The current state of affairs in National Collegiate Athletics
Association (NCAA) basketball is less than ideal. First, the majority of its
premier players are opting to leave for the National Basketball Association (NBA)
after only one year of playing. This results in a diminished on-court product
for the NBA because these young players are raw in terms of their skill level.
Since they are raw and underdeveloped, they are seen as projects who take two to
three years to become impactful NBA players. They are referred to as
“one-and-done” players.[1]
This situation is a result of the NBA’s minimum age
limit. Currently, the NBA requires players to be 19 years of age or at least
one year removed from high school before becoming draft eligible.[2]
Some players[3] have
chosen to play overseas to earn income instead of attending college. NBA
Commissioner Adam Silver has stated he would like to increase the NBA’s draft eligibility
age to 20.[4]
However, this would have to be bargained for in the 2017 Collective Bargaining
Agreement (CBA).[5] In
increasing the age limit, the NBA has an opportunity to work with the NCAA and
help college basketball players. If the age limit is increased, Silver suggests
the NBA may be able to subsidize college players as far as their “basic
necessities,” contribute to the “actual cost of attendance gap above what the
players get for their scholarships,” and also offer a more complete insurance
plan.[6]
This agreement would also allow NCAA
basketball players to earn income off of their own names, images, and likeness
by making the NCAA abolish bylaws 15.1[7]
and 12.4.1.1[8]. [9]
This paper assumes the age limit increase will occur only
if the NCAA and the NBA make an agreement where the NCAA (1) abolishes bylaws
15.1 and 12.4.1.1, (2) allows the NBA to compensate players for “basic
necessities” and contribute to the “actual cost of attendance gap above what
the players get for their scholarships,” and (3) allows the NBA to provide a
more complete insurance plan. It is an extremely enticing opportunity for
players to play in the NBA because it allows them to capitalize on their draft
stock and earn money for themselves or their families, who may be in poverty or
experiencing financial difficulty. This option may mitigate the “one-and-done”
problem.
Adam Silver believes that any solution to this
problem must be through a “three-way conversation” between the NBA, NBPA
(National Basketball Players Association), and NCAA.[10]
Silver is proposing an agreement between massive entities to fix a key social
and legal issue in NCAA basketball.
First, this paper will examine the legal framework of
antitrust law. In doing so, it will analyze the various exemptions such as
Major League Baseball, the Statutory Labor Exemption, and the Non-Statutory
Labor exemption. It will then examine whether Adam Silver’s proposed three-way
conversation would violate Section 1 of the Sherman Antitrust Act (“Act”). Most
notably, it will determine whether the non-statutory labor exemption, under the
factors from Mackey v. NFL, would
allow for such an agreement. It will then look at whether the agreement would
be legal under the rule of reason.
I. Section 1
of the Sherman Antitrust Act
a.
Policy and
Rationale
Section 1 of the Act states, “Every contract,
combination in the form of trust or otherwise, or conspiracy, in restraint of
trade or commerce among the several States, or with foreign nations, is
declared to be illegal. . ..”[11]
Its primary purpose is to promote competition in the marketplace.[12]
In the United States, competition allows the consumer to have more choices in
the market, resulting in a more efficient allocation of financial resources.
When there is competition, the consumer becomes important to the long-term
success of a company and companies can compete for leading market position. It
would be nonsensical to have a free market structure without antitrust laws because
competition needs to work properly in order for capitalism to thrive.
b.
Elements of a
Section 1 Claim
In sports, the courts have developed a test for
determining when an agreement violates Section 1 of the Act. Three elements
must exist for a Section 1 claim. First, there must be an agreement between two
or more parties. Second, the agreement must cause an “injury to competition in
the marketplace.”[13]
Courts have found that there must be an injury to the relevant marketplace[14],
where marketplace is defined as a “collection of products and geographic
locations.”[15] Third,
the agreement must restrain trade in interstate commerce.
c.
Analysis of a
Section 1 Claim
If there is an agreement between two or more parties
that restrains trade or affects interstate commerce, then it falls under
Section 1 of the Act. Next, there must be an analysis as to whether an exemption
applies to the agreement. If an exemption applies, then the agreement will not violate
Section 1. The exemptions are Major League Baseball, the Statutory Labor
Exemption, and the Non-Statutory Labor Exemption.
The first exemption is for Major League Baseball. In Federal Baseball Club v. National League,
the Supreme Court ruled the Act did not apply to Major League Baseball.[16]
In the majority opinion, Justice Holmes, classified baseball games as “purely
state affairs.”[17]
About 50 years later in Flood v. Kuhn,
the Supreme Court reaffirmed Federal
Baseball and noted that if baseball was to be brought within the Act, then
Congress must act to affirmatively do so.[18]
This exemption has stood the test of time, yet it is not without controversy.[19]
[20]
Next, is the statutory labor exemption, which is
primarily targeted to labor unions.[21]
The Clayton Act provides a statutory basis for workers to eliminate competition
among themselves regarding working conditions without fear of antitrust
liability.[22] Furthermore, the Norris La Guardia Act bars
federal courts from granting injunctions against peaceful labor disputes.[23]
Both of these statutes allow labor unions to go on strike and bargain with
employers over working conditions, wages, and hours.[24]
The last exemption is the non-statutory labor
exemption. This exemption, unlike the others, is applicable to Silver’s proposal.
It gives collective bargaining preference over antitrust laws.[25]
It states that any union-management agreement that was a product of good faith
negotiation will not be subject to antitrust liability.[26] This begs the question: What qualifies as a
product of good faith negotiation? In Mackey
v. NFL, the 8th circuit prescribed a set of elements to determine
whether an agreement was a product of good faith negotiation. Mackey held that for the non-statutory
labor exemption to apply, the restraint on trade must (1) primarily affect only
the parties to the collective bargaining agreement; (2) concern a mandatory
subject of collective bargaining[27];
and (3) be a product of bona fide arms’ length bargaining.[28]
If the non-statutory labor exemption applies, then
the court will ask whether the agreement was an illegal restraint on trade. In
examining whether the agreement is illegal, there are two categories to examine:
a Per Se violation or a Rule of Reason analysis.[29]
If the court finds the agreement is a per se violation, then the agreement is
inherently adverse to competition and presumed invalid.[30]
Price fixing and agreements to restrict output are examples of agreements that
would be a per se violation.[31]
Per se violations are adverse to competition and are what antitrust laws are supposed
to prevent.[32] They
are anti-competitive, and have no redeeming qualities.[33]
Under a rule of reason analysis, the courts engage in a balancing test.[34]
The courts will balance the pro-competitive and anti-competitive effects.[35]
If the pro-competitive effects outweigh the anti-competitive effects, then the
agreement will not violate Section 1.[36]
However, if the anti-competitive effects outweigh the pro-competitive effects,
then it will violate Section 1. The rule of reason analysis is often used for sport
agreements.[37] This
legal framework will be crucial to the potential developments that could take
place during the 2017 CBA negotiations.
II.Applying
Section 1 Analysis to Silver’s Vision
Adam Silver is looking to raise the minimum age limit
from 19 to 20, but has stated he is willing to work with the NCAA “to give
athletes a more fair deal.”[38]
In exchange for this increase in the age limit, the NBA would subsidize college
players in a multiple aspects. It appears Silver intends for the NCAA to
bargain with the NBA and NBPA in 2017; after all, Silver says this needs to be
a “three-way conversation.”[39]
Silver’s aims are commendable, but may pose challenges to antitrust law and the
non-statutory labor exemption.
From Silver’s comments, it seems like the NBA would
be willing make an agreement with the NBPA and NCAA regarding the compensation
of college basketball players, in exchange for increasing the minimum age limit.
Essentially, this would be a three-party agreement that would look to create
new regulations and guidelines for NCAA basketball. This agreement would subsidize
the “basic necessities” of players, contribute to the “actual cost of
attendance gap above what the players get for their scholarships,” and offer a
more complete insurance plan.[40]
In a ruling from the District Court in Northern
California in Edward O’Bannon v. NCAA,
the court calculated that by the NCAA bylaws, most students get a “full grant
in aid,” which is usually less than the “cost of attendance” and players have
to find some means to fill that gap, unless an “unexpected special financial
need” applies, which is rare.[41]
In addition, this agreement would also allow NCAA basketball players to make
money off their own names and likeness by making the NCAA abolish bylaws 15.1
and 12.4.1.1,[42]
which keep players from accepting money from outside sources. Under an
antitrust analysis, how would this agreement hold up? Furthermore, who would
bring the lawsuit?
Analyzing the elements, there is an agreement between
two or more parties (the NBA, NBPA, and the NCAA), so the first element of
Section 1 is satisfied. The third
element is also satisfied, as this agreement would most certainly affect
interstate commerce. The NBA and NCAA do business in multiple states (games are
telecast nationally, players are recruited nationally, and tickets to games are
sold nationally).[43] For
purposes of the second element, one should identify the relevant marketplace
and injury, and then determine if the exemption applies. If the exemption does
not apply, then one should examine whether the agreement can withstand
antitrust law under a rule of reason analysis.
The relevant marketplace has been defined by the courts in
terms of “products and geographical space.”[44] The
products in this case could be “athletes” playing basketball in the United
States (inclusive of NCAA and NBA basketball players) and they are also the most
likely to challenge the agreement.[45] NCAA
basketball players would challenge the agreement claiming it injures them by
prohibiting them from playing professional basketball at the age of 19.[46] This
agreement would hurt those players who would stand much to gain by playing in
the NBA at the age of 19.[47] College
players would normally not be able to attack an agreement restricting age[48]
because most management-union agreements are legal due to the non-statutory
labor exemption.[49] In
this case, however, players may be able to attack the agreement on one of two
grounds: (1) the NCAA is not a party to the collective bargaining relationship
and (2) that it may not have been the product of bona fide arm’s-length
bargaining. Both of these attacks are grounded in the idea that the agreement
would not sufficiently pass the non-statutory labor exemption.
a.
Silver’s
Agreement and the Non-Statutory Labor Exemption
In order for the agreement to be exempt pursuant to
the non-statutory labor exemption, it must meet the Mackey test.[50]
Under Mackey, the agreement must
primarily affect only the parties to the collective bargaining agreement.[51]
In Clarett v. National Football League, the
2nd Circuit ruled that prospective employees could not bring an antitrust
suit because they were indirectly represented members of the bargaining unit.[52]
This decision expanded the class of individuals considered to be parties to the
bargaining unit.[53] However,
Adam Silver’s proposal is different in that it has three parties negotiating,
two managements (NBA and NCAA), and one union (NBPA). It expand the bargaining
unit. Prior to Clarett, the parties
to a collective bargaining unit would be a labor union and management.[54]
Many District Courts have simply defined this requirement as adhering to the
“collective bargaining framework.”[55]
It is clear that the NBA (being represented by the owners) is the management
and the NBPA (representing the players) is the union. However, how does the
NCAA fit into this bargaining relationship?
In United Mine
Workers of America v. Pennington, the Supreme Court stated that the, “the
policy of the antitrust laws is clearly set against employer-union agreements
seeking to prescribe labor standards outside the bargaining unit.”[56]
The “collective bargaining relationship” is a narrow relationship between management
and unions. The case suggests there is no room for the NCAA in the relationship,
especially when one considers the effects that the NCAA bylaws have on parties
outside the NBA and NBPA bargaining unit. The NCAA, by joining hands with the
NBA and NBPA and targeting the one-and-done problem, would surely affect many parties
(colleges, college coaches, and college conferences) which are not privy to the
unique NBA and NBPA collective bargaining relationship. It’s possible the NCAA would
not fit the collective bargaining relationship and the agreement would be
unable avail itself of the non-statutory labor exemption.
Notwithstanding
the failure of the agreement to meet the first criterion of Mackey, it would most likely meet the
second criterion, being a mandatory subject of bargaining. Clarett established that eligibility rules to play a sport were
mandatory subjects of bargaining.[57]
However, in addition to not meeting the first requirement, there is an argument
that the agreement would not be a product of “bona fide arm’s-length bargaining.” “Arm’s length” is
defined as “dealings between two parties...who have roughly equal bargaining
power.”[58] Upon comparing the revenue streams of NCAA basketball
and the NBA, the NBA made approximately six times more in revenue than the NCAA
in 2012 - 2013.[59] In Mackey, the 8th Circuit lends
credibility to the District Court’s saying that “inadequate finances” may count
as a factor in deciding the relative bargaining power of the parties.[60]
NCAA
players could argue there is an “inherent disparity” in bargaining power and that
the agreement was not the result of “bona fide arm’s-length bargaining.”[61]
This may be a tough argument to make, because the NBA is not compelling the
NCAA to enter into an agreement. However, the NBA would be making a decision that
would yield massive benefits to NCAA basketball. This places the NCAA in a
tough position to reject the agreement. In short, they may have more control
over the bargaining process than the NCAA and NBPA combined and it could be
argued that this agreement may not be the result of “bona fide arm’s-length bargaining,”
and fail the third criterion in Mackey.
b.
Silver’s
Agreement and the Rule of Reason
Since the agreement would not be exempt under the
non-statutory labor exemption, it would be subject to a rule of reason
analysis.[62] Here,
the courts would deem an agreement not to violate Section 1 of the Act if the pro-competitive
effects outweigh the anti-competitive effects.[63]
On one hand, this seems like a fairly pro-competitive agreement because the
NCAA would be abolishing bylaws that act as restraints, which would allow
players to receive financial resources outside the “full grant in aid.” Furthermore,
the NBA could argue that the restraint was no more restrictive than necessary
to achieve a legitimate business interest. In raising the minimum age limit for
draft eligibility, it would increase the quality of the on-court product, which
is undoubtedly in the best interest of the league.
On the other hand, the agreement heightens the age of
eligibility for the NBA draft and restricts 19 year olds from entering the
league, which is anti-competitive. However, on balance this agreement seems to
be fairly reasonable in that it allows college basketball players to receive compensation
from the NBA, to receive a more complete insurance plan, and to take advantage
of their names and likeness in the open market. It opens the marketplace and
paves the way for NCAA basketball players to financially capitalize on their brand.
In its entirety, it seems to be a pro-competitive agreement and would most
likely stand the rule of reason analysis.
III. Conclusion
Adam Silver’s three-way conversation to provide
compensation for NCAA basketball players would probably be unable to avail
itself of the non-statutory labor exemption. If college or professional
basketball players bring an action for injury, they should allege that the
agreement does not primarily affect only the parties to the unique
management-union collective bargaining relationship and that the restraint is
not a product of bona fide arm’s-length bargaining. However, the restraint would
probably prevail under a rule of reason analysis if it fails the Mackey test. Under the rule of reason
analysis, the agreement is pro-competitive because it allows NCAA basketball
players to capitalize on their own names and likeness, have a better insurance
plan, and be able to receive payments to meet their basic necessities. Additionally,
the NBA would be able to offer a legitimate business interest (improving the
quality of the players on NBA teams, and thus the league) for why they would
raise the draft eligibility age.
If Adam Silver has his way, it will not be without
any legal challenges or questions. This agreement could solve the “one-and-done”
problem, but it is more ambitious and noble than that. Adam Silver feels the
need for the NBA to take the lead on a key moral issue, but it will most certainly
test the limits of antitrust law and the non-statutory labor exemption.
[1] See Myron Medcalf, The Unknown Future of one-and-done, ESPN.com,
(Jun. 27, 2012),
http://espn.go.com/mens-college-basketball/story/_/id/8101090/the-unknown-future-nba-one-done-rule-men-college-basketball.
[2] Nat’l
Basketball Association, Collective bargaining Agreement between the NBA and the
NBA Players Association, Art. X, Sec. 1, § (b)(i), (2011).
[3] Brandon
Jennings and Emmanuel Mudiay.
[4] Zach
Harper, Commissioner Adam Silver still
wants age limit of 20 for draft eligibility, CBS Sports, (Nov. 24, 2014),
http://www.cbssports.com/nba/eye-on-basketball/24838071/commissioner-adam-silver-still-wants-age-limit-of-20-for-draft-eligibility.
[5] Id.
[6] Darren
Rovell, Adam Silver: ‘3-Way Conversation’, ESPN.com,
(Apr. 9, 2014),
http://espn.go.com/nba/story/_/id/10758585/nba-commissioner-adam-silver-says-subsidizing-ncaa-athletes-possibility.
[7] “A
student-athlete shall not be eligible to participate in intercollegiate
athletics if he or she receives financial aid that exceeds the value of the
cost of attendance as defined in Bylaw 15.02.2. A student-athlete may receive
institutional financial aid based on athletics ability (per Bylaw 15.02.4.1),
outside financial aid for which athletics participation is a major criterion
(per Bylaw 15.2.6.4) and educational expenses awarded per Bylaw 15.2.6.5 up to
the value of a full grant-in-aid, plus any other financial aid unrelated to
athletics ability up to the cost of attendance.”
[8] “Such
compensation may not include any remuneration for value or utility that the
student-athlete may have for the employer because of the publicity, reputation,
fame or personal following that he or she has obtained because of athletics
ability.”
[9] NCAA
regulations and bylaws comprise of a 400 page book. This makes it extremely
difficult for students and member schools to stay in compliance.
[10] Id.
[11] 15 U.S.C.
§ 1 (1890).
[12] See generally The United States
Department of Justice, Antitrust Laws and
You, http://www.justice.gov/atr/about/antitrust-laws.html (last visited
Mar. 30, 2015).
[13] See Jarod Bona, Antitrust Injury and the Classic Antitrust Case of Brunswick Corp v.
Pueblo Bowl-O-Mat, The Antitrust
Attorney Blog (Nov. 20, 2014),
http://www.theantitrustattorney.com/2014/11/20/antitrust-injury-classic-antitrust-case-brunswick-corp-v-pueblo-bowl-o-mat/.
[14] Brunswick
Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488–9 (1977). Also the
plaintiff bringing the antitrust lawsuit must be injured by the type of injury
that the antitrust laws were meant to prevent and that the defendant’s actions
must have caused some injury to the plaintiff. William Holmes and Melissa
Mangiaracina, Antitrust Law Handbook,
(last updated Oct. 2014).
[15] Jonathan
Baker, Market Definition: An Analytical
Overview, 74 Antitrust L. J.
129, 130 (2007).
[16] Federal
Baseball Club v. National League, 259 U.S. 200, 209 (1922).
[17] Id. at 209.
[18] Flood v.
Kuhn, 407 U.S. 258, 281 (1972).
[19] It is
clear that baseball is interstate commerce and is not just purely a state
affair.
[20] Flood v. Kuhn, 407 U.S. 258, 281
(1972) (Justice Blackmun even referred to the MLB exemption as an
anomaly).
[21] See generally Randall Marks, Labor and Antitrust: Striking a Balance
Without Balancing, 35 Am. U. Law Rev.
699, 717 (1986).
[22] United
States v. Hutcheson, 312 U.S. 219, 236 (1941).
[23] 29 U.S.C. 101 (1932).
[24]
Christopher Andrews, Labor Exemption to
the Antitrust Laws, Shielding an Anticompetitive Provision Devised by an
Employer Group in its Own Interest: McCourt v. California Sports, Inc, 21 Boston
College L. Rev., 680 (1980).
[25] See John Mackey v. National Football
League, 543 F.2d 606 (8th Cir. 1976).
[26] See id.
[27] Id. at 614. The Court in Mackey said
that mandatory subjects of collective bargaining are “wages, hours, and other
terms of and conditions of employment.”.
[28] Mackey, 543 F.2d 606, 614 (8th
Cir. 1976).
[29] Cornell
University School of Law, Antitrust: An
Overview, https://www.law.cornell.edu/wex/antitrust (last visited Apr. 1,
2014).
[30] See id.
[31] See id.
[32] See id.
[33] See id.
[34] Cornell
University School of Law, Antitrust: An
Overview, https://www.law.cornell.edu/wex/antitrust (last visited Apr. 1,
2014).
[35] See id.
[36] See id.
[37] Gabriel
Feldman, Antitrust Versus Labor Law in
Professional Sports: Balancing the Scales after Brady v. NFL and Anthony v. NBA, 45 U. C. Davis. L. Rev. 1221,
1222 (2012).
[38] Darren
Rovell, Adam Silver: ‘3-Way Conversation’, ESPN.com,
(Apr. 9, 2014),
http://espn.go.com/nba/story/_/id/10758585/nba-commissioner-adam-silver-says-subsidizing-ncaa-athletes-possibility.
[39] Id.
[40] Id.
[41] Edward
O’Bannon v. Nat’l Collegiate Athletic Ass’n, No. C 09-3329 CW, at 20 (N.D. C.
Aug. 8, 2014).
[42] Supra note 7.
[43] David Hughes, O’Bannon
v. NCAA: Say Goodbye to the Cinderella Story, 22 The
Sports Lawyers Journal 261, 262 (2015).
[44] Robert
Morris and Thomas Jorde, Antitrust Market Definition: An Integrated Approach,
72 California Law Review 3, 4
(1984).
[45] Perhaps, in
the broadest sense, the product could be collegiate and professional basketball
games.
[46] The
important thing is that players may see a larger benefit in playing in the NBA
at 19 as opposed to playing at 20 and having some extra benefits in the NCAA.
[47] In fact,
current NBA veterans against such measures, assuming they would be able to show
an injury, may be another potential class of litigants to bring suit on
antitrust grounds.
[48] Clarett
v. National Football League, 369 F.3d 124, 143
(2d. Cir. 2004) (explaining that the NFL may have an age restriction
eligibility rule for players entering the NFL draft because it was exempted and
bargained for under the non-statutory labor exemption). Michael Scheinkman, Running Out of Bounds: Over-Extending the
Labor Antitrust Exemption in Clarett v. National Football League, 79 St. John’s L. Rev. 733, 757-8 (2005)
(Clarett was not an outsider to the collective bargaining unit because the
“NFLPA has the power and discretion to prioritize certain groups of employees,
which includes favoring veteran players over aspiring rookies).
[49] Mackey, 543 F.2d 606, 614 (8th
Cir. 1976) (citing the various requirements that agreements must meet in order
to be considered exempt under the non-statutory labor exemption).
[50] The MLB
and statutory labor exemptions do apply in this context because it does not
concern MLB and the non-statutory labor exemption is generally applied over the
statutory labor exemption with regard to sports.
[51] Mackey, 543 F.2d 606, 614 (8th
Cir. 1976).
[52] Supra note 48, Scheinkman, at 758.
[53] It is
clear that the NCAA does not fall into this classification.
[54] United
Mine Workers of America v. Pennington, 381 U.S. 657, 668 (1965).
[55] Brady v.
National Football League, 779 F. Supp 2d 992, 1040 (D. Minn. 2011); Independent
Entertainment Group, Inc. v National Basketball Ass’n, 853 F. Supp. 333,340
(C.D. Cal 1994).
[56] Pennington, 381 U.S. 657, 668 (1965).
[57] Clarett
v. National Football League, 369 F.3d 124, 139-40 (2d.
Cir. 2004).
[58] Black’s
Law Dictionary 44 (3rd Edition, 2006).
[59] Mark Alesia,
NCAA Approaching Billion Per Year Amid
Challenges by Players, Indiana Star
(Mar. 27, 2014) http://www.indystar.com/story/news/2014/03/27/ncaa-approaching-billion-per-year-amid-challenges-players/6973767/;
Park Summers, The Donald Sterling Dilemma,
WordPress.com (Sep. 22, 2014) https://parksummers.wordpress.com/2014/09/23/the-donald-sterling-dilemma/.
[61] This
assumes the disparity in the NCAA and NBA revenue remains the same in 2017.
[62] The rule
of reason analysis is most likely applied to sports. Also, there does not seem
to be anything per se illegal about this agreement on its face.
[63] Cornell
University School of Law, Antitrust: An
Overview, https://www.law.cornell.edu/wex/antitrust (last visited Apr. 1,
2014).
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