Pugh Raises Antitrust Stink Over NCAA Scholarship Caps and Transfer Rule: The Next Big Lawsuit?

Devin Pugh, a former scholarship player at Weber State, had a common experience. He was promised a four year scholarship, but when his coach retired, the new coach said he did not intend to renew Pugh’s grant-in-aid. Pugh looked into transferring. Several D-I schools expressed interest. Colorado State, Colorado, Troy offered a conditional scholarship—contingent upon his ability to play two years. But an NCAA rules that requires a transfer to sit out a year deprived Pugh one year of eligibility. Another rule limits player eligibility to five years. Since Pugh had only one more year due to NCAA rules, schools did not offer him. Forced to sit for a year, Pugh transferred to a D-II school, where he could play immediately—but he had to borrow money for tuition.

Last month, Pugh filed a class action lawsuit alleging that NCAA caps on scholarships and one-year transfer rules are unlawful restraints on trade. Click here for the complaint. 

At the core of the complaint, his attorneys allege as follows:

By unlawfully agreeing to limit the number of Division I football scholarships that a member institution can grant in any given year, the NCAA and its member institutions have ensured that student-athletes in the class receive tens of millions less for their labor for member institutions than they would receive – and the member institutions would pay – in a competitive market.

Plaintiff also challenges the NCAA's rules that prevent Division I football players from transferring to other NCAA Division I schools without losing athletic eligibility for a year. The NCAA's limitation on the mobility of college athletes is patently unlawful. For a striking contrast, one can simply examine the unfettered mobility of the players' coaches. Football coaches, including assistant coaches, are free to leave a school at any time they choose to take another job in the college or professional football ranks. This ability to better their own situation has allowed coaches to reap enormous financial benefits. At least 34 Division I head football coaches now earn more than $3 million per year, even prior to the calculation of what can often be performance bonuses in excess of $1 million.

Players, however, suffer a severe penalty for transferring – the loss of a year of athletics eligibility. This can make them a very unattractive option for coaches who are under constant “win now” pressure. The NCAA's transfer rules restrain players' ability to make the best choices for themselves, including ones based on financial considerations, academics considerations, athletics considerations, and personal circumstances. The NCAA's transfer rules are anticompetitive and violate the Sherman Act.

New O’Bannon Ruling Consistent with My NCAA Antitrust Research

The Ninth Circuit Court of Appeals turned down Ed O’Bannon’s request for more damages in a landmark antitrust case against the NCAA. In Courts and the Future of ‘Athletic Labor’ in College Sports (click here for more), my study found that in 82 state and federal court rulings from 1973 to 2014 students won 50% of first-round court rulings, but the NCAA won 71% of second-round cases. That pattern has been essentially replicated here with O’Bannon’s losing appeal. I concluded in Arizona Law Review (May 2015): “The occasional first-round student victory means that the NCAA will be pressured to adopt a radically new model of amateurism that mimics the employment relationship.” Ditto for the O’Bannon case. The lawsuit made a huge impact on D-I college athletics by pressuring NCAA D-I reforms such as full cost-of-attendance and paid meals and snacks for athletes. But that is a far cry from the pay-for-images remedy (a proxy for pay-for-play) that O’Bannon and fellow plaintiffs wanted. At the end of the day, the NCAA is a voluntary association with its own rules and bylaws-- and courts are loathe to tell associations in general how to run their affairs. If there are doubts, just try to get your homeowners association to lower its fees and assessments by taking the group to court.

Stripping Football Scholarships for Striking? The Complexities

A Missouri lawmaker, Rep. Rick Brattin, proposed a bill last week in the Missouri House that would to strip scholarships from any athlete who "calls, incites, supports or participates in any strike." Colleges and universities would be required to fine coaching staff who encourage or enable such student protests. Early thoughts: Why refer to a team walkout as a strike when the law does not recognize that football players are employees? Isn’t this conceding that they are employees? Second, players at public universities have First Amendment rights. The part of the bill that refers to support and incitement is overbroad on constitutional grounds. Third, if the NFL put out a bad football product in the 1987 strike, how does Mizzou plan to carry on a ready-for-TV football program with walk-ons? Fourth, why not work with the NCAA in thinking through a better response?

Now for what’s worthwhile in this bill: First, it deals with the troubling implications that a handful of key football players can grind a major financial enterprise to a halt. If actual unions cannot, for example, bring airlines, automakers, Hollywood productions and public schools to halt with strikes that are called without a bargaining process (and to be clear, they cannot), why should college players have this unfettered ability? Second, the Mizzou players went on strike over racial justice issues. This may be worthy in its own right, but unions in the U.S. can only strike over “mandatory subjects of bargaining.” These are defined as wages, hours, and terms and conditions of employment—but not political issues.

What If the NCAA Capped Salaries for D-I Football Coaches?

More than 70 D-I football coaches earned more than $1 million in 2015. The median in this group was Kansas State’s Bill Snyder at $3 million, and the scale was set by Nick Saban and Jim Harbaugh at $7 million.  For more, read this. If the idea of having a league cap salaries sounds strange, look at the NFL and NBA. Courts have repeatedly rejected player contentions that a salary cap is a form of price fixing that violates antitrust law. So, what if the NCAA capped all D-I football salaries [head coaches, coordinators, and assistants] at $ 4 million a year? Likely, this would survive antitrust scrutiny—after all, the NCAA caps lots of things, such as the number of football scholarships and the type and amount of compensation that players can receive. Would NCAA programs lose college coaches to the NFL? Consider that Nick Saban was not successful at Miami, and Chip Kelly might lose his job (yes, Jim Harbaugh is an exception). The NFL is not a robust labor market for D-I coaches. Also consider that most D-I schools are public universities. Although they do not use taxpayer money for coaches, there is something wrong when states cut university support while head coaches rake in millions a year. Finally, cable TV is fueling the coaching salary inflation … but younger viewers are pulling the plug on cable subscriptions, opting for ala carte or no TV at all. PS: Thanks to one of my students, Will Larsen, for suggesting this blog idea!