O'Bannon, Jr. v. National Collegiate Athletic Association et al

Filing 291

FINDINGS OF FACT AND CONCLUSIONS OF LAW. Signed by Judge Claudia Wilken on 8/8/2014. (ndr, COURT STAFF) (Filed on 8/8/2014)

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1 IN THE UNITED STATES DISTRICT COURT 2 FOR THE NORTHERN DISTRICT OF CALIFORNIA 3 4 EDWARD O’BANNON, et al. Plaintiffs, 5 6 7 8 9 United States District Court For the Northern District of California 10 FINDINGS OF FACT AND CONCLUSIONS OF LAW v. NATIONAL COLLEGIATE ATHLETIC ASSOCIATION; ELECTRONIC ARTS INC.; and COLLEGIATE LICENSING COMPANY, Defendants. ________________________________/ 11 12 No. C 09-3329 CW INTRODUCTION Competition takes many forms. Although this case raises 13 questions about athletic competition on the football field and the 14 basketball court, it is principally about the rules governing 15 competition in a different arena -- namely, the marketplace. 16 Plaintiffs are a group of current and former college student- 17 athletes. 18 National Collegiate Athletic Association (NCAA) in 2009 to 19 challenge the association’s rules restricting compensation for 20 elite men’s football and basketball players. 21 Plaintiffs seek to challenge the set of rules that bar student- 22 athletes from receiving a share of the revenue that the NCAA and 23 its member schools earn from the sale of licenses to use the 24 student-athletes’ names, images, and likenesses in videogames, 25 live game telecasts, and other footage. 26 these rules violate the Sherman Antitrust Act. 27 this charge and asserts that its restrictions on student-athlete 28 They brought this antitrust class action against the In particular, Plaintiffs contend that The NCAA denies 1 compensation are necessary to uphold its educational mission and 2 to protect the popularity of collegiate sports. 3 A non-jury trial on Plaintiffs’ claims was held between June 4 9, 2014 and June 27, 2014. 5 testimony, documentary evidence, and arguments of counsel 6 presented during and after trial, the Court finds that the 7 challenged NCAA rules unreasonably restrain trade in the market 8 for certain educational and athletic opportunities offered by NCAA 9 Division I schools. After considering all of the The procompetitive justifications that the United States District Court For the Northern District of California 10 NCAA offers do not justify this restraint and could be achieved 11 through less restrictive means. 12 findings of fact and conclusions of law, and will enter as a 13 remedy a permanent injunction prohibiting certain overly 14 restrictive restraints. 15 16 The Court makes the following FINDINGS OF FACT I. Background 17 A. 18 The NCAA was founded in 1905 by the presidents of sixty-two The NCAA 19 colleges and universities in order to create a uniform set of 20 rules to regulate intercollegiate football. 21 Undisputed Facts, at ¶ 6. 22 eleven hundred member schools and regulates intercollegiate 23 athletic competitions in roughly two dozen sports. 24 its current constitution, the association seeks to “initiate, 25 stimulate and improve intercollegiate athletics programs for 26 student-athletes and to promote and develop educational 27 leadership, physical fitness, athletics excellence and athletics Docket No. 189, Stip. Today, the association has roughly 28 2 According to 1 participation as a recreational pursuit.” 2 Division I Manual, at 15. 3 Ex. 2340, 2013-14 NCAA 1 To achieve these goals, the NCAA issues and enforces rules 4 governing athletic competitions among its member schools. 5 4. 6 bylaws and cover a broad range of subjects. 7 the rules establish academic eligibility requirements for student- 8 athletes, set forth guidelines and restrictions for recruiting 9 high school athletes, and impose limits on the number and size of United States District Court For the Northern District of California 10 Id. at These rules are outlined in the association’s constitution and Among other things, athletic scholarships that each school may provide. 11 Id. at 3-5. Since 1973, the NCAA’s member schools have been organized 12 into three divisions -- Divisions I, II, and III -- based on the 13 number and quality of opportunities that they provide to 14 participate in intercollegiate athletics. 15 ¶ 27. 16 quality of opportunities to participate in intercollegiate 17 athletics because they sponsor more sports teams and provide more 18 financial aid to student-athletes than schools in Divisions II and 19 III.2 20 sponsor a minimum of fourteen varsity sports teams, including 21 football, and distribute a baseline amount of financial aid to its 22 student-athletes. 23 365, 367. Stip. Undisputed Facts Division I schools provide the greatest number and highest To qualify for membership in Division I, a school must Trial Tr. 2043:13-:25 (Delany); Ex. 2340 at Roughly three-hundred and fifty of the NCAA’s eleven 24 25 26 27 28 1 All exhibit citations in this order are to the page numbers provided by the parties at trial, which do not necessarily correspond to the page numbers created by the original author of the exhibit. 2 The NCAA’s bylaws define financial aid to mean “funds provided to student-athletes from various sources to pay or assist in paying their cost of education at the institution.” Ex. 2340 at 206. The Court adopts this definition for the purposes of this order. 3 1 hundred schools currently compete in Division I. 2 1743:23 (Emmert). Trial Tr. 3 Division I itself further is divided, for the purposes of 4 football competition, into two subdivisions: the Football Bowl 5 Subdivision (FBS) and the Football Championship Subdivision 6 (FCS). 7 schools are allowed to offer up to eighty-five full scholarships 8 to members of their football teams. 9 permitted to offer only a smaller number of full scholarships to 3 Trial Tr. 2144:9-:11 (Petr); Ex. 2340 at 364-67. FBS In contrast, FCS schools are United States District Court For the Northern District of California 10 members of their teams. 11 schools are able to offer more football scholarships than FCS 12 schools, the level of football competition within FBS is generally 13 higher than within FCS. Currently, about one hundred and twenty 14 schools compete in FBS. Id. ¶ 45. 15 Stip. Undisputed Facts ¶ 28. Because FBS In addition to the two football subdivisions, Division I 16 schools are also organized into a number of conferences, which 17 essentially function as smaller leagues within the NCAA. 18 conferences -- most of which contain between eight and fifteen 19 schools -- typically have their own membership requirements. 20 conferences also organize conference-specific games and events 21 featuring their member schools, including regular season football 22 games, regular season basketball games, and post-season basketball 23 tournaments. 24 the NCAA and must comply with its constitution and bylaws, they 25 operate independently for the most part and have the authority to The Most Although the conferences are considered members of 26 3 27 28 Prior to 2006, FBS was known as Division I-A and FCS was known as Division I-AA. For the purposes of simplicity, this order uses “FBS” and “FCS” to refer to these subdivisions even when discussing studentathletes who played Division I football before 2006. 4 1 generate their own revenue and set their own rules, provided those 2 rules are consistent with NCAA policy. 3 Ex. 2340 at 22. The rules governing participation and competition in Division 4 I are enacted by an eighteen-member body known as the Division I 5 Board of Directors, which typically receives proposals from the 6 division’s member schools and conferences. 7 1745:2 (Emmert); Ex. 2340 at 35. 8 university presidents and chancellors from eighteen different 9 colleges or universities. United States District Court For the Northern District of California 10 Trial Tr. 1744:16- The Board is made up of Ex. 2340 at 35. A school or conference that seeks to propose a new rule or 11 rule change typically does so by submitting the proposal to a 12 designated committee or task force appointed by the Board. 13 Tr. 1745:20-1746:15. 14 the proposal and, if it approves, may forward the proposal to a 15 body known as the Division I Legislative Council, which is made up 16 of athletics administrators from schools in each of the thirty-two 17 Division I conferences. 18 Council may then forward the proposal to the Board of Directors, 19 which has the ultimate authority to approve the proposal by a 20 majority vote. 21 may only be repealed through an override process that involves a 22 vote of sixty-two percent of the NCAA’s member institutions. 23 1747:6-:20. 24 not have any voting power in this process. Trial That committee or task force then considers Id.; Ex. 2340 at 37. Trial Tr. 1745:20-1746:15. The Legislative Actions by the Board Id. The NCAA’s current president, Dr. Mark Emmert, does Id. 1746:19-:24. 25 B. 26 Electronic Arts Inc. (EA) is a corporation which develops and Electronic Arts Inc. & Collegiate Licensing Company 27 manufactures videogames. 28 and sold an annual NCAA-branded college football videogame every Stip. Undisputed Facts ¶ 35. 5 It created 1 year between 1997 and 2013. 2 an annual NCAA-branded college basketball game every year between 3 1998 and 2010. 4 entered into licensing agreements with the NCAA and its member 5 schools and paid them for permission to use their intellectual 6 property, including their marks, in the videogames. 7 Exs. 1125, 1126. 8 corporation that licenses trademarks of the NCAA and several of 9 its member schools and conferences. Id. ¶ 40. Id. ¶ 39. It also created and sold In order to create these games, it Id. ¶¶ 37-38; Collegiate Licensing Company (CLC) is a Georgia Stip. Undisputed Facts ¶¶ 32- United States District Court For the Northern District of California 10 34. 11 and CLC in this action, they subsequently agreed to settle those 12 claims. 13 C. 14 Plaintiffs are twenty current and former student-athletes, Although Plaintiffs originally brought claims against both EA Plaintiffs 15 all of whom play or played for an FBS football or Division I men’s 16 basketball team between 1956 and the present. 17 Plaintiffs went on to play professional sports after they left 18 college. 19 certified under Federal Rule of Civil Procedure 23(b)(2) in 20 November 2013: 21 22 23 24 25 26 27 28 Some, but not all, They represent the following class, which this Court All current and former student-athletes residing in the United States who compete on, or competed on, an NCAA Division I (formerly known as “University Division” before 1973) college or university men’s basketball team or on an NCAA Football Bowl Subdivision (formerly known as Division I-A until 2006) men’s football team and whose images, likenesses and/or names may be, or have been, included or could have been included (by virtue of their appearance in a team roster) in game footage or in videogames licensed or sold by Defendants, their co-conspirators, or their licensees. 6 1 Case No. 09-1967, Docket No. 1025, April 11, 2014 Order, at 47-48 2 (amending definition of previously certified class). 3 II. The Relevant Markets 4 As explained in previous orders, Plaintiffs allege that the 5 NCAA has restrained trade in two related national markets, which 6 they refer to as the “college education market” and the “group 7 licensing market.” 8 the same participants, each market ultimately involves a different 9 set of buyers, sellers, and products. United States District Court For the Northern District of California 10 Although these alleged markets involve many of Accordingly, this order addresses each market separately. 11 A. 12 The evidence presented at trial, including testimony from College Education Market 13 both experts and lay witnesses, establishes that FBS football and 14 Division I basketball schools compete to recruit the best high 15 school football and basketball players. 16 (O’Bannon); 114:21-117:17 (Noll); 831:8-:11 (Rascher); 1759:21-:22 17 (Emmert); Ex. 2530. 18 unique bundles of goods and services to elite football and 19 basketball recruits. 20 the cost of tuition, fees, room and board, books, certain school 21 supplies, tutoring, and academic support services. 22 40:2-:20 (O’Bannon); 582:6-:18 (Prothro); 1741:10-:20 (Emmert); 23 Ex. 2340 at 207. 24 coaching, medical treatment, state-of-the-art athletic facilities, 25 and opportunities to compete at the highest level of college 26 sports, often in front of large crowds and television audiences. 27 Trial Tr. 13:4-:12 (O’Bannon); 556:8-558:2 (Prothro); 1157:20- 28 1158:7 (Staurowsky); 1721:3-1722:19 (Emmert). Trial Tr. 9:1-:7 Specifically, these schools compete to sell The bundles include scholarships to cover Trial Tr. They also include access to high-quality 7 In exchange for 1 these unique bundles of goods and services, football and 2 basketball recruits must provide their schools with their athletic 3 services and acquiesce in the use of their names, images, and 4 likenesses for commercial and promotional purposes. 5 110:12 (Noll). 6 attending college and participating in intercollegiate athletics 7 that are not covered by their scholarships. 8 9 Id. 109:5- They also implicitly agree to pay any costs of See Ex. 2340 at 207. The evidence presented at trial demonstrates that FBS football and Division I basketball schools are the only suppliers United States District Court For the Northern District of California 10 of the unique bundles of goods and services described above. 11 Recruits who are skilled enough to play FBS football or Division I 12 basketball do not typically pursue other options for continuing 13 their education and athletic careers beyond high school. 14 Plaintiffs’ economic expert, Dr. Roger Noll, examined the rates at 15 which elite football and basketball recruits accept athletic 16 scholarships to play FBS football or Division I basketball. 17 observed that, between 2007 and 2011, more than ninety-eight 18 percent of football recruits classified as four- or five-star 19 recruits (the two highest ratings available) by Rivals.com 20 accepted offers to play FBS football. 21 2529. 22 recruits chose to play football at an FCS school and none chose to 23 play at a Division II or III school during that period. 24 Among three-star recruits, ninety-two percent of those offered a 25 scholarship from an FBS school accepted one. 26 percent of all three-star recruits accepted an offer to play 27 football at a non-FBS school. He Trial Tr. 113:2-114:13; Ex. None of the five-star recruits and only 0.2% of four-star Id. 28 8 Id. Ex. 2529. Less than four 1 This pattern is even more stark for basketball recruits. 2 Between 2007 and 2011, no four- or five-star basketball recruits 3 and less than one percent of all two- and three-star recruits 4 accepted offers to play for a non-Division I school. 5 among zero-star recruits, only one percent accepted offers to play 6 basketball outside of Division I. 7 ninety-five percent of all recruits offered Division I basketball 8 scholarships in the Rivals.com sample accepted one. 9 data supports Dr. Noll’s conclusion that “if the top athletes are Id. United States District Court For the Northern District of California Even In contrast, roughly 10 offered a D-I scholarship, they take it. 11 else.” 12 Id. Id. This They do not go anywhere Trial Tr. 114:6-:7. On cross-examination, Dr. Noll conceded that the Rivals.com 13 data he used in his analysis came from recruits’ self-reported 14 information about the scholarship offers they received and 15 accepted. 16 Noll’s opinion unreliable. 17 report accurate information to Rivals.com because the information 18 is relatively easy to verify; after all, a recruit’s lie about 19 accepting a scholarship from a particular school will be 20 discovered as soon as his name does not appear on that school’s 21 roster or list of committed recruits. 22 not presented any data of its own to contradict the Rivals.com 23 data nor any other evidence, expert or otherwise, to cast doubt on 24 Dr. Noll’s conclusion that there are no substitutes for the 25 opportunities offered by FBS football and Division I basketball 26 schools. 27 28 Id. 486:7-:9. However, this fact does not render Dr. Recruits have a strong incentive to In any event, the NCAA has The only potential substitutes that the NCAA has identified are the opportunities offered by schools in other divisions, 9 1 collegiate athletics associations, or minor and foreign 2 professional sports leagues. 3 associations, or professional leagues, however, provides the same 4 combination of goods and services offered by FBS football and 5 Division I basketball schools. 6 and III all provide a lower number of scholarships than FBS 7 football and Division I basketball schools, which results in a 8 lower level of athletic competition. 9 Athletic Association (NAIA), National Junior College Athletic None of these other divisions, Schools in FCS and Divisions II The National Intercollegiate United States District Court For the Northern District of California 10 Association (NJCAA), National Christian Collegiate Athletic 11 Association (NCCAA), and United States Collegiate Athletic 12 Association (USCAA) likewise provide fewer scholarships and offer 13 a lower level of competition. 14 other divisions and associations are often smaller than FBS 15 football and Division I basketball schools, spend much less on 16 athletics, and may not even provide opportunities to attend a 17 four-year college. 18 2830:12 (Stiroh). 19 schools do not compete with FBS football and Division I basketball 20 schools for recruits. 21 What’s more, the schools in these Id. 2824:14-:24, 2826:16-2827:7, 2829:17This is why, as Dr. Noll concluded, these other Dr. Noll also analyzed the Rivals.com data to show that FBS 22 schools almost always defeated non-FBS schools in head-to-head 23 recruiting contests for the same football recruit between 2007 and 24 2011. 25 head-to-head recruiting contests for basketball players revealed 26 the same discrepancy between Division I and non-Division I 27 schools. 28 this discrepancy when comparing head-to-head recruiting contests Id. 116:6-118:11, 474:23-475:14; Ex. 2530. Trial Tr. 116:6-118:11. 10 His analysis of Notably, he did not observe 1 among FBS football schools or Division I basketball schools. 2 Ex. 2530 at 3. 3 within the five major Division I conferences -- namely, the 4 Pacific 12 Conference (Pac 12), Big 12 Conference, Atlantic Coast 5 Conference, Southeastern Conference (SEC), and Big 10 6 Conference -- to that of schools in less prominent Division I 7 conferences, he found that they were still in competition with 8 each other. 9 other divisions and junior colleges and NAIA and all the rest that Id.; Even when he compared the success of the schools Trial Tr. 116:9-:13 (“And unlike the finding for United States District Court For the Northern District of California 10 was in the first picture, what we find here is that although the 11 major conferences win more than they lose, in competing against 12 the lesser conferences, there is considerable competitive 13 overlap.”). 14 schools in FCS, Divisions II and III, and other non-NCAA 15 collegiate athletics associations are not substitutes for the 16 bundles of goods and services offered by FBS football and Division 17 I basketball schools. 18 Thus, the bundles of goods and services offered by Nor are the opportunities offered by the professional leagues 19 that the NCAA has identified here. 20 football and basketball recruits rarely forego opportunities to 21 play FBS football or Division I basketball in order to play 22 professionally. 23 the National Basketball Association (NBA) permits players to enter 24 the league immediately after high school. 25 (O’Bannon). 26 NBA Development League (D-League), the Arena Football League 27 (AFL), and certain foreign football and basketball leagues -- 28 permit players to join immediately after high school, recruits do Dr. Noll noted that elite Neither the National Football League (NFL) nor Id. 68:17-69:6 Although other professional leagues -- such as the 11 1 not typically pursue opportunities in those leagues. 2 482:11-:13 (Noll). 3 an analysis of recruits who chose to play professionally in these 4 leagues, he replied that too few had ever done so to conduct such 5 an analysis. 6 analysis of zero.”). 7 even be given an opportunity to play in these leagues. 8 482:14-:17 (“The opportunity is not given to very many high school 9 athletes to play in Europe.”). Id. When Dr. Noll was asked why he did not conduct Id. 484:19-485:13 (“It would be hard to do an He also noted that many recruits may not Id. What’s more, none of these leagues United States District Court For the Northern District of California 10 offers the same opportunity to earn a higher education that FBS 11 football and Division I basketball schools provide. 12 these reasons, the Court finds that there are no professional 13 football or basketball leagues capable of supplying a substitute 14 for the bundle of goods and services that FBS football and 15 Division I basketball schools provide. 16 relevant college education market, as described above. For all of These schools comprise a 17 B. 18 Professional athletes often sell group licenses to use their 19 names, images, and likenesses in live game telecasts, videogames, 20 game re-broadcasts, advertisements, and other archival footage.4 21 Plaintiffs allege that, in the absence of the NCAA’s challenged 22 rules, FBS football and Division I basketball players would also 23 be able to sell group licenses for the use of their names, images, Group Licensing Market 24 4 25 26 27 28 Plaintiffs presented some evidence at trial of a market for licenses to use student-athletes’ names, images, and likenesses in other merchandise, such as jerseys and bobbleheads. The Court does not address this market because Plaintiffs previously abandoned all of their claims related to such markets. Docket No. 827, June 20, 2013 Hrg. Tr. 54:13-:16. In addition, the evidence they presented at trial regarding merchandise-related licenses did not constitute proof of a market for group licenses but, rather, only individual licenses. 12 1 and likenesses. 2 certain FBS football and Division I basketball teams would be able 3 to join together to offer group licenses, which they would then be 4 able to sell to their respective schools, third-party licensing 5 companies, or media companies seeking to use student-athletes’ 6 names, images, and likenesses. 7 submarkets within this broader group licensing market: (1) a 8 submarket for group licenses to use student-athletes’ names, 9 images, and likenesses in live football and basketball game Specifically, they contend that members of Plaintiffs have identified three United States District Court For the Northern District of California 10 telecasts; (2) a submarket for group licenses to use student- 11 athletes’ names, images, and likenesses in videogames; and (3) a 12 submarket for group licenses to use student-athletes’ names, 13 images, and likenesses in game re-broadcasts, advertisements, and 14 other archival footage. 15 1. 16 17 Submarket for Group Licenses to Use StudentAthletes’ Names, Images, and Likenesses in Live Game Telecasts The Court finds that a submarket exists in which television 18 networks seek to acquire group licenses to use FBS football and 19 Division I basketball players’ names, images, and likenesses in 20 live game telecasts. 21 licensing agreements to use the intellectual property of schools, 22 conferences, and event organizers -- such as the NCAA or a bowl 23 committee -- in live telecasts of football and basketball games. 24 In these agreements, the networks often seek to acquire the rights 25 to use the names, images, and likenesses of the participating 26 student-athletes during the telecast. 27 1994 licensing agreement granting CBS the rights to telecast the Television networks frequently enter into 28 13 For instance, the NCAA’s 1 Division I men’s basketball tournament every year from 1995 to 2 2002 includes a “Name & Likeness” provision that states: 3 The Network, its sponsors, their advertising representatives and the stations carrying the telecasts of the games will have the right to make appropriate references (including without limitation, use of pictures) to NCAA and the universities and colleges of the teams, the sites, the games and the participants in and others identified with the games and in the telecasting thereof, provided that the same do not constitute endorsements of a commercial product. 4 5 6 7 8 9 Ex. 2104 at 16 (emphasis added). A 1999 agreement between the United States District Court For the Northern District of California 10 NCAA and CBS for the rights to telecast certain Division I 11 basketball games contains a “Name & Likeness” provision with 12 nearly identical language. 13 make appropriate references (including without limitation, use of 14 pictures) to . . . the participants in and others identified with 15 the games” (emphasis added)). 16 conferences, the University of Notre Dame, and Fox Broadcasting 17 Company for the rights to telecast certain 2007, 2008, and 2009 18 bowl games similarly provides that the event organizer will be 19 solely responsible for ensuring that Fox has “the rights to use 20 the name and likeness, photographs and biographies of all 21 participants, game officials, cheerleaders” and other individuals 22 connected to the game. 23 other contracts containing similar language. 24 at 10 (granting the broadcaster “all name and likeness rights of 25 all participants, officials, competing teams and any other persons 26 connected with the Events that are reasonable or necessary for the 27 Telecast of the Events”); Ex. 3078 at 2-3 (providing that the Big 28 10 would use “reasonable commercial efforts” to obtain from any Ex. 2116 at 17 (granting the “right to An agreement between the FBS Ex. 2162 at 9. 14 Plaintiffs also provided See, e.g., Ex. 2230 1 non-conference opponent the “right . . . to use its respective 2 players’ names, likenesses, and that school’s trademarks, logos 3 and other items in promoting, advertising and Telecasting any such 4 game”). 5 these rights among television networks. These contracts demonstrate that there is a demand for 6 Plaintiffs’ broadcasting industry expert, Edwin Desser, 7 confirmed that provisions like these are common and that they have 8 economic value to television networks. 9 699:18-700:3, 681:18-:23 (“If you’re running a business like a Trial Tr. 651:9-:11, United States District Court For the Northern District of California 10 television network, a broadcast station, you would prefer to have 11 consents, and you would like to have somebody stand behind those 12 consents so that you don’t have to worry about somebody coming 13 after you later with a claim.”). 14 exists. 15 group licenses -- not individual licenses. 16 that a “television sports agreement is a bundle of rights and 17 responsibilities that are all interrelated and that, you know, 18 create value, provide comfort, and are [] integrated into the 19 agreement.” 20 student-athlete’s name, image, and likeness during a game telecast 21 would not have any value to a television network unless it was 22 bundled with licenses to use every other participating student- 23 athlete’s name, image, and likeness. 24 Thus, a market for these rights Plaintiffs also demonstrated that this is a market for Id. 658:14-:19. Mr. Desser testified A license to use an individual The NCAA’s broadcasting industry expert, Neal Pilson, 25 testified that sports broadcasters need not acquire the rights to 26 use student-athletes’ names, images, and likenesses and that the 27 primary reason they enter into licensing agreements with event 28 organizers is to gain exclusive access to the facility where the 15 1 event will occur. 2 convincing. 3 certain rights even from visiting teams who do not control access 4 to the event facility. 5 that broadcasting agreements -- like those quoted above -- 6 sometimes refer expressly to name, image, and likeness “rights.” 7 Id. 805:2-:16. 8 challenged NCAA rules, teams of FBS football and Division I 9 basketball players would be able to create and sell group licenses Trial Tr. 720:5-:17. This testimony is not Mr. Pilson admitted that broadcasters must acquire Id. 803:5-804:8. He also acknowledged Accordingly, the Court finds that, absent the United States District Court For the Northern District of California 10 for the use of their names, images, and likenesses in live game 11 telecasts. 12 2. Submarket for Group Licenses to Use StudentAthletes’ Names, Images, and Likenesses in Videogames 13 14 Like television networks, videogame developers would seek to 15 acquire group licenses to use the names, images, and likenesses of 16 FBS football and Division I basketball players if the NCAA did not 17 prohibit student-athletes from selling such licenses. 18 make all of its sports-themed videogames “as authentic as 19 possible.” 20 presidents, Joel Linzner, explained, “We have found that it is 21 pleasing to our customers to be able to use the real athletes 22 depicted as realistically as possible and acting as realistically 23 as possible.” 24 (describing demand for use of student-athletes’ names, images, and 25 likenesses in videogames). 26 negotiates licenses with professional sports leagues and teams to 27 use their trademarks, logos, and other intellectual property in 28 videogames. Trial Tr. 1656:7 (Linzner). EA seeks to One of the company’s vice Id. 1658:3-:6; see also Ex. 2007 at 50-54 To do this, the company typically Trial Tr. 1656:10-1657:25. 16 It also negotiates with 1 groups of professional athletes for licenses to use their names, 2 images, and likenesses. 3 the same rights from student-athletes in order to produce college 4 sports-themed videogames, if it were permitted to do so. 5 1669:24-1670:24. 6 challenged NCAA rules, there would be a demand among videogame 7 developers for group licenses to use student-athletes’ names, 8 images, and likenesses. 9 Id. EA would be interested in acquiring Id. Accordingly, the Court finds that, absent the The NCAA asserts that such demand would not exist because it United States District Court For the Northern District of California 10 has ceased licensing its intellectual property for use in 11 videogames, making it unlikely that any developer would seek to 12 develop a videogame using the names, images, and likenesses of 13 student-athletes. 14 record. 15 with EA, it has not presented any evidence suggesting that it will 16 never enter into such an agreement again in the future. 17 its current bylaws preclude it from entering into such an 18 agreement. 19 demonstrates that, prior to this litigation, the NCAA found it 20 profitable to license its intellectual property for use in 21 videogames. 22 agreement with EA, even as the company evaded the NCAA’s rules 23 prohibiting it from using student-athletes’ images and likenesses 24 in videogames. 25 videogames featured playable avatars that could easily be 26 identified as real student-athletes despite the NCAA’s express 27 prohibition on featuring student-athletes in videogames. 28 avatars played the same positions as their real-life counterparts, This assertion is not supported by the trial Although the NCAA recently declined to renew its license None of Furthermore, the evidence presented at trial Indeed, it continued to renew its annual licensing Throughout the late 2000s, EA’s NCAA-branded 17 The EA 1 wore the same jersey numbers and uniform accessories, haled from 2 the same home state, and shared the same height, weight, 3 handedness, and skin color. 4 568:6-569:24 (Prothro); 930:5-931:7 (Rascher). 5 reasons, the Court finds that a submarket would exist for group 6 licenses to use student-athletes’ names, images, and likenesses in 7 videogames if student-athletes were permitted to receive 8 compensation for such licenses. 9 3. United States District Court For the Northern District of California 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Trial Tr. 27:14-28:11 (O’Bannon); For all of these Submarket for Group Licenses to Use StudentAthletes’ Names, Images, and Likenesses in Game ReBroadcasts, Advertisements, and Other Archival Footage Plaintiffs have shown that television networks, advertisers, and third-party licensing companies seek to use archival footage of student-athletes in game re-broadcasts, commercials, and other products. Several of the live telecasting agreements discussed above included provisions granting the television network the rights to use archival footage, as well. See, e.g. Ex. 3078 at 2- 3 (granting the Big 10 Network the rights to use certain studentathletes’ names and likenesses in “promoting, advertising and Telecasting” a game); Ex. 2230 at 2 (granting Fox Sports Net the “right to re-Telecast the Selected Events,” the “right to distribute highlights of the Selected Events,” and the specific right to use the “names and likenesses of the players” to promote certain games as well as the network itself). Tyrone Prothro, a former wide receiver for the University of Alabama, saw footage in a commercial of a famous catch that he made during a game. Tr. 565:24-566:8. Trial Finally, one of the NCAA’s vice presidents, Mark Lewis, established that the NCAA has licensed all of its 18 1 archival footage from past NCAA championships to a third-party 2 licensing company, T3Media, which acts as the association’s agent 3 in licensing that footage for use in game re-broadcasts, 4 advertisements, and any other products. 5 Although T3Media is not permitted to license footage of current 6 student-athletes, it still acquires the rights to this footage 7 while the student-athletes are in school for later use (after 8 acquiring the student-athletes’ consent). 9 that demand for this footage exists. Id. 3206:13-:25. This is enough to show Based on this evidence, the United States District Court For the Northern District of California 10 Court finds that, absent the NCAA’s challenged rules, there would 11 be a demand among television networks, third-party licensing 12 companies, and advertisers for group licenses to use student- 13 athletes in game re-broadcasts, advertisements, and other archival 14 footage. 15 III. The Challenged Restraint 16 NCAA rules prohibit current student-athletes from receiving 17 any compensation from their schools or outside sources for the use 18 of their names, images, and likenesses in live game telecasts, 19 videogames, game re-broadcasts, advertisements, and other footage. 20 Plaintiffs contend that these rules restrain trade in the two 21 markets identified above. 22 The NCAA imposes strict limits on the amount of compensation 23 that student-athletes may receive from their schools. 24 importantly, it prohibits any student-athlete from receiving 25 “financial aid based on athletics ability” that exceeds the value 26 of a full “grant-in-aid.” 27 full “grant-in-aid” as “financial aid that consists of tuition and 28 fees, room and board, and required course-related books.” Ex. 2340 at 208. 19 Most The bylaws define a Id. at 1 207. 2 year. 3 this amount forfeits his athletic eligibility. 4 This amount varies from school to school and from year to Any student-athlete who receives financial aid in excess of Id. at 208. In addition to this cap on athletics-based financial aid, the 5 NCAA also imposes a separate cap on the total amount of financial 6 aid that a student-athlete may receive. 7 prohibits any student-athlete from receiving financial aid in 8 excess of his “cost of attendance.” 9 term “grant-in-aid,” the term “cost of attendance” is a school- Specifically, it Ex. 2340 at 208. Like the United States District Court For the Northern District of California 10 specific figure defined in the bylaws. 11 calculated by [a school]’s financial aid office, using federal 12 regulations, that includes the total cost of tuition and fees, 13 room and board, books and supplies, transportation, and other 14 expenses related to attendance” at that school. 15 Because it covers the cost of “supplies, transportation, and other 16 expenses,” the cost of attendance is generally higher than the 17 value of a full grant-in-aid. 18 aid and the cost of attendance varies from school to school but is 19 typically a few thousand dollars. 20 It refers to “an amount Id. at 206. The gap between the full grant-in- 5 The NCAA also prohibits any student-athlete from receiving 21 compensation from outside sources based on his athletic skills or 22 ability. 6 Thus, while a student-athlete may generally earn money 23 5 24 25 26 27 28 Under certain circumstances, a student-athlete who has an unexpected “special financial need” may be permitted to receive additional aid beyond the cost of attendance. Trial Tr. 2144:252145:14 (Petr). This additional aid comes from his school’s “student assistance fund” and could include money for “needed clothing, needed supplies, a computer,” or other academic needs. Ex. 2340 at 238. 6 The NCAA’s bylaws contain a minor exception permitting studentathletes to receive limited compensation for educational expenses “awarded by the U.S. Olympic Committee or a U.S. national governing body.” Ex. 2340 at 211. 20 1 from any “on- or off-campus employment” unrelated to his athletic 2 ability, he may not receive “any remuneration for value or utility 3 that the student-athlete may have for the employer because of the 4 publicity, reputation, fame or personal following that he or she 5 has obtained because of athletics ability.” 6 athletes are also barred from endorsing any commercial product or 7 service while they are in school, regardless of whether or not 8 they receive any compensation to do so. 9 Id. at 211. Student- Id. at 86. Dr. Noll testified that these rules restrain competition United States District Court For the Northern District of California 10 among schools for recruits. 11 higher, schools would compete for the best recruits by offering 12 them larger grants-in-aid. 13 not capped at the cost of attendance, schools would compete for 14 the best recruits by offering them compensation exceeding the cost 15 of attendance. 16 that the recruits must pay for the combination of educational and 17 athletic opportunities that the schools provide. 18 explained, “if the scholarship value is suppressed, that means the 19 net price paid by a student-athlete to attend college is higher.” 20 Trial Tr. 105:24-107:1. 21 the power to and does suppress the value of athletic scholarships 22 through its grant-in-aid rules, it has increased the prices 23 schools charge recruits. 24 If the grant-in-aid limit were Similarly, if total financial aid was This competition would effectively lower the price As Dr. Noll Thus, he explained, because the NCAA has Id. 127:20-129:13. Dr. Noll’s opinions are consistent with the opinions of the 25 NCAA’s own economic expert, Dr. Daniel Rubinfeld, who testified 26 that the NCAA operates as a “joint venture which imposes 27 restraints” on trade. 28 specifically acknowledged that “the NCAA does impose a restraint, Id. 2922:20-:21. 21 Dr. Rubinfeld the restraint we have been discussing in this case.” 2 2921:8-:9. 3 because it serves procompetitive purposes, he never denied that 4 the NCAA restricts competition among its members for recruits. 5 fact, his own economics textbook specifically refers to the NCAA 6 as a “cartel,” which he defined during his testimony as “a group 7 of firms that impose a restraint.” 8 NCAA’s other economic expert, Dr. Lauren Stiroh, testified that 9 the NCAA does not restrain competition in any market, her opinions 10 United States District Court For the Northern District of California 1 were based on the theory that anticompetitive effects cannot arise 11 unless consumers in a “downstream market” are harmed. 12 2766:16-:22. 13 watch or attend college football and basketball games or purchase 14 goods using the names, images, and likenesses of student-athletes. 15 The Court rejects Dr. Stiroh’s theory that Plaintiffs cannot show 16 any anticompetitive effects caused by the alleged restraint 17 without demonstrating some harm to these consumers. 18 cited above demonstrates that student-athletes themselves are 19 harmed by the price-fixing agreement among FBS football and 20 Division I basketball schools. 21 represented by a recruit’s decision to attend and play for a 22 particular school, the school provides tuition, room and board, 23 fees, and book expenses, often at little or no cost to the school. 24 The recruit provides his athletic performance and the use of his 25 name, image, and likeness. 26 the latter at zero by agreeing not to compete with each other to 27 credit any other value to the recruit in the exchange. 28 anticompetitive effect. Id. Although he opined that this restraint was lawful Id. 2975:3-:4. In Although the Id. In this case, those consumers would be people who The evidence In the complex exchange However, the schools agree to value This is an Thus, the Court finds that the NCAA has 22 1 the power -- and exercises that power -- to fix prices and 2 restrain competition in the college education market that 3 Plaintiffs have identified. 4 Dr. Noll testified that elite football and basketball 5 recruits -- the buyers in Plaintiffs’ college education market -- 6 could also be characterized as sellers in an almost identical 7 market for their athletic services and licensing rights. 8 143:21-144:8. 9 basketball schools are buyers seeking to acquire recruits’ Id. In that market, FBS football and Division I United States District Court For the Northern District of California 10 athletic services and licensing rights, paying for them with full 11 grants-in-aid but no more. 12 restrictions on student-athlete compensation still represent a 13 form of price fixing but create a buyers’ cartel, rather than a 14 sellers’ cartel. 15 schools would engage in price competition in the market for 16 recruits’ athletic services and licensing rights if there were no 17 restrictions on student-athlete compensation; the only difference 18 would be that they would be viewed as buyers in the transactions 19 rather than sellers. 20 market is essentially a mirror image of the market for recruits’ 21 athletic services and licensing rights, the Court finds that the 22 NCAA exercises market power, fixes prices, and restrains 23 competition in both markets. 24 IV. 25 From that perspective, the NCAA’s Just as in Plaintiffs’ college education market, Thus, because Plaintiffs’ college education Asserted Purposes of the Restraint The NCAA asserts that the challenged restrictions on student- 26 athlete compensation are reasonable because they are necessary to 27 preserve its tradition of amateurism, maintain competitive balance 28 among FBS football and Division I basketball teams, promote the 23 1 integration of academics and athletics, and increase the total 2 output of its product. 3 A. 4 The NCAA asserts that its challenged rules promote consumer 5 demand for its product by preserving its tradition of amateurism 6 in college sports. 7 survey data, and lay witness testimony to support this assertion. 8 The Court does not find this evidence sufficient to justify the 9 challenged restraint. Preservation of Amateurism It relies on historical evidence, consumer United States District Court For the Northern District of California 10 Dr. Emmert testified that “the rules over the hundred-year 11 history of the NCAA around amateurism have focused on, first of 12 all, making sure that any resources that are provided to a 13 student-athlete are only those that are focused on his or her 14 getting an education.” 15 evidence presented at trial, however, demonstrates that the 16 association’s amateurism rules have not been nearly as consistent 17 as Dr. Emmert represents. 18 numerous times since the NCAA -- then known as the Intercollegiate 19 Athletic Association (IAA) -- enacted its first set of bylaws in 20 1906. 21 22 23 24 25 26 27 Trial Tr. 1737:8-:12. The historical In fact, these rules have changed The IAA’s first bylaws governing amateurism provided, No student shall represent a College or University in an intercollegiate game or contest who is paid or receives, directly or indirectly, any money or financial concession or emolument as past or present compensation for, or as prior consideration or inducement to play in, or enter any athletic contest, whether the said remuneration be received from, or paid by, or at the instance of any organization, committee or faculty of such College or University, or any individual whatever. 28 24 1 Stip. Undisputed Facts ¶¶ 6-7. This rule would have barred even 2 today’s athletic scholarships. Despite the breadth of this 3 written prohibition, the IAA’s member schools recruited students 4 using “player subsidies” and other illicit forms of payment. 5 ¶ 10. 6 Id. In 1916, after changing its name to the NCAA, the association 7 adopted a new rule stating that an amateur was “one who 8 participates in competitive physical sports only for pleasure, and 9 the physical, mental, moral, and social benefits directly derived United States District Court For the Northern District of California 10 therefrom.” 11 define an amateur as “one who engages in sport solely for the 12 physical, mental or social benefits he derives therefrom, and to 13 whom the sport is nothing more than an avocation.” 14 Id. The NCAA amended that definition in 1922 to Id. ¶ 14. Most schools continued to ignore these rules for the first 15 few decades of the NCAA’s existence. 16 1948, the NCAA enacted a strict set of rules known as the “Sanity 17 Code” designed to curb violations of its bylaws. 18 Sanity Code “required that financial aid be awarded without 19 consideration of athletics ability,” which, again, would have 20 prohibited today’s athletic scholarships. 21 the Sanity Code the following year and, in 1952, created its first 22 enforcement committee to address and prevent rules infractions. 23 Id. ¶ 24. 24 Id. ¶¶ 17-20. Id. Then, in Id. ¶ 20. The The NCAA repealed In 1956, the NCAA enacted a new set of amateurism rules 25 permitting schools to award athletic scholarships to student- 26 athletes. 27 governing athletics-based financial aid and imposed a limit on the 28 size of athletic scholarships that schools were permitted to Id. ¶ 25. These rules established a national standard 25 1 offer. 2 precluded student-athletes from receiving any financial aid beyond 3 that needed for “commonly accepted educational expenses,” 4 including tuition, fees, room and board, books, and cash for 5 incidental expenses such as laundry. 6 Id. That limit -- now known as a full “grant-in-aid” -- Id. The NCAA continued to revise its scholarship limits after 7 implementing the grant-in-aid limit in 1956. In 1975, for 8 instance, it removed the cash for incidental expenses from the 9 full grant-in-aid. Walter Byers Depo. 21:21-22:14, 24:6-:17. It United States District Court For the Northern District of California 10 amended the grant-in-aid rules again in 2004 by allowing student- 11 athletes who receive federal Pell grants to receive total 12 assistance in excess of a full grant-in-aid and even in excess of 13 the cost of attendance. 14 at 208. 15 grant are now eligible to receive a full grant-in-aid plus the 16 value of their Pell grant -- currently, just over $5,500 -- even 17 if that total exceeds the cost of attendance. 18 1573:8-:16 (Pastides); Ex. 2340 at 208. 19 rules again in 2013 to permit different levels of compensation for 20 recruits in different sports. 21 tennis recruits to earn up to ten thousand dollars per year in 22 prize money from athletic events before they enroll in college. 23 Ex. 2340 at 75. 24 barred from receiving any prize money in excess of their actual 25 and necessary costs of competing in an event. 26 Trial Tr. 161:10-162:4 (Noll); Ex. 2340 As a result, student-athletes who qualify for a Pell Trial Tr. The NCAA amended its The new rules permit Division I Other Division I recruits, in contrast, remain Id. The amateurism provision in the NCAA’s current constitution 27 states that student-athletes “shall be amateurs in an 28 intercollegiate sport, and their participation should be motivated 26 1 primarily by education and by the physical, mental and social 2 benefits to be derived. 3 athletics is an avocation, and student-athletes should be 4 protected from exploitation by professional and commercial 5 enterprises.” 6 stands in stark contrast to the definitions set forth in the 7 NCAA’s early bylaws. 8 considers the primary motivation for participating in 9 intercollegiate athletics -- was not even a recognized motivation Student participation in intercollegiate Ex. 2340 at 18. This conception of amateurism Indeed, education -- which the NCAA now United States District Court For the Northern District of California 10 for amateur athletes during the years when the NCAA prohibited 11 athletic scholarships. 12 restrictions on student-athlete compensation, which cap athletics- 13 based financial aid below the cost of attendance, are not 14 justified by the definition of amateurism set forth in its current 15 bylaws. 16 The Court finds that the NCAA’s current Although the NCAA sought to establish the importance of these 17 restrictions by asserting that they increase consumer interest in 18 FBS football and Division I basketball, its evidence supporting 19 this assertion is unpersuasive. 20 survey research expert, Dr. J. Michael Dennis, who conducted a 21 survey of consumer attitudes concerning college sports in 2013. 22 Dr. Dennis surveyed 2,455 respondents across the United States and 23 observed that they generally opposed the idea of paying college 24 football and basketball players. 25 survey contained an initial question that apparently affected many 26 respondents’ answers to the survey’s substantive questions. 27 initial open-ended question asked respondents what they had heard 28 about student-athletes being paid. It presented testimony from a Trial Tr. 2613:24-2614:6. 27 His The Id. 2716:15-2717:7; Exs. 2629, 1 2630. 2 “single most common response” to this question was that 3 respondents had heard about student-athletes receiving some form 4 of illegal or illicit payments. 5 Many other respondents mentioned paying student-athletes a salary. 6 Trial Tr. 2714:21-2715:2 (Poret); Ex. 2630. 7 testified that his results remained the same even after he removed 8 these specific 274 respondents from his sample, the fact that 9 these respondents expressly mentioned illicit payments or salaries Plaintiffs’ survey expert, Hal Poret, noted that the Trial Tr. 2714:2-:20; Ex. 2629. Although Dr. Dennis United States District Court For the Northern District of California 10 at the start of the survey strongly suggests that the question 11 primed respondents to think about such illicit payments when 12 answering the other survey questions. 13 The NCAA relies heavily on the fact that sixty-nine percent 14 of respondents to Dr. Dennis’s survey expressed opposition to 15 paying student-athletes while only twenty-eight percent favored 16 paying them. 17 responses, however, are not relevant to the specific issues raised 18 here and say little about how consumers would actually behave if 19 the NCAA’s restrictions on student-athlete compensation were 20 lifted. 21 consistent with those observed in other polls and surveys 22 concerning college sports, he acknowledged that those other 23 studies may “vary in their quality or their methodology and their 24 implementation.” 25 Accordingly, the Court does not find these findings to be credible 26 evidence that consumer demand for the NCAA’s product would 27 decrease if student-athletes were permitted to receive 28 compensation. Trial Tr. 2604:21-2605:2; Ex. 4045 at 19. These Although Dr. Dennis testified that these responses were Trial Tr. 2641:24-2642:11; Ex. 4045 at 20. 28 1 The most relevant questions in Dr. Dennis’s survey asked 2 respondents specifically whether they would be more or less likely 3 to watch, listen to, or attend college football and basketball 4 games if student-athletes were paid. 5 respondents stated they would be less likely to watch, listen to, 6 or attend games if student-athletes were paid $20,000 per year. 7 Ex. 4045 at 23. 8 less likely to watch, listen to, or attend games if student- 9 athletes were paid $50,000 per year. Thirty-eight percent of all Forty-seven percent stated that they would be Id. In contrast, only about United States District Court For the Northern District of California 10 four or five percent of respondents said that they would be more 11 likely to watch, listen to, or attend games if student-athletes 12 were paid $20,000 or $50,000 per year. 13 (Dennis). 14 more or less likely to watch, listen to, or attend games if 15 student-athletes were paid these amounts. 16 Trial Tr. 2651:14-2652:8 The remaining respondents stated that they would be no Id. While these questions are more germane to consumer behavior 17 than the survey’s findings about respondents’ general opinions 18 about compensating student-athletes, they still do not credibly 19 establish that the specific rules challenged here contribute to 20 consumer demand. 21 opinions about providing student-athletes with a share of 22 licensing revenue generated from the use of their own names, 23 images, and likenesses. 24 (Poret). 25 athletes the full cost of attendance, or any amount less than 26 $20,000 per year. 27 their behavior would be affected if small or large amounts of 28 compensation for the use of student-athletes’ names, images, and Dr. Dennis did not ask respondents for their Id. 2669:15-:18 (Dennis); 2709:6-:18 Nor did he ask their opinions about paying student- Dr. Dennis also failed to ask respondents how 29 1 likenesses were held in trust for them until they left school -- 2 one of Plaintiffs’ proposed alternatives here. 3 (Dennis); 2711:21-2712:9, 2718:19-2714:12 (Poret). 4 Id. 2686:18-2687:3 In addition, numerous respondents provided internally 5 inconsistent responses to different survey questions. 6 three of the respondents who said that they favored paying 7 student-athletes also stated that they would be less likely to 8 watch, listen to, or attend games if student-athletes were paid. 9 Id. 2729:25-2730:9. Eighty- Another thirty-three respondents stated that United States District Court For the Northern District of California 10 they opposed paying student-athletes but said that they would be 11 more likely to watch, listen to, or attend games if student- 12 athletes were paid. 13 respondents did not understand or did not take seriously some of 14 the survey questions and illustrate the limits of Dr. Dennis’s 15 conclusions. 16 Id. These responses suggest that some Based on these flaws in Dr. Dennis’s survey, the Court finds 17 that it does not provide credible evidence that demand for the 18 NCAA’s product would decrease if student-athletes were permitted, 19 under certain circumstances, to receive a limited share of the 20 revenue generated from the use of their own names, images, and 21 likenesses. 22 survey to counter Dr. Dennis’s survey, the Court notes that the 23 NCAA produced Dr. Dennis’s survey as a rebuttal report, which may 24 have limited Plaintiffs’ opportunity to commission such a survey. 25 What’s more, Dr. Dennis himself acknowledged that it would be 26 extremely difficult to ask the specific kinds of detailed survey 27 questions most relevant to this case -- specifically, those Although Plaintiffs did not provide their own opinion 28 30 1 relating to varying amounts and methods of payment for the use of 2 student-athletes’ names, images, and likenesses. 3 Plaintiffs presented other evidence illustrating the limits 4 of opinion surveys as predictors of consumer demand for sports- 5 entertainment products. 6 Daniel Rascher, described how opinion surveys conducted between 7 1970 and the present consistently showed that the public 8 overwhelmingly opposed rising baseball player salaries but 9 continued to watch, listen to, and attend Major League Baseball Their expert on sports management, Dr. United States District Court For the Northern District of California 10 games at a high rate even as player salaries rose during this 11 period. 12 many people felt that the removal of the reserve clause in the 13 1970s -- which ultimately enabled players to become free agents, 14 thus leading to higher salaries -- would undermine the popularity 15 of professional baseball. 16 fans’ stated opposition to rising salaries, Major League Baseball 17 revenues continued to rise after the removal of the reserve 18 clause. 19 ‘Hey, we don’t want the players to make so much money,’ ultimately 20 they continue to watch on television, you know, buy tickets, 21 concessions, the whole thing.” (internal quotation marks added)). 22 Dr. Rascher highlighted another survey showing public opposition 23 to the decision of the International Olympic Committee (IOC) to 24 permit professional athletes to compete in the Olympics, even as 25 consumer interest in the Olympics remained high and revenues 26 generated by the event continued to rise during the same period. 27 Id. 904:22-905:18; see also id. 226:15-227:17 (testimony of Dr. 28 Noll that the Olympics are “much more popular now than they were Id. 901:12-903:24; Ex. 2549. He specifically noted that However, despite these predictions and Id. 903:13-:16 (“So even though the fans in polls say, 31 1 [when] amateur”). 2 pointed to various other formerly amateur sports associations -- 3 such as those governing rugby and tennis -- whose events grew in 4 popularity after they began to allow their athletes to accept 5 payments. 6 In addition to the Olympics, Dr. Rascher also Id. 903:25-904:21. Although the NCAA presented evidence showing that the Nielsen 7 ratings for professional baseball and the Olympics have declined 8 since the 1970s and 1980s, this does not cast doubt on Dr. 9 Rascher’s findings. As Dr. Rascher explained, Nielsen ratings United States District Court For the Northern District of California 10 measure the share of the population watching a particular event, 11 not the raw number of viewers. 12 a result, Nielsen ratings have declined for virtually every 13 television program or sporting event over the past few decades as 14 the viewing population and number of television channels has 15 grown. 16 which has seen a dramatic increase in the raw number of viewers 17 over the years, has experienced flat Nielsen ratings for several 18 decades. 19 Id. Id. 986:7-:10, 1019:20-1020:9. As Even a single event as popular as the Super Bowl, Id. 1024:18-1026:7, 1025:6-:15. Other historical evidence suggests that the NCAA’s 20 restrictions on student-athlete compensation have not contributed 21 significantly to the popularity of FBS football and Division I 22 basketball. 23 testified during his 2007 deposition, for instance, that the 24 NCAA’s decision to remove incidental expenses from the grant-in- 25 aid coverage in 1975 was not motivated by a desire to increase 26 consumer demand for its product. 27 24:6-:17. 28 experienced a tremendous growth in popularity during the period The NCAA’s former president, the late Walter Byers, Byers Depo. 21:21-22:14, In fact, he specifically noted that NCAA sports 32 1 between 1956 and 1975 when grants-in-aid still covered the full 2 cost of attendance. 3 trial record suggests that the removal of incidental expenses or 4 any other changes to the grant-in-aid limit had an impact on the 5 popularity of college sports during this time. 6 Id. 25:15-26:8. 7 None of the evidence in the Thus, the Court finds that the NCAA’s restrictions on 7 student-athlete compensation are not the driving force behind 8 consumer demand for FBS football and Division I basketball-related 9 products. Rather, the evidence presented at trial suggests that United States District Court For the Northern District of California 10 consumers are interested in college sports for other reasons. 11 Pilson testified, for instance, that the popularity of college 12 sports is driven by feelings of “loyalty to the school,” which are 13 shared by both alumni and people “who live in the region or the 14 conference.” 15 Plonsky, an associate athletics director at the University of 16 Texas (UT), testified that UT sports would remain popular as long 17 as they had “anything in our world to do with the University of 18 Texas.” 19 pretty loyal.”). 20 popularity of the NCAA’s annual men’s basketball tournament stems 21 from the fact that schools from all over the country participate 22 “so the fan base has an opportunity to cheer for someone from 23 their region of the country.” 24 become extremely popular at least in part because there’s someone Trial Tr. 757:20-758:13. Mr. Similarly, Christine Id. 1414:23-:24; see also id. 1376:13 (“Longhorns are Dr. Emmert himself noted that much of the Id. 1757:1-:9; see also id. (“It’s 25 26 27 28 7 The NCAA’s objections to this testimony under Federal Rules of Evidence 602 and 701 are overruled. Walter Byers was the executive director of the NCAA between 1956 and 1975, Stip. Undisputed Facts ¶ 23, and therefore had personal knowledge of the popularity of NCAA sports during this period. 33 1 from your neighborhood likely to be in the tournament.”). 2 testified that college bowl games have the same appeal. 3 1757:16-:19. 4 restrictions on student-athlete pay is not the driving force 5 behind consumer interest in FBS football and Division I 6 basketball. 7 certain limited restraints on student-athlete compensation, they 8 do not justify the rigid restrictions challenged in this case. 9 United States District Court For the Northern District of California 10 B. He Id. This evidence demonstrates that the NCAA’s Thus, while consumer preferences might justify Competitive Balance The NCAA asserts that its challenged restraints are 11 reasonable and procompetitive because they are needed to maintain 12 the current level of competitive balance among FBS football and 13 Division I basketball teams. 14 maintain this particular level of competitive balance in order to 15 sustain consumer demand for its product. 16 It further asserts that it must The Court finds that the NCAA’s current restrictions on 17 student-athlete compensation do not promote competitive balance. 18 As Dr. Noll testified, since the 1970s, numerous sports economists 19 have studied the NCAA’s amateurism rules and nearly all have 20 concluded that the rules have no discernible effect on the level 21 of competitive balance. 22 of the more recent articles addressing the subject, a 2007 study 23 by economist Jim Peach published in the Social Science Journal, 24 found that there is “‘little evidence that the NCAA rules and 25 regulations have promoted competitive balance in college athletics 26 and no a priori reason to think that eliminating the rules would 27 change the competitive balance situation.’” 28 (quoting Peach article). Trial Tr. 229:8-234:2. He noted that one Id. 232:22-233:1 Dr. Rascher reached the same conclusion 34 1 based on his review of the economics literature. 2 922:16. 3 field of sports economics, by Rod Fort, which found that the 4 NCAA’s restrictions on student-athlete pay do not appear to have 5 any impact on competitive balance. 6 Id. 920:9- He specifically cited one of the leading textbooks in the Id. 921:10-:18. The academic consensus on this issue is not surprising given that many of the NCAA’s other rules and practices suggest that the 8 association is unconcerned with achieving competitive balance. 9 Several witnesses testified that the restrictions on student- 10 United States District Court For the Northern District of California 7 athlete compensation lead many schools simply to spend larger 11 portions of their athletic budgets on coaching, recruiting, and 12 training facilities. 13 910:2-911:7 (Rascher). 14 the average salary for a head football coach exceeds $1.5 million. 15 Id. 1151:20-1152:14 (Staurowsky). 16 schools are able to spend freely in these other areas cancels out 17 whatever leveling effect the restrictions on student-athlete pay 18 might otherwise have. 19 spending by the high-revenue schools or minimize existing 20 disparities in revenue and recruiting. 21 specifically conceded that it is “not the mission of the 22 association to . . . try and take away the advantages of a 23 university that’s made a significant commitment to facilities and 24 tradition and all of the things that go along with building a 25 program.” 26 Id. 296:14-297:18 (Noll); 865:11-866:2, In the major conferences, for instance, The fact that high-revenue The NCAA does not do anything to rein in In fact, Dr. Emmert Trial Tr. 1774:23-1775:6. This same sentiment underlies the NCAA’s unequal revenue 27 distribution formula, which rewards the schools and conferences 28 that already have the largest athletic budgets. 35 Revenues 1 generated from the NCAA’s annual Division I men’s basketball 2 tournament are distributed to the conferences based on how their 3 member schools performed in the tournament in recent years. 4 Docket No. 207, Stip. Re: Broadcast Money, at ¶ 10. 5 the major conferences -- and the highest revenue schools -- 6 typically receive the greatest payouts, which hinders, rather than 7 promotes, competitive balance. As a result, 8 The only quantitative evidence that the NCAA presented 9 related to competitive balance is a cursory statistical analysis United States District Court For the Northern District of California 10 conducted by Dr. Rubinfeld comparing the levels of competitive 11 balance in FBS football and Division I basketball to the levels in 12 the NFL and NBA. 13 that the NFL and NBA -- each of which has fewer teams than 14 Division I -- provide an appropriate baseline for comparing 15 competitive balance. 16 suggest that the NCAA’s challenged rules actually produce the 17 levels of competitive balance he observed. 18 Nothing in Dr. Rubinfeld’s analysis suggests More importantly, his analysis does not Even if the NCAA had presented some evidence of a causal 19 connection between its challenged rules and its current level of 20 competitive balance, it has not shown that the current level of 21 competitive balance is necessary to maintain its current level of 22 consumer demand. 23 that the ideal level of competitive balance for a sports league is 24 somewhere between perfect competitive balance (where every team 25 has an equal chance of winning every game) and perfect imbalance 26 (where every game has a predictable outcome). 27 (Noll); 3127:2-:21 (Rubinfeld). 28 to identify the specific level of competitive balance between Trial Tr. 228:20-229:2 (Noll). It is undisputed Id. 453:8-:22 The NCAA has not even attempted 36 1 those extremes that is ideal or necessary to sustain its current 2 popularity. 3 Court finds that the NCAA’s challenged rules are not needed to 4 achieve a level of competitive balance necessary, or even likely, 5 to maintain current levels of consumer demand for FBS football and 6 Division I basketball. Given the lack of such evidence in the record, the 7 C. 8 The NCAA contends that its restrictions on student-athlete 9 Integration of Academics and Athletics compensation are reasonable and procompetitive because they United States District Court For the Northern District of California 10 promote the integration of academics and athletics. 11 particular, it asserts that its challenged rules ensure that 12 student-athletes are able to obtain all of the educational 13 benefits that their schools provide and participate in their 14 schools’ academic communities. 15 integration of academics and athletics increases the quality of 16 the educational services its member schools provide to student- 17 athletes in the college education market that Plaintiffs have 18 identified. In According to the NCAA, the 19 For support, the NCAA relies on evidence showing that 20 student-athletes receive both short-term and long-term benefits 21 from being student-athletes. 22 Heckman, testified that participation in intercollegiate athletics 23 leads to better academic and labor market outcomes for many 24 student-athletes as compared to other members of their 25 socioeconomic groups. 26 found that these benefits are particularly pronounced for student- 27 athletes from disadvantaged backgrounds. 28 additional evidence, including its own data on student-athlete One of its experts, Dr. James Trial Tr. 1493:13-1494:25. 37 Id. Dr. Heckman The NCAA presented 1 graduation rates, to show that student-athletes enjoy substantial 2 benefits from participating in intercollegiate athletics. 3 However, none of this data nor any of Dr. Heckman’s observations 4 suggests that student-athletes benefit specifically from the 5 restrictions on student-athlete compensation that are challenged 6 in this case. 7 that the long-term educational and academic benefits that student- 8 athletes enjoy stem from their increased access to financial aid, 9 tutoring, academic support, mentorship, structured schedules, and To the contrary, Dr. Heckman specifically testified United States District Court For the Northern District of California 10 other educational services that are unrelated to the challenged 11 rules in this case. 12 Division I basketball schools offer most of these services to 13 their student-athletes independently and are not compelled to do 14 so by the NCAA, particularly not by the challenged rules. 15 Id. 1512:23-1516:17. FBS football and The same is true of the various other benefits of integration 16 that the NCAA has identified. 17 student-athletes derive from interacting with faculty and non- 18 student-athletes on campus are achieved mostly through the NCAA’s 19 rules requiring student-athletes to attend class and meet certain 20 academic requirements. 21 association’s rules prohibiting schools from creating dorms solely 22 for student-athletes or from requiring student-athletes to 23 practice more than a certain number of hours each week. 24 these rules is challenged here. 25 For instance, the benefits that They are also achieved through the None of The only evidence that the NCAA has presented that suggests 26 that its challenged rules might be necessary to promote the 27 integration of academics and athletics is the testimony of 28 university administrators, who asserted that paying student38 1 athletes large sums of money would potentially “create a wedge” 2 between student-athletes and others on campus. 3 (Pastides). 4 much compensation was ultimately awarded, some student-athletes 5 might receive more money from the school than their professors. 6 Student-athletes might also be inclined to separate themselves 7 from the broader campus community by living and socializing off 8 campus. 9 Id. 1591:2-:20 These administrators noted that, depending on how It is not clear that any of the potential problems identified United States District Court For the Northern District of California 10 by the NCAA’s witnesses would be unique to student-athletes. 11 fact, when the Court asked Dr. Emmert whether other wealthy 12 students -- such as those who come from rich families or start 13 successful businesses during school -- raise all of the same 14 problems for campus relations, he replied that they did. 15 1790:18-:22. 16 would be any more problematic for campus relations than paying 17 other students who provide services to the university, such as 18 members of the student government or school newspaper. 19 Nonetheless, the Court finds that certain limited restrictions on 20 student-athlete compensation may help to integrate student- 21 athletes into the academic communities of their schools, which may 22 in turn improve the schools’ college education product. 23 In Id. It is also not clear why paying student-athletes Plaintiffs have produced anecdotal and statistical evidence 24 suggesting that the NCAA’s current rules do not serve to integrate 25 FBS football players or Division I basketball players into the 26 academic communities at their schools. 27 the former UCLA basketball star, testified that he felt like “an 28 athlete masquerading as a student” during his college years. 39 For example, Ed O’Bannon, Id. 1 33:11-:14. 2 Staurowsky, a sports management professor, who studied the 3 experiences of FBS football and Division I basketball players and 4 concluded that the time demands of their athletic obligations 5 prevent many of them from achieving significant academic success. 6 Id. 1175:12-1176:21. 7 NCAA’s data on student-athlete graduation rates and Dr. Heckman’s 8 observations surrounding academic outcomes for student-athletes. 9 However, the Court need not resolve these factual disputes Plaintiffs also presented testimony from Dr. Ellen Some of this evidence conflicts with the United States District Court For the Northern District of California 10 because, regardless of how they are resolved, the restraints on 11 student-athlete compensation challenged in this case generally do 12 not serve to enhance academic outcomes for student-athletes. 13 D. 14 The NCAA asserts that its challenged rules are reasonable and Increased Output 15 procompetitive because they enable it to increase the number of 16 opportunities available to schools and student-athletes to 17 participate in FBS football and Division I basketball, which 18 ultimately increases the number of games that can be played. 19 refers to this increased number of FBS football and Division I 20 schools, student-athletes, and games as increased output. 21 It The Court finds that the NCAA’s restrictions on student- 22 athlete compensation do nothing to increase this output. 23 number of schools participating in FBS football and Division I 24 basketball has increased steadily over time and continues to 25 increase today. 26 participation in FBS football and Division I basketball typically 27 raises a school’s profile and leads to increased athletics-based 28 revenue. Stip. Undisputed Facts ¶¶ 42-49. Trial Tr. 872:1-874:20 (Rascher). 40 The This is because Although Dr. Emmert 1 and other NCAA and conference officials say that this trend is not 2 the result of increased Division I revenues but, rather, because 3 of schools’ philosophical commitment to amateurism, this theory is 4 implausible. 5 (Sankey); 3188:25-3189:17 (Lewis). 6 conferences have specifically undertaken efforts to change the 7 NCAA’s existing scholarship rules, which suggests that the rules 8 are not the reason that they choose to participate in Division I. 9 Ex. 2095 at 4 (2013 presentation by representatives of the five Id. 1783:2-:14; 2080:11-:23 (Delany); 2418:5-:25 Schools in some of the major United States District Court For the Northern District of California 10 major conferences requesting autonomy to raise existing 11 scholarship limits); Ex. 2527 at 2 (2014 letter from Pac 12 urging 12 other major conferences to support rule changes, including raising 13 the grant-in-aid limit). 14 suggest that any schools joined Division I originally because of 15 its amateurism rules. 16 participate in collegiate sports associations that restrict 17 compensation for student-athletes, including the NCAA’s lower 18 divisions and the NAIA. 19 Division III are bound by the same amateurism provisions of the 20 NCAA’s constitution as the schools in Division I. 21 difference between schools in Division I and schools in other 22 divisions and athletics associations, as explained above, is the 23 amount of resources that Division I schools commit to athletics. 24 Thus, while there may be tangible differences between Division I 25 schools and other schools that participate in intercollegiate 26 sports, these differences are financial, not philosophical. 27 28 What’s more, there is no evidence to These schools had numerous other options to Indeed, schools in FCS, Division II, and The real For this reason, the NCAA’s assertion that schools would leave FBS and Division I for financial reasons if the challenged 41 1 restraints were removed is not credible. 2 Emmert and various other athletics administrators that most 3 Division I athletic programs operate at a loss and would not 4 remain in Division I if the challenged rules were removed 5 conflicts with the clear weight of the evidence. 6 1784:6-:18 (Emmert); 3188:25-3189:3 (Lewis). Indeed, some of the 7 NCAA’s own witnesses undermined this claim. Dr. Harris Pastides, 8 the president of the University of South Carolina, for instance, 9 specifically testified that his school “would probably continue to The testimony of Dr. Trial Tr. United States District Court For the Northern District of California 10 compete in football and men’s basketball” if the challenged 11 restrictions on student-athlete compensation were lifted. 12 1598:23-:25. 13 Banowsky, similarly expressed skepticism that universities would 14 leave Division I if the restrictions were removed. 15 2372:20. 16 that most Division I sports programs operate at a loss by noting 17 that UT’s athletics department is not only self-sustaining but, in 18 fact, generates surplus revenue that funds other university 19 programs and expenses. 20 indicated that UT was not abnormal in this regard and that the 21 “vast proportion” of athletics programs across the country are 22 operated by “self-sourced, self-generated” revenues. 23 1468:11. 24 most of which are distributed back to its member schools and 25 conferences, have increased in recent years. 26 Id. The commissioner of Conference USA, Britton Id. 2371:25- Ms. Plonsky also cast doubt on Dr. Emmert’s assertion Id. 1385:12-:18, 1465:20-1466:10. She Id. 1467:22- Mr. Lewis himself acknowledged that the NCAA’s revenues, Id. 3195:19-3196:3. Dr. Rascher offered similar testimony and documented that 27 participation in FBS football and Division I basketball generates 28 significant revenue and is highly profitable for most schools. 42 1 Id. 830:4-831:15. 2 much on coaches and training facilities. 3 that most FBS football schools used to spend even more on their 4 student-athletes before the NCAA lowered its team scholarship cap 5 from 105 to eighty-five. 6 Noll testified that some of the schools that currently compete in 7 FBS and Division I do so without providing the maximum amount of 8 financial aid permitted under NCAA rules. 9 These revenues are what enable them to spend so Dr. Rascher also noted Id. 873:20-874:20. Furthermore, Dr. Based on this evidence, the Court finds that schools would United States District Court For the Northern District of California 10 not exit FBS football and Division I basketball if they were 11 permitted to pay their student-athletes a limited amount of 12 compensation beyond the value of their scholarships. 13 challenged restrictions on compensation do not increase the number 14 of opportunities for schools or student-athletes to participate in 15 Division I. 16 V. 17 The NCAA’s Alternatives to the Restraint Plaintiffs have proposed three modifications to the NCAA’s 18 challenged rules which, they contend, would allow the NCAA to 19 achieve the purposes of its challenged rules in a less restrictive 20 manner: (1) raise the grant-in-aid limit to allow schools to award 21 stipends, derived from specified sources of licensing revenue, to 22 student-athletes; (2) allow schools to deposit a share of 23 licensing revenue into a trust fund for student-athletes which 24 could be paid after the student-athletes graduate or leave school 25 for other reasons; or (3) permit student-athletes to receive 26 limited compensation for third-party endorsements approved by 27 their schools. 28 43 1 The Court finds that Plaintiffs’ first proposed 2 alternative -- allowing schools to award stipends -- would limit 3 the anticompetitive effects of the NCAA’s current restraint 4 without impeding the NCAA’s efforts to achieve its stated 5 purposes, provided that the stipends do not exceed the cost of 6 attendance as that term is defined in the NCAA’s bylaws. 7 stipend capped at the cost of attendance would not violate the 8 NCAA’s own definition of amateurism because it would only cover 9 educational expenses. A Indeed, as noted above, the NCAA’s member United States District Court For the Northern District of California 10 schools used to provide student-athletes with similar stipends 11 before the NCAA lowered its cap on grants-in-aid. 12 21:21-22:14, 24:6-:17. 13 grant-in-aid limit to cover the full cost of attendance would not 14 violate the NCAA’s amateurism rules. 15 Sankey, the executive associate commissioner and chief operating 16 officer of the SEC, expressed the same view during his testimony, 17 as did Dr. Rubinfeld. 18 (Rubinfeld). Byers Depo. Dr. Emmert testified that raising the Trial Tr. 1742:15-:18. Greg Id. 2430:23-:24 (Sankey); 3117:2-:4 19 None of the evidence presented at trial suggests that 20 consumer demand for the NCAA’s product would decrease if schools 21 were permitted to provide such stipends to student-athletes once 22 again. 23 stipends would hinder any school’s efforts to educate its student- 24 athletes or integrate them into the academic community on campus. 25 If anything, providing student-athletes with such stipends would 26 facilitate their integration into academic life by removing some 27 of the educational expenses that they would otherwise have to 28 bear, such as school supplies, which are not covered by a full Nor does any of the evidence suggest that providing such 44 1 grant-in-aid. 2 allow for such stipends also would not have any effect on the 3 NCAA’s efforts to achieve competitive balance or increase its 4 output because, as explained above, its existing restrictions on 5 student-athlete compensation do not advance these goals. 6 Ex. 2340 at 207. Raising the grant-in-aid cap to Plaintiffs’ second proposed less restrictive alternative -- 7 allowing schools to hold payments in trust for student-athletes -- 8 would likewise enable the NCAA to achieve its goals in a less 9 restrictive manner, provided the compensation was limited and United States District Court For the Northern District of California 10 distributed equally among team members. 11 Mr. Pilson, testified that he would not be troubled if schools 12 were allowed to make five thousand dollar payments to their 13 student-athletes and that his general concerns about paying 14 student-athletes would be partially assuaged if the payments were 15 held in trust. 16 director, Bernard Muir, similarly acknowledged that his concerns 17 about paying student-athletes varied depending on the size of the 18 payments that they would receive. 19 dollar limit, you know, that varies, but it does concern me when 20 we’re talking about six figures, seven figures in some cases.”). 21 This testimony is consistent with Dr. Dennis’s general observation 22 that, if the NCAA’s restrictions on student-athlete pay were 23 removed, the popularity of college sports would likely depend on 24 the size of payments awarded to student-athletes. 25 therefore finds that permitting schools to make limited payments 26 to student-athletes above the cost of attendance would not harm 27 consumer demand for the NCAA’s product -- particularly if the 28 student-athletes were not paid more or less based on their Trial Tr. 770:25-771:18. 45 The NCAA’s own witness, Stanford’s athletic Id. 254:3-:18 (“Where I set the The Court 1 athletic ability or the quality of their performances and the 2 payments were derived only from revenue generated from the use of 3 their own names, images, and likenesses. 4 Holding these limited and equal shares of licensing revenue 5 in trust until after student-athletes leave school would further 6 minimize any potential impact on consumer demand. 7 student-athletes are already permitted to receive compensation for 8 the use of their names, images, and likenesses in game re- 9 broadcasts and other archival footage of their college Indeed, former United States District Court For the Northern District of California 10 performances as long as they enter into such agreements after they 11 leave school. 12 if current and future student-athletes were given the opportunity 13 to receive compensation from their schools after they leave 14 college. 15 athletes while they are enrolled would not erect any new barriers 16 to schools’ efforts to educate student-athletes or integrate them 17 into their schools’ academic communities. 18 finds that consumer demand for the NCAA’s products would not 19 change if schools were allowed to offer and student-athletes on 20 FBS football and Division I basketball teams were allowed, after 21 leaving college, to receive limited and equal shares of licensing 22 revenue generated from the use of their names, images, and 23 likenesses during college. The popularity of college sports would not suffer Likewise, holding compensation in trust for student- The Court therefore 24 Although Drs. Emmert and Rubinfeld suggested that student- 25 athletes could potentially monetize these future earnings while 26 they are still in school by taking out loans against the trust, 27 the NCAA could easily prohibit such borrowing, just as it 28 currently prohibits student-athletes from borrowing against their 46 1 future earnings as professional athletes. 2 (prohibiting student-athletes from accepting any loan issued based 3 on the “student-athlete’s athletics reputation, skill or pay-back 4 potential as a future professional athlete”). 5 witnesses testified that its current rules would not suffice to 6 prevent student-athletes from borrowing against their future 7 compensation. 8 schools could place the money in a special account, such as a 9 spendthrift trust, to prevent such borrowing. See Ex. 2340 at 236 None of the NCAA’s Nor did they rule out that the NCAA and its member Accordingly, the United States District Court For the Northern District of California 10 Court finds that allowing FBS football and Division I basketball 11 schools to hold in trust a limited and equal share of licensing 12 revenue for their recruits would provide a less restrictive means 13 of achieving the NCAA’s stated purposes. 14 Plaintiffs’ third proposed alternative, however -- allowing 15 student-athletes to receive money for endorsements -- does not 16 offer a less restrictive way for the NCAA to achieve its purposes. 17 Allowing student-athletes to endorse commercial products would 18 undermine the efforts of both the NCAA and its member schools to 19 protect against the “commercial exploitation” of student-athletes. 20 Although the trial record contains evidence -- and Dr. Emmert 21 himself acknowledged -- that the NCAA has not always succeeded in 22 protecting student-athletes from commercial exploitation, this 23 failure does not justify expanding opportunities for commercial 24 exploitation of student-athletes in the future. 25 themselves previously indicated that they were not seeking to 26 enjoin the NCAA from enforcing its current rules prohibiting such 27 endorsements. Plaintiffs In light of this record, the Court finds that 28 47 1 Plaintiffs’ third proposed less restrictive alternative does not 2 offer the NCAA a viable means of achieving its stated goals. 3 4 5 CONCLUSIONS OF LAW I. Legal Standard under the Section 1 of the Sherman Act Section 1 of the Sherman Act makes it illegal to form any “contract, combination in the form of trust or otherwise, or 7 conspiracy, in restraint of trade or commerce among the several 8 States.” 9 section, a plaintiff must show “‘(1) that there was a contract, 10 United States District Court For the Northern District of California 6 combination, or conspiracy; (2) that the agreement unreasonably 11 restrained trade under either a per se rule of illegality or a 12 rule of reason analysis; and (3) that the restraint affected 13 interstate commerce.’” 14 1062 (9th Cir. 2001) (citing Hairston v. Pacific 10 Conference, 15 101 F.3d 1315, 1318 (9th Cir. 1996)). 16 15 U.S.C. § 1. To prevail on a claim under this Tanaka v. Univ. of S. Cal., 252 F.3d 1059, In this case, Plaintiffs allege that the NCAA’s rules and 17 bylaws operate as an unreasonable restraint of trade. 18 particular, they seek to challenge the set of rules that preclude 19 FBS football players and Division I men’s basketball players from 20 receiving any compensation, beyond the value of their athletic 21 scholarships, for the use of their names, images, and likenesses 22 in videogames, live game telecasts, re-broadcasts, and archival 23 game footage. 24 enacted and are enforced pursuant to an agreement among its 25 Division I member schools and conferences. 26 that these rules affect interstate commerce. 27 only remaining question here is whether the challenged rules 28 restrain trade unreasonably. In The NCAA does not dispute that these rules were 48 Nor does it dispute Accordingly, the 1 “The rule of reason is the presumptive or default standard” 2 for making this determination. 3 Safeway, Inc., 651 F.3d 1118, 1133 (9th Cir. 2011) (citing Texaco 4 Inc. v. Dagher, 547 U.S. 1, 5 (2006)). 5 restraints may be examined under a truncated “quick look” or per 6 se analysis, the Supreme Court has “expressed reluctance to adopt 7 per se rules with regard to ‘restraints imposed in the context of 8 business relationships where the economic impact of certain 9 practices is not immediately obvious.’” California ex rel. Harris v. Although certain State Oil Co. v. Khan, United States District Court For the Northern District of California 10 522 U.S. 3, 10 (1997) (citing FTC v. Indiana Federation of 11 Dentists, 476 U.S. 447, 458-459 (1986)). 12 specifically held that concerted actions undertaken by joint 13 ventures should be analyzed under the rule of reason. 14 Needle, Inc. v. Nat’l Football League, 560 U.S. 183, 203 (2010) 15 (“When ‘restraints on competition are essential if the product is 16 to be available at all,’ per se rules of illegality are 17 inapplicable, and instead the restraint must be judged according 18 to the flexible Rule of Reason.” (citing NCAA v. Board of Regents 19 of Univ. of Oklahoma, 468 U.S. 85, 101 (1984))). 20 explained in prior orders, the Court analyzes the challenged 21 restraint in this case under the rule of reason rather than a 22 “quick look” or per se rule. 23 1025, April 11, 2014 Order, at 8-9; Case No. 09-1967, Docket No. 24 151, Feb. 8, 2010 Order, at 9–10. 25 The Supreme Court has American Thus, as See Case No. 09-1967, Docket No. “A restraint violates the rule of reason if the restraint’s 26 harm to competition outweighs its procompetitive effects.” 27 Tanaka, 252 F.3d at 1063. 28 shifting framework to conduct this balancing. Courts typically rely on a burden- 49 Under that 1 framework, the “plaintiff bears the initial burden of showing that 2 the restraint produces ‘significant anticompetitive effects’ 3 within a ‘relevant market.’” 4 1319). 5 defendant must come forward with evidence of the restraint’s 6 procompetitive effects.” 7 this burden, the plaintiff must “show that ‘any legitimate 8 objectives can be achieved in a substantially less restrictive 9 manner.’” United States District Court For the Northern District of California 10 11 II. Id. (citing Hairston, 101 F.3d at If the plaintiff satisfies this initial burden, “the Id. Finally, if the defendant meets Id. (citing Hairston, 101 F.3d at 1319). Anticompetitive Effects in the Relevant Markets “Proof that defendant’s activities had an impact upon 12 competition in the relevant market is ‘an absolutely essential 13 element of the rule of reason case.’” 14 v. San Fernando Valley Bd. of Realtors, 786 F.2d 1400, 1405 (9th 15 Cir. 1986) (citations omitted). 16 this context, 17 Supermarket of Homes, Inc. The term “relevant market,” in 21 “encompasses notions of geography as well as product use, quality, and description. The geographic market extends to the area of effective competition . . . where buyers can turn for alternative sources of supply. The product market includes the pool of goods or services that enjoy reasonable interchangeability of use and cross-elasticity of demand.” 22 Tanaka, 252 F.3d at 1063 (quoting Oltz v. St. Peter’s Cmty. Hosp., 23 861 F.2d 1440, 1446 (9th Cir. 1988) (internal citations omitted)). 18 19 20 24 Here, Plaintiffs allege that the challenged restraint causes 25 anticompetitive effects in two related national markets: (1) the 26 “college education market,” in which colleges and universities 27 compete to recruit student-athletes to play FBS football or 28 Division I basketball; and (2) the “group licensing market,” in 50 1 which videogame developers, television networks, and others 2 compete for group licenses to use the names, images, and 3 likenesses of FBS football and Division I men’s basketball players 4 in videogames, telecasts, and clips. 5 these markets in turn. 6 A. 7 8 9 The Court addresses each of College Education Market 1. Market Definition As outlined in the findings of fact, Plaintiffs produced sufficient evidence at trial to establish the existence of a United States District Court For the Northern District of California 10 national market in which NCAA Division I schools compete to sell 11 unique bundles of goods and services to elite football and 12 basketball recruits. 13 recruits the opportunity to earn a higher education while playing 14 for an FBS football or Division I men’s basketball team. 15 exchange, the recruits who accept these offers provide their 16 schools with their athletic services and acquiesce in their 17 schools’ use of their names, images, and likenesses while they are 18 enrolled. 19 attendance not covered by their grants-in-aid. 20 Specifically, these schools compete to offer 8 In The recruits must also pay for any other costs of The NCAA contends that it does not restrain competition in 21 this market. 22 Division I basketball schools lack the power to fix prices in this 23 market because they must compete with other colleges and 24 universities -- such as those in other divisions and college In particular, it argues that FBS football and 25 8 26 27 28 This market could be divided into two submarkets -- one in which Division I basketball schools compete for elite basketball recruits and one in which FBS football schools compete for elite football recruits. However, because the parties’ evidence and arguments in this case apply generally to both of these submarkets, there is no need to subdivide the broader market for the purposes of this analysis. 51 1 athletic associations -- in supplying educational and athletic 2 opportunities to elite recruits. 3 professional sports leagues and domestic minor leagues which might 4 likewise provide alternatives to playing FBS football or Division 5 I basketball. 6 leagues, the NCAA argues, Plaintiffs have defined the field of 7 competition in the college education market too narrowly. 8 The NCAA also points to foreign By failing to account for these other schools and The “field of competition” within a given product market consists of “the group or groups of sellers or producers who have 10 United States District Court For the Northern District of California 9 actual or potential ability to deprive each other of significant 11 levels of business.” 12 Inc., 875 F.2d 1369, 1374 (9th Cir. 1989). 13 limited to producers of the particular “product at issue” but also 14 includes the producers of “all economic substitutes for the 15 product.” 16 1038, 1045 (9th Cir. 2008). 17 economic substitutes, courts typically consider two factors: 18 “first, [the product’s] reasonable interchangeability for the same 19 or similar uses; and second, cross-elasticity of demand, an 20 economic term describing the responsiveness of sales of one 21 product to price changes in another.” 22 Coliseum Comm’n v. Nat’l Football League, 726 F.2d 1381, 1393 (9th 23 Cir. 1984); see also Brown Shoe Co. v. United States, 370 U.S. 24 294, 325 (1962) (“The outer boundaries of a product market are 25 determined by the reasonable interchangeability of use or the 26 cross-elasticity of demand between the product itself and 27 substitutes for it.”). 28 the price, use, and qualities of all potential substitutes for the Thurman Indus., Inc. v. Pay ‘N Pak Stores, This group is not Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d To determine whether a product has Los Angeles Memorial This analysis requires an examination of 52 1 product at issue. 2 Co., 328 F.3d 1145, 1163 (9th Cir. 2003) (“For antitrust purposes, 3 a ‘market is composed of products that have reasonable 4 interchangeability for the purposes for which they are produced -- 5 price, use and qualities considered.’” (citations omitted)). 6 analysis of these factors in the present case demonstrates that 7 Plaintiffs have properly defined the scope of a relevant college 8 education market. 9 See Paladin Associates, Inc. v. Montana Power An As set forth in the findings of fact, the product that FBS United States District Court For the Northern District of California 10 and Division I schools offer is unique. 11 educational and athletic opportunities offered by schools outside 12 of FBS football and Division I -- including schools in FCS, 13 Divisions II and III, and associations like the NAIA, USCAA, 14 NJCAA, or NCCAA -- differ significantly in both price and quality 15 from those offered by FBS and Division I schools. 16 schools typically offer a lower level of athletic competition, 17 inferior training facilities, lower-paid coaches, and fewer 18 opportunities to play in front of large crowds and on television. 19 Furthermore, because many of these schools do not offer athletic 20 scholarships, the cost of attending these institutions is much 21 higher for many student-athletes than the cost of attending an FBS 22 football or Division I basketball school. 23 who receive scholarship offers to play FBS football or Division I 24 basketball rarely turn them down and, when they do, almost never 25 do so to play football or basketball at a school outside of FBS or 26 Division I. 27 compete with FBS and Division I schools in the recruiting market, 28 just as they do not on the football field or the basketball court. The combination of Non-Division I This is why recruits In short, non-FBS and non-Division I schools do not 53 1 The same holds true for professional sports leagues such as 2 the AFL, NBA D-League, and foreign football and basketball 3 leagues. 4 earn a higher education or regularly showcase their athletic 5 talents on national television. 6 demonstrates that FBS football and Division I basketball command a 7 significantly larger domestic television audience than virtually 8 every other football or basketball league, with the exceptions of 9 the NFL and NBA (neither of which permits an athlete to enter its These leagues do not offer recruits opportunities to The NCAA’s own evidence United States District Court For the Northern District of California 10 league directly from high school). 11 football and basketball recruits rarely pursue careers in these 12 second-tier leagues immediately after high school and 13 overwhelmingly prefer to play for FBS football teams and Division 14 I basketball teams. 15 The evidence shows that elite In sum, the qualitative differences between the opportunities 16 offered by FBS football and Division I basketball schools and 17 those offered by other schools and sports leagues illustrate that 18 FBS football schools and Division I basketball schools operate in 19 a distinct market. 20 (S.D. Ind.) (finding plaintiff’s allegations regarding “the 21 superior competition, institutional support, overall preference, 22 higher revenue, and more scholarship opportunities provided in 23 Division I football, as opposed to Division II or NAIA football” 24 sufficient to support his assertion that “Division II and NAIA 25 football are not adequate substitutes for Division I football and, 26 thus, not part of the same relevant market”); White v. NCAA, Case 27 No. 06-999, Docket No. 72, at 3 (C.D. Cal. Sept. 20, 2006) 28 (finding plaintiff’s allegations that student-athletes had no See Rock v. NCAA, 2013 WL 4479815, at *13 54 1 reasonably interchangeable alternatives for the “unique 2 combination of coaching-services and academics” offered by FBS 3 football and Division I basketball schools sufficient to plead a 4 relevant market). 5 fluctuations in the price of attending FBS and Division I schools 6 resulting from changes in the grant-in-aid limit have not caused 7 large numbers of FBS football and Division I basketball recruits 8 to migrate toward other schools or professional leagues. 9 Trial Tr. 127:4-:17 (Noll); Lucas Auto. Engineering, Inc. v. So, too, does the fact that historic See United States District Court For the Northern District of California 10 Bridgestone/Firestone, Inc., 275 F.3d 762, 767 (9th Cir. 2001) 11 (“The determination of what constitutes the relevant product 12 market hinges, therefore, on a determination of those products to 13 which consumers will turn, given reasonable variations in 14 price.”). 15 schools and professional leagues that the NCAA has identified lack 16 the power to deprive FBS football and Division I basketball 17 schools of a significant number of recruits. 18 other schools and leagues are not suppliers in the market that 19 Plaintiffs have identified. 20 Taken together, this evidence shows that the various 2. Accordingly, these The Challenged Restraint 21 Because FBS football and Division I basketball schools are 22 the only suppliers in the relevant market, they have the power, 23 when acting in concert through the NCAA and its conferences, to 24 fix the price of their product. 25 power by forming an agreement to charge every recruit the same 26 price for the bundle of educational and athletic opportunities 27 that they offer: to wit, the recruit’s athletic services along 28 with the use of his name, image, and likeness while he is in They have chosen to exercise this 55 1 school. 2 offering any recruit a cash rebate, deferred payment, or other 3 form of direct compensation -- that school may be subject to 4 sanctions by the NCAA. 5 If any school seeks to lower this fixed price -- by This price-fixing agreement constitutes a restraint of trade. 6 The evidence presented at trial makes clear that, in the absence 7 of this agreement, certain schools would compete for recruits by 8 offering them a lower price for the opportunity to play FBS 9 football or Division I basketball while they attend college. United States District Court For the Northern District of California 10 Indeed, the NCAA’s own expert, Dr. Rubinfeld, acknowledged that 11 the NCAA operates as a cartel that imposes a restraint on trade in 12 this market. 13 Despite this undisputed evidence, the NCAA contends that its 14 conduct does not amount to price-fixing because the price that 15 most student-athletes actually pay is “at or close to zero” due to 16 their athletic scholarships. 17 commercial nature of the transactions between FBS football and 18 Division I basketball schools and their recruits. 19 true that many FBS football and Division I basketball players do 20 not pay for tuition, room, or board in a traditional sense, they 21 nevertheless provide their schools with something of significant 22 value: their athletic services and the rights to use their names, 23 images, and likenesses while they are enrolled. 24 pay the incidental expenses of their college attendance. 25 Seventh Circuit recently observed that these “transactions between 26 NCAA schools and student-athletes are, to some degree, commercial 27 in nature, and therefore take place in a relevant market with 28 respect to the Sherman Act.” This argument mischaracterizes the While it is They must also The Agnew v. NCAA, 683 F.3d 328, 341 56 1 (7th Cir. 2012). 2 schools make with premier athletes -- full scholarships in 3 exchange for athletic services -- are not noncommercial, since 4 schools can make millions of dollars as a result of these 5 transactions.” 6 The court reasoned that “the transactions those Id. at 340. A court in the Central District of California similarly 7 concluded that these transactions take place within a cognizable 8 antitrust market. 9 student-athletes had stated a valid Sherman Act claim against the In White, the court found that a group of United States District Court For the Northern District of California 10 NCAA by alleging that its cap on the value of grants-in-aid 11 operated as a price-fixing agreement among FBS football and 12 Division I basketball schools. 13 4. 14 plaintiffs had failed to allege a sufficient harm to competition. 15 It explained, 16 17 18 19 20 21 22 23 24 25 26 27 28 Case No. 06-999, Docket No. 72, at The court specifically rejected the NCAA’s argument that the Plaintiffs’ [complaint] alleges that studentathletes are consumers of the higher education and coaching services that the NCAA schools provide. Plaintiffs allege that the GIA [grant-in-aid] cap operates to restrict the price at which student-athletes purchase those services by forcing student-athletes to bear a greater portion of the cost of attendance than they would have borne if the GIA cap had not been in place. Taken in a light most favorable to the Plaintiffs, these allegations suggest that the GIA cap harms would-be buyers, forcing them to pay higher prices than would result from unfettered competition. Id. (citations omitted). The same reasoning governs here, where Plaintiffs have shown that FBS football and Division I basketball schools have fixed the price of their product by agreeing not to offer any recruit a share of the licensing revenues derived from the use of his name, image, and likeness. 57 1 The fact that this price-fixing agreement operates by 2 undervaluing the name, image, and likeness rights that the 3 recruits provide to the schools -- rather than by explicitly 4 requiring schools to charge a specific monetary price -- does not 5 preclude antitrust liability here. 6 prohibits various kinds of price-fixing agreements, even indirect 7 restraints on price. 8 310 U.S. 150, 223 (1940) (“[T]he machinery employed by a 9 combination for price-fixing is immaterial. Federal antitrust law See United States v. Socony-Vacuum Oil Co., Under the Sherman Act United States District Court For the Northern District of California 10 a combination formed for the purpose and with the effect of 11 raising, depressing, fixing, pegging, or stabilizing the price of 12 a commodity in interstate or foreign commerce is illegal per 13 se.”). 14 Supreme Court held that an agreement among beer wholesalers to 15 cease providing interest-free credits to retailers was “merely one 16 form of price fixing” and could therefore be “presumed illegal” 17 under § 1 of the Sherman Act. 18 Court reasoned that the “agreement to terminate the practice of 19 giving credit is [] tantamount to an agreement to eliminate 20 discounts, and thus falls squarely within the traditional per se 21 rule against price fixing.” 22 terms must be characterized as an inseparable part of the 23 price.”). 24 “wholesalers had competed with each other with respect to trade 25 credit, and the credit terms for individual retailers had varied 26 substantially.” 27 practice thus “extinguish[ed] one form of competition among the 28 sellers” and could be presumed unlawful, even though it did not In Catalano, Inc. v. Target Sales, Inc., for instance, the 446 U.S. 643, 650 (1980). The Id. at 648; see also id. (“[C]redit It noted that, prior to their agreement, the Id. at 644-45. The agreement to eliminate this 58 1 ultimately require the sellers to set their prices at some 2 specific, pre-determined level. 3 Id. Like the wholesalers’ agreement in Catalano, the agreement 4 among FBS football and Division I basketball schools not to offer 5 recruits a share of their licensing revenue eliminates one form of 6 price competition. 7 prices indirectly, rather than directly, it is nevertheless 8 sufficient to satisfy Plaintiffs’ initial burden under the rule of 9 reason. Although this agreement may operate to fix Plaintiffs need not identify an agreement as obviously United States District Court For the Northern District of California 10 unlawful as the wholesalers’ agreement in Catalano to establish a 11 per se violation, let alone to meet the lower burden imposed by 12 the first step of a rule of reason analysis. 13 45 (“[W]e have held agreements to be unlawful per se that had 14 substantially less direct impact on price than the agreement 15 alleged in this case.”). 16 See 446 U.S. at 644- Indeed, in another case involving concerted action by members 17 of a sports league, then-Judge Sotomayor observed that an 18 antitrust plaintiff may sometimes meet its burden by identifying 19 an agreement to fix prices indirectly. 20 Properties, Inc. v. Salvino, Inc., 542 F.3d 290, 337 (2d Cir. 21 2008) (Sotomayor, J., concurring). 22 sought to challenge an agreement among Major League Baseball teams 23 to license their trademarks and other intellectual property 24 exclusively through a designated third party called Major League 25 Baseball Properties (MLBP). 26 agreement violated the Sherman Act because it eliminated price 27 competition among the teams as suppliers of intellectual property. 28 A three-judge panel of the Second Circuit rejected this claim, See Major League Baseball In that case, the plaintiff The plaintiff alleged that the 59 finding that the agreement did not constitute price-fixing. 2 separate concurrence, then-Judge Sotomayor noted that, although 3 she agreed that the licensing arrangement was lawful, she believed 4 that the majority had endorsed “an overly formalistic view of 5 price fixing.” 6 agreement does not specify a price to be charged, the effect of 7 the agreement clearly eliminates price competition between the 8 [teams] for trademark licenses. 9 competition from the market is the essence of price fixing.” 10 United States District Court For the Northern District of California 1 at 335; see also id. at 336-37 (“In other words, an agreement 11 between competitors to ‘share profits’ or to make a third party 12 the exclusive seller of their competing products that has the 13 purpose and effect of fixing, stabilizing, or raising prices may 14 be a per se violation of the Sherman Act, even if no explicit 15 price is referenced in the agreement.”). 16 also noted that such an agreement could be unlawful, even if it 17 was only meant to bind members of a joint venture. 18 Id. at 334. In a She reasoned, “While the MLBP An agreement to eliminate price Id. Then-Judge Sotomayor She explained, [T]he antitrust laws prohibit two companies A and B, producers of X, from agreeing to set the price of X. Likewise, A and B cannot simply get around this rule by agreeing to set the price of X through a third-party intermediary or “joint venture” if the purpose and effect of that agreement is to raise, depress, fix, peg, or stabilize the price of X. 19 20 21 22 9 23 Id. at 336. 24 agreement served a procompetitive purpose, because it increased Although she ultimately concluded that the MLBP 25 26 27 28 9 The Supreme Court recently relied on this language from thenJudge Sotomayor’s concurrence in another Sherman Act case involving a challenge to concerted action by members of a sports league. American Needle, 560 U.S. at 202 (“[C]ompetitors ‘cannot simply get around’ antitrust liability by acting ‘through a third-party intermediary or 60 1 the total number of licenses sold, her opinion nevertheless 2 illustrates that price-fixing agreements take many forms and may 3 be unlawful even if they are implemented by members of a joint 4 venture. 5 Although Plaintiffs have characterized FBS football and 6 Division I basketball schools as sellers in the market for 7 educational and athletic opportunities, in their post-trial brief 8 they argued that the schools could alternatively be characterized 9 as buyers in a market for recruits’ athletic services and United States District Court For the Northern District of California 10 licensing rights. 11 recruitment of the highest ranked male high school football and 12 basketball players each year. 13 Plaintiffs’ antitrust claim arises under a theory of monopsony, 14 rather than monopoly, alleging an agreement to fix prices among 15 buyers rather than sellers. 16 violate § 1 of the Sherman Act just as a price-fixing agreement 17 among sellers would. 18 Grp., Inc., 629 F.3d 697, 705 (7th Cir. 2011) (“Ordinarily, price- 19 fixing agreements exist between sellers who collude to set their 20 prices above or below prevailing market prices. 21 also violate § 1 by forming what is sometimes known as a ‘buyers’ 22 cartel.’”); Vogel v. Am. Soc. of Appraisers, 744 F.2d 598, 601 23 (7th Cir. 1984) (“Just as a sellers’ cartel enables the charging 24 of monopoly prices, a buyers’ cartel enables the charging of 25 monopsony prices; and monopoly and monopsony are symmetrical 26 distortions of competition from an economic standpoint.” The relevant market would be that for the Viewed from this perspective, Such an agreement, if proven, would See generally Omnicare, Inc. v. UnitedHealth But buyers may 27 28 ‘joint venture.’’” (quoting Salvino, 542 F.3d at 336 (Sotomayor, J., concurring)). 61 1 (citations omitted)). 2 “kinship between monopoly and monopsony suggests that similar 3 legal standards should apply to claims of monopolization and to 4 claims of monopsonization.” 5 Hardwood Lumber Co., Inc., 549 U.S. 312, 322 (2007) (citing Roger 6 G. Noll, “‘Buyer Power’ and Economic Policy,” 72 Antitrust L.J. 7 589, 591 (2005)). 8 9 The Supreme Court has noted that the Weyerhaeuser Co. v. Ross-Simmons In recent years, several courts have specifically recognized that monopsonistic practices in a market for athletic services may United States District Court For the Northern District of California 10 provide a cognizable basis for relief under the Sherman Act. 11 e.g., Rock, 2013 WL 4479815, at *11 (finding that plaintiff had 12 identified a cognizable market in which “buyers of labor (the 13 schools) are all members of NCAA Division I football and are 14 competing for the labor of the sellers (the prospective student- 15 athletes who seek to play Division I football)”); In re NCAA I-A 16 Walk-On Football Players Litig., 398 F. Supp. 2d 1144, 1150 (W.D. 17 Wash. 2005) (“Plaintiffs have alleged a sufficient ‘input’ market 18 in which NCAA member schools compete for skilled amateur football 19 players.”). 20 that the “proper identification of a labor market for student- 21 athletes . . . would meet plaintiffs’ burden of describing a 22 cognizable market under the Sherman Act.” 23 that Plaintiffs’ alternative monopsony theory mirrors their 24 monopoly price-fixing theory, the evidence presented and facts 25 found above are sufficient to establish a restraint of trade in a 26 market for recruits’ athletic services just as they are to 27 establish a restraint of trade in the college education market. 28 As explained above, viewed from this perspective, the sellers in See, Indeed, the Seventh Circuit recently noted in Agnew 62 683 F.3d at 346. Given 1 this market are the recruits; the buyers are FBS football and 2 Division I basketball schools; the product is the combination of 3 the recruits’ athletic services and licensing rights; and the 4 restraint is the agreement among schools not to offer any recruit 5 more than the value of a full grant-in-aid. 6 this restraint, schools would compete against one another by 7 offering to pay more for the best recruits’ athletic services and 8 licensing rights -- that is, they would engage in price 9 competition. United States District Court For the Northern District of California 10 In the absence of The NCAA argues that Plaintiffs cannot prevail under a 11 monopsony theory because they have not presented evidence of an 12 impact on price or output in a “downstream market.” 13 2766:16-:22 (Stiroh). 14 only way that a restraint on an input market -- such as a market 15 for recruits’ athletic services and licensing rights -- can give 16 rise to an anticompetitive harm is if that restraint ultimately 17 harms consumers by reducing output or raising prices in a 18 downstream market. 19 among economists, they are not supported by the relevant case law. 20 The Supreme Court has indicated that monopsonistic practices that 21 harm suppliers may violate antitrust law even if they do not 22 ultimately harm consumers. 23 Crystal Sugar Co., 334 U.S. 219 (1948), the Supreme Court 24 considered whether an agreement among sugar refiners to fix the 25 prices they paid for sugar beets constituted a violation of the 26 Sherman Act. 27 combination condemned by the Act, even though the price-fixing was 28 by purchasers, and the persons specially injured . . . are Trial Tr. They cite Dr. Stiroh’s testimony that the Whatever merit Dr. Stiroh’s views might have In Mandeville Island Farms v. Am. It concluded that “the agreement is the sort of 63 sellers, not customers or consumers.” 2 Court reached this conclusion despite a vehement dissent from 3 Justice Jackson noting that the price of sugar had not been 4 affected by the refiners’ agreement. 5 decision, thus, “strongly suggests that suppliers . . . are 6 protected by antitrust laws even when the anti-competitive 7 activity does not harm end-users.” 8 v. Sw. Bell Tel. Co., 305 F.3d 1124, 1134 (10th Cir. 2002); see 9 also Knevelbaard Dairies v. Kraft Foods, Inc., 232 F.3d 979, 988 10 United States District Court For the Northern District of California 1 (9th Cir. 2000) (“The Supreme Court’s references to the goals of 11 achieving ‘the lowest prices, the highest quality and the greatest 12 material progress’ and of ‘assur[ing] customers the benefits of 13 price competition’ do not mean that conspiracies among buyers to 14 depress acquisition prices are tolerated. 15 field makes clear that the interaction of competitive forces, not 16 price-rigging, is what will benefit consumers.” (emphasis added)). 17 Id. at 235. Id. at 247. Notably, the The majority’s Telecor Communications, Inc. Every precedent in the This is consistent with a long line of cases, including some 18 decided by the Ninth Circuit, recognizing that restraints on 19 competition within a labor market may give rise to an antitrust 20 violation under § 1 of the Sherman Act. 21 Shipowners’ Ass’n, 272 U.S. 359, 365 (1926) (holding that a multi- 22 employer agreement among ship owners restrained trade in a labor 23 market for sailors); Todd v. Exxon Corp., 275 F.3d 191, 201 (2d 24 Cir. 2001) (Sotomayor, J.) (holding that a conspiracy among oil 25 industry employers to set salaries at “artificially low levels” 26 restrained trade in a labor market and noting that “a horizontal 27 conspiracy among buyers [of labor] to stifle competition is as 28 unlawful as one among sellers”); Ostrofe v. H.S. Crocker Co., 64 See, e.g., Anderson v. 1 Inc., 740 F.2d 739, 740 (9th Cir. 1984) (holding that a multi- 2 employer agreement in the paper lithograph label industry may 3 restrain trade in a “market for personal services”). 4 consistent with the many recent cases, some of which are cited 5 above, recognizing the validity of antitrust claims against the 6 NCAA based on anticompetitive harms in a labor market. 7 Agnew, 683 F.3d at 346 (recognizing that the NCAA’s scholarship 8 rules may restrain trade in a “labor market for student-athletes” 9 and noting that “labor markets are cognizable under the Sherman It is also See, e.g., United States District Court For the Northern District of California 10 Act”); Law v. NCAA, 134 F.3d 1010, 1015 (10th Cir. 1998) (finding 11 that an NCAA rule capping compensation for entry-level coaches 12 restrained trade in a “labor market for coaching services” and 13 noting that “[l]ower prices cannot justify a cartel’s control of 14 prices charged by suppliers, because the cartel ultimately robs 15 the suppliers of the normal fruits of their enterprises”); In re 16 NCAA I-A Walk-On Football Players Litig., 398 F. Supp. 2d at 1150 17 (recognizing that the NCAA’s scholarship rules may restrain trade 18 in an “‘input’ market in which NCAA member schools compete for 19 skilled amateur football players”). 20 Southern District of Indiana recently rejected the NCAA’s argument 21 that a student-athlete would need to plead a “‘market-wide impact 22 on the price or output of any commercial product’” in order to 23 state a valid Sherman Act claim challenging its former prohibition 24 on multi-year football scholarships. 25 *14 (S.D. Ind.) (quoting NCAA’s brief). 26 found that the student-athlete’s complaint “adequately plead[] 27 anticompetitive effects of the challenged bylaws” in the 28 “‘nationwide market for the labor of Division I football student 65 In fact, a court in the Rock, 2013 WL 4479815, at The court in that case 1 athletes’” based on his allegations that, in the absence of the 2 challenged scholarship rules, the schools competing for his 3 services would have offered him a multi-year scholarship. 4 *3, *15 (quoting complaint). 5 the plaintiff had identified a cognizable harm to competition by 6 alleging that removing the challenged restraint would “would force 7 the schools to ‘compete’ for recruits.” 8 here have presented sufficient evidence to show an analogous 9 anticompetitive effect in a similar labor market. Id. at The court specifically noted that Id. at *15. Plaintiffs Accordingly, United States District Court For the Northern District of California 10 they have shown a cognizable harm to competition under the rule of 11 reason. 12 The Court notes that Plaintiffs had not articulated a 13 monopsony theory prior to trial. 14 trial in response to the Court’s questions. 15 Court has addressed Plaintiffs’ monopoly theory in greater detail. 16 However, Plaintiffs presented significant evidence to support a 17 monopsony theory during trial. 18 length in their post-trial briefs. 19 trial and the facts found here, as well as the law, support both 20 theories. 21 monopsony theory. Their expert addressed it at For this reason, the Both sides discussed the theory at The evidence presented at The NCAA is not prejudiced by alternative reliance on a 22 B. 23 Plaintiffs also allege that the NCAA has restrained 24 competition in three specific national submarkets of a broader 25 national group licensing market: namely, the submarkets for group 26 licenses to use student-athletes’ names, images, and likenesses in 27 (1) live game telecasts, (2) videogames, and (3) game re- Group Licensing Market 28 66 1 broadcasts, highlight clips, and other archival footage. 2 Court addresses each of these submarkets separately. 3 1. 4 5 The Submarket for Group Licenses to Use StudentAthletes’ Names, Images, and Likenesses in Live Game Telecasts As noted above, television networks compete for the rights to 6 telecast live FBS football and Division I basketball games. 7 order to secure these rights, networks typically purchase licenses 8 to use the intellectual property of the participating schools and 9 conferences during the game telecast as well as the names, images, In United States District Court For the Northern District of California 10 and likenesses of the participating student-athletes.10 11 student-athletes are not permitted by NCAA rules to license the 12 rights to use their names, images, and likenesses, the networks 13 deal exclusively with schools and conferences when acquiring the 14 student-athletes’ rights. Because 15 As the Court found above, in the absence of the NCAA’s 16 restrictions on student-athlete compensation, student-athletes on 17 certain FBS football and Division I basketball teams would be able 18 to sell group licenses for the use of their names, images, and 19 likenesses to television networks. 20 licenses to the television networks directly or do so through some 21 intermediate buyer -- such as their school or a third-party 22 licensing company -- which would bundle the group license with 23 other intellectual property and performance rights and sell the They would either sell those 24 25 26 27 28 10 As discussed in the findings of fact, when a third party -- such as a bowl committee or the NCAA itself -- has organized a particular athletic event, the networks may also purchase a separate license from that party to use its intellectual property during the telecast. Because these transactions do not involve the transfer of rights to use student-athletes’ names, images, and likenesses, they are not relevant to this discussion. 67 1 full bundle of rights to the network. 2 student-athletes would sell their group licenses to the networks 3 directly or through some intermediate buyer, however, a submarket 4 for such group licenses would exist. Regardless of whether the 5 The NCAA denies that such a market exists as a matter of law. 6 It argues that the First Amendment and certain state laws preclude 7 student-athletes from asserting any rights of publicity in the use 8 of their names, images, and likenesses during live game telecasts. 9 The Court has previously rejected this argument. See April 11, United States District Court For the Northern District of California 10 2014 Order at 21. 11 believed that student-athletes lacked publicity rights in the use 12 of their names, images, and likenesses, they may have still sought 13 to acquire these rights as a precautionary measure. 14 often negotiate licenses to acquire uncertain rights. 15 Distribution & Mktg., Inc. v. Major League Baseball Advanced 16 Media, L.P., 505 F.3d 818, 826 (8th Cir. 2007) (Colloton, J., 17 dissenting) (“CBC surely can ‘agree,’ as a matter of good business 18 judgment, to bargain away any uncertain First Amendment rights 19 that it may have in exchange for the certainty of what it 20 considers to be an advantageous contractual arrangement.”); Hynix 21 Semiconductors, Inc. v. Rambus, Inc., 2006 WL 1991760, at *4 (N.D. 22 Cal.) (crediting expert testimony that “a negotiating patentee and 23 licensee generally agree to a lower royalty rate if there is 24 uncertainty as to whether the patents are actually valid and 25 infringed”). 26 evidence of the existence of a national submarket for group 27 licenses. Furthermore, even if some television networks Businesses See C.B.C. The NCAA’s argument does not undermine Plaintiffs’ 28 68 1 That said, Plaintiffs have not identified any harm to 2 competition in this submarket. 3 element of a Section 1 violation under the rule of reason is 4 injury to competition in the relevant market.” 5 Inc. v. S. Pac. Transp. Co., 858 F.2d 567, 570 (9th Cir. 1988). 6 That injury must go “beyond the impact on the claimant” and reach 7 “a field of commerce in which the claimant is engaged.” 8 McNamara, 979 F.2d 728, 738 (9th Cir. 1992) (citations and 9 quotation marks omitted); see also Sicor Ltd. v. Cetus Corp., 51 As previously noted, an “essential Alliance Shippers, Austin v. United States District Court For the Northern District of California 10 F.3d 848, 854 (9th Cir. 1995) (“Under the rule of reason approach, 11 the plaintiff must show an injury to competition, rather than just 12 an injury to plaintiff’s business.” (emphasis in original; 13 citations and quotation marks omitted)). 14 shown that the NCAA’s challenged rules harm student-athletes by 15 depriving them of compensation that they would otherwise receive, 16 they have not shown that this harm results from a restraint on 17 competition in the group licensing market. 18 have failed to show that the challenged rules hinder competition 19 among any potential buyers or sellers of group licenses. 20 While Plaintiffs have In particular, they The sellers in this market would be the student-athletes. 21 Plaintiffs have not presented any evidence to show that, in the 22 absence of the challenged restraint, teams of student-athletes 23 would actually compete against one another to sell their group 24 licenses. 25 that such competition would not occur. 26 network that seeks to telecast a particular athletic event would 27 have to obtain a group license from every team that could 28 potentially participate in that event. In fact, the evidence in the record strongly suggests 69 This is because any For instance, a network seeking to telecast a conference basketball tournament would have 2 to obtain group licenses from all of the teams in that conference. 3 Under those circumstances, none of the teams in the conference 4 would compete against each other as sellers of group licenses 5 because the group licenses would constitute perfect complements: 6 that is, every group license would have to be sold in order for 7 any single group license to have value. 8 Hovenkamp, “Implementing Antitrust’s Welfare Goals,” 81 Fordham L. 9 Rev. 2471, 2487 (2013) (“Perfect complements are goods that are 10 United States District Court For the Northern District of California 1 invariably used together -- or, more technically, situations in 11 which one good has no value unless it can be consumed together 12 with the other good.”). 13 conference would never have to compete with teams outside of the 14 conference because those teams -- as non-participants in the 15 conference tournament -- would not be able to sell their group 16 licenses with respect to that event in the first place. 17 this scenario, teams of student-athletes would never actually 18 compete against each other as sellers of group licenses, even if 19 the challenged NCAA rules no longer existed. 20 See generally Herbert At the same time, the teams in that Thus, in The same outcome would result whenever any network sought to 21 telecast any other FBS football and Division I basketball event. 22 Although the specific set of group licenses required for each 23 event would vary, the lack of competition among student-athlete 24 teams would remain constant: in every case, the network would need 25 to acquire group licenses from a specific set of teams, none of 26 which would have any incentive to compete either against each 27 other or against any teams whose group licenses were not required 28 for the telecast. These conditions would hold regardless of 70 1 whether the student-athlete teams sold their group licenses to the 2 television networks directly or through some intermediary, such as 3 their schools, because the demand for group licenses would be 4 dictated primarily by the identity of the teams eligible to 5 participate in each event. 6 might compete against each other in order to secure a specific 7 telecasting contract with a particular network, the challenged 8 NCAA rules do not inhibit this type of competition. 9 are already free to compete against each other in this way. To the extent that entire conferences Conferences So, United States District Court For the Northern District of California 10 too, are any individual pairs of schools whose teams are scheduled 11 to play against each other in specific regular season games. 12 the conferences, these pairs may freely compete against other 13 pairs of schools whose games are scheduled for the same time in 14 order to secure a contract with whatever networks can show games 15 during that time slot. 16 presented sufficient evidence to show that student-athlete teams 17 would actually compete against each other in any of these ways if 18 they were permitted to sell group licenses to use their names, 19 images, and likenesses. 20 11 Like In any event, Plaintiffs have not Plaintiffs have also failed to identify any situation in 21 which buyers of group licenses might compete against each other. 22 As noted above, there are two sets of potential buyers in this 23 market: the television networks, which would buy group licenses 24 directly from the student-athlete teams, and intermediate buyers, 25 11 26 27 28 The evidence presented at trial suggests that most telecasting contracts, even for regular season games, are negotiated at the conference-wide level -- not the individual team level. Nevertheless, the Court notes that the challenged rules would not suppress competition in this market even if contracts to telecast regular season games were negotiated at the individual team level. 71 1 which would bundle those licenses with other rights and sell those 2 bundles of rights to the networks. 3 buyers -- the television networks -- already compete freely 4 against one another for the rights to use student-athletes’ names, 5 images, and likenesses in live game telecasts. 6 not be able to purchase these rights directly from the student- 7 athletes, they nevertheless compete to acquire these rights from 8 other sources, such as schools and conferences. 9 networks do not compete to purchase these rights directly from the The first set of potential Although they may The fact that the United States District Court For the Northern District of California 10 student-athletes is due to the assurances by the schools, 11 conferences, and NCAA that they have the authority to grant these 12 rights. 13 schools of the student-athletes’ rights, or otherwise be unlawful, 14 but they are not anticompetitive because they do not inhibit any 15 form of competition that would otherwise exist. 16 student-athletes to seek compensation for group licenses would not 17 increase the number of television networks in the market or 18 otherwise enhance competition among them. 19 Such assurances might constitute conversion by the 12 Allowing Nor would it increase competition among any potential 20 intermediate buyers in this market, such as third-party licensing 21 companies and schools. 22 television networks, already free to compete against one another 23 to acquire the rights to use student-athletes’ names, images, and 24 likenesses in live game telecasts. Third-party licensing companies are, like They may be barred from 25 26 27 28 12 Plaintiffs voluntarily dismissed all of their claims against the NCAA for “individual damages, disgorgement of profits, and an accounting.” Docket No. 198, Stip. Dismissal, at 2. They also dismissed their claims for unjust enrichment. Accordingly, the Court does not consider these claims here. 72 1 purchasing these rights directly from the student-athletes but 2 they are not barred from competing to acquire these rights through 3 other channels. 4 Unlike television networks and third-party licensing 5 companies, schools do not currently compete for group licenses to 6 use student-athletes’ names, images, and likenesses in live game 7 telecasts. 8 solely from the challenged restraint. 9 lifted, each school would still only be able to purchase group This lack of competition, however, does not stem Even if the restraint were United States District Court For the Northern District of California 10 licenses from its own student-athletes because those are the only 11 licenses that the school could bundle with its own intellectual 12 property rights for sale to a network. 13 purchase a marketable group license from student-athletes at 14 another school. 15 another for the rights to use individual student-athletes’ names, 16 images, and likenesses, they do so only as sellers in the college 17 education market or consumers in the market for recruits’ athletic 18 services and licensing rights. 19 the market for group licenses. No school would be able to To the extent that schools do compete against one They do not compete as buyers in 20 Accordingly, Plaintiffs have failed to show that the 21 challenged NCAA rules harm competition in this submarket. 22 Although they have presented sufficient evidence to establish that 23 they were injured by the NCAA’s conduct, as noted above, “[i]njury 24 to an antitrust plaintiff is not enough to prove injury to 25 competition.” 26 1464, 1469 (9th Cir. 1986). 27 competition only in the college education market or the market for 28 recruits’ athletic services and licensing rights. O.S.C. Corp. v. Apple Computer, Inc., 792 F.2d Plaintiffs have shown an injury to 73 1 2. 2 3 Submarket for Group Licenses to Use StudentAthletes’ Names, Images, and Likenesses in Videogames Plaintiffs have presented sufficient evidence to establish 4 that, absent the challenged NCAA rules, a national submarket would 5 exist in which videogame developers would compete for group 6 licenses to use student-athletes’ names, images, and likenesses. 7 This submarket is analogous to the live telecasting submarket 8 discussed above. 9 licenses in the videogame submarket would be student-athletes on As in that submarket, the sellers of group United States District Court For the Northern District of California 10 certain FBS football and Division I basketball teams. 11 would either be videogame developers or intermediate buyers who 12 would bundle the student-athletes’ rights with other parties’ 13 rights and sell those bundles to videogame developers. 14 The buyers The NCAA contends that, even if student-athletes were 15 permitted to receive compensation for the use of their names, 16 images, and likenesses, this submarket would not exist. 17 that it and some of its member conferences recently decided to 18 stop licensing their intellectual property for use in videogames. 19 Without access to this intellectual property, the NCAA argues, 20 videogame developers cannot develop marketable videogames and, 21 thus, would not seek to purchase group licenses from student- 22 athletes. 23 It notes This argument overstates the significance of the decisions of 24 the NCAA and some of its member conferences not to license their 25 intellectual property to videogame developers. 26 videogame developers do not need the intellectual property rights 27 of both the NCAA and all of its conferences in order to produce a 28 college sports videogame. To begin with, If a sufficient number of schools and 74 1 conferences were willing to license their intellectual property 2 for use in videogames, a submarket for student-athletes’ group 3 licenses would likely exist. 4 testified at trial that EA remains interested in acquiring the 5 rights to use student-athletes’ names, images, and likenesses and 6 would seek to acquire them if not for the NCAA’s challenged rules 7 and the present litigation. 8 recent decisions of the NCAA and some of its conferences not to 9 license their intellectual property has not permanently eliminated Indeed, Mr. Linzner specifically This testimony suggests that the United States District Court For the Northern District of California 10 the demand for group licenses to use student-athletes’ names, 11 images, and likenesses. 12 could have been adopted due to this litigation and could be 13 reversed at any time -- do not establish the lack of a videogame 14 submarket. 15 13 Accordingly, these decisions -- which Nevertheless, Plaintiffs have not identified any injury to 16 competition within this submarket. 17 telecasting submarket, the ultimate buyers in this submarket -- 18 videogame developers -- would need to acquire group licenses from 19 a specific set of teams in order to create their product. 20 set might include all of the teams within Division I, all of the 21 teams within the major conferences, or some other set of teams 22 23 24 25 26 27 28 13 Just as in the live This The NCAA’s other argument -- that videogame developers would not need to acquire group licenses because their use of student-athletes’ names, images, and likenesses is protected under the First Amendment -was rejected by the Ninth Circuit earlier in this litigation. In re NCAA Student-Athlete Name & Likeness Licensing Litig., 724 F.3d 1268, 1284 (9th Cir. 2013) (concluding that “EA’s use of the likenesses of college athletes like Samuel Keller in its video games is not, as a matter of law, protected by the First Amendment”); see also Hart v. Electronic Arts, Inc., 717 F.3d 141, 170 (3d Cir. 2013) (holding that “the NCAA Football 2004, 2005 and 2006 games at issue in this case do not sufficiently transform Appellant’s identity to escape the right of publicity claim”). 75 1 that the videogame developer believed would be necessary to 2 produce a marketable product. 3 included within that set, those teams would not compete against 4 each other as sellers of group licenses, even in the absence of 5 the challenged rules, because they would all share an interest in 6 ensuring that the videogame developer acquired each of the group 7 licenses required to create its product. 8 not compete against any teams outside of the set because the 9 videogame developer determined that those other teams’ group Regardless of which teams were These teams would also United States District Court For the Northern District of California 10 licenses were not required to produce the videogame. 11 competition between teams (or conferences) is even less likely in 12 the videogame submarket than the live telecasting submarket 13 because videogame developers -- unlike television networks -- are 14 not constrained by the number of group licenses that they could 15 use to produce their product. 16 demonstrates that videogame companies could, and often did, 17 feature nearly every FBS football and Division I basketball team 18 in their videogames. 19 individual teams and conferences to sell group licenses is 20 extremely unlikely. 21 happen), it is not restrained by the challenged NCAA restrictions 22 on student-athlete compensation. 23 telecasting submarket, the challenged rules do not suppress 24 competition in this submarket. Indeed, The evidence presented at trial Under these circumstances, competition among And, to the extent that it happens (or would Thus, just as with the live 25 26 27 28 76 1 3. 2 3 4 5 6 7 8 9 United States District Court For the Northern District of California 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Submarket for Group Licenses to Use StudentAthletes’ Names, Images, and Likenesses in Game ReBroadcasts, Highlight Clips, and Other Archival Footage Plaintiffs allege that the NCAA’s challenged rules impose restraints on a national submarket for group licenses to use student-athletes’ names, images, and likenesses in game rebroadcasts, highlight clips, and other archival game footage, both for entertainment and to advertise products. However, they have not presented sufficient evidence to show that the NCAA has imposed any restraints in this submarket. As found above, the undisputed evidence shows that the NCAA has designated a thirdparty agent to negotiate and manage all licensing related to its archival footage. That third-party agent, T3Media, is expressly prohibited from licensing any footage that features current student-athletes. It is also contractually required to obtain the rights to use the names, images, and likenesses of any former student-athletes who appear in footage that it has licensed. Thus, under this arrangement, no current or former studentathletes are actually deprived of any compensation for game rebroadcasts or other archival footage that they would otherwise receive in the absence of the challenged NCAA rules. What’s more, even if Plaintiffs had made such a showing, they have not presented sufficient evidence to show an injury to competition in this submarket. In order to license all of the footage in the NCAA’s archives, T3Media would have to obtain a group license from every team that has ever competed in FBS or Division I. These teams, once again, would have no incentive to compete against each 28 77 1 other in selling their group licenses. 2 enforcing its challenged rules would not change that. 3 III. Procompetitive Justifications 4 Enjoining the NCAA from Because Plaintiffs have presented sufficient evidence to show 5 that the NCAA’s rules impose a restraint on competition in the 6 college education market, the Court must determine whether that 7 restraint is justified. 8 consider whether the “anticompetitive aspects of the challenged 9 practice outweigh its procompetitive effects.” United States District Court For the Northern District of California 10 In making this determination, it must Paladin Associates, 328 F.3d at 1156. 11 The NCAA has asserted four procompetitive justifications for 12 its rules barring student-athletes from receiving compensation for 13 the use of their names, images, and likenesses: (1) the 14 preservation of amateurism in college sports; (2) promoting 15 competitive balance among FBS football and Division I basketball 16 teams; (3) the integration of academics and athletics; and (4) the 17 ability to generate greater output in the relevant markets. 18 Court considers each of these procompetitive justifications in 19 turn. The 20 A. 21 As noted in the findings of fact, the NCAA asserts that its Amateurism 22 restrictions on student-athlete compensation are necessary to 23 preserve the amateur tradition and identity of college sports. 24 contends that this tradition and identity contribute to the 25 popularity of college sports and help distinguish them from 26 professional sports and other forms of entertainment in the 27 marketplace. 28 commitment to amateurism, recent consumer opinion surveys, and It For support, it points to historical evidence of its 78 1 testimony from various witnesses regarding popular perceptions of 2 college sports. 3 restrictions on student-athlete compensation, it does not justify 4 the specific restrictions challenged in this case. 5 it does not justify the NCAA’s sweeping prohibition on FBS 6 football and Division I basketball players receiving any 7 compensation for the use of their names, images, and likenesses. 8 Although the NCAA has cited the Supreme Court’s decision in 9 Although this evidence could justify some limited In particular, Board of Regents as support for its amateurism justification, its United States District Court For the Northern District of California 10 reliance on the case remains unavailing. 11 orders, Board of Regents addressed limits on television 12 broadcasting, not payments to student-athletes, and “does not 13 stand for the sweeping proposition that student-athletes must be 14 barred, both during their college years and forever thereafter, 15 from receiving any monetary compensation for the commercial use of 16 their names, images, and likenesses.” 17 The Supreme Court’s suggestion in Board of Regents that, in order 18 to preserve the quality of the NCAA’s product, student-athletes 19 “must not be paid,” 468 U.S. at 102, was not based on any factual 20 findings in the trial record and did not serve to resolve any 21 disputed issues of law. 22 assertions of the NCAA’s own counsel in the case, who stated 23 during oral argument that the NCAA was not relying on amateurism 24 as a procompetitive justification and “might be able to get more 25 viewers and so on if it had semi-professional clubs rather than 26 amateur clubs.” 27 85. 28 programs of amateur football, it is probably reducing its net As explained in previous Oct. 25, 2013 Order at 15. In fact, the statement ran counter to the Oral Arg. Tr. at 25, Board of Regents, 468 U.S. He further argued, “When the NCAA says, we are running 79 1 profits.” 2 able to increase its intake if it abolished or reduced the 3 academic standards that its players must meet.”). 4 also presented ample evidence here to show that the college sports 5 industry has changed substantially in the thirty years since Board 6 of Regents was decided. 7 1081, 1099 (7th Cir. 1992) (Flaum, J., concurring in part and 8 dissenting in part) (“The NCAA continues to purvey, even in this 9 case, an outmoded image of intercollegiate sports that no longer Id. (emphasis added); see also id. (“The NCAA might be Plaintiffs have See generally Banks v. NCAA, 977 F.2d United States District Court For the Northern District of California 10 jibes with reality. 11 Supreme Court’s incidental phrase in Board of Regents does not 12 establish that the NCAA’s current restraints on compensation are 13 procompetitive and without less restrictive alternatives. 14 The times have changed.”). Accordingly, the The historical record that the NCAA cites as evidence of its 15 longstanding commitment to amateurism is unpersuasive. 16 record reveals that the NCAA has revised its rules governing 17 student-athlete compensation numerous times over the years, 18 sometimes in significant and contradictory ways. 19 evincing the association’s adherence to a set of core principles, 20 this history documents how malleable the NCAA’s definition of 21 amateurism has been since its founding. 22 This Rather than The association’s current rules demonstrate that, even today, 23 the NCAA does not consistently adhere to a single definition of 24 amateurism. 25 status even if he accepts ten thousand dollars in prize money the 26 year before he enrolls in college. 27 recruit, however, would forfeit his athletic eligibility if he did 28 the same. A Division I tennis recruit can preserve his amateur A Division I track and field Similarly, an FBS football player may maintain his 80 1 amateur status if he accepts a Pell grant that brings his total 2 financial aid package above the cost of attendance. 3 football player would no longer be an amateur if he were to 4 decline the Pell grant and, instead, receive an equivalent sum of 5 money from his school for the use of his name, image, and likeness 6 during live game telecasts. 7 indicative of “core principles.” 8 9 But the same Such inconsistencies are not Nonetheless, some restrictions on compensation may still serve a limited procompetitive purpose if they are necessary to United States District Court For the Northern District of California 10 maintain the popularity of FBS football and Division I basketball. 11 If the challenged restraints actually play a substantial role in 12 maximizing consumer demand for the NCAA’s products -- 13 specifically, FBS football and Division I basketball telecasts, 14 re-broadcasts, ticket sales, and merchandise -- then the 15 restrictions would be procompetitive. 16 U.S. at 120 (recognizing that “maximiz[ing] consumer demand for 17 the product” is a legitimate procompetitive justification). 18 Attempting to make this showing, the NCAA relies on consumer 19 opinion surveys, including the survey it commissioned from Dr. 20 Dennis specifically for this case. 21 survey -- which contained several methodological flaws and did not 22 ask respondents about the specific restraints challenged in this 23 case -- does not provide reliable evidence that consumer interest 24 in FBS football and Division I basketball depends on the NCAA’s 25 current restrictions on student-athlete compensation. 26 Plaintiffs offered evidence demonstrating that such surveys are 27 inevitably a poor tool for accurately predicting consumer 28 behavior. See Board of Regents, 468 As noted above, however, this Further, Dr. Rascher highlighted various polls and surveys which 81 1 documented widespread public opposition to rule changes that 2 ultimately led to increased compensation for professional baseball 3 players and Olympic athletes even as Major League Baseball and the 4 IOC were experiencing periods of massive revenue growth. 5 evidence counsels strongly against giving any significant weight 6 to Dr. Dennis’s survey results. 7 suggest is that the public’s attitudes toward student-athlete 8 compensation depend heavily on the level of compensation that 9 student-athletes would receive. This What Dr. Dennis’s survey does This is consistent with the United States District Court For the Northern District of California 10 testimony of the NCAA’s own witnesses, including Mr. Muir and Mr. 11 Pilson, who both indicated that smaller payments to student- 12 athletes would bother them less than larger payments. 13 Ultimately, the evidence presented at trial suggests that 14 consumer demand for FBS football and Division I basketball-related 15 products is not driven by the restrictions on student-athlete 16 compensation but instead by other factors, such as school loyalty 17 and geography. 18 be more popular in places where college teams are located. 19 Similarly, Ms. Plonsky noted that popular interest in college 20 sports was driven principally by the loyalty of local fans and 21 alumni. 22 offered a tiddlywinks team, that would somehow be popular with 23 some segment of whoever loves our university.” 24 1415:2. 25 Mr. Pilson explained that college sports tend to She testified, “I would venture to say that if we [UT] Trial Tr. 1414:25- The Court therefore concludes that the NCAA’s restrictions on 26 student-athlete compensation play a limited role in driving 27 consumer demand for FBS football and Division I basketball-related 28 products. Although they might justify a restriction on large 82 1 payments to student-athletes while in school, they do not justify 2 the rigid prohibition on compensating student-athletes, in the 3 present or in the future, with any share of licensing revenue 4 generated from the use of their names, images, and likenesses. 5 B. 6 The NCAA asserts that its challenged rules are justified by Competitive Balance 7 the need to maintain the current level of competitive balance 8 among its FBS football and Division I basketball teams in order to 9 maintain their popularity. This Court has previously recognized United States District Court For the Northern District of California 10 that a sports league’s efforts to achieve the optimal competitive 11 balance among its teams may serve a procompetitive purpose if 12 promoting such competitive balance increases demand for the 13 league’s product. 14 Needle, 560 U.S. at 204 (“We have recognized, for example, ‘that 15 the interest in maintaining a competitive balance’ among ‘athletic 16 teams is legitimate and important.’” (citing Board of Regents, 468 17 U.S. at 117)). 18 “hypothesis that legitimates the maintenance of competitive 19 balance as a procompetitive justification under the Rule of Reason 20 is that equal competition will maximize consumer demand for the 21 product.” 22 See April 11, 2014 Order at 33; American As the Supreme Court has explained, the Board of Regents, 468 U.S. at 119-20. Here, the NCAA has not presented sufficient evidence to show 23 that its restrictions on student-athlete compensation actually 24 have any effect on competitive balance, let alone produce an 25 optimal level of competitive balance. 26 economists who have studied the issue, as summarized by Drs. Noll 27 and Rascher, is that the NCAA’s current restrictions on 28 compensation do not have any effect on competitive balance. 83 The consensus among sports 1 Although Dr. Rubinfeld disagreed with this conclusion, he could 2 not identify another economist who shared his view and did not 3 offer any testimony to rebut the specific findings of the academic 4 literature cited by Drs. Noll and Rascher. 5 him whether his opinions were based on any academic literature, 6 Dr. Rubinfeld directed the Court to the economic articles cited in 7 his most recent report on competitive balance. 8 articles cited in that report found that the NCAA’s restrictions 9 on student-athlete compensation promote competitive balance. When the Court asked But none of the In United States District Court For the Northern District of California 10 fact, the only article his report cited that actually examined 11 competitive balance in college sports was a 2004 article by Katie 12 Baird, which Dr. Noll quoted during his testimony. 13 testified, that article concluded, “‘[L]ittle evidence supports 14 the claim that NCAA regulations help level the playing field. 15 best, they appear to have had a very limited effect, and at worst 16 they have served to strengthen the position of the dominant 17 teams.’” 18 Rubinfeld’s independent analysis of competitive balance was also 19 unpersuasive because it did not show a causal link between the 20 NCAA’s challenged rules and competitive balance. 21 importantly, his analysis did not show that consumer demand for 22 the NCAA’s product would decrease if FBS football or Division I 23 basketball teams were less competitively balanced than they 24 currently are. 25 is driven primarily by factors such as school loyalty and 26 geography. 27 28 As Dr. Noll Trial Tr. 230:18-231:11 (quoting Baird article). At Dr. More As found above, the popularity of college sports Neither of these is dependent on competitive balance. In its post-trial brief, the NCAA cites a passage from Board of Regents which states that the district court in that case found 84 1 that the NCAA’s “restrictions designed to preserve amateurism” 2 served to promote competitive balance. 3 district court order, 546 F. Supp. 1276, 1296, 1309-10 (W.D. Okla. 4 1982)). 5 more importantly, is contrary to the evidence presented in this 6 case. 7 football and Division I basketball have grown exponentially since 8 Board of Regents was decided and that, as a result of this growth, 9 many schools have invested more heavily in their recruiting 468 U.S. at 119 (citing That factual finding is not binding on this Court and, The record in this case shows that revenues from FBS United States District Court For the Northern District of California 10 efforts, athletic facilities, dorms, coaching, and other amenities 11 designed to attract the top student-athletes. 12 several witnesses referred to as an “arms race,” has likely 13 negated whatever equalizing effect the NCAA’s restraints on 14 student-athlete compensation might have once had on competitive 15 balance. 16 the wealth of academic studies concluding that the restraints on 17 student-athlete compensation do not promote competitive balance -- 18 preclude this Court from giving any significant weight to the 19 district court’s factual findings in Board of Regents. 20 This trend, which These changed factual circumstances -- in addition to Accordingly, the NCAA may not rely on competitive balance 21 here as a justification for the challenged restraint. 22 evidence is not sufficient to show that it must create a 23 particular level of competitive balance among FBS football and 24 Division I basketball teams in order to maximize consumer demand 25 for its product. 26 restraint actually helps it achieve the optimal level of 27 competitive balance. Its Nor is it sufficient to show that the challenged 28 85 1 C. 2 The NCAA asserts that its restrictions on student-athlete Integration of Academics and Athletics 3 compensation help educate student-athletes and integrate them into 4 their schools’ academic communities. 5 integration of academics and athletics serves to improve the 6 quality of educational services provided to student-athletes in 7 the restrained college education market.14 8 that this goal -- improving product quality -- may be a legitimate 9 procompetitive justification. It argues that the Courts have recognized See County of Tuolumne v. Sonora United States District Court For the Northern District of California 10 Cmty. Hosp., 236 F.3d 1148, 1160 (9th Cir. 2001) (recognizing that 11 improving product quality may be a legitimate procompetitive 12 justification); Law, 134 F.3d at 1023 (recognizing that 13 “increasing output, creating operating efficiencies, making a new 14 product available, enhancing service or quality, and widening 15 consumer choice” may be procompetitive justifications). 16 The evidence presented by the NCAA suggests that integrating 17 student-athletes into the academic communities at their schools 18 improves the quality of the educational services that they 19 receive. 20 testified about the benefits that student-athletes derive from 21 participating in their schools’ academic communities. 22 confirmed that they appreciated receiving these educational As noted above, several university administrators Plaintiffs 23 24 14 25 26 27 28 In its post-trial brief, the NCAA argues that the integration of academics and athletics also increases consumer demand for its other product -- FBS football and Division I basketball games. It presented scant evidence at trial to support this assertion. In any event, to the extent that the NCAA contends that its restrictions on student-athlete compensation increase consumer demand for FBS football and Division I basketball games, the Court addresses that argument in its discussion of the NCAA’s asserted procompetitive justification of amateurism. 86 1 benefits when they were student-athletes, while Dr. Heckman 2 testified that these benefits also carry long-term value. 3 That said, the NCAA has not shown that the specific 4 restraints challenged in this case are necessary to achieve these 5 benefits. 6 educational benefits described above regardless of whether or not 7 the NCAA permitted them to receive compensation for the use of 8 their names, images, and likenesses. 9 receive scholarships, for instance, and would almost certainly Indeed, student-athletes would receive many of the same They would continue to United States District Court For the Northern District of California 10 continue to receive tutoring and other academic support services. 11 As long as the NCAA continued to monitor schools’ academic 12 progress rates and require that student-athletes meet certain 13 academic benchmarks -- a requirement that is not challenged 14 here -- the schools’ incentives to support their student-athletes 15 academically would remain unchanged. 16 athletes’ own incentives to perform well academically would remain 17 the same, particularly if they were required to meet these 18 academic requirements as a condition of receiving compensation for 19 the use of their names, images, and likenesses. 20 requirement might even strengthen student-athletes’ incentives to 21 focus on schoolwork. 22 Similarly, the student- Such a As found above, the only way in which the challenged rules 23 might facilitate the integration of academics and athletics is by 24 preventing student-athletes from being cut off from the broader 25 campus community. 26 compensation may help schools achieve this narrow procompetitive 27 goal. 28 NCAA may not use this goal to justify its sweeping prohibition on Limited restrictions on student-athlete As with the NCAA’s amateurism justification, however, the 87 1 any student-athlete compensation, paid now or in the future, from 2 licensing revenue generated from the use of student-athletes’ 3 names, images, and likenesses. 4 D. 5 The NCAA argues that the challenged restraint increases the Increased Output 6 output of its product. 7 output may be a legitimate procompetitive justification. 8 Board of Regents, 468 U.S. at 114; Law, 134 F.3d at 1023. 9 Courts have recognized that increased See Here, the NCAA argues that its restrictions on student- United States District Court For the Northern District of California 10 athlete compensation increase the number of opportunities for 11 schools and student-athletes to participate in Division I sports, 12 which ultimately increases the number of FBS football and Division 13 I basketball games played. 14 output in two ways: first, by attracting schools with a 15 “philosophical commitment to amateurism” to compete in Division I 16 and, second, by enabling schools that otherwise could not afford 17 to compete in Division I to do so. 18 Trial Brief, at 24. 19 It claims that its rules increase this Docket No. 279, NCAA Post- Neither of these arguments is persuasive. The NCAA has not presented sufficient evidence to show that a 20 significant number of schools choose to compete in Division I 21 because of a “philosophical commitment to amateurism.” 22 in the findings of fact, some Division I conferences have recently 23 sought greater autonomy from the NCAA specifically so that they 24 could enact their own rules, including new scholarship rules. 25 These efforts suggest that many current Division I schools are 26 committed neither to the NCAA’s current restrictions on student- 27 athlete compensation nor to the idea that all Division I schools 28 must award scholarships of the same value. 88 As noted 1 Similarly, the NCAA’s argument that the current rules enable 2 some schools to participate in Division I that otherwise could not 3 afford to do so is unsupported by the record. 4 nor its member conferences require high-revenue schools to 5 subsidize the FBS football or Division I basketball teams at 6 lower-revenue schools. 7 any cost savings by not paying their student-athletes, there is no 8 evidence that those cost savings are being used to fund additional 9 teams or scholarships. Neither the NCAA Thus, to the extent that schools achieve In any event, Plaintiffs are not seeking United States District Court For the Northern District of California 10 an injunction requiring schools to provide compensation to their 11 student-athletes -- they are seeking an injunction to permit 12 schools to do so. 13 portion of their athletic budget for this purpose would not be 14 forced to do so. 15 schools’ athletic programs would be driven to financial ruin or 16 would leave Division I if other schools were permitted to pay 17 their student-athletes. 18 increasing spending on training facilities at many schools suggest 19 that these schools would, in fact, be able to afford to offer 20 their student-athletes a limited share of the licensing revenue 21 generated from their use of the student-athletes’ own names, 22 images, and likenesses. 23 increased output as a justification for the challenged restraint 24 here. 25 IV. 26 Schools that cannot afford to re-allocate any There is thus no reason to believe that any The high coaches’ salaries and rapidly Accordingly, the NCAA may not rely on Less Restrictive Alternatives As outlined above, the NCAA has produced sufficient evidence 27 to support an inference that some circumscribed restrictions on 28 student-athlete compensation may yield procompetitive benefits. 89 1 First, it presented evidence suggesting that preventing schools 2 from paying FBS football and Division I basketball players large 3 sums of money while they are enrolled in school may serve to 4 increase consumer demand for its product. 5 evidence suggesting that this restriction may facilitate its 6 member schools’ efforts to integrate student-athletes into the 7 academic communities on their campuses, thereby improving the 8 quality of educational services they offer. 9 NCAA has met its burden under the rule of reason to that extent, Second, it presented Thus, because the United States District Court For the Northern District of California 10 the burden shifts back to Plaintiffs to show that these 11 procompetitive goals can be achieved in “‘other and better 12 ways’” -- that is, through “‘less restrictive alternatives.’” 13 Bhan v. NME Hospitals, Inc., 929 F.2d 1404, 1410 n.4 (9th Cir. 14 1991) (citations omitted). 15 “As part of their burden to show the existence of less 16 restrictive alternatives, [] plaintiffs must also show that ‘an 17 alternative is substantially less restrictive and is virtually as 18 effective in serving the legitimate objective without 19 significantly increased cost.’” 20 1159 (citations omitted; emphasis in original). 21 less restrictive alternatives “should either be based on actual 22 experience in analogous situations elsewhere or else be fairly 23 obvious.” 24 ¶ 1913b (3d ed. 2006). 25 restrictive alternative is not feasible with “evidence that the 26 proffered alternative has been tried but failed, that it is 27 equally or more restrictive, or otherwise unlawful.” County of Tuolomne, 236 F.3d at In addition, any Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law A defendant may show that a proffered less 28 90 Id. 1 A court need not address the availability of less restrictive 2 alternatives for achieving a purported procompetitive goal “when 3 the defendant fails to meet its own obligation under the rule of 4 reason burden-shifting procedure.” 5 1024 n.16 (“Because we hold that the NCAA did not establish 6 evidence of sufficient procompetitive benefits, we need not 7 address question of whether the plaintiffs were able to show that 8 comparable procompetitive benefits could be achieved through 9 viable, less anticompetitive means.”). Id.; see also Law, 134 F.3d at Thus, in the present case, United States District Court For the Northern District of California 10 the Court does not consider whether Plaintiffs’ proposed less 11 restrictive alternatives would promote competitive balance or 12 increase output because the NCAA failed to meet its burden with 13 respect to these stated procompetitive justifications. 14 the Court’s inquiry focuses only on whether Plaintiffs have 15 identified any less restrictive alternatives for both preserving 16 the popularity of the NCAA’s product by promoting its current 15 Rather, 17 18 19 20 21 22 23 24 25 26 27 28 15 The Court notes, however, that the NCAA could easily adopt several less restrictive rules if it wished to increase competitive balance or output. With respect to competitive balance, for instance, the NCAA could adopt a more equal revenue distribution formula. As noted above, its current formula primarily rewards the schools that already have the largest athletic budgets. This uneven distribution of revenues runs counter to the association’s stated goal of promoting competitive balance. See, e.g., Salvino, 542 F.3d at 333 (noting that “disproportionate distribution of licensing income would foster a competitive imbalance” among Major League Baseball teams); Smith v. Pro Football, Inc., 593 F.2d 1173, 1188 (D.C. Cir. 1978) (“The least restrictive alternative of all, of course, would be for the NFL to eliminate the draft entirely and employ revenue-sharing to equalize the teams’ financial resources [as] a method of preserving ‘competitive balance’ nicely in harmony with the league’s self-proclaimed ‘jointventure’ status.”). As for the NCAA’s stated goal of increasing output, the NCAA already has the power to achieve this goal in a much more direct way: by amending its current requirements for entry into Division I or increasing the number of athletic scholarships Division I schools are permitted to offer. 91 1 understanding of amateurism and improving the quality of 2 educational opportunities for student-athletes by integrating 3 academics and athletics. 4 As set forth in the findings of fact, Plaintiffs have 5 identified two legitimate less restrictive alternatives for 6 achieving these goals. 7 and Division I basketball schools to award stipends to student- 8 athletes up to the full cost of attendance, as that term is 9 defined in the NCAA’s bylaws, to make up for any shortfall in its First, the NCAA could permit FBS football United States District Court For the Northern District of California 10 grants-in-aid. 11 in trust limited and equal shares of its licensing revenue to be 12 distributed to its student-athletes after they leave college or 13 their eligibility expires. 14 from funding the stipends or payments held in trust with anything 15 other than revenue generated from the use of the student-athletes’ 16 own names, images, and likenesses. 17 these stipends and deferred payments would increase price 18 competition among FBS football and Division I basketball schools 19 in the college education market (or, alternatively, in the market 20 for recruits’ athletic services and licensing rights) without 21 undermining the NCAA’s stated procompetitive objectives. 22 Second, the NCAA could permit its schools to hold The NCAA could also prohibit schools Permitting schools to award The NCAA notes that Dr. Noll did not discuss a system of 23 holding payments in trust for student-athletes in his expert 24 reports or during his testimony. 25 Plaintiffs from proposing such a system as a less restrictive 26 alternative here. 27 restrictive alternatives that are “based on actual experience in 28 analogous situations elsewhere” or otherwise “fairly obvious.” However, this does not bar As noted above, courts may consider any less 92 1 Areeda & Hovenkamp, Antitrust Law ¶ 1913b. 2 for holding payments in trust falls squarely within this category. 3 One of Plaintiffs’ experts, Dr. Rascher, discussed the creation of 4 a trust in his opening report, which was disclosed to the NCAA 5 more than eight months before trial. 6 Report ¶¶ 80, 86. 7 of Dr. Rascher’s report here, it notes that the report provided 8 the NCAA with ample notice of this proposal. Plaintiffs’ proposal See Sept. 2013 Rascher Although the Court does not rely on the content 16 Plaintiffs’ counsel 9 16 United States District Court For the Northern District of California 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The Court also notes that, over the past two decades, numerous commentators have suggested that the NCAA could hold payments in trust for its student-athletes without violating generally accepted understandings of amateurism used by other sports organizations. See, e.g., Sean Hanlon & Ray Yasser, “‘J.J. Morrison’ and His Right of Publicity Lawsuit Against the NCAA,” 15 Vill. Sports & Ent. L.J. 241, 294 (2008) (“Searching for a solution to the problem posed by this Comment, commentators have suggested a ‘have-your-cake-and-eat-it-too’ approach whereby a trust would be created, allowing student-athletes the ability to preserve their amateur status while their athletic eligibility remains. The money generated through the use of the commercial value of their identity would be placed in a trust until the expiration of their athletic eligibility.”); Kristine Mueller, “No Control over Their Rights of Publicity: College Athletes Left Sitting the Bench,” 2 DePaul J. Sports L. & Contemp. Probs. 70, 87-88 (2004) (“One suggestion put forth is to create a trust for the athletes, which would become available to them upon graduation. . . . [This proposal] allows the athletes to reap the financial benefits of their labors, while maintaining the focus on amateur athletics.”); Vladimir P. Belo, “The Shirts Off Their Backs: Colleges Getting Away with Violating the Right of Publicity,” 19 Hastings Comm. & Ent. L.J. 133, 155 (1996) (“Should the NCAA hold steadfastly to its notions of amateurism and resist payment to the athletes, the trust fund alternative could be a fair and reasonable compromise. First of all, it could be limited to certain merchandising monies, such as those associated with selling game jerseys or any other revenue from marketing a student-athlete’s name and likeness.”); Stephen M. Schott, “Give Them What They Deserve: Compensating the Student-Athlete for Participation in Intercollegiate Athletics,” 3 Sports Law. J. 25, 45 (1996) (“Revenue from television rights, tickets sales, and donations from boosters could be used to establish these trust funds. Overall, some type of trust fund may provide the best alternative way of compensating the student-athlete and preserving the educational objectives of the NCAA.”); Kenneth L. Shropshire, “Legislation for the Glory of Sport: Amateurism and Compensation,” 1 Seton Hall J. Sport L. 7, 27 (1991) (“From an NCAA established trust fund the student athlete could receive a student life stipend.”). 93 1 also raised the issue repeatedly during trial and several of the 2 NCAA’s key witnesses -- including Dr. Emmert, Mr. Pilson, and Dr. 3 Rubinfeld -- were specifically given an opportunity to respond to 4 the idea. 5 explanation as to why the NCAA could not implement a trust payment 6 system like the one Plaintiffs propose. 7 concludes that a narrowly tailored trust payment system -- which 8 would allow schools to offer their FBS football and Division I 9 basketball recruits a limited and equal share of the licensing None of these witnesses provided a persuasive The Court therefore United States District Court For the Northern District of California 10 revenue generated from the use of their names, images, and 11 likenesses -- constitutes a less restrictive means of achieving 12 the NCAA’s stated procompetitive goals. 13 V. 14 Summary of Liability Determinations For the reasons set forth above, the Court concludes that the 15 NCAA’s challenged rules unreasonably restrain trade in violation 16 of § 1 of the Sherman Act. 17 prohibiting student-athletes from receiving any compensation for 18 the use of their names, images, and likenesses restrains price 19 competition among FBS football and Division I basketball schools 20 as suppliers of the unique combination of educational and athletic 21 opportunities that elite football and basketball recruits seek. 22 Alternatively, the rules restrain trade in the market where these 23 schools compete to acquire recruits’ athletic services and 24 licensing rights. 25 Specifically, the association’s rules The challenged rules do not promote competitive balance among 26 FBS football and Division I basketball teams, let alone produce a 27 level of competitive balance necessary to sustain existing 28 consumer demand for the NCAA’s FBS football and Division I 94 1 basketball-related products. 2 the NCAA’s output of Division I schools, student-athletes, or 3 football and basketball games. 4 limited procompetitive benefits by marginally increasing consumer 5 demand for the NCAA’s product and improving the educational 6 services provided to student-athletes, Plaintiffs have identified 7 less restrictive ways of achieving these benefits. 8 9 Nor do the rules serve to increase Although the rules do yield some In particular, Plaintiffs have shown that the NCAA could permit FBS football and Division I basketball schools to use the United States District Court For the Northern District of California 10 licensing revenue generated from the use of their student- 11 athletes’ names, images, and likenesses to fund stipends covering 12 the cost of attendance for those student-athletes. 13 permit schools to hold limited and equal shares of that licensing 14 revenue in trust for the student-athletes until they leave school. 15 Neither of these practices would undermine consumer demand for the 16 NCAA’s products nor hinder its member schools’ efforts to educate 17 student-athletes. 18 VI. 19 It could also Remedy “The several district courts of the United States are 20 invested with jurisdiction to prevent and restrain violations” of 21 § 1 of the Sherman Act. 22 that Plaintiffs must make a showing of irreparable harm in order 23 to obtain permanent injunctive relief here, it failed to cite any 24 authority holding that such a showing is required in an action 25 brought under the Sherman Act. 26 district courts the authority to enjoin violations of its 27 provisions and does not impose any additional requirements on 28 plaintiffs who successfully establish the existence of an 15 U.S.C. § 4. Although the NCAA asserts The Sherman Act itself gives 95 1 unreasonable restraint of trade. 2 enter an injunction to remove any unreasonable elements of the 3 restraint found in this case.17 4 Accordingly, this Court will Consistent with the less restrictive alternatives found, the 5 Court will enjoin the NCAA from enforcing any rules or bylaws that 6 would prohibit its member schools and conferences from offering 7 their FBS football or Division I basketball recruits a limited 8 share of the revenues generated from the use of their names, 9 images, and likenesses in addition to a full grant-in-aid. The United States District Court For the Northern District of California 10 injunction will not preclude the NCAA from implementing rules 11 capping the amount of compensation that may be paid to student- 12 athletes while they are enrolled in school; however, the NCAA will 13 not be permitted to set this cap below the cost of attendance, as 14 the term is defined in its current bylaws. 15 The injunction will also prohibit the NCAA from enforcing any 16 rules to prevent its member schools and conferences from offering 17 to deposit a limited share of licensing revenue in trust for their 18 FBS football and Division I basketball recruits, payable when they 19 leave school or their eligibility expires. 20 injunction will permit the NCAA to set a cap on the amount of 21 money that may be held in trust, it will prohibit the NCAA from 22 setting a cap of less than five thousand dollars (in 2014 dollars) 23 for every year that the student-athlete remains academically Although the 24 25 26 27 28 17 In a footnote to its post-trial brief, the NCAA argues for the first time that “a number of states have made it illegal to offer [student-athletes] compensation beyond a scholarship or grant-in-aid to entice them to attend a particular school.” NCAA Post-Trial Brief at 35. However, all of the statutes it cites for support expressly exempt colleges and universities or distinguish between the prohibited payments and scholarships, financial aid, and other grants. 96 1 eligible to compete. 2 concerns about student-athlete compensation would be minimized or 3 negated if compensation was capped at a few thousand dollars per 4 year. 5 NCAA permits student-athletes to receive if they qualify for a 6 Pell grant and the amount that tennis players may receive prior to 7 enrollment. 8 suggests that the NCAA’s legitimate procompetitive goals will be 9 undermined by allowing such a modest payment. The NCAA’s witnesses stated that their This is also comparable to the amount of money that the None of the other evidence presented at trial Schools may offer United States District Court For the Northern District of California 10 lower amounts of deferred compensation if they choose but may not 11 unlawfully conspire with each another in setting these amounts. 12 To ensure that the NCAA may achieve its goal of integrating 13 academics and athletics, the injunction will not preclude the NCAA 14 from enforcing its existing rules -- or enacting new rules -- to 15 prevent student-athletes from using the money held in trust for 16 their benefit to obtain other financial benefits while they are 17 still in school. 18 representation that they are only seeking to enjoin restrictions 19 on the sharing of group licensing revenue, the NCAA may enact and 20 enforce rules ensuring that no school may offer a recruit a 21 greater share of licensing revenue than it offers any other 22 recruit in the same class on the same team. 23 compensation schools decide to place in trust may vary from year 24 to year. 25 continuing to enforce all of its other existing rules which are 26 designed to achieve its legitimate procompetitive goals. 27 includes its rules prohibiting student-athletes from endorsing 28 commercial products, setting academic eligibility requirements, Furthermore, consistent with Plaintiffs’ The amount of Nothing in the injunction will preclude the NCAA from 97 This 1 prohibiting schools from creating athlete-only dorms, and setting 2 limits on practice hours. 3 preclude the NCAA from enforcing its current rules limiting the 4 total number of football and basketball scholarships each school 5 may award, which are not challenged here. 6 Nor shall anything in this injunction The injunction will not be stayed pending any appeal of this 7 order but will not take effect until the start of next FBS 8 football and Division I basketball recruiting cycle. 9 United States District Court For the Northern District of California 10 CONCLUSION College sports generate a tremendous amount of interest, as 11 well as revenue and controversy. 12 and conflicting opinions about the best policies to apply in 13 regulating these sports. 14 whether the NCAA violates antitrust law by agreeing with its 15 member schools to restrain their ability to compensate Division I 16 men’s basketball and FBS football players any more than the 17 current association rules allow. 18 the Court finds that this restraint does violate antitrust law. Interested parties have strong Before the Court in this case is only For the reasons set forth above, 19 To the extent other criticisms have been leveled against the 20 NCAA and college policies and practices, those are not raised and 21 cannot be remedied based on the antitrust causes of action in this 22 lawsuit. 23 other perceived inequities in college athletics and higher 24 education generally, could be better addressed as a policy matter 25 by reforms other than those available as a remedy for the 26 antitrust violation found here. 27 be undertaken by the NCAA, its member schools and conferences, or 28 Congress. It is likely that the challenged restraints, as well as Such reforms and remedies could Be that as it may, the Court will enter an injunction, 98 1 in a separate order, to cure the specific violations found in this 2 case. 3 The clerk shall enter judgment in favor of the Plaintiff 4 class. 5 parties shall not file any post-trial motions based on arguments 6 that have already been made. 7 IT IS SO ORDERED. Plaintiffs shall recover their costs from the NCAA. The 8 9 United States District Court For the Northern District of California 10 Dated: August 8, 2014 CLAUDIA WILKEN United States District Judge 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 99

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