the incomparable "Touchdown" Tommie Frazier.  Sophomore running back Rex Burkhead looks ready to build on his solid freshman year, showing speed and shiftiness in several long runs and a TD of his own. 

Of course, the qualification is that Western Kentucky is basically early season cannon fodder, scheduled to let the Huskers work out the kinks before facing better teams, while giving the home fans (and big donors) a victory to celebrate.  The first real test comes in two weeks, when the Huskers travel to Washington to face a decent Pac-10 team with a QB, Jake Locker, who is being hyped as a Heisman Trophy candidate and surefire early NFL draft pick.  I think the Huskers come out of that game with a win, as Washington is simply a pretty average team with an elite QB.  The real test for the Huskers will come mid-season, when a three game stretch will test the Huskers—Texas at home, Oklahoma St. on the road, and Missouri at home.  The Texas game will be a grudge rematch of last year's conference title game, with some conference realignment undertones in the background.  Oklahoma St. has a ton of talent, and has built a competitive program (with the help of a few hundred million bucks from its sugar daddy, T. Boone Pickens).  Missouri is the only other viable Big XII North contender, and is loaded on offense.  How the Huskers come through that three-game stretch will define their season.  Win all three, and a national title shot is possible (with the caveat that Texas A&M and presumably Oklahoma in the Big XII title game would remain as serious roadblocks).  Lose one, and the Big XII title and a BCS bowl are still possible.  Lose two or all three ... well, let's not contemplate that ugly scenario.

For now, all is sunshine and roses in Huskerland.  Hopefully the Huskers fix the leaks in the defense before Washington.  But for now, every Husker fan should raise a glass of champagne to T-Magic and T-Rex, potentially the Huskers' best dynamic duo since Tommie Frazier-Ahman Green, or even Turner Gill-Mike Rozier.  Should be a fun team to watch this season!

The Huskers' five national championship trophies

(1971, 1972, 1994, 1995, 1997).

The Southwestern Lake Wobegon State Tech Flying Pigs Are On the Bubble

"Welcome to Lake Wobegon, where all the women are strong, all the men are good-looking, and all the children are above average."
—Garrison Keillor

With the NCAA Final Four set for this weekend, the sports news of the day is that this year is likely the last edition of the tournament to have 64 (well, technically 65) teams.  Yup, the Big Dance is going to change from a high school prom to a warehouse rave.  The reason, as always in college athletics, is about the money:

The NCAA can opt out of its current tournament broadcast contract with CBS after this season. It has three years, $2.131 billion remaining of an original 11-year, $6 billion contract.

Some have said that an extra round of 31 games would make the tournament a more valuable television property. The decision has to be made by this summer. The NCAA asked television networks for their thoughts in a request for proposals sent out earlier this year.

—ESPN.com (31 March 2010)

There's probably little doubt that CBS (or another network) would pay dearly for an extra 31 first-round games (actually 32, since nobody regards the current "play-in game" as a real part of the tournament, despite the NCAA's dogmatic insistence to the contrary).  But frankly, this is a solution in search of a problem.  As my buddy Jugweed tweeted this morning, most sports fans want a college football playoff and don't want an expanded basketball playoff, and the NCAA is giving us exactly the opposite.

Several prominent coaches, including Jim Boeheim of Syracuse and Jay Wright of Villanova, are staunch advocates of an expanded tournament field.  Coaches favor expansion in part because success in the tournament translates into significant revenues for the teams and their schools, and in part because coaches often lose their jobs for failing to make the tournament frequently enough.  These coaches argue that only 65 out of 344 (roughly 20%) NCAA Division I teams make the tournament, far less than the nearly 50% of college football teams who play in bowl games.  This "participation ribbons for everyone" argument, however, mixes apples and oranges, as only two football teams play in the national title game and another eight teams play in presitigious BCS bowl games, while most of the remaining bowl games are "minor" and hold little public interest except for fans of the teams playing, and degenerate sports gamblers.

Another reason cited for expanding the tournament is the claim that deserving teams are shut out of the tournament because of the 65-team format.  This rationale is pure bovine excrement.  Look at the teams who were "on the bubble" and just missed qualifying for the tournament field this year:  Illinois, Utah State, Virginia Tech, and Mississippi State.  Those four teams were mediocre at best during the regular season.  Does anyone seriously want to argue that any of those teams would have made the Final Four had they been in the field?  Instead, they likely would have lost in the first or second round, much like the last few at-large teams to qualify (Florida, Missouri, and Minnesota).

Look at the current NIT field, comprised of the 32 "next best" teams not in the Big Dance.  Expansion advocates are essentially arguing that these teams should be added to the current NCAA tournament field.  Can a basketball fan (other than a fan of a particular team) honestly argue that any of those teams is good enough to have made a deep run in an expanded tournament this season?  North Carolina was sub-.500 in the ACC, and coach Roy Willimas freely admits his team was terrible this year, even making a poorly articulated comparison to the earthquake tragedy in Haiti.  Yet the Tarheels are in the NIT championship game!  Do we really need to bloat the Big Dance with a bunch of teams that can't even pull off a good "Sprinkler" or "Butter Churn" move (or worse)?

The real reason for expanding the field is not that qualified teams are being excluded, but rather because mediocre teams from the major "power" conferences are being excluded.  Out of the 65 teams in the field, 31 are "automatic qualifiers", generally by virtue of winning their conference post-season tournament; each conference receives one automatic bid.  Thus, "Cinderella teams" get into the tournament field despite having a low (or non-existent) profile in the national sports media.  Usually small schools from obscure conferences, these teams tend to be "directional" (East Tennessee State) and "fake state" (San Diego State) schools.  These teams provide most of the drama and charm of the first two or three rounds of the tournament, pulling the occasional upset of one of the "big dog" schools (e.g., 15-seed Hampton beating 2-seed Iowa State in 2001, or 14-seed Northwestern State—a directional fake state two-fer— beating 3-seed Iowa in 2006).

What's wrong with letting these Cinderella-wannabes attend the ball?  Well, the NCAA tournament is a monstrous cash cow, and the milk is divvied up among all of the Division I basketball schools using a formula based in large part on the number of tournament wins a conference's teams have had over the preceding six years.  Thus, the more teams a conference has in the tournament, the greater the number of potential wins, and the greater the potential payday for the conference.  Following the 2009 season, the six "power" conferences (the same as the six BCS conferences in football) received from $14 million to $28 million each, while smaller conferences with fewer qualifying teams and fewer wins received exponentially less; for example, even though Memphis University has had a history of success over the past decade, their Conference-USA only received $8.4 million, still the most among the non-power conferences.  This year's pseudo-Cinderella, Butler University, has a history of success in the tournament, but their Horizon League is not even in the top ten conferences for revenue received from the tournament.  Ditto for Gonzaga and the WCC, despite Gonzaga's perennial tournament success over the past decade or more.  Outside the power conferences, only the "high-major" conferences (e.g., Atlantic-10, Conference-USA, and MWC) are receiving any significant money from the NCAA tournament, yet the amounts pale in comparison to the Big 6 power conferences, and even some of the high-majors (e.g., the WAC) are missing the gravy train.

The economic incentives tied to maximizing conference wins leads to some perverse incentives in the tournament selection and seeding process.  First, seeding and bracketing rules require the top three teams from any conference to be placed in different regions, while two teams from the same conference cannot play prior to the regional final game (Elite Eight), unless a conference has more than eight teams in the tournament.  These rules permit the power conferences to maximize their potential wins, by not cannibalizing wins from other conference teams.  Next, the tournament committee (usually dominated by members of the power conferences) will often schedule first-round matchups between good teams from "mid-major" conferences.  This minimizes the potential wins of the mid-major conferences, and lets power conference teams face easier low-major conference opponents in the first-round.  Finally, the tournament committee is able to select mediocre power conference teams ahead of mid-major or low-major conference regular season champions who were upset in their conference tournaments; again, this maximizes potential power conference wins while minimizing potential wins for the mid/low-major conferences.

What does this all mean in terms of the practical effect of expanding the tournament field?  Let's look at the breakdown of the 2009 and 2010 tournaments.*  The top 32 teams (the 1-8 seeds) would get byes the first round of an expanded tournament.  Who are those teams?  In 2010, 24 of 32 (75%) of the teams with 1-8 seeds were from the Big 6 power conferences (this number is probably low when compared to recent years, due to the weakness of the Pac-10 conference with only one team with a seed in the 1-8 range).  In 2009, 27 of 32 (84%) of the teams with 1-8 seeds were from the Big 6 power conferences.  The first round bye would benefit the power conferences in two ways.  First, the low/mid-major teams would be pitted against each other with higher frequency in the first round (much as occurs with the current play-in game), allowing more power conference teams to advance to the second round.  Second, assuming the first round games are played within a few days of the start of the round of 64, the power conference teams with byes would be better rested and have a greater preparation advantage in the second round games, likely reducing the frequency of upsets by low/mid-major teams. 

However, the power conferences would glean yet another advantage from the expanded field.  The 1-4 seeded teams are given greater protection in terms of the site of their opening round games under the "pod" system.  These teams travel shorter distances, resulting in better fan support and less team fatigue.  In 2009, 15 out of 16 (94%) of the teams with 1-4 seeds were from the Big 6 power conferences.  In 2010, 13 out of 16 (81%) of the teams with 1-4 seeds were from the Big 6 power conferences. Once again, the expanded field would enable the power conferences to maximize their advantages over the low/mid-major conferences.

The power conferences are interested in expanding the tournament field not because it is good for basketball fans, or to include the little schools.  No, the power conferences are expanding the tournament field because they want the low/mid-major schools to have a smaller piece of the basketball revenue pie, and expanding the field is politically easier to accomplish than eliminating automatic bids for all conferences.  The net result of expanding the tournament field, however, is to increase the total TV revenue (more games), and to give the power conferences an even greater edge in maximizing their share of those revenues (more power conference teams in the tournament, earlier elimination of low/mid-major teams, and greater protection against upsets by low/mid-majors).

No doubt about it, the NCAA basketball tournament is big business, and the power conferences are the big shot CEOs intent on maximizing their personal income however they can.  The low/mid-major schools are merely the hourly workers who will have to tolerate a pay cut just to keep food on the table.  As always, be skeptical whenever a CEO says a program is being implemented for the benefit of his workers!

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* (Below the jump are detailed breakdowns of teams seeded 1-8 by conference for 2009 & 2010)


2010

Big 12 (6)—Kansas (1); Oklahoma St. (7); Kansas St. (2); Texas (8); Texas A&M (5); Baylor (3);

Big East (7)—Georgetown (3); Syracuse (1); Pitt (3); Marquette (6); West Virginia (2); Notre Dame (6); Villanova (2)

Big 10 (4)—Michigan St. (5); Ohio St. (2); Wisconsin (4); Purdue (4)

ACC (3)—Maryland (4); Clemson (7); Duke (1);

Pac-10 (1)—California (8)

SEC (3)—Tennessee (6); Vanderbilt (4); Kentucky (1);

Conference-USA (0)—None

Horizon League (1)—Butler (5);

Mountain West (2)—UNLV (8); New Mexico (3)

WCC (1)—Gonzaga (8)

Atlantic-10 (3)—Xavier (6); Temple (5); Richmond (7)

WAC (1)—BYU (7)


2009

Big 12 (5)—Kansas (3); Missouri (3); Oklahoma St. (8); Texas (7); Oklahoma (2)

Big East (8)—Louisville (1); West Virginia (6); Boston College (7); Connecticut (1); Marquette (6); Pitt (1); Villanova (3); Syracuse (3)

Big 10 (4)—Ohio St. (8); Michigan St. (2); Purdue (5); Illinois (5)

ACC (5)—Wake Forest (4); Florida St. (5); Duke (2); North Carolina (1); Clemson (7)

Pac-10 (4)—Washington (4); California (7); UCLA (6); Arizona St. (6)

SEC (1)—LSU (8)

Atlantic-10 (1)—Xavier (4)

Conference-USA (1)—Memphis (2)

MWC (2)—Utah (5); BYU (8)

WAC (0)—None

WCC (1)—Gonzaga (4)