WASHINGTON ― On a summer morning in 2002, in Room 2322 of the Rayburn House Office Building, an economist suggested to members of Congress that perhaps it wasn’t the federal government’s job to enforce the bylaws of the NCAA.
Congress, at the time, was considering a piece of legislation designed to regulate sports agents, ostensibly to prevent them from exploiting college athletes. Specifically, the measure would codify into law two rules the NCAA already had on the books, making it illegal for a sports agent to provide “anything of value, such as gifts, cash or a loan” to an athlete or anyone associated with the athlete, and for the agent to fail “to disclose in writing” that accepting such a gift or signing an agreement with the agent would result in the athlete’s loss of NCAA eligibility.
The Federal Trade Commission didn’t support or oppose the legislation, the economist, Howard Beales, told lawmakers, according to a transcript of the hearing. But it had concerns. Namely, it seemed as if the NCAA rules that might now become federal law were not meant to protect consumers ― in this case, the athletes ― but were instead intended to protect the private business ― in this case, the NCAA ― that had effectively written them. In plenty of other businesses, Beales noted, providing cash incentives to sign a contract was a perfectly legitimate activity.
“It is problematic here,” he said that morning, “only because of the NCAA rules.”
Congress ultimately passed the measure, which did nothing to address the underlying black market economy created by the NCAA’s amateurism rules and thus did nothing to stop the supposed problem it sought to address: Agents continued to run rampant, working around the law in a way that posed problems for athletes and coaches looking to stay in lockstep with NCAA rules. It is the worst-kept secret in college sports.
On Tuesday, the U.S. Attorney for the Southern District of New York, along with the FBI and U.S. Department of Justice, announced that he had indicted 10 people, including four college basketball coaches, a high-ranking executive and another adviser at the sports apparel giant Adidas, and a sports agent on various charges of corruption related to college basketball.
The news was shocking, and the charges were hefty: money laundering, mail fraud, wire fraud, conspiracy and corruption. Even more surprising, however, was that the government had thrown the weight of its entire legal apparatus behind the governing body’s argument, in essence agreeing to enforce the NCAA’s rules on the NCAA’s behalf.
There is indeed an urgent need for the Department of Justice to intervene in the business of college sports. The trouble is that the feds picked the wrong side.
The accusations in the case rise not out of any obvious breaches of the law, but from violations of basic NCAA rules.
The Adidas executive, for instance, gave $100,000 to the family of a high school All-American in exchange for the promise that he would play basketball for the University of Louisville, which is sponsored by Adidas, and sign a shoe contract with the company once he entered the NBA. The company had also given $150,000 to an athlete on condition that he attend the University of Miami, another Adidas school. Other charges stem from allegations that those involved used bribes to steer athletes toward certain agents or financial advisers.
This is a routine bit of business, familiar to anyone who follows college sports or understands the basic workings of an underground economy. Much of the behavior alleged by the DOJ ― if not all of it ― would not remotely rise to the level of criminal activity if it did not run afoul of the NCAA’s most precious rules: those that artificially fix the value of its labor at a price far lower than the market would bear.
“[I’m] not surprised about the alleged activity but am quite surprised that the DOJ took interest,” Boston College sports law expert Warren K. Zola said in an email. “The actions by coaches have been going on for decades, the question, which I don’t have an answer to but is vexing is, ‘Why does the Department of Justice care?’”
In most businesses, after all, it is not illegal to provide money in exchange for a service or a future contractual obligation. Nor is it illegal to agree, as many NBA players do, to wear a certain shoe during basketball games in exchange for large sums of cash. Such agreements are, in this case, only potentially illegal because the NCAA prohibits them ― and because violating the NCAA’s rules, in the eyes of the Department of Justice, amounts to defrauding the colleges and universities that are willing participants in and steadfast defenders of the status quo.
“The schools are, in a way, the victims,” U.S. Attorney Joon Kim said as he announced the charges Tuesday.
That’s an astonishing statement that makes you wonder whether the law enforcement officials behind the investigation truly understand the structure of college sports or the modern college basketball economy. Universities, as the NCAA periodically reminds us, are the building blocks of the NCAA itself. Without them, it wouldn’t exist. And so it’s unclear how the University of Louisville could be defrauded, or suffer substantially negative benefits, when a person working as its representative violates the very rules the school helped write. Nor is it clear how the University of Louisville was the victim of a transaction it would have substantially benefited from, at least had the FBI not found out about it.
That view also sets up a reality in which nearly every subsequent violation of NCAA rules ― every infraction, every instance of academic fraud, every improper payment or benefit ― would potentially amount to a violation of federal law. This isn’t the way to end corruption in college sports. This is NCAA whack-a-mole, federalized.
In a sane world ― a world where the Justice Department is actually interested in rooting out corruption in college basketball ― this investigation would end now and a new one would begin in its place. It would target the actual source of that corruption, which is not any individual university, coach, player or apparel company executive, but the NCAA itself.
The weapon already exists: U.S. antitrust law. That was the crux of sports labor attorney Jeffrey Kessler’s suit in 2014. The Justice Department has the authority to go after the NCAA’s monopolistic behavior and sue the organization under the argument that its price-fixing model violates federal antitrust law. It wouldn’t be unprecedented: In 1991, the department sued Ivy League schools and the Massachusetts Institute of Technology on charges that they illegally conspired to limit the amount of financial aid potential students could receive. In 2010, meanwhile, it turned its focus to NCAA rules that said schools could issue athletic scholarships only one year at a time, a move that raised antitrust concerns and ultimately caused the organization to change its rules for the benefit of athletes.
Prosecutors could face an uphill battle in proving the allegations they’ve made as a part of this latest case; federal courts, in fact, have ruled against them in at least one similar case before.
If the universities would have an open and honest system, it eliminates the need for all this criminal conduct. Michael Hausfeld, attorney for former UCLA star Ed O'Bannon
But if the current investigation is any indication, the Justice Department would probably have a pretty solid antitrust case. For instance, the DOJ knows now that to the University of Louisville, the market value of an All-American basketball recruit is at least $100,000 above the price the NCAA has artificially fixed ― the cost of a full scholarship and the small stipend that comes with it. His actual value may be even higher.
It’s not hard to see how the NCAA’s black market gives rise to the sort of financial crimes being alleged by the federal government. Eliminate the black market and the worst of those crimes will go away. In 2009, former UCLA basketball star Ed O’Bannon sued the NCAA, alleging that its rules prohibiting athletes from profiting off their names, images and likenesses violated federal antitrust law. Under the sort of system O’Bannon envisioned, athletes would have been free to share in revenues from jersey sales, shoe deals and other image-related endorsement contracts.
And had O’Bannon prevailed in full, the precise activity that has an Adidas executive under federal indictment for allegedly giving money to a Louisville recruit so he would wear Adidas basketball shoes would be a perfectly legal way to conduct business. In such a world, there would have been no need for shoe company executives and assistant coaches to hide their payments and intentions in a way that led to the current money laundering and fraud charges.
“If the universities would have an open and honest system, where they could compete for the talent that they want, as well as provide the real academic experience that these athletes would deserve, it eliminates the need for all this criminal conduct,” Michael Hausfeld, a Washington-based attorney who represented O’Bannon in court, told HuffPost.
But the NCAA has a long track record of seeing any exposure of its deepest flaws ― any instance of cheating and any instance of its failure to adequately police it ― not as evidence of the underlying absurdity of its system but as proof that it needs even more power to uphold it. The Justice Department, meanwhile, has a similarly lengthy record of seeing businesses (and sports organizations) as victims of their own corruption, rather than the cause of it.
On some level, it was only natural the two would get into business with each other. In a statement on Wednesday, the commissioner of the powerful Southeastern Conference, Greg Sankey, gave a statement that sounded like a wedding toast.
“The alleged activities are detrimental to the sport, are unfair to the many individuals who do it the right way and undermine the trust of the fans who support their programs,” Sankey said. “I find encouragement, however, in the federal government’s willingness to utilize the powerful tools at its unique disposal to hold responsible parties accountable.”
Zola wasn’t moved. “If the NCAA is able to use the DOJ as its watchdog and enforcement arm,” he said, “we’ve entered a whole new world.”
Make no mistake, though. This is the world the NCAA wants, and the world the Department of Justice has now created for it.