RADICAL REFORM OF INTERCOLLEGIATE ATHLETICS: Antitrust, Title IX, and Public Policy Implications Stephen F. Ross The Pennsylvania State University Dickinson School of Law Institute for Sports Law, Policy & Research CLE Lecture: April 16, 2011

THE PROBLEMS TODAY Current levels of spending on intercollegiate athletics are non- sustainable – as many as 60 schools lose money on football – even wealthy programs like Michigan spend more than they take in Financially strapped universities are spending millions more than necessary to provide athletes in non- revenue sports with the physical, mental, and social benefits derived from athletics participation

/2 PROBLEMS Women’s sports and Title IX improperly blamed for cutbacks, while universities reflexively seek formalistic equality without regard to real educational or social goals Revenue-sport star athletes are economically exploited – millions made from their efforts – grant-in-aid is often far below average support among affluent classmates – ripe for corruption – huge inefficiencies in recruitment

CHARTER OF REFORM ARTICLE 1: Using newly-created “Generally Accepted Intercollegiate Athletics Accounting Principles,” schools cannot participate in Varsity men’s sports unless their revenues match or exceed expenses – revenue sharing – approved, transparent subsidies (Olympic sports, strategic spending from general funds)

/2 Charter Article 2: Schools must provide varsity women’s sports opportunities equal to those provided to men under Art. 1 – i.e. 68 scholarships if offer football and men’s basketball (see Art. 4); more if hockey or other sports offered – schools would select ~4-5 sports best suited for their history, facilities, etc.

/3 Charter Article 3: All other sports would be operated as ‘club sports’ – no scholarships (need-based ok) – limited # of coaches – regional travel in localized conferences

/4 Charter Article 4: All varsity sports scholarships allocated on an equivalency basis, with football reduced to 55, and the individual award ranging from ¼ to 1 ½ full grant-in-aid

ANTITRUST COMPLIANCE: General Principles Commercial restraints – scope: limit competition to increase profits (Bd of Regents; Law) – rivals need to agree in order to develop a competition (Bd of Regents; American Needle): thus rule of reason applies – justified as effective product differentiation with professional sports featuring vastly superior athletes (Bd of Regents) Non-commercial restraints – scope: inconsistent with profit-motive – antitrust laws do not apply (Smith v NCAA)

ANTITRUST COMPLIANCE: The Rule of Reason Bd of Regents: “Hallmark” of unreasonable restraint is where – price is higher – output lower – output unresponsive to consumer demand Law: shifting burden of proof – plaintiff shows actual restraint on competition – defendant can justify with purpose that is (a) legitimate and (b) pro-competitive – plaintiff can rebut by showing overbreadth

ANTITRUST: applied In a sporting competition where rivals need to agree, money- losing programs reflect either – strategic behavior that distorts the competition, risking a loss of fan appeal; or – non-commercial goals that can be restrained outside scope of Sherman Act THEREFORE... – Art 1 is lawful (enhancing competition or non-commercial) – Art 2 requirement of Title IX compliance is non-commercial – Art 2 bar on money-losing expenditures on women’s sports not required by Title IX is also non-commercial

ANTITRUST: applied/2 Key principle: these rules only apply to NCAA- sanctioned sports; members free to act on their own outside NCAA ambit – cf. NCAA response to CFA in 1984 – indeed, removal of 14-sport rule for Division I schools is actually pro-competitive

ANTITRUST: applied/3 A limit on expenditures for club sports is a legitimate way of maximizing the non-economic goals of intercollegiate athletic competition – analogies upheld under antitrust: Division III, ‘minor’ competions (M&H Tire), NASCAR limits on expensive adjustments to stock cars – just a matter of degree from current NCAA rules sharply limiting # of scholarships

ANTITRUST: Distinguishing Law v NCAA from limits on club sports Salary limits on basketball coach designed to maximize profits from commercial activity Restrained trade in a relevant market (labor market for coaches) No commercial market is being restrained by limit that only applies to non-revenue sports Not trying to save inefficient or unsuccessful competitors from market effects

ANTITRUST: new football rules Change from full scholarships only to equivalency is efficient and pro-competitive – indeed, agreement that schools must provide full grant-in-aid or walk-on is suspect – facilitates more efficient allocation of players to teams – provides athletes with a more informed choice

ANTITRUST: football /2 Change from 85 full scholarships to 55 equivalency scholarships is not anti- competitive – no different than any roster limit – promotes competitive balance: particularly output-enhancing in college sports due to capacity constraints

ANTITRUST: football /3 Maximum grant of 1.5 x Cost of Education – for competitive balance, need to average – limits economic exploitation of stars – “amateurism” is a myth – real justification from Bd of Regents: product differentiation based on “clear line of demarcation” between pro and college sports – cash subsidy up to 50% of Cost of Education not so extensive as to significantly differentiate student-athletes from student body trust fund alternative

TITLE IX COMPLIANCE By providing equal scholarships for men and women, will meet Prong 1 of Title IX regulations Title IX not violated if women’s coaches, in own discretion, allocate scholarships on a more or less equal basis then men Real controversy with Title IX is not equality between men and women but “mythical Title XI”: – right to play football – right to have equivalent opportunity if choose not to play football

POLICY BENEFITS OF REFORM Eliminates special interest capture of university policy Improves competitive balance Likely to improve physical, mental, and social benefits for athletes in non-revenue sports Frees up millions for educational mission – significantly reduces most schools’ subsidy for non- revenue sports – allows top programs to use football profits for libraries, liberal arts, etc.

Questions and Comments Thanks for Coming