Monday, 30 July 2012

Penn State Death Penalty: Was It Ever Really An Option? (The Antitrust Problem)

Several recent posts on this blog have analyzed the NCAA's punishment of Penn State University in light of rumors that the NCAA would have given Penn State a four year death penalty if it had not agreed to the NCAA's alternative sanctions. (See here, here, and here). What almost nobody is talking about, however, is that the NCAA's 'death penalty' sanction may very well have been illegal under Section 1 of the Sherman Act. Thus, if the NCAA had attempted to shut down Penn State's football program, an interesting antitrust challenge could have potentially followed.

For those less familiar with antitrust law, Section 1 of the Sherman Act states that "[e]very contract, combination ... or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal." In practice, this section of antitrust law is not interpreted to literally prohibit all contracts signed among competing businesses. However, the courts have consistently interpreted Section 1 of the Sherman Act to strike down contracts that are deemed unreasonable in terms of their economic effects.

As a private association composed of member schools that compete against each other for fans and players, all decisions reached by the NCAA or its employees are, in essence, horizontal agreements subject to Section 1 review. In addition, any agreement by the NCAA to ban a competitor from the marketplace would be defined as a "group boycott," which falls among the most troublesome types of agreements subject to Section 1 scrutiny.

The U.S. Supreme Court has already once prevented the enforcement of an NCAA bylaw under Section 1 of the Sherman Act that sought to exclude certain competitors from the college football marketplace. In that case, National Collegiate Athletic Association v. Board of Regents, the high court held that an NCAA bylaw intended to ban colleges that appeared in more than a certain number of televised football games was illegal because it "curtail[ed] output and blunt[ed] the ability of [NCAA] member institutions to respond to consumer preference."

Logically, the same argument could be made for disallowing the NCAA 'death penalty.' Although on a moral level the egregious wrongdoing that occurred at Penn State University cannot be compared to a school merely seeking to play additional televised football games, under antitrust law the reasons behind the boycott are entirely irrelevant. All that matters is the economic effect. In other words, as the Supreme Court explained in its 1978 decision National Society of Professional Engineers v. United States, "the purpose of [antitrust] analysis is to form a judgment about the competitive significance of the restraint; it is not to decide whether a policy favoring competition is in the public interest."

While it is true that the U.S. Court of Appeals for the Fifth Circuit had rejected an earlier antitrust challenge arising out of the NCAA's first attempt to enforce its 'death penalty' (that time against Southern Methodist University), the posture of that case was a bit different. In that challenge, McCormack v. National Collegiate Athletic Association, the claim was brought by the schools' alumni, football players and cheerleaders, rather than by the boycotted school itself. Thus, the court determined that the plaintiffs lacked antitrust standing to bring suit, as well as that their challenge was merely at attack of reasonable athlete-eligibility rules. These conclusions would have been far harder to sustain if the suit had been brought by a school, challenging the financial implications of a boycott on their football revenues and merchandise sales.

Of course, antitrust law leaves open the possibility of other less restrictive forms of punishment against Penn State University that might indirectly lead to the same result. For example, any individual school can legally make the independent decision not to play Penn State University without running the risk of a legal issue. If all schools independently reach the same conclusion, there would be no antitrust violation. In addition, perhaps an entire conference such as the Big Ten could even decide to ban Penn State without significant antitrust risk if that conference is found to lack "market power."

Yet, for the very reason that the NCAA death penalty is often described by advocates as the 'ultimate sanction,' a court would likely not allow that result. Thus, no matter how abhorrent the leadership may have acted at Happy Valley, a court would not be likely to allow that to justify the entire college football industry collectively driving Penn State University football out of business.

No comments:

Post a Comment